patrick.net

Joe
I agree with you especially on the fact that housing prices are well known to the older retirees. When the 2+2 ordinary stucco $hitbox down the street sells for over a million....everybody and I mean everybody in the neighborhood knows about it. The little old widows come out of their stucco $hitboxes and gossip and stare.
It will be hard for people to take less than their neighbors got only 6 mos. ago.Very few will have the courage to sell, then rent for a few years. Believe me...it takes courage and commitment...2 things that sheeple seem to lack.
The agent repping my old house was saying the other day ' All the signs of a housing bubble and subsequent crash were there but nobody was paying attention'...I think this pretty much sums up how blind people have been to readilly available information. But when it's all over the front page news...

Randy,

I agree that most people are risk adversely when well informed (that is: $100K gain creates less pleasure than $100K loss causes in pain), however,
Casinos and state lotteries work because they hold out the promise of life changing millions without apparent downsides.

The housing market will not work like that. Once people realize that housing prices can go down as well as up, their mental arithmetic will change dramatically to accomodate.

Buffpilot,

The new bankruptcy law specifically limited the state homestead exemptions both in time, in dollar amount, and in applicable situations. Furthermore, it basically prevented anyone with an above state average income from getting a clean slate.

The new bankruptcy laws are extremely unfriendly to sheeple financially under water.

"because they are in the british commonwealth , and knew things would get better if they just waited a couple of centuries… "

Haha Different sean, are you a monarchist or a republican... ;)

buffpilot,

There's always political risk, but I doubt enough to rewrite the bankruptcy code in the near future. Foreclosure is a long process with lots of protection for the homeowner, so it won't be a very dramatic process. And anyone making above avg. wage and/or HELOCed themselves into trouble will not be particularly sympathetic.

The government is more likely to do band aid solutions like hold hearings against Fannie Mae/major mortgage brokers/NAR. Much cheaper and easier than going against the banks/credit card companies.

disclaimer: don't rely on my guesses, make your own!

I ate at Panda Express last night fergawdsake. (I don’t think they use real panda). Todai is my idea of fancy.

Panda Express? You need to watch out for eating too much oil though.

At the price of three pieces of Toro, Todai is not too bad a deal.

My mom can buy 9 pounds of live blue crabs for your one piece of Toro!

Blue crabs are indeed delicious (they're usually good after October, but I had some very good ones this April) though very time consuming and quite messy. You can't eat crabs and blog at the same time...

It all comes down to Haiku, so I'll reiterate my previous post, postehaste.

HOUSING BUBBLE HIPPY:

See the butterfly
So high away. Take a toke
As housing crumbles…

Blue crabs are indeed delicious (they’re usually good after October, but I had some very good ones this April) though very time consuming and quite messy. You can’t eat crabs and blog at the same time…

I love crab roe and blue crab has lots of it!

I once had sauteed blue crab and rice cakes in a Chinese restaurant. Yum!

Houses are sticky on the way down only because home debtors have a big pile of cash to blow through or a stable job to make the payment. At the beginning of every fall, you can count on cash-poor, laid-off debtors being the trail blazers in setting new low comps. American housing bubble has a very important distinguishable characteristic compareed to the rest of the world: toxic loans. I have never seen any loan terms as crazy as the ones given out here, it should be called kami kaze loan.

I actually argue otherwise that the long-time holders with extra equity are not going to sell out at a price that they are not happy with. You know property can be passed down at the same prop 13 base right? Why would any parent give that up? Particularly since we are going to enter a high-inflation period, financially savvy parents are not going to let go of the paid-off property. I talked to a couple of my long-time neighbors who own their homes free and clear, they have no intention to let go whether the market is up or down, unless they run out of retirement money (pension or SS evaporates).

Amateur flipping is a form of financial gene pool cleansing. Inexperienced flippers are an effective wealth transfer tool from themselves to other members of the society, when this is all over, we should be thankful for their contribution.

astrid,

Casinos and state lotteries work because they hold out the promise of life changing millions without apparent downsides.

Casinos work because they give wins in big chunks but spread out losses into a series of small events. This is why you can sit there for 3 hours, come out negative, but still "feel" like you came out ahead. You remember the gain more than the little losses.

So, I'll only agree with the "little old lady" theories so long as the correction is _so massive and fast_ that it causes her to take a huge hit all at once. Otherwise, she's going to see the "+650K" from her purchase years ago much more than the "-225K" that she lost from not selling at the perfect time.

And, everyone here is missing the point about mental accounting. This is "house money" (in gambling terms). Most people haven't banked this money into a mental account until they allocate it/promise it/plan to depend upon it. Wins and losses are internalized very differently for them than for the HELOCer, the Flipper, or the FBer.

Anyways, if I'm wrong it will only result in even _more_ stickiness than I already think exists. lol.

Wins and losses are internalized very differently for them than for the HELOCer, the Flipper, or the FBer.

True. Behavioral Finance offers much insight. ;)

Randy,

I also believe that you are wrong about some of these elderly.

I happened to visit a few nice retirement homes here to check out for my parents in case one day they want to move closer to us. So we were given a tour and got a chance to talk to these old-timers. I have to say, I was amazed at the financial savviness of people there.

We are talking about people in their 70s-90s, they talk with a clear mind, know all the CPI, bond rate, exchange rate etc. stuff that we are talking about, because they are explaining payment structure to me and showing me different ways of looking at the financial proposition. They are among the smartest people I have seen, I hope I can stay that sharp at their age. They are all well *AWARE* of the real estate bubble that we are in, some of them sold out a couple of years ago exactly because of that and are very proud to show off about their timing.

Maybe the retirement places were only letting me talk to the sharpest residents, but I am convinced lots of Bay Area old-timers, especially those who did well financially before the dot com, are really no dummies.

AmazedinSF,

If something is legal, it's called "tax planning." :)

AmazedinSF,

simpler than that, just add the name of the kids to the home, then when the parents die, everything is passed down including the prop 13 base, no re-assessment. As long as the parent portion is not over $1M or whatever the estate limit is for that year, no estate tax either.

buffpilot Says:

"Many of you have noted that the Gov may jump in to ’save’ the situation. I noticed a lot of ideas but didn’t hear one I thought of. The Gov. changes bankruptcy laws to prevent the loss of the primary residence. In other words you declare BK, lose everything but the house and dump all the debt. I know in many states (TX and FL) the creditors can’t take a paid for house. That’s how the Hunt’s managed to keep their property after the silver debacle. Could this be the way out for the politicians? The speculators still get killed but everyone else comes out OK. What am I missing - and I assume I’m missing something huge."

If we get a FL and TX style "homestead" law here in CA it will help very very few FBs since the laws only protect homes without any secured debt (not many of the recent bubble buyers paid cash) . If you have a home loan in TX in FL the bank will still get the home even if the owner filed BK…

P.S. Not to drag out the looks issue (that started with a use of the H-bomb term I have never heard), but I think we can agree that most people want a fit, intelligent, athletic, kind and attractive partner. Most guys just put "attractive" higher on the list than most women. When was the last time you saw a good looking young guy dating an unattractive older woman or an older woman looking at a web site with hot looking "mail order grooms" that they can bring to America and marry (I'm not even sure I could find a web site where women select good looking foreign guys to marry and bring to America).

P.P.S. To astrid most white guys find most Asian women attractive (and find almost all hapa women very attractive)...

AmazedinSF,

It's not strictly legal. Doing anything for the sole purpose of avoiding taxation, without a reasonable (reasonable to a jury of your peers) motivation otherwise, is committing strict tax fraud. Taxes are the one area where you are presumed guilty until you can prove innocence.

Notwithstanding, I know tons of people -- especially up here in Marin -- that do exactly that. Our next door neighbors moved into a "McMansion McConversion" (an older house morphed into a Mansion) which would easily sell (according to Zillow) for over $2M. Their assessed tax base is under $300K, and they just moved in last year. Of course, there's a bit of improvements fraud going on there too, but it's still a robbery of the system which everyone else pays for.

This guy at Columbia has done a lot of research into mate-selection, and it's not encouraging. I had him as a prof, and it's even more depressing coming from him directly.

Randy,

your next door neighbor is commiting fraud, because any extensive remodeling will trigger tax reassessment, unless they never got the permit and the city is not aware. Simple maintenance like fixing a leaking toilet will be ok.

I am talking about more legal type of transaction. Parents passing down whatever they are living in to their kids.

Randy,

I'm not familiar with the specific law, but any prop 13 legacy transfer just have to be taken at face value as a tax purpose transfer. I don't think the legitimate business purpose doctrine would come into play because the legislature must have thought of the tax implications and permitted it.

I share Buffpilot's concern but, I am still not that worried.

The government always promises much but delivers little. The big Bush "tax cut" of a few years ago gave the average family what, $300? I was glad to get the tax cut, but even a right winger like me knows that it was just a token gesture.

I suspect that any "relief" for "victims" of the housing crash will be equally meaningless. That's just how gov't operates these days.

part white mixed blood, usually from Hawaii

I am talking about more legal type of transaction. Parents passing down whatever they are living in to their kids.

It's my understanding that such a change in ownership causes reassessment, but I could be wrong. Is there a legal way to wriggle out of that? If so, then why aren't many more people doing exactly that? Seems, at these prices and tax assessments, there would be a whole market for "financially arranged marriages" purely for tax reasons.

Randy,

If incest was legal, marrying your offspring would be the biggest estate tax loophole there is!

AmazedinSF wrote:

> How does this work on transferring the title without
> the property being re-assessed?

Then Owneroccupier wrote:

> just add the name of the kids to the home, then when the
> parents die, everything is passed down including the prop
> 13 base, no re-assessment. As long as the parent portion
> is not over $1M or whatever the estate limit is for that year,
> no estate tax either.

For most people it is a BAD idea to transfer ownership of a piece of real estate from their parents before they die. If the kids are on title when the parents die they will keep the current basis and NOT get the tax free step up in basis ($2mm this year).

http://en.wikipedia.org/wiki/Inheritance_tax

The Prop 13 tax basis pass down has no connection with the federal estate tax laws. In CA children can take over the low Prop 13 tax basis on any number of properties with a limit of $1mm of total "assessed value" (so if the parents bought 10 rental homes in SF in the 60's for $50K each and they all had a current "assesses value" of just under $100K the kids could continue paying about $100 month in property taxes on each of the homes even if the current values were $3mm each and the new buyers of homes on the street were paying about $3,000 a month in property taxes (30 times more)...

Except for white guys and ugly Asian girls. Total mismatch in level of attractiveness, not compensated by money, personality, or sanity qualities.

astrid,

I'm not talking about the legitimate business purpose doctrine.

I'm talking about "actus reus" (i.e., guilty conduct) -- an affirmative act (and not merely an omission or failure to act) in any manner constituting evasion or an attempt to evade either the (A) assessment of a tax or (B) the payment of a tax.

Randy,

I think I misunderstood you the first time. It sounds like your neighbors violated the letter of the law and not just the spirit of the law.

SQT,

No harm at all, and it helps the species from inbreeding. Globalization - providing dating opportunities for ugly people who don't drink...

How do I add the graphic?

SQT,

1. Go to Site Admin -- Manage tab -- Posts tab.
2. Click on the "Edit" link (to the right side).
3. Add a space to the top of your post ("Post" field, not "title").
4. Put your cursor there & click "img" button.
5. Paste the full URL I gave you earlier.
6. It will prompt you for a "friendly name".
7. Save & done.

I tried looking up prop-13 parent/child transfers, and it's very complicated and differs by county. The prop-13 text allows parents and children to co-own homes at the parents' tax base. Then, the parent can relinquish control to the child, and the child keeps the base.

But, some counties either disallow this or disqualify this if the parent leaves the county or dies. Nearly all counties have reserved the right to assess taxes in arears if they later decide that transfers were incorrectly allowed. A lot of this has been challenged in various courts, but the current regime is a patchwork of county and state law. Some counties don't even allow seniors to transfer their prop-13 tax base, apparently, let alone involving children. I'm pretty sure Marin falls into the limited transferability case, so lots of people here are committing tax fraud.

*IANATL

Sweet - looks really good with the white background too!

FAB,

"For most people it is a BAD idea to transfer ownership of a piece of real estate from their parents before they die. If the kids are on title when the parents die they will keep the current basis and NOT get the tax free step up in basis ($2mm this year)."

Not really. There's a $1M lifetime transfer gift tax exemption + $11K per parent per recipient exempt. For federal tax purposes, the gifts will be fixed as FMV at the time of transfer. The parents can retain the remainder of the estate and transfer the remainder upon death using the estate tax exemption. Lifetime gifts are a great estate planning device, but most people are hesitant to use them because they don't want to lose control over their assets.

-$11K per parent per recipient exempt
+$12K per parent per recipient PER YEAR exempt
:oops:

Will communication and information affect the course of housing prices? Yes, in the sense that rumors, prejudices and gut instincts are easily, broadly and immediately disseminated today. The smell of fear is literally electric, or at least electronic.

No, in the sense of sharing and fully understanding all the hard data as it is emerging. The pool of essential data is too complex for the average person, or even the interested, educated citizen, to fully absorb until after it's already an accomplished historical fact. For example, as I've noted, the federal House Price Index seems to be the gold standard used by the experts in the mortgage industry like PMI. Consumer Reports uses it too. But it's really hard to understand.

Here's the last HPI report from OFHEO, the Office of Federal Housing Enterprise Oversight:
http://www.ofheo.gov/media/pdf/4q05hpi.pdf

The Consumer Reports and PMI indices compare income levels in various regions to the cost of homes there. They compare average home prices in various metro areas to see if they’re out of whack with incomes there, based on traditional income to price multipliers. Think of pre-qualifying for a mortgage with your own personal income, except these indices try to pre-qualify the “average” person in town to buy the “average” house there.

As I read it, OFHEO computes HPI by tracking repeat sales of a given APN. In other words, they keep records every time a specific parcel sells from one month or year to the next. When each parcel sells, their program looks back in time to compare the price the last previous time when that same exact parcel sold before. The percentage of increase or decrease for all sales in the area is then averaged to determine the change in the HPI there. It's an amazing concept when you think of the sophisticated record keeping and correlation. Can anyone confirm this understanding of the HPI methodology? The notes in the OFHEO reports are not a model of clarity.

Here’s my concern with the OFHEO index as I read it. I gather that the HPI does NOT include homes purchased with Jumbo loans. Doesn’t that skew the bottom line and understate the house price inflation in transitional regions where many homes have jumped up recently from relative affordability (I said relative) to flat out exorbitant? That is, what if a large number of buyers are using Jumbo loans in a given town even though those same house were purchased with conforming loans the last time they changed hands? I realize that the Jumbo loan limits have increased, but have they kept pace?

If many homes have sold with conforming loans before, but Jumbo loans in this run up, then does the inflation for those specific homes just drop off the radar? Are the inflated prices for those transitional homes just trees falling in the forest? Bottom line, I wonder if the OFHEO index understates average house price inflation in these regions that have experienced fastest growth with many sales crossing over the Conforming/Jumbo threshold. For example, Sacramento – a red hot region – started out much more reasonable before the recent run up but has become very pricey. Is the official HPI there understated? Are there any real experts who can comment? Or am I just confused?

Maybe I'll just wait and read about it in the history books in ten years.

From NYTimes

"South Korea Arrests Head of Hyundai Motor"

http://tinyurl.com/kmtcv

This is a hopeful sign, can America have some?

Randy H said:

Seems, at these prices and tax assessments, there would be a whole market for “financially arranged marriages” purely for tax reasons.

This same sca... er thought occurred to me the other day. IOTW you use a combined Deposit Receipt/Pre-Nup/Dissolution Property Settlement to buy a house and marry/divorce the seller. With CA law guaranteeing domestic partnership rights you may not even have to be opposite genders.

Randy H,

BTW I've always assume that inheriting property from you parents is a safe harbor from prop 13 tax reassessment.

NOT CREDIBLE OR COHERENT ADVICE