patrick.net

I was out there shopping for a lawn mower yesterday at Home Depot.

Since I haven't been to Home Depot for a long time, I was shocked to find most any item priced above $100 had a monthly cost label next to it. I was looking for a lawn mower costing around $300-500, well, there is a monthly cost label of "ONLY 15 a month!". Then I went through the home appliance area, the refrigerators, stove ovens all have BIG CAP LETTERS of $50 a month, $30 a month hanging on the doors, it took me a while to find out what the overall cash price is!

I await the day when we go to Starbucks to find our latte price quoted by "Only 0.2 a month!"

OO, my starbucks habit is $2/ work day, so .2 a month would be a most welcome experience.

I think I am developing diar-Leah of the keyboard tonight. :)

There are rich Asians, just that many of them.

According to Merrill's wealth report, there are about 270K millionaires (defined as those having $1M USD upwards in asset aside from own residence) in China, and about another 120Kin Hong Kong and Taiwan combined. I'd say that is a good start of estimating the number of rich money coming this way. Taking Japan away, the rest of Asia has less than 100K millionaires.

So you have less than 500K millionaires from Asia ex Japan. Japanese buying American homes? Uh, they tried that 15 years ago, and it didn't bode well for their networth. Now you need to realize most of these "millionaires" barely make a 1M mark, if you only have, say, 2M to spare apart from your own residence, how likely will you blow 1M on a home in the US, a country far far away?

Immigration? The entry ticket for legal wealth immigration into the US is about 1M, which doesn't include buying a home. You need to sink in 1M investment to set up a business employing full time employees of a certain number for 5 years.

If you filter the 500K rich Asians through these criteria, there are not that many left to buy an expensive home in the US. Also, although Asians love to park their money in the US, there are many more tax-efficient ways to do than buying a home. Participating in the US stock market is low-cost and tax efficient (no property tax), buying USD bonds and CDs is entirely tax-free for nonresident aliens.

Buying a property in a foreign country is very hard. Will you buy a property in a country where you don't speak the language with no trustworthy relatives and friends? Also, most of these millionaires are businessmen who need operating cashflow to run their own businesses, why would they tie up a big part of their networth on something that doesn't generate immediate value?

Even if they do end up buying in the US, they only buy in certain pockets where there are already many other Asians, Vancouver(West Vancouver, North Vancouver), LA(Arcadia, Palos Verdes), SF(Saratoga, Cupertino), NYC for example. Rich Asians don't know where Sacremanto is, not to mention Fresno, so don't count on them bailing out any FBs in the lesser known areas.

About all the rich Asians

I think you omitted the primary path for legal wealth immigration. It is the foreign student, and also the H-1 visa. Those are the entry tickets. Then, once firmly into an H-1 situation, instant homeowners, from the family money. Over time, the elite family has firmly planted one leg of its dynasty in California. I have seen this pattern repeat time and again.

As you noted, they cling to the cities of the coast. Then, overstretched locals like my friends get bailed out selling to them, then they in turn move inland and bail out overstretched folks in the inland, like the overstretched people in SQT's story. This is one of the ways of repatriating the money we send to Asia via Walmart and other such venues. The elites buying the kids into foreign student and H-1 visas help to make it happen.

Syrib,

you are assuming that all or most H1 visas are from rich Asian families. That is simply not true. There are some overlaps, but H-1 requirements, as far as I know (and I went through this myself), didn't take into consideration your parents' networth. Whether your parents have money or not is completely a non issue in the H1 qualification issue - unless your parents are rich enough to set up a legitimate business here in the US to employ the kid, but not many people can reach that level of wealth to begin with.

If they are H1 visa holders, they progress no differently from a typical American middle class. Work for a few years, save up enough in DP and get into a home. Whether they are Asian or Middle Eastern, or Mexican, doesn't get into the equation.

The true elite families from Asia don't stay here. The upper middle or middle class have their kids migrate. The true elites need their kids to go back and take over the family businesses.

doodler says:
mortage rates were closing in on the 20% range. As hard as it is to believe, things have been worse than they are now. Young people were just as worried then for similar reasons as young people are now.

actually, an affordability analysis has shown that people ARE worse off this time 'round -- prices are much higher compared with average incomes compared to the 80s situation, even with the earlier obscene interest rates. besides, interest rates at 18% or what have you couldn't last forever, altho it was enough to send quite a few people to the wall at the time, not surprisingly... can't remember offhand where i've seen the analysis, would need to go digging...

Glen says:
Any thoughts/anecdotal observations on this?

most fundamentally, i think it's ridiculous from a social policy point of view that your success in a housing career depends upon you choosing your parents wisely. in this case, it means choosing parents who had only 1 or 2 kids, who paid off their house, and, ideally, didn't need or decide to engage in a 'reverse mortgage' in their retirement.

your access to affordable housing now depends on your individual rights of inheritance rather than any social contract.

if we assume that everything will continue to remain 'in the market', then i guess it's possible to anticipate all sorts of patterns of inheritance and maneuvering with concomitant outcomes -- including the possibility that prices will fall of their own accord over time due to waning of irrational exuberance, that the deaths of the 'pig in the python' baby boomers might release a larger pool of housing supply thus bringing prices down, that more building and supply might come on tap, etc. not discounting that state govts might actively start doing something about the situation and bring price fixing out of the market through some intervention.

but you're right, i can get 5.60% in an ING savings account on call instead of investing in 3% return property... altho i don't know what ING are ploughing the money into...

DS,

Human society is organized on the production of (reproductively) successful offsprings. It should surprise no one that people leave money to their kids and that the kids plan their lives based on money they get.

Hell, plenty of people plan their lives around the Publisher's Clearinghouse jackpot. It's just how things are.

Ffperson Says:
SF Cron writer says there is still excess demand…
Is this true?
http://www.sfgate.com/columnists/lloyd/
So despite the good news that the real estate market is softening, the bad news is that there’s an underlying issue that’s going to make housing unaffordable for years to come: California isn’t building enough to meet the demand.

“Our department estimates that in order to keep up with population and job growth, there needs to be 220,000 new housing units constructed every year, and that hasn’t happened since 1989,” Huston told me. “Depending on who you speak to, we have a housing deficit of 1 to 2 million units. And every year we don’t meet our demand, it increases.”

just to address this, no, i don't think it's true. that's implying that there are a million or two million cashed up individuals or families (not penniless illegals) walking around homeless, or some sort of massive pent-up demand for migration into the area from interstate. developers and realtors always carry on like this to try to justify high prices.

what you do have is high rates of speculative investment in rental properties, of the order of 30% of all purchases these days, which translates into 'demand for investment properties' amongst people who still think it's a good idea. i guess this is 'elastic' demand.

what you have in sydney is a net loss of people while the remaining people still try to maintain high prices in their own self-interest -- a net 10 000-odd people LEAVE sydney every year, i.e. more than offset arrivals, mostly in disgust at the high prices, to seek more affordable living elsewhere. and yet the prices remain high, and realtors and the usual greedies want to keep it that way...

Human society is organized on the production of (reproductively) successful offsprings. It should surprise no one that people leave money to their kids and that the kids plan their lives based on money they get.

yes, it doesn't surprise me, but there are also things like death duties and income taxes which attempt to take it all away and distribute it again. even bill gates' dad is a strong advocate for this in his recent book (and advocating a revision of property laws in general). there is an interaction between the operation of individuals, their families, and the state, which is about maintaining the broader internetworked community in a fair and decent way. extremely affluent individuals depend entirely on all the other people in the community to deliver them their wealth, and are therefore not apart from it.

given that making money seems to be something of a fluke, and isn't the only measure of a 'good' person or the 'good' society, and can even overlook fundamental questions of citizens rights, i tend not to subscribe to social darwinist theories of monetary inheritance and natural selection as some sort of argument, although it is very popular at some level in the public mind. i don't think it withstands analysis though from a networking viewpoint. we only value people who are good at clawing money from others, regardless of the means? and what happens to the ones who had the money clawed from them? robert g allen is good at clawing money from people, but he is a manipulative liar, complete slime and borders on illegal and deceptive conduct -- many of his associates end up doing jail time for their attempts to make money. will his children inherit his sliminess? do we want to reward those kinds of behaviours? etc (and that's just the beginning of a critique)

When do you you think the fed will mandate, not suggest, tighter lending standards, due to the acceleration of foreclosures? My guess is after the November elections. This will be the beginning of prices spiraling downward. What do you think?

I think it depends on how bad the economy does. I don't see the Fed tightening its lending standard right now, toxic loan flyers are still all over the place.

However, what I noticed is, the RE market is truly extremely slow. 95% the pending sale of homes I see in the neighborhoods that I am familiar with were originated at least a couple of months ago. I see no origination of pending sale. Homes are NOT moving.

Another trick I see MLS playing is, when weekend is approaching, the inventory suddenly goes up since many homes are hosting open houses. Come Monday, inventory goes down, some houses are taken off the MLS only to re-appear again over the weekend.

I am wondering if I am the only person seeing this.

Glen's generational issue

I enjoyed reading his analysis. Since I am a lifelong resident of San Jose, went to college here, worked in different jobs here, etc., live in East S.J. among a "different demographic" compared to my tech colleagues at the job, I have a varied anecdotal circle.

And so, I reflected on Glen's posting. In the case I am familiar with where the elderly parent passed away, the house was sold. But the more general pattern has been that the parents sold their legacy house to buy into a higher quality of life outside of the San Jose area.

Those who relocated in an area in California where they could transfer their Prop-13 tax liability generally moved to a place that their kids were not interested in because of limited employment opportunities. Like the Sierra Foothills, etc. Others cashed out of California altogether, using the money to buy a quality of life in places like Carson City or Bend or Grants Pass. In those cases, the Prop-13 reduced tax assessment vanished.

OO,

The USA is becoming like so many other places, children of the elite families are overrepresented in the elite universities. Whoever said life is fair?

Children of the elite get into the right programs at places like the IIT, then the right grad schools here, then finish the graduate program, get the H-1, get the ball rolling, etc. A difference is, children of California's elite who get into elite schools here for their bachelor degree are not trying like crazy to get their advanced degrees at places like the IIT, then to relocate and plant a root of the family dynasty in Asia. But the reverse is true, happening every day.

You mention immigrants from Mexico. You know, in all the years I've worked in tech, I have never met an H-1 from Mexico. We should be doing all we can for Mexicans and Mexico, because whether it is right or fair or not,and whether we like it or not, we have to deal with some consequences of that country's economic failures. But I have never met an H-1 from Mexico. Maybe, our neighbors in Mexico should get preferential treatment for those visas, sort of an affirmative action social engineering with the H-1 program.

if you google 'bill gates dad', which i'm frequently wont to do, you get this sort of article:

FairEconomy.org - Bill Gates's dad advocates a sensible estate tax

plus his book which you can find on amazon...

ajh:
I went and had a look at an open house for this property

canberra laddie :)

Most people on this site are not targeting the beginner homes, so you need to wait out a bit.

I am targeting the beginner homes. Currently, they are priced from high 7 to low 9. There are quite a few choices now though.

Peter P,

Subtract a digit from your price and we're looking at decent starter homes in a good chunk of the country. A couple buying in that price range ought to be making $200K a year.

Peter P,

you should consider lowering your target to low 6, once the marginal owners who bought at the top get flushed out, I think it will be a reasonable target, if you don't want to wait for the absolute bottom.

If you don't mind condos, try high 4.

I read an article published by a chief eonomist of a mortgage bank with the title like ARM reset, illusion or truth (or something like that). I'll see if I can find that piece of research.

Given that we know which way he will argue, some of his data still presents the exact opposite picture of he wants to paint. One area is Equity % by homeowners. The national average was at its height back in 80s at around 58-60%, and then hovered around 56%, all the way till now. So he argued, well, since the equity % held by homeowners remains the same (oh really?), people still have a big cushion against big loss.

But wait, housing value in the last 10 years advanced 2x, 3x in many regions of the US of A, and equity ratio still remains 56%, exactly as it was 10 years ago? Where did the extra windfall in housing value go for the homeowners??? Since the 56% ratio is based on TODAY's housing value, what will it be if housing value heads down 20%?? 30%???

Well, Peter P is very demanding about bathroom and bedroom sizes, and cat friendliness... :)

But really, I just can't imagine couples making $200K as people looking for starter homes. Shouldn't it be couples making $50-100K a year?

One guest speaker at a conference held last year on affordable housing was:

Carol Galante
CEO, Bridge Housing Corporation, California (SF)
Lessons from the USA for Australia.

Bridge Housing’s experience as a not for profit developer and manager of affordable housing – what it takes and what we’ve learnt.

here’s a link to one of Carol Galante’s presentations (Powerpoint presentation, 6 Mb unfortunately):

http://www.housing.nsw.gov.au/nahc/presentations/Carol%20Galante%201.pps

can anyone confirm if the structures used in her presentation are actual affordable housing developments in CA? they look pretty swanky and posh, more like upmarket developments…

(unfortunately, the Bridge Housing Corp sells only about 30% of their developments, and sets up the rest for cost-controlled rental, presumably in a 'social investor' model. i can see other ways of controlling housing prices than this.)

DS,

Though I am for higher estate taxes and ending US's generation skipping tax loopholes, I'm no longer sure that American society is ideally suited for high social welfare. The social contract here was never as strong as in Europe, Oz, and Canada, and it's been hit by asymmetrical population growth (the poorer and less educated the mother, the earlier they have kids and they have more kids) and immigration - legal and illegal.

Also, given that well educated Americans have trouble managing their household budget and sensibly treating their homes as homes foremost...I'm not sure helping the poor to "own" homes is the greatest idea.

DS,

I can't confirm for the structure in her presentation, but I have come across a few affordable housing projects that look more or less the same as what she showed. Just judging from the appearance, you can hardly tell which one is an affordable housing project.

On average, US housing construction does look far more posh and swanky than Aussie projects targeting the same segment of the market, particularly when it comes to interior deco. Stockland, Mirvac etc are the quality setters down under, but when I compare their interior finish to the Toll Bros (equivalent in the US), Mirvac and Stockland still come a tad bit short in terms of fashion and finish. However, the Aussie designs are more environmental, more considerate and practical, just may not look that great on the outside. You know we yanks really care about the facade :-)

hmm, yeah, some of the public housing structures in NSW are extremely begrudging, but also very old -- the govt and others have steadily retreated from the whole idea of social housing in recent decades.

melbourne is a lot more into 'facadism' than just about anywhere in australia, which i think enhances the quality of life enormously, the desirability of green design issues notwithstanding...

Also, given that well educated Americans have trouble managing their household budget and sensibly treating their homes as homes foremost…I’m not sure helping the poor to “own” homes is the greatest idea.

astrid, i thought you were a self-proclaimed 'active progressive'. is an american progressive actually an anti-progressive anywhere else? this discussion is unpacking huge cans of worms about requiring 'responsible' market provision of loan products, the role of intervention and redistribution and so on which is absolutely Soc 101. 80% of people used to have an owner-occupier housing career, and public housing and renting as a long-term was marginal and residualised. that has now been turned on its head by 'market forces' in the last 20 years, and it was, to some extent, simply an accident. now no-one is allowed to have the security of their own equity and freehold title in retirement except by lottery. you seem to becoming more fatalistic and laissez-faire by the minute, which tends not to be the progressive's stance. if you advocate electing Democrats, perhaps you should be looking at their policy documents a little more closely and having a good ol' fashioned think.

you should consider lowering your target to low 6, once the marginal owners who bought at the top get flushed out, I think it will be a reasonable target, if you don’t want to wait for the absolute bottom.

Low 6 is a good target. :)

It seems to me that the move-up market starts at around low 900, so I thought the starter house goes from high 700 and up.

In Sunnyvale, 3 bedroom townhouses start at around low to mid 700. They are clearly targeted towards first-time homebuyers.

It is really scary that because of easy financing the starting price is pushed so high.

But really, I just can’t imagine couples making $200K as people looking for starter homes. Shouldn’t it be couples making $50-100K a year?

It is all relative. 400K will only buy an apartment-conversion nowadays. However, I definitely see that new 2/2 condos selling at this range again.

thanks for going out of your way to take a look at the presentation, OO.

i'm quite disgusted by the quality of architecture in sydney, btw. if an architect has even breathed on a project, real estate agents try to add $200 000 to the price, simply because most of what is here is really awful looking tat. you can get a really good looking place in melbourne for a lot less than an ordinary place in sydney. that has changed a little lately due to a style guide and edict by the state premier, but only in the last 5 years or so. even now, developers still build vast banks of identical apartments which are not human scale and made unattractive by sheer repetition and size -- and still charge drug money for them...

I’m not sure helping the poor to “own” homes is the greatest idea.

Astrid, think again... great idea for whom? :)

Most recent homebuyers have no business in homeownership. Somehow, it is considered too un-PC to break them this piece of news.

My progressivism is informed by a basic understanding of scarcity and human behavior. I would support higher minimum wages, free preventative healthcare, and free pre-school education first. Those would do much more to help the working poor and the lower middle class.

Ownership of housing has substantial downsides, especially for people who have little budgeting skills and are vulnerable to frequent layoffs and firings. Abundance of cheap, safe rental housing would do the working poor much more good than any misguided efforts to get the working poor into shoddy shitboxes.

I would support higher minimum wages, free preventative healthcare, and free pre-school education first. Those would do much more to help the working poor and the lower middle class.

The workforce also needs to be properly incentivized. This is why I favor no minimum wage and a flat tax. This way, people will be more inclined to better themselves. Education is more important than healthcare.

Abundance of cheap, safe rental housing would do the working poor much more good than any misguided efforts to get the working poor into shoddy shitboxes.

I agree. But existing homeowners will always lobby against low-income housing projects. They would love to see poor people getting toxic loans so that someone will be buying their shitboxes.

what you're really saying is that the US welfare system is so far behind the pack that they haven't even got healthcare and the minimum wage right. and that's quite right -- the US is always listed at the bottom of any taxonomy of affluent welfare states. and i think the reason for that becomes obvious when posters even here advocate making things even worse as a preferred policy direction.

i don't think the 'poor' and working class are by definition poor savers and poor budgeters, they just have less to bring to the labour market than others, and therefore remain trampled at the bottom of the heap. a whole broad package of reforms and restructuring would have to take place to make sure you didn't just sell them 'shoddy houses', especially since the cost of constructing even a good house is relatively low, and the rest is all about unfettered market speculation and greed, leaving the poor behind.

DS, I actually believe that the minimum wage system is detrimental to the poor.

Poor people are poor usually because circumstances are against them. This is difficult to change. We can only hope to make resources so adundant that everybody has enough. I think technology can help a bit here, but... hey, they are not making any more land. :)

As for buying real estate. I don’t even think about buying for the next 5 to 10 years. Renting is not only cheaper, but more economically efficient and has a more economically transparent structure.

Astrid, I used to think that way. However, as my first Saturn Return approaches, my desire to settle and put down roots intensifies. Do not underestimate heavenly objects. ;)

DS, I actually believe that the minimum wage system is detrimental to the poor.

Poor people are poor usually because circumstances are against them. This is difficult to change. We can only hope to make resources so adundant that everybody has enough.

hmm, it just ain't necessarily so in other countries that have higher minimum wages. australia's minimum wage is about the highest in the OECD at about $12/hr, but at least it ensures survival without having to turn to crime. that's been one of the mainstays of the social settlement and maintaining social order by not creating an underclass.

the 'circumstances' are human circumstances that can be changed, it's important not to lose sight of that -- it's not some abstract functioning of the elements like the wind and the rain. it's a totally arbitrary socially controlled and socially constructed system. i think one good way of making the poor less poor is to pay them more. and the visible result is a flattening of the wage structure and more equitable outcomes for all, with an overall increase in wellbeing and a reduction in crime, everything else being equal. otherwise you will end up with a brazil-like society of favelas and constant crime and danger where life is cheap, nasty, brutish and short. in a sea of surplus, abundance and affluence. it's a wilful failure to do the right thing.

DS,

I cannot open your Power Point, being on a Mac, but I know that Bridge builds some very nice, well designed housing. Often they use the "market rate" housing portion to subsidize the low income piece.

I went to the launch of this property:

http://www.bridgehousing.com/Default.aspx?DN=192,32,7,1,Documents

because my wife works for one of the underwriters. It is a really well put together place with lots of common space and a real sense of community. I went with my daughter, so I ended up hanging out with all the other parents, who were all renters there, not with the politicos who were there for the official launch. Oh well, schmoozing is my wife's job, not mine...

Any thoughts on the RE market in the Greater Seattle Area?

People, don't be too arrogant. We poor people do not need your help. If you help yourself succeed, you will make the economy strong and as a result benefit us poor. So instead of leading an idle life debating policies for the poor, why don't you go out and start small businesses and hire us poor people? We want to work, damn it. If I can afford a plane ticket to China, I would go there and compete with the Chinese. I want a job!!

DS,

The poor tend to be less educated and have fewer financial planning resources. And I think that makes them less suitable as home owners. A lot of people are not suited to be home owners; I, for one, am quite poor and not suited to home ownership.

Governor Conan,

But I don't think you'd enjoy competing with the Chinese. The work atmosphere there is positively 19th century. There's a reason why the US and Europe has created a social contract (though the one in the US is now in great disrepair) to avoid that kind of race to the bottom. You think finding a job and going to work is a drag in the US? It's much much worse in China.

Peter P,

I would recommend you go to Great Basin National Park and camp in one of the high campgrounds. You will find the most amazing night sky there. (much better than Bryce Canyon)