patrick.net

Having kids is just such a huge commitment though. It means your life is permanently tracked onto one area for 20 years, and you'll be ultra conservative until they are 20 or 25.

DinOR-

Wait, wait! I'm not really a 50 year-old Boomer of my 11:31 p.m. post. That was only hypothetical! I am the 34 year-old Gen-X'er of 12:01. I just want to clear that up.

You are one of the good Boomers; as far as I am concerned, and I mean this, you are a de facto Gen-Xer. But you know how touchy some people are about being mistaken Boomers. And while I don't mean to trot this fact out, I also have more than $29k in my 401(k). My net worth is still negative thanks to student loans, but I do contribute to that thing, I am not like that hypothetical flipper! Please don't confuse me with him!

SP,

Like I say, this practice has become such a "no brainer" that just about anyone can play! Of course, at whatever level their IO qualifies them for. I mean, just look at the spawning of ARM/IO's out there. Is that the financing package of choice for someone who's design is long term? What percentage of CA mort. were ARM's last year? 78%?

Joe Schmoe,

I know that from your previous posts! I just thought you described the "profile" (the one I kept meaning to describe) so much more articulately then I ever could. Btw, when I worked downtown all those years I would see 50 something couples walking and swinging children in their hands. Weeheee! I hate to admit it, but all I could think was "Lord, please let that be their grandchildren!" In a few weeks daughter #2 will be out of high school and on to college. Will we have any children in the future? Let's just say that Mr. DinOR ahem, addressed that issue some time back. We love our kids but I couldn't go through it again.

Interesting pro/con on how the $500,000 cap gain exclusion may have contributed to the bubble.

I wonder how much the bubble was inflated by the morgage interest deduction, especially from unsophisticated home buyers. For example, a few threads back a fellow posted how his $9,600 PITI for last year increased his refund by $10,000.

I think more than a few homebuyers were willing to put up with the extra costs of a mortgage over rent (for equivilent home) because they really believe "they get it all back in tax savings."

Unfortunately, these idiots do not just hurt themselves. In most of the USA, the upward pressure on house prices by "Tax Clown" (with help from "Monthly Payment Dolt", with his steaming piles of ARM and I/O) raised everyone's taxes through increased assessments.

Interesting to see if the cities and counties will forget that the increased taxes are a windfall, and will start screaming poverty when the bubble pops and assessments fall back to previous levels.

Headset,

Welcome back! Did you need any help with you luggage? Believe me, if there's one thing I hate it's having to get on a soapbox and preach on a Friday no less! Something has to be said. Barring some sort of a miracle we are doomed to repeat this cycle of boom and bust where it really had never been THIS big an issue in the past. The RE lobby (Laurie Janick) is there to protect their (realtors) interest, who's looking after ours? Oh and you're right. Local municipalities will be whining the blues here shortly. Got any ear muffs in that luggage?

DinOR,

OOPS, how embarrasing! I guess my rant indicates I need a u-haul for all that baggage.

Anyway, I'd love to see the mortgage interest deduction disappear. If it does, I'm sure they will increase the standard deduction to compensate. That move would really benefit the lower to middle class tax payers, whether they rent or buy. NAR would object, since realtors would lose a propaganda tool.

Interesting read from Krugman in the NYTimes (an old Buddy of Bernanke back at Princeton). Here's the final paragraph for those without access:

As I summarized it awhile back, we became a nation in which people make a living by selling one another houses, and they pay for the houses with money borrowed from China.

Will we have that time? Ben Bernanke, the chairman of the Federal Reserve, contends that what's happening in the housing market is "a very orderly and moderate kind of cooling." Maybe he's right. But if he isn't, the stock market drop of the last two days will be remembered as the start of a serious economic slowdown.

Hold on to your cash and your job. Rapids ahead.

FRIFY,

I have been holding my cash and I can't wait for that white-water ride!

LILLL,

I think you mean "inflated." Deflation would be great, our saved funds would buy more. It is the "inflated" money that would "deflate" our rafts.

Headset,

Uh, if there's anyone with luggage, that would be me! I do recall the incoherent post where someone clearly had never filed "long form" before. I kind of felt bad, but as you say there are a lot of unsophisticated homebuyers out there! And that's what is so sad. I'm not that old but when we bought our first house there weren't near the financing "options" that are in the market place today! While I feel I understand them well enough to know they wouldn't be right for my family I'm not sure I could adequately explain their pitfalls to someone else. Btw, there was a time in this country when you needn't be all that "sophisticated" to buy a damn house.

@Joe Schmoe,

Sometimes our life experiences are so close to one another it really creeps me out. I too married an older woman and we waited to start our family mainly due to high cost of housing, our student loans, low Gen-X salaries, etc. We are just now trying with "medical assist" (she's 40). (fyi to blog regulars: Mrs. HARM is not yet pregnant --I jumped the gun on that one before, was a false alarm).

California --L.A. especially-- is no place for a working or middle-class couple to raise a family. I have many fond memories of growing up here in the 1970s-80s, but that California is gone now probably forever.

LILLL,

It was never my intent to get "wound up" over this issue, but you're right! Not that we have a "model" in place it's very possible that we will continue to roil between utter bliss and total destitution. People keep telling me houses don't trade like stocks. Really? Right now you could go to just about any sub division in America and get very different impressions from homeowners dependent on when they closed! We all remember the "Centex gal" raking leaves. Well b/c she was intending to buy the previous weekend but the kids had a swim meet, she now owes 100K less than her neighbor with the same floor plan! Um, I'm sorry but assuming it was a 750K home now marked down to 650K that's a 13.33% downside for in a WEEK! Other than say, Google most stocks aren't that volatile. It used to be anyone that bought a home and exhibited a little patience would come out a winner. Now we have winners and losers.

newsfreak,

Sorry, but your experience at the bank is altogether too common. When opening the door to homeownership required something more than being able to "fog a mirror" being a homeowner meant something. With all of the exotic (and toxic) loans available out there it holds little more prestige than saying I'm a "car owner". Well whoop dee doo!

HARM-

LOL! You said it. I have thought about that too. Hopefully someday we'll find ourselves bidding on the same foreclosure property! :)

Joe Schmoe Says:

HARM-

LOL! You said it. I have thought about that too. Hopefully someday we’ll find ourselves bidding on the same foreclosure property!

Oh no! You two will reinflate the bubble in a bidding war!

Ray,
I work downtown near the ballpark, and all I can say is that there are literally thousands and thousands of new condos available. Supply is definantly out of the equation. The funny thing about the report mentioning a 25% downturn in sales over last year is that yesterday on CL, the "housingheads" reacted to it like" oh boy- another boom is on it's way!" People are so dillusional these days I gold out little hope for being rational at cocktail parties with those who "bought" total hogwash.

There must be some middle ground between protecting and restricting land use, and providing affordable housing.

To be clear on the subject, I think protecting national parks, wildlife preserves and scenic areas for future generations is a wonderful and morally right thing. However, reflexively stonewalling every proposed new housing or apartment development, and slapping six-figures in unnecessary "impact" fees on the few high-end units that do get built --no matter how deperately needed -- is just pure self-centered NIMBYism.

Not to start another inter-generational blog-war here, but BBs seem especially prone to this mind-set. God forbid anyone born after 1964 have a remote shot at owning a modest house before age 50. I just love the way NIMBY Boomers get on their moral high-horses and loudly insist they're trying to "preserve green-space" and "help the environment". It's more like "preserve/increase my equity" and "help raise property values". I've also noticed how these same hypocritical a$$holes rarely seem to object to HIGH-END multi-million$$ McMansions being built, but try to build modest, affordable "working-class" housing and --whoa!! Hold on a minute there, pal!

Boomers should consider changing their generational anthem from "Talkin' bout my generation" to "F-- you, I got mine!"

HARM,

Old time Oregon "barbershop" joke.

A logger is a guy that dreams of one day owning a house in the woods.

An environmentalist? He already has one.

HARM,

To me, the fascinating question is what will happen to property values in our area. IMO there are plenty of rich people here -- but not enough.

Will rich people continue to buy $mm houses in San Marino and the nicest parts of Pasadena? Sure. Those neighborhoods are as nice as they come.

But will some young Gen X family pay $1.5mm for one of those restored Craftsmen way north of the 210? I think not.

I tend to think that the demographics are at their absolute worst in our area. Virtually all housing in our area entire area is controlled by Boomers. There used to be young families in San Marino, and areas of Pasadena like Hastings Ranch -- but not any more. Pasadena had to close what, 6 or 7 elementary schools last year? Think about that! Pasaedna is growing, we're not talking about Flint, MI here. The population is stable and slightly increasing, and there are plenty of poor people who have kids early -- but the population of school-aged children is still plummeting.

Maybe I am too optomistic, but I actually think that our area may crash harder than others for this reason. Who is the next generation of homebuyers? You and me. But we don't have $1.5 mm to spend. If some grey haired Boomer wants to sell his place to us for that price, well, he can't.

And it's not like successful middle-aged people want to "move up" to Pasadena. It's nice, but not that nice. If I start a successful business and earn big bucks, I might buy a place on PCH in Malibu, but not a generic single family home in the SG Valley. The Boomers living in Pasadena refect this pattern. Did any of those grey haired LL Bean types start out in Palmdale and ultimately "trade up" to Pasadena? Nope. They got in 10-30 years ago and just stayed.

For this reason, I tend to think that the drop might actually be greater here. If an SFH in Palmdale was $100k in 2001 and is $300k today, it might only fall to $200k, 33% reduction. It is possible for a middle class family to afford a $200k home. Maybe mom will have to start working as a cashier at the local florist, maybe dad will need to put in some more overtime, maybe they'll have to defer a new car purchase, etc. It won't be easy, but it can be made to happen.

But when the house is $1.5 mm we are talking about a whole different story. How many 30-somethings in Pasadena can afford that? None, basically. If the price is cut by 33% to $1mm, will that help? It certainly won't help me. I have a great job, but there's NFW I can afford to pay those sorts of prices.

Call me crazy, but I think our area might be in for some of the steepest declines of all. I may be barking up the wrong tree here, but it does seem possible.

Joe,
I totally agree with you. The thing you've hit upon is a fundemental flaw in the plan I think many boomers didn't plan on counting on: Young people simply do not have the money to bail them out. It's a transfer of burden that has so far played out in the form of unrealistic credit transactions- the IO, ARM, refinancing loans, etc. The next phase is dramatically diffrent in that there simply are no more options left: the money that was supposed to be mopped up by the boomers is for the most part gone, gen Y and X only have so much cash in reserves, hence the equation is now heavily out of balance. So here we are. Where will it land? getting back to California demographics as you mentioned above, nobody- not even the well off can deny that demographics are not only unhealthy, but unsubstainable. I think I can stand to say that from my perspectice as someone who's from a region of the country where 1950's middle class lifestyle is alive and kicking, most californians don't realize how bad it is here anyhow. What is percieves as normal is apalling everywhere else. There is no reason that one generation has supremecy over another, and it only exsists in a few select regions of the country too.
The correction we've been waiting for are coming.

@DinOR, thanks.

@Joe Schmoe,

I've often wondered the same. Unless you pack 20 illegals into each one of those $1.5 million houses, there's just no way anyone below top 1-2% can afford a "non-exotic" mortgage on them. As you say, even a realistic 30-40% post-bubble haircut will still not make these houses "affordable" to the likes of us.

Most of my family in our age group have already long since moved away, with me actively seeking my own ticket the hell out. Not sure if CA will eventually become an elite retirement community of HELOC-locked Prop. 13 lovin' Boomers surrounded by dirt-poor tenement dwelling illegals, but the current trends do not bode well.

HARM,
I'm now trying to get used to the idea of what things will be like somewhere else. I've made a few aquaintences with people in Austin, Nashville, etc who've made the move from Cali.They seem to be pretty content with the decision and have me lots of cheaper, smaller towns that are within 30 minutes of each of these cities. We're talking 65-120k range smaller homes from the 50's. Nothing sexy or in a "picturesque" neighborhood, but at that price, We'll just buy and save the rest. now.. realistically, I know I will miss it. the food- the climate, etc, but the other night, the food network did this thing on food in nashville and Austin. You can get good Japanese food.. in Nashville. This wasn't the case a few years ago. Maybe it's diffrent. who knows. But I'm also prepared for things to be diffrent too. I'm fully aware that in a few years I might be buying stuff at Wal-Mart and living in suburb-land. But if that's the worst thing that will happen, then who really cares? I'm already fantasizing about an old ski boat and hauling it to the lake in Austin on the weekends with my few cases of domestic Lone Star beer in tow. Difficult decission I know, but I'd rather not have conversations like the ones we have here( even though you guys are great) for the rest of my life. I'd rather argue about how stupid Wal-Mart and Mcdonalds is, or how blazin' hot it is in the summer. At least those gripes are tangible and somewhat funny.

Difficult decision I know, but I’d rather not have conversations like the ones we have here (even though you guys are great) for the rest of my life. I’d rather argue about how stupid Wal-Mart and Mcdonalds is, or how blazin’ hot it is in the summer. At least those gripes are tangible and somewhat funny.

Buddy, I hear ya loud & clear! Personally, I can't wait to start my "Got the Fuck out of Cali Gen-X Ghetto and now am Livin' Large and Steppin' Easy in Flyover land" blog.

WW2, HARM,

Us too. I am getting my Texas professional license in September, and I spoke to a headhunder there a few months ago. We could also move back to the Midwest, but I would rather go to someplace that is new and growing.

I like living in CA, but I have lived elsewhere too and know that other places are also nice. I'll miss the weather, but even that's not an absolute CA advantage -- living here, I miss the snow and prarie sometimes. There is nothing like the crisp, clean air of a cold winter morning. SoCal has neither the winter nor the crsip, clean air!

And even if we could afford to stay, I am not so sure that I like where CA is headed. It really could turn into a wealthy Boomer retireee/dirt-poor illegal alien state, that really does seem possible. I would rather raise my kids in -- and live in -- a middle class place. I don't want them to grow up in a society where everyone with dark skin is poor, everyone with white skin over the age of 50 is rich, the tiny middle class is Asian and those few third-and-fourth generation Hispanics and the miniscule number of whites who have not yet moved to flyover country, etc.

I don't want to bust my ass for another 10 years just to get my sweaty little palms on a 60 year old 3br/2ba 1200 sq ft ranch house, either. Nor do I want to struggle for another 30 years to pay for it, dreading the huge mortgage checks I have to write every month. Not when I can buy my "dream" house in TX right now, today, brand spaking new for $150k.

We are will stay here for (a) two more years until our oldest is ready for school; or (b) until we can't take it any more (we could very easily reach this level of frustration in less than two years, sometimes it feels like it's just a week away.) My elderly in-laws are going to have to come with us. They might not like moving at their age, but I don't want to live in our shitty 1BR apartment any more either.

I really hope that prices fall in the meantime, and it does seem possible (although the slow pace makes it seem less likely every day), but I can't put life on hold forever just for the priviliege of buying a crappy tract home on a postage-stamp sized lot.

It will be nice to be a normal person again. I would like to do things like mow the lawn. I would like to have a garage. I would like to live in a place where people aren't filled with financial anxiety all the time.

Move to states on my list in order of ideal:
Texas: Austin, Dallas, Houston

North Carolina: Asheville, Boon, Raleigh, Chapel Hill

Tennesee: Nashville, Johnson City, maybe-maybe Memphis

Alabama: I've heard Montgomery is actually very nice

Georgia: Savanah, Atlanta

That's about it for now. I'm still doing research on these areas.

@LiLLL,

The wife & I have family in NC, AL, KY, GA & FL. Many are priced-out ex-CA siblings & cousins who would like us to move there, so somewhere in the South is a high probability. Alternatively, the wife and I love the Pacific NW for it's natural beauty, but of course, housing there is getting almost as unaffordable as here, thanks to a$$hole CA specuvestors driving up prices. You also need to "bring a job with you", as the NW tech job market is comparatively small and notoriously hard to crack into.

SFWoman Says:

> In my neighborhood there are tons of kids.
> I went to a party last night, there were about
> 80 people there, and except for two couples
> all of us have school age kids. Also, my friends
> and I are redoing the tennis courts, sport court,
> and playground in Alta Plaza Park…

Almost all of us tend to socialize with people like ourselves.

Just because SF Woman was at a party where 97% of the people have kids and I’ll be at a party where 90% of the people went to Cal or Stanford does not mean that there is a huge number of kids or Cal or Stanford grads in the city.

I can’t think of the last time I saw a kid on a bike in SF, or any younger kids out anywhere (except the Presidio on weekends)… When I was a little kid in the late 60’s and early 70’s SF was loaded with kids with bikes and toys on all the sidewalks and parks full of unsupervised kids. I remember visiting cousins in SF Woman’s neighborhood in the summers and racing our big wheels down Buchanan Street in front of their house between Vallejo and Green with other neighborhood kids. We would go down and play in the SVDP playground that was always full of neighborhood kids…

You guys want to see something interesting? It proves, pretty conclusively IMO, that CA is now the state with the most expensive RE prices, bar none.

I'm sure we all agree that it is not fair to compare SF and SoCal to, say, Indianapolis or Toledo. LA and SF are first rank cities and will always cost more.

Well, how about New York? That's a comparable place, wouldn't you say? My mother grew up in a town called Mendham, NJ. It is a small, very rich neighborhood of around 5,500 people. It's about 50 minutes away from NYC by train. Most of the houses are from the 18th century and probably half of the people in town keep horses. The average average household income is approx. $110,000 (note that this is an astronomicaly high number, p/c income statistics always skew low becuase they include retirees.)

The public schools are among the best in the state, the HS is ranked 16 out of 333 public high schools in terms of average SAT score.

Out here, a dilapidated 800-1000sq ft 2br starter home in a upper-crust neighborhood like that would cost what, $800k in LA, $1.2mm in the Bay Area? And remember, this is NYC where salaires are a little higher than they are here.

You can have this house in Mendham for...$309k! See for yourself:

http://www.realtor.com/Prop/1055896699

A much bigger, nicer place that is a true "family" home, if a modest one, is only $450k!

You don't want to live in a tract home, even one in the nicest possible neighborhood? Well, how about a Colonial house -- not a Colonial-style house, but an actual Colonial house, built in 1790, on one-and-a-quarter acres -- for $649k! (A month ago there was a 3br 2ba 18th century house listed for $450k!)

Want to be part of the "horsey" set, with a 4.4 acres of land all your own (and just an hour's drive from NYC?) That'll cost you -- $750k!

This was a fascinating discovery. I always thought that we had it rough in SoCal, but that people in other major cities had it just as rough. Not true! The facts are undeniable. Go to any of the reatly sites and do a search for Mendham, NJ and see for yourself!

According to him…he took a hammer to it’s head.
And that’s just one example.
I don’t want to be within 1000 miles of that guy.

LILLL,

I can certainly understand your personal reasons for not wanting to be near your brother-in-law, but I seriously doubt most Portlanders are like that. I have a couple of college friends up there who are very nice and quite happy --and let's not forget our blog-mate DinOR!

CA has more than its share of whack jobs.

I would like to discuss what the government will do (can do) to protect the housing market.

Indexing AMT? Allowing more mortgage tax deduction? First home buyer subsidy (this is implemented in Oz)?

Since housing is such a vital part of our economy, and it has everything to do with social stability, I believe that either GOP or Dem will do its best to avoid a meltdown in RE. How likely will they succeed? Will USD be trashed in the process of saving housing?

As a small investor, how do we take advantage of this if we see it coming? I am asking this, because I am frankly surprised at the loosened credit standard that is still prevalent in today's market, the long yield moves up little (and we know Fed can buy back Treasury bond to bring the yield down), people can still take on toxic loans just fine, and I don't see any clampdown on lending practices. Perhaps I am thinking too much, but I do suspect that there is a strong incentive for the government to support the current housing price at its "plateau" for political reasons, especially before a mid-term election, voters don't want to hear bad news.

What do you guys think?

BillF,

HELLO TEXAS!

Really good stuff. Even though Polish people from the south side of Chicago find it hard to "fit in" in Oregon (much less Texas) it firms my resolve not to pay ridiculous amounts of money here or anywhere! A "Buck and Quarter" for 2,227 sq. ft. home? This is Pulte right? At that price who cares if it's a sh*tbox! I wish you'd post more often b/c you always "bring da goods". I'm making you an honorary "Southsider" from this day forth! Good on ya mate!

Duhhhhh,

Please to identify "which" neighborhood you are from, the average selling price, square footage, oh, and then pound sand. Are from this planet, or just visiting?

I have stopped trying to think about the housing bubble rationally. It is an emotional creature. I have turned to alternative methods.

OO,

"Indexing AMT?"

Oh I'll go one better. Let's just do away with it! Increasing the mortgage interest deduction? I sincerely hope you are kidding on that count. My limited understanding is that the President's special panel last fall was actually discussing LIMITING the amount of ded. int. to the "median" price in your area. Would that not be a better direction? I for one have subsidized housing about as much as I'm going to. You bring up a lot of interesting wrinkles though. You lead, I'll follow.

Peter P,

Mrs DinOR is dragging me to look at "plants". This is most important to her. However you absolutely nailed it the other day when you said we need to stop thinking in terms of "median price" etc. Name the beast! Let's continue to isolate specific homes, specific listing prices and have the courage to call each for what it's worth. If it sold for higher than asking? Well fine, I'm a sport! I tend to think though that on a case by case basis the bears will triumph though.

I am always amazed at the level of negativity and wrong headed thinking here. But I realize it is mostly just a place for people to gripe and share their misery, rather than look for any serious solutions.

I really don't think that the $500k exclusion has had that much of an effect on housing prices. Previously, if you had held a house for 2 years, you would have your gains taxed at the long term capital gains rate, which is 15%. So, at most, it would account for an additional $75k in gain per sale. It could have a psychological effect I guess, but the real economic effect has got to be pretty slight.

San Francisco is actually building a fair amount of new housing, 8389 new units from 2001-2004. That comes out to about a 6% increase per decade. Most of the construction is South of Market or in Rincon Hill, areas where there are not current neighborhood associations to oppose the building of hi-rises. SFWoman I am glad to hear that you support infill housing. Does that mean you are going to the neighborhood association meetings and advocating for Cow Hollow to change its zoning to allow hi rises? :-)

I personally prefer the lower density residential feel of my neighborhood, but I know there is a trade off. Everyone seems to agree that the Bay Area needs more housing, but no one wants it in their neighborhood. We have seen some modest infill in Noe Valley, with the conversion of single family homes into multi-unit condos, but nothing else.

The main reason homes are expensive in the Bay Area is because land is scarce. California has been growing in population explosively for the last 60 years and this is the inevitable result. Just an empty lot in most parts of The City is worth $1/2M these days. Even in places like Riverside, where they are very pro-growth, a buildable lot is worth $1/4M. California really is running out of desirable places to build near the coast. Are there any flat regions, near the ocean, with access to water left to build on?

I am going to skip the obvious immigration rant, as that topic has been covered before, but as long as people keep moving to the state, home costs are going to continue to go up.

A massive irrigation project to the central coast could make some of that area buildable, but right now the people who live there are very anti-development and are resisting any new water projects. I guess this is the kind of NIMBY sentiment that many on this blog complain about. But even if this area was built out, it would only make a difference on the margins.

I think the whole country is experiencing the "hollowing-out" of the middle class, not just San Francisco. We see it more here because there are so much subsidies for the poor. 25 years of tax breaks for the wealthy and the resultant abandonment of the public sphere is having its inevitable effect. Declining schools, crumbling transportation infrastructure and fading parks are all a result of falling taxes in California. And yes, they have fallen as a percentage of GDP, over the last 25 years. Prop 13 is primarily to blame. The long time residents have tried to shift the tax burden to the newcomers, but mostly they have just ended up screwing up the state. We are still living on the investment in infrastructure: the Interstate highway system, the UC, and the water projects, that the Big State liberals like Pat Brown built in the 50s and early 60s. The seeds for Californias decline were sown when Ronald Reagan was elected governor in 1966 and it has pretty much been downhill ever since.

Politicians have no backbones, if RE meltdown is about the happen, and most homeowners (especially the dumb recent buyers) are crying and ranting about the dropping housing price, the politicians will bend over backward for their most adament voters, the homeowners.

That's why the tax relief / subsidy wind can blow either way depending on the real situation. If housing price goes down too fast, I bet the Fed will start cutting rate. Any government is mainly concerned with its own existence before everything else, without social stability, the very idea of government itself may be at risk.

I have long been a housing bear here. I am not arguing for the trolls, because I do believe whatever artificial intervention the government may put in place, it won't work in the long term. It is a difference of whether we are going to be in a 5-year down market or 15-year down market. I am kind of undetermined on which scenario I prefer, on one hand, I want a fast one to get it over with, but I am afraid the impact will be too detrimental, but I don't want a 15-year long-drawn pain either.

If you get kicked into AMT, no 15% capital gains for you. It runs about 19-21%.