patrick.net

totallyscrewed123 says

he GUI and internet revolutions increased local productivity in the 90s, deferring the bill, but this decade should have been one of retrenchment

You give too little credit to the Mainframes which started back in the 60-70s. Not to mention explosion in Software, like ASK ManMan ERP, or the host of Email / Collaboration. Even back in the 80s we had chats and IMs ....Clunky but it was the same stuff you see today.

c:/*.* d:\data\file\*.* Look familiar

Past tense, we already lost our manufacturing/support many years ago.

http://www.latimes.com/business/la-fi-fha3-2009dec03,0,5834812.story

Reporting from Los Angeles and Washington Alejandro Lazo -- Thousands of Southern California home buyers, and millions nationwide, will have to come up with more cash and reach higher minimum credit scores to get a government-backed mortgage under changes unveiled by the Federal Housing Administration.

Some loans might require more than the current 3.5% minimum down payment, but the Obama administration is resisting calls for an across-the-board hike. Instead, it is looking at other ways to increase the amount of cash at closing, such as requiring borrowers to pay more of their mortgage insurance premiums up front.

The FHA, which insures mortgages with low down payments, is scrambling to balance its increasingly important role in propping up the housing market with faltering finances of its own that could require a government bailout.

The agency's share of home loans has surged from 3% in 2006 to nearly 30% this year as credit has tightened and borrowers' bank accounts have been depleted. But that increased exposure has led to more defaults, driving the FHA's reserves below their mandated levels.

"We've learned from recent history that the market is fragile, and we have to plan for the unexpected," Housing and Urban Development Secretary Shaun Donovan, who oversees the agency, said at a House hearing Wednesday.

What I saw happening all over CA was the new version of flipping.
Only low cash offers were taken.
Example....Offer 75k for a 200k place that would normally go to a 'loan'.
Overnight flip it to the next guy/entity for 175k.
Then the property goes back on the market for the original higher price.
The 1st person just made a killing.
Why not repeat that.
Do it a few times and now youve made a sizeable chunk to put towards a big McMeaty place.
Movin' on up.

Its not just happening in Fla 'insider' repo market...it is happening all over.
Meanwhile, the inventory piles up.

"Banks" arent making loans....they will take your cash tho.

speaking of old characters, i wonder what happened to this guy http://sdcia.websitetoolbox.com/post?id=1854186&trail=30
and casey serin?

There were a lot of Alt-A mortgages taken out on the peninsula in the last few years before the peak. Many were Interest Only. By definition, the vast preponderance of the people who took these loans out could not afford a healthy mortgage. What makes you think that three years+ later that they'll be able to afford a higher mortgage payment?? (from their Interest Only loans recasting to regularly amoritizing loans) I've got two relatives in this situation in highly sought after areas on the peninsula and the one family will not likely run into serious problems until 2016. They paid $950,000 for a 53-year old POS, and now comps are going for $100k - $200k less. And this is with interest rates hovering at historic lows. Wait until rates begin going up (they will). And they act like they have no concern (knowledge?) of the graveness of their situation. Instead, they are having another baby.

The nicer areas of the Bay Area have much trouble ahead.

Once again I STRONGLY disagree that rates going up will force the price of real estate down. Not only does most historical precedent say otherwise

God*DAMN*it. :)

You can't compare the 1970s to the 2010s. 50 million indians weren't on the ARPANET back then and phone calls from the third world to & from here weren't free, either. 1.3 billion Chinese weren't fully integrated into our economy. The baby boomers were turning 30 not 70. Unions still had pull to raise wages. Two-income families was still something of a novelty when Mary Tyler Moore was on. Tax rates were beginning to move DOWN from historical highs not UP from historical lows as now. The country was running something of a rational Federal budget in the 1960s and there was an actual trade surplus in the early 1970s.

All things being equal, it should be incontrovertible that higher rates will put downward pressure on prices. Housing is MUCH more precarious now because every factor listed in the previous paragraph is running in REVERSE now.

Quant HF Mgr says

There were a lot of Alt-A mortgages taken out on the peninsula in the last few years before the peak. Many were Interest Only.

Yes. Given prices doubled by 2000 30 year fixed were unworkable. Even with low rates the payments were unworkable for homebuyers.

One relative bought near the peak for $1,070,000 in San Ramon. Late last month a neighbor's house that sold for $1,169,000 at the peak sold [back to the bank via NOTS] for $762,000 and is now for sale for $752,400. That's 35% off, and prices will not stop there. That entire neighborhood of homes like that will go back to $500k-$600k, and I may be being generous here.

Too, I see a lot of people citing "how it used to be" in the 80s or another decade, or citing averages going back a few decades, and acting like that is a sure fire bet for mean reversion (and no further) now. That's not much data. I like the European housing market study (Holland, I think) that studies home prices over 300+ years....home prices only keep up with wage inflation. Guess where home prices are going again? The Bay Area has been in a bubble since the early 80s....all bets are off now. Think long term mean reversion and fundamentals. Wage inflation = house appreciation in the long run.

Quant HF Mgr says

Too, I see a lot of people citing “how it used to be” in the 80s or another decade, or citing averages going back a few decades, and acting like that is a sure fire bet for mean reversion (and no further) now. That’s not much data.

Wow.. not even I would use 80s numbers.. Our last balanced, normal years was 1997. Using the same logic regarding inflation and median prices 3.5-4x incomes.

Historic information is interesting, but historic loans were also made on different terms. The more stable a country becomes, the more leverage it has for loans in general. Places like China still see savings rates in the 30%. That will decrease as they become more confident in their ability to find a new job. Our loans are based on the ease of which finding a new job is possible. Even with 10% unemployment, that leaves 90% employed. Many of these countries have 1 income supporting 10+ people. Lose that job, and everyone sinks. Here 2 people are working, and if one loses, that hurts, but it's not like 10 people are going to starve. It leads to lots of problems, but finding a new job, is possible. The general public isn't out of work for multiple years searching for "anything'. Yes some people are, and we hear about them but lots aren't.

Which leads me to this question. Our current loans seem ludicrous when compared with loans 10-20-30 years ago. But they are the new norm. Are they being factored in here? Those above graphs talk about coming back in line with inflation, but shouldn't there be an aspect for people being able to obtain larger mortgages, longer re-payment times, etc? People take longer times to repay loans, which means a larger potential loan is possible. This doesn't seem to be factored in anywhere.

I'm thinking that inflation line should be a little more curved up in reality.

Why in the hell would the 21st century be the Yuan?

You think the world as a whole would trust the policies of a centrally planned government for a reserve currency?

When the dollar ceases to be the reserve currency, the reserve currency will simply become an artificial construct made up of a basket of currencies. The dollar will be on par with the swiss franc or austrialian dollar in terms of importance. No single currency will dominate.

I really don't understand this bizarre assumption that the US will go from being the wealthiest country in the world to a third world cesspool overnight. It's absurd.

Kevin says

I really don’t understand this bizarre assumption that the US will go from being the wealthiest country in the world to a third world cesspool overnight. It’s absurd.

I don't think this, either. Our land/population ratio is pretty good, and our social and societal capital is still dominant.

http://www.google.com/publicdata?ds=wb-wdi&met=ny_gdp_mktp_cd&idim=country:USA&q=gdp#met=ny_gdp_mktp_cd&idim=country:USA:CHN:JPN:DEU:FRA:IND

Looks impressive but the incipient knee at 2002 ($10.4T) was avoided by injecting several trillion dollars of funny money into the system, money largely now in the hands of our trading partners: China, Japan. and OPEC. "Partner" is a mis-nomer, they are our suppliers. They give us stuff we want in exchange for debt.

I don't know how things are going to go this century, or next decade for that matter.

Perhaps technology will continue to bring amazing rises in productivity and a new golden age will dawn.

Perhaps Kunstler is right and there will be a mass die-off.

The PRC has its challenges but I think they now have a lock on the tertiary secondary level of the global economy. If you want something assembled, you outsource it to a Chinese factory.

AFAICT, it's not unlikely we will follow Japan's levelling off in that GDP graph and China will continue its rise, until the yuan is at parity with the dollar later this century.

There are other possible futures, of course.

Could the plastic duck be correlated to the US spend on social services?...at a certain point shouldnt we stop borrowing and downsize the services provided like any corporation does during times of recession and/or loss of profit.

1. Defense 613 Billion
2. Social Security 612 Billion
3. Medicare (aid) 682 Billion

Troy says

Syncopation says

I calculate $700k with $24.5k down @ 4.5% gives a monthly of $3424. Not sure where your numbers came from.

I don’t count principal repayment as part of the carrying cost, and the tax credit on the mortgage interest & prop tax is ~$1400/mo.
As for the DP discrepancy, that’s the kickback from buying via eg. ziprealty.

Plus $600 PMI.

The tax credit isn't really $1400 either. You're paying ~$3000 a month in interest and taxes ($2500 in interest and 500 in taxes, give or take -- look it up with an amortization calculator if you don't believe me). Your marginal rate is not 46%.

Assuming a marginal rate of 28%, you're looking at $2760 in "carrying costs" using your arbitrary definition -- and, hell, that's also assuming that you naturally have more than $12k in deductions for other reasons (most people don't). In reality you're still probably dropping $3k a month into the void on that one.

4X says

1. Defense 613 Billion
2. Social Security 612 Billion
3. Medicare (aid) 682 Billion

On the other-side of the ledger of that $2T/yr in social spending is a lot of respectable jobs. Walmart and landlords pick up much of the $600B that goes through SS, medical professionals pick up the medicare, and our honored soldiers (hand over heart) cash the paychecks that made up the $600B for defense.

Dividing that $2T by $50k per job, that's 40 million jobs you wanna cut.

SS should be off the table since it is entirely self-funded savings program through 2040 or whatever. We can cut medicare but that's going to result in tons of misery and increased impoverishment throughout the land. I'm all for cutting the military but the last time we did that we got the 90s recession.

The alternative is to raise taxes on the 10% of the country that owns over half the wealth. They can, and will, pay. If not, they're welcome to move to Cannes, Dubai, or Paraguay and let the working people do our best to get along without their irreplaceable skills.

Ask someone who’s gotten to the end of his rope and is forced to file bankruptcy if things can change overnight.

then again, compared to most of the G-7 or whatever it's called these days the US debt isn't so bad. Like Japan, we owe a lot of this debt to ourselves, which AFAICT means that the really rich aren't as rich as they think they are, since when things get tight we'll have to tax them first and most thoroughly. Assuming the dumb-ass teabaggers don't take over next decade, of course.

pkennedy says

Historic information is interesting, but historic loans were also made on different terms. The more stable a country becomes, the more leverage it has for loans in general. Places like China still see savings rates in the 30%. That will decrease as they become more confident in their ability to find a new job. Our loans are based on the ease of which finding a new job is possible. Even with 10% unemployment, that leaves 90% employed. Many of these countries have 1 income supporting 10+ people. Lose that job, and everyone sinks. Here 2 people are working, and if one loses, that hurts, but it’s not like 10 people are going to starve. It leads to lots of problems, but finding a new job, is possible. The general public isn’t out of work for multiple years searching for “anything’. Yes some people are, and we hear about them but lots aren’t.
Which leads me to this question. Our current loans seem ludicrous when compared with loans 10-20-30 years ago. But they are the new norm. Are they being factored in here? Those above graphs talk about coming back in line with inflation, but shouldn’t there be an aspect for people being able to obtain larger mortgages, longer re-payment times, etc? People take longer times to repay loans, which means a larger potential loan is possible. This doesn’t seem to be factored in anywhere.
I’m thinking that inflation line should be a little more curved up in reality.

so, what you are saying is we have a "new paradigm" in lending, we are in a "new economy" and this should shift the housing prices in a parabolic arc upwards... hello 2006 just called...he wants his buzzwords back.

the loose lending standards are not the "new norm", loose lending standards will be history when the government gets their grubby hands off the mortgage market.

Kevin says

Your marginal rate is not 46%.

No, as above I'm using 37%. Here's my numbers from my own "rent vs buy" spreadsheet:

Purchase Price 700000.00
Down Payment 20300.00
Loan Principal 675500.00

IO 2814.58 (5%)
PMI 281.46 (1.5%)
Prop Tax 719.83 (1.23%)
Tax Credit -1411.87

Subtotal 2404.00

Then I add another $400/mo for insurance, HOA/Utils, maintenance, etc. to get the $2800 carrying cost.

Serpentor says

so, what you are saying is we have a “new paradigm” in lending, we are in a “new economy” and this should shift the housing prices in a parabolic arc upwards… hello 2006 just called…he wants his buzzwords back.
the loose lending standards are not the “new norm”, loose lending standards will be history when the government gets their grubby hands off the mortgage market.

LMAO.

Owning a web site doesn't make you 'a millionaire', house debt is not = wealth, and there are no "sharks that shoot lasers" either.

Kevin says

Software that I work on is responsible for more than $6b in export revenue a year. It’s hard to judge my fair share of this (since there are a few thousand co workers who work on the same products), but I’m absolutely confident that it’s far, far less than what I import and consume, since the latter is fundamentally limited by my income.

unfortunately, we're not all software engineers able to shoot the shit in the afternoon of a workday . . .

Also, that $6B is due to IP protection more than inherent COGS or production cost of the software and as such WILL decline over time as Chindia develops its software sealegs.

Already it's getting tough to justify a $120,000 silicon valley salary vs. a team of 6 in Mumbai working for the same amount.

Troy says

4X says

1. Defense 613 Billion
2. Social Security 612 Billion
3. Medicare (aid) 682 Billion

On the other-side of the ledger of that $2T/yr in social spending is a lot of respectable jobs. Walmart and landlords pick up much of the $600B that goes through SS, medical professionals pick up the medicare, and our honored soldiers (hand over heart) cash the paychecks that made up the $600B for defense.
Dividing that $2T by $50k per job, that’s 40 million jobs you wanna cut.
SS should be off the table since it is entirely self-funded savings program through 2040 or whatever. We can cut medicare but that’s going to result in tons of misery and increased impoverishment throughout the land. I’m all for cutting the military but the last time we did that we got the 90s recession.
The alternative is to raise taxes on the 10% of the country that owns over half the wealth. They can, and will, pay. If not, they’re welcome to move to Cannes, Dubai, or Paraguay and let the working people do our best to get along without their irreplaceable skills.

We can also place better requirements for access to these programs. How about this?

-Spouses who did not work can no longer file on their husband/wife social security benefits?
-18 mos of unemployment/welfare checks then your cut off?
-No war shall be waged that does not result in the US increasing available markets and/or receiving oil receipts?

Not my responsibility to pay for the laziness of others. Not my responsibility to pay for wars that do not add economic value to our country. And if 50 million people are employed by these programs it relfects more so on the fact that the USA does not have any industries here due to all the offshoring.

Troy says

Kevin says

Software that I work on is responsible for more than $6b in export revenue a year. It’s hard to judge my fair share of this (since there are a few thousand co workers who work on the same products), but I’m absolutely confident that it’s far, far less than what I import and consume, since the latter is fundamentally limited by my income.

unfortunately, we’re not all software engineers able to shoot the shit in the afternoon of a workday . . .
Also, that $6B is due to IP protection more than inherent COGS or production cost of the software and as such WILL decline over time as Chindia develops its software sealegs.
Already it’s getting tough to justify a $120,000 silicon valley salary vs. a team of 6 in Mumbai working for the same amount.

Your first sentence speaks volumes about your last sentence.

And you know very little about how money is made in the industry if you believe the second sentence. Software IP, other than maybe copyright, exists for the benefit of lawyers, not the actual industry (and even copyright is of questionable value. Most of what we do is dependent on simple trade secret).

lookforevan says

here are two type of buyers now in the market: highly educated professionals with growing and stable careers making good money who wishes to utilize the 37% deduction for the next 10-20 years. Looking for fairly prime locations 550K to 800K.

Now? As if we didn't have a highly educated, dual income couples, decades before?
It took 15 years for prices to double $124K to $250K back in 1982-1997 ... somehow
$250K to 800K sounds right?

Maybe one day

staynumz says

Nomograph says

elliemae says

You’re a doctor, couldn’t you make him your type?

His signature on the old board was “warming the planet, 350 cc’s at a time.” He is a Chevy guy and I prefer Ford. It wouldn’t work out

Its cubic INCHES. Any real man would know that. And it is 502. Thanks.

So - did you know a real man to ask? That was too easy. 502? Did you mean 420? It's easier to follow your train of thought that way...

A home can be a pretty good place to live.

Control of land usage rights has always been the best way to get something for nothing, to parasitically acquire an income via rentierism and not actual productive labor.

It was a crowded trade this decade, and while I'm not on the mega-inflation train, I was wrong in 1999 and I'm probably now wrong about what's going to happen next decade.

Adam Smith's invisible hand always seems to find a way to fist me, and good.

Crappy article. Investment is not simply about "buy low sell high". Especially with something like a tangible assett. Being fixated on whether the price would drop or not does not do any good. True investment is about what that assett does for you and your life. Even if it is a depreciating assett. A car can be a great investment if it gets you to a job you otherwise wouldnt be able get to. A bicycle is a great investment as it cuts your gas bill AND promotes your health ( barring accidents of course ). Investing in education which opens a door for a new career is a fabulous investment. Of course if you cant afford payments in the first place, that is just poor judgement to go into deep debt for anything. Given all this a house can be a GREAT INVESTMENT if it gives you something such as a secure place to live, a roof, warmth, no landlord BS, etc. If you buy a house based on local rents and rents go thru the roof which has happenned before , then the house is a very good investment. All in all this article is pretty poorly written with a seemingly narrow frame of what investment is. Just like fil posted, a home can be a pretty good place to live too!

Still wondering where the swine flu vaccines are? A sampling of articles: http://www.nypost.com/p/news/local/all_nyers_now_eligible_for_swine_n9sR2q8gp7pgy36oGSTveP http://www.tampabay.com/news/health/swine-flu-shots-available-to-all-at-health-departments-and-drugstores/1057856 http://www.houmatoday.com/article/20091210/ARTICLES/912109938?Title=Free-flu-shots-available-at-local-schools-Monday http://www.seattlepi.com/local/413104_flu09.html http://www.timescall.com/news_story.asp?ID=19702 http://www.clevelandleader.com/node/12260 http://www.macon.com/local/story/947696.html Let me guess - now that the h1n1 flu vaccine is available, it's a conspiracy that's all Obama's fault?

My rented apartment is a secure place to live, it gives me warmth, shelter, and I have a contract called a long term lease that guarantees my cost of shelter over a previously agreed upon and predetermined period of time will not increase or decrease.

I also pay 1/3 per month of what it costs for exactly the same privileges, in exactly the same suite, as a purchaser does, save for one, the right to to say I am a homedebtor. Chortle......snort.

Shall I carry on ? Why yes, please do.......I do not pay a 7/3% fee to a conman or conwoman with a flimsy piece of paper and ethics to match referred to by their completely made up fictitous sounding trademarked title to get at my nest egg, nor do I pay a bankster for the same right, nor do I pay an egregious prepayment penalty to cancel my obligation, and I can still paint my walls whatever color I want or change the carpet. Pppppffftttt......!!!

Wait, there is more, I also get no BS from my landlord.

Gawd.....even more ??.....we have saved $275K in cash (counting accrued interest, before taxes) since 2003. How much equity does a homeowner have left who bought in 2003 ?

Real estate, what a great investment indeed......

Okay, so I normally feel like my home is a good investment. That's 'cause I'm investing in my lifestyle... I mean, would any of you want to rent to someone with multiple animals? Not the cute little yippy kind that sleep in crates... no, I have the big, obnoxious types that create enough hair to knit a new dog, and occasionally leave me unwanted gifts. And that doesn't count the outside critters, farm-type animals that wander around eating plants I'd prefer that they didn't.

I also have an ongoing desire to paint stuff. Walls, trim... different colors, textures... And I've had different family members stay with me for protracted amounts of time. I also helped out a friend and boarded her horses for a year for free while she figured out her divorce. Oh, and I plant stuff that I feel like planting in random areas on my little acre of heaven.

All of these things are investments in my future, in my present. The payment is substantially cheaper than rent would be for this place. Sure, I buried $30k into it when I bought, but I probably would have spent lost the money on stocks or something if I hadn't bought the house. So, I figure it's been worth the investment, the time, the energy, because of my lifestyle. I can do what I want without asking for permission. I have a little equity, although who knows what will happen with that? But it's been a good investment until tonight.

That's 'cause, in my rural piece of the world, a couple of cops were trapsing across my backyard tracking a criminal of some type (my imagination is running wild) through the snow - and they told me to go back inside & lock the doors. Please note that I wasn't sure my doors actually lock, that's how often I secure the premises.

There were 3-4 cop cars cruising the neighborhood, and the snow is perfect for tracking someone without a dog. But it scared the holy shit outta me and, for a fleeting moment, I considered moving to town.

I won't do that. But I was surprised at how quickly my thought processes change. I'm sure they got the guy - and in the whole scheme of things, I doubt the guy poses a serious threat. I thought I'd share the story about my investment though, kinda made me think.

elliemae says

The payment is substantially cheaper than rent would be for this place. Sure, I buried $30k into it when I bought

My mom has her house paid off now, and the $500/mo mortgage payment was also cheaper than rent for the last half of the mortgage. 'Course, she bought in 1981, so she got the general 100%+ inflation working for her.

I'm not all convinced we'll see another 100% inflation over the next 30 years. Well, we might, but I'm not sure we'll see J6P's wages see much of it. Possible, perhaps probable, but certainly not guaranteed.

"saw both rents and property prices soar, and ended up making mark-to-market profits often exceeding their total lifetime earnings."

ergo you have a unsustainable price bubble. eventually prices will fall back which earnings will support.

How many pages?

thomas.wong87 says

ergo you have a unsustainable price bubble. eventually prices will fall back which earnings will support.

Not if rents hold. Rents support everything.

No, as above I’m using 37%.
How about using 35.2% (deduct federal taxes from AGI before calculating state income taxes).

elliemae says

I won’t do that. But I was surprised at how quickly my thought processes change. I’m sure they got the guy - and in the whole scheme of things, I doubt the guy poses a serious threat. I thought I’d share the story about my investment though, kinda made me think.

Ellie - if you need to remember why you left south florida I will be happy to remind you
I'm on the cusp of making anothr offer by the way. This time being more practical in considering comparative monthly rent. That is my sole driver in the face of all the other uncertainties.

shultzie says

if you need to remember why you left south florida I will be happy to remind you...

...I'm a west coast/mountain girl. Actually never been to Florida - I hear tell of crime and tons of people packed in like sardines out there. I'm kinda spoiled, because they print all of the crimes in the county in the local paper and it only takes up one column. It was just kinda goofy, made me think.

well, there's one reader for ya.

The whole idea of "your home is your most importaint investement" came about for one reason only: Many people reach retirement age broke. That's the problem, not the solution.

Troy says

thomas.wong87 says

ergo you have a unsustainable price bubble. eventually prices will fall back which earnings will support.

Not if rents hold. Rents support everything.

The current decline in the price of rents isn't driving the market but following it. Because property isn't selling, more people are trying to recoup something by renting out, thus increasing the number of units. Also, more people are staying togeter/moving in together to share the burden. All smart stuff, but the rental market is a reflection of what's going on with housing/jobs ect.

Rents don't control the market, they reflect it. Wait to see what happens when interest rates hit 10%. The price of property will nosedive but rents will go through the roof!