By Peter P
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2006 Jul 19, 11:10am
20,851 views 235 comments
How are we going to assist distressed homedebtors in the coming days? Is this a moral obligation?
What would Immanuel Kant say?
What would J. S. Mill say?
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Hey burbed, it's never too late to get in. I say since rents dropped 30% and are now "up" 9% (nevermind that all the flipper condos are reverting back to apts) it is clearly a "soft landing" and time for you to make the plunge. Otherwise you might be priced out forever. After all, it makes much more sense to pay 5-9K for a shit box that to rent for 1300.
Go for it! You can do this!
next time post the entire article, cherry picking a bunch of bullshit spewed by some fucking asshole affiliated with the realtwhores does little good. Hmmmm, the "average" mortgage payment was 3200. That's not the whole monthly nut.
The average mortgage payment Bay Area buyers committed to paying in June was $3,183, DataQuick said.
Nevertheless, DataQuick researcher John Karevoll predicts home prices will cool further -- and possibly fall slightly as San Diego's market has -- in coming months. Much will depend on the trajectory of interest rates, employment and foreign investment.
"The big question we started asking years ago was -- is this cycle ending with a crash or soft landing?" Karevoll said. "It's clear now we're in the middle of the soft landing. We had our frenzy and now the sales and appreciation rates are coming down. Now the question is will it go negative or will it approach zero and level off?"
Shit, i am totally wrong, the good folks at realtwhore inc. would never lie would they? Would they? Why would they possibly lie? They are just here to help us, why just last year they were helping us at Starbucks. They are merely continuing a tradition of service. I believe each and every story they tell. Really. The strong fundamentals of the bay area have been discussed ad infinitum, and no matter how you slice it the conclusion is constant, they aren't making anymore land, the average salary in the bay area is 250K, and it is such a perfect place to live of course it commands a premium. Shit they should bottle the air, now there's a money making idea.
Ok gotta go beat the shit out of a realtwhore. nighty night.
The Business Press: Are you really that bullish on the local housing market?
John Karevoll: Yes, I am. I'm not one who listens to all of the talk about a housing bubble. A bubble market has specific characteristics, like a lot of speculative buying. We have some of that [in the two-county region] but that's not what's driving the market. Most of the people who are buying houses out here are buying so they can put a roof over their heads. The market will settle down, but it's not going to pop.
He's a fucking genius, I say a MacArthur award for him.
I'm going to a "home buying seminar" in goleta next week. i can't fucking wait to hear their suggestions as to how my 91K pitance can buy a 800K shitbox.
Michael Holliday Says:
Thatâ€™s it. I quit. I guess housing does only go up in Cali.
Rents at San Jose-area apartment complexes rose more this spring than at any time since the peak of the tech boom.
not really, this is just Phase II -- the rents go up because the landlords are hurting. if wages and salaries don't go up with it, interesting things will happen as people are forced to commit >> 30% of their net income to housing. hence the overall result will most likely be systemic inflation (Phase III), where wages struggle to keep up with cost of living.
alternatively, you've just created a new dual-class society of landlords and tenants, in virtually equal numbers, and it's been done by manipulating prices to deliberately exclude more and more people from purchasing. oh well. the next step will be evolving into Eloi and Morlocks, where the landlords become feeble and weak, and the Morlocks feast on them at night where possible...
Ok, it's official --now I've seen everything. My favorite part:
ABOUT 24/7 NEG AM LOANS
WHY A NEG AM WEBSITE?
I started this website because I noticed that there is not that much information on the Internet concerning Negative Amortization Loans. Also the information I found on the Internet concerning this type of loan was usually on the negative side. Just because there is the word negative in its title does not mean that this type of loan is bad for borrowers. I realize, the Negative Amortization Loan is not for everyone but it is very beneficial and positive for many borrowers. It allows many investors to increase their real estate holdings and have positive cash flow from day one on investment properties. For many borrowers it gives them the opportunity to afford to buy a home or enables them to buy a bigger and better home. (See Benefits of the Negative Amortization Loan Page for more detailed information).
All this time I've been bashing NAAVLPs I never realized that these borrowers were all Zephyr-esque brilliant market-timing professional investors simply interested in optimizing their cash-flow. How wrong I've been! The people I've been disparaging as specuvestors are actually Cunning Hard-eyed Ultra-savvy Market ProfessionalS (CHUMPS). The 80% or so who took out option-ARMs in CA last year clearly are all "top drawer" geniuses who fully understand the downside risks and are financially prepared for them.
Thanks for setting me straight, Shawn!
Bay Area soft landing is in the cards. It is not in the bag though. :)
...A revitalized local job market and RISING HOME PRICES are two factors driving the rental market, said Caroline Latham, owner of RealFacts.
...the average rent ticked up 9 percent to $1,259 amid a strengthening economy and improving corporate profits.
Incredible! So if rents are going up so fast because of a "revitalized local job market" and a "strengthening economy" then WAGES are sure to follow, right?? That's WONDERFUL NEWS! I plan on marching into my boss's office tomorrow and telling that stingy bastard to GIMME MY F*CKING 9% RAISE or I'm outta here! I mean, with the job market so tight and me so in demand, I can pretty much name my price, right?
Wow, this is MY kind of soft landing!
When people talk about inflation bailing out the housing market, I call BS. The only kind of inflation which would directly affect home prices is *wage* inflation. The high oil prices and rising cost of living aren't going to help any, unless they are accompanied by much higher wages.
Accordingly, I prepared a spreadsheet comparing nominal median household income to nominal median home prices in California since 1984. (I generously assumed 4% wage growth in '04 and '05 because I did not have a source for this data). The final column shows the annual multiple of household income to home price (eg: 4.5 means a home costs 4.5x median annual income. As you can see from the data, prior to 2002 the multiple was never greater than 6 and averaged around 5.5. With the 2003-2005 data included, the average multiple was 5.7. The multiple is now over 10. This is insanity. The inevitable regression to the mean has probably already started. But it could take a long time to regress. From 1991-1996, the multiple compressed from 5.96 to 4.57. That, unfortunately, is a long time to wait.
I suspect that the recent multiple expansion is largely a function of the low interest rate environment post-2002. But home prices are now completely detached from fundamentals--even after accounting for the low interest rates. We may not see a 50% nominal decline, but a 50% real decline is certainly not out of the question--especially if mortgage credit continues to tighten, which seems likely.
Here are the numbers (hope the columns post ok):
Year Med Inc. Pct Gain Med HP Pct Gain Multiple
1984 $25,287 $114,260 0.10% 4.52
1985 $26,981 6.70% $119,860 4.90% 4.44
1986 $29,010 7.52% $133,640 11.50% 4.61
1987 $30,146 3.92% $142,060 6.30% 4.71
1988 $30,287 0.47% $168,200 18.40% 5.55
1989 $33,009 8.99% $196,120 16.60% 5.94
1990 $33,290 0.85% $193,770 -1.20% 5.82
1991 $33,664 1.12% $200,660 3.60% 5.96
1992 $34,903 3.68% $197,030 -1.80% 5.65
1993 $34,073 -2.38% $188,240 4.50% 5.52
1994 $35,331 3.69% $185,010 -1.70% 5.24
1995 $37,009 4.75% $178,160 -3.70% 4.81
1996 $38,812 4.87% $177,270 0.50% 4.57
1997 $39,694 2.27% $186,490 5.20% 4.70
1998 $40,934 3.12% $200,100 7.30% 4.89
1999 $43,629 6.58% $217,510 8.70% 4.99
2000 $46,816 7.30% $241,350 11.00% 5.16
2001 $47,262 0.95% $262,350 8.70% 5.55
2002 $47,437 0.37% $316,130 20.50% 6.66
2003 $49,300 3.93% $371,520 17.50% 7.54
2004 $51,272 4.00% $450,990 21.40% 8.80
2005 $53,323 4.00% $548,000 21.51% 10.28
AVG 3.65% AVG 8.17% 5.72
CUM 110.87% CUM 379.61%
Darn. The columns are messy. In the first line, I did not include a "percentage gain" after the "median household income column." So you can mentally shift the rest of the numbers in the first row over a couple of spaces.
The numbers at the bottom show average wage inflation over the period (3.65%), cumulative wage inflation (110.87%), average home price inflation (8.17%), cumulative home price inflation (379.61%), and average multiple of home price to income over the period (5.72).
I did not include any "hedonic adjustments" because the fact that a house is bigger or better doesn't matter if it is unaffordable.
For all those who say that we can't have a housing bust because of Prop 13, zoning laws, immigration or whatever else, consider that those factors were all at play during the bust of the early '90s.
I guess you donâ€™t know anyone at Google, or Yahoo, or any other tech support. Finding a qualified developer is next to impossible these days. It is tight tight tight.
Finding highly qualified developers has ALWAYS been hard. Top people in any growth industry are always in demand because they're, well, top people. Too bad 99.9% of CA's population aren't top developers (or CEOs, brain surgeons, movie stars, investment bankers, etc.).
Googlaires & Yahoo...aires may appreciably affect the price of housing in Mountain View and Sunnyvale --their immediate "Orb of influence" to quote Peter P. Exactly how they they affect it elsewhere, though, is far from proven.
7.8x is still pretty bad.
But I was using statewide numbers. I guess Santa Clara is more "affordable" by this measure than California as a whole. $97K seems awfully high for a median, though. Are you sure that's right?
For all those who say that we canâ€™t have a housing bust because of Prop 13, zoning laws, immigration or whatever else, consider that those factors were all at play during the bust of the early â€™90s.
Glen, I don't believe that these factors cumulatively can prevent a bust, but I am in the camp that believes they are a BIG factor in why the long-term median ratio here is closer to 5-6 (as you noted --thanks for the data) rather than 3-4X incomes, which is common in the rest of the country. This was not true prior to the 1970s, before NIMBYism, NURB, Prop.13 and the current flood of illegal immigration. As many have noted, even if/when prices drop 50% in real terms, housing here will STILL be considerably more expensive vs. incomes than the rest of the U.S.
According to this source, Santa Clara County median income was $68K in 2003--have wages have gone up by 1/3 in 2 years? Or were you citing City of Santa Clara stats? Either way, the valuations still look pretty steep.
I am in the camp that believes they are a BIG factor in why the long-term median ratio here is closer to 5-6 (as you noted â€“thanks for the data) rather than 3-4X incomes, which is common in the rest of the country.
Agreed. Although my HH income is comfortably above the median, there is no f'ing way I would pay 6x (or even 4x) my annual income for anything. Ever. But if median home prices dropped to 6x median HH income, then I may be tempted to buy something at 2-3x my HH income. Otherwise, I guess I'll just continue to rent and take my annual pounding when I file my taxes.
Crazy as it sounds, I am seriously considering purchasing an income property in a non-bubble state just so I can start itemizing and take state income tax, interest and depreciation deductions. I wouldn't buy anything with negative cash flow, though.
If this actually comes to pass, may be time to consider a move elsewhere. Hope it never comes to pass, cause I donâ€™t speak Australian.
we'll accept economic refugees from affluent countries... Give us your poor, your tired, your huddled masses yearning to breathe free... hmm, that's not current immigration policy, we need to see bank balances and character checks...
we'll always accept economic refugees from affluent countries... Give us your poor, your tired, your huddled masses yearning to breathe free... hmm, that's not current immigration policy, we need to see bank balances and character checks and only professional people, please...
seriously, i think they'd welcome it, tho you'd have to learn to drive on the other side of the road, and you'd probably never adjust to free healthcare and low cost education ;) 'physically', you might think you'd never stepped out of california with all the high rise, californian bungalows and multinational fast food franchises...
further, they don't really give people 'credit ratings' here in terms of a number, nor link anything to your 'social security number'. credit checks are just quick once-over type things for a loan, altho you have to supply docs etc still. similarly, no-one tracks their GPA, unless they're trying to get into a graduate medicine course...
maybe it is the true 'land of the free' ;)
To BA or Not to BA,
Great stats on the SAC area. Just perusing through the listings the blogger posted read like a freaking comedy! The price reductions were comical in and of themselves but where I was getting a real "hoot" was the sheer amount of transactional activity! Some of the homes had been bought and sold 3 and 4 times in a period of UNDER two years. This doesn't even address the refinancing issues. Didn't all of this activity concern anyone? The SAC Bubble guy admitted he lacked the capability to post more than 100 at a time but that there were plenty more. How is it possible to mistake this furious market action for anything other than what it is? Flipping. Also interesting to note that as 2005 wore on what little profitablility there was began to get slender. NOTHING in 2006 could be bought and then sold at ANY level of profit. Good stuff.
On the Blog "jumping the shark".
When I was a "boot camp" in the Navy and a rookie stockbroker I really had to "keep my nose to the grindstone". These are hazardous working environments that have little room for error. In many cases you only get "one strike". Suffice it to say when you're learning the ropes there isn't a lot of wiggle room for goofing off. Seasoned veterans will let you know when you've paid your dues and have the basics down well enough to afford jocularity. I'll always remember those days fondly.
Before any of us became overtly aware there was a bubble a nagging suspicion things weren't right. For many of us this was a time before the term "housing bubble" was yet to be coined. This whole issue has forced us to conduct a great deal of painstaking research (at a time when there wasn't a lot frankly). Now that we're in a full blown crash we are seeing our labors come to fruition.
We are now "seasoned vets" shaking our heads watching rookies make rookie mistakes. (One of the best parts of being a "vet"). If we screw off once in awhile, please understand this part of "bubble fatigue" that comes with an extended tour of duty. I love the "blood and guts" as much as the next CBA (Certified Bubble Analyst) but when we're having a card game, please close the door on your way in, (air conditioning is precious in the tropics).
Glen, Thanks for the stats.
burbed, what's sad about Mtn Vw is that I remember in the late 80's and early 90's, it was a crappy place to live, with horrible housing stock, a dead downtown, and bad schools. It looks like the only things that have changed since is people with more money are paying a lot more for those same crappy houses to send their kids to the same crappy schools, and Castro St. has spiffed itself up a bit since.
But if you live in the right part of MV you can get into the better Los Altos schools. Which has pushed the prices up, so much so, that you could probably just buy ahouse in Los Altos in teh first place.
Not everyone buying in MV realizes this so the comps (I believe) have been used to push up the adjacent, more crappy housing too.
Yes, I agree with both your points re: MV. It'll be interesting to see if the reverse is true - when areas outside of the "Google orb of influence" continue to fall more and more, will places like MV be dragged down eventually?
I'll hark back on the 275k salary one more time. I'm not neccesarily bitching about it because I know way too many lawyers that wind up becoming total strangers to their kids and family since they live at the office. No thanks. But if someone paid me 275k, I'd be VERY content.
While I realize this is totally socialist thinking, I don't think there should be that HUGE of a delta between working class and the upper class. A worker at Mcdonalds might make 25k a year. The next tier, and not that far up the ladder is the middle class, hovering around 50-75k. But the upper class wages are often 4 and 5 times that of the average middle income wage earner, and as much as 10-15 times that of a low income worker. No wonder cities are becoming little hell-holes for people not into the money.
Anyhow, that's my rant ( friday rant). Sorry if I sound nasty. Anyhow, I am a little pissed today because there has been this nasty house for sale since November on my street for over a million bucks. This house doesn't look like a million bucks on the outside, and it looks like a prison on thee inside. I've been watching this place forever. The damned thing is pending now! What the hell? there are STILL people buying insanely overpriced properties? let me guess- another 1988 Nissan Sentra driving family is gonna move in. I know this sounds Cliche'... but HOW IN THE HELL do these people afford these damned things?! Sorry... kinda irratated today.
I hope so, we rent in MV and the rent has just gone up.....
I wish someone would suggest to Google that they should start up a second location in Arizona and relocate some of their staff too - the land would be cheaper for them. That might free up some housing.
Otherwise we will be the ones moving, eventually, once we know what's what with my husband's current job - at the minute we are kept here by the job (a biotech start-up). We like it here, but I don't think I could ever justify sinking 500,000 to 800,000 let alone 1.2m in a house, when you could buy one on the East Coast for a lot less and get a lot more.
BTW we were told to get a liar loan - interest only - if we wanted to buy a house here, we certainly couldn't get a house otherwise - I'm not that desperate or stupid. Let the landlord pay property tax and all the repair bills, that's what I say!
"The 97k number is from the HUD site. It makes sense too. If you look at the Countyâ€™s â€œLow Incomeâ€ programs, low income is defined as like $60k a year or something."
When I hear things like this, it makes me file like garbage. I worked for years making 30k. Even then I was able to save around 15k. I dreamed of the day I would make 45-50, even 60k. Now that I make that amount, it doesn't mean squat. Even a 100k salary simply means you have a little extra for new toys, like maybe a new Honda Civic and TV. whopee. All I can do now is hunker down and save-save-save for something I may not be able to ever afford. Great outlook and reason to work, right?
You would think that many tech and development companies would move out of California. For 3 years running, California has made the list of one of the worst states to conduct business. This includes all sectors and industries. The reasoning comes from factors such as taxation, environmental regulations, power costs, and the high wages employees demand in order to live there. You would think that there would be this massive sucking sound off companies leaving the BA for other regions. They are, but if you look at the method they are doing it, it makes sense. Notice that a lot of those tech companies pay a lot of money to their employees? Well in reality, many of these firms like Cisco, Microsoft, Intel, and many others are and have been setting up satelite operations in other states while keeping their bases in their respective home states. There are tons of people now working for Cisco systems in Raleigh/Durahm. The number of flights from NYC to Raleigh went from 2 a day to 12 in 3 years. What's happening is that these companies are growing, but they're also growing in other states while slowly paring down their workforce in CA, WA, etc. SV has been losing around 1-3% of it's workforce since 2001. The people that are left are upper level management people, hence the higher wages and the more expenssive homes. Research, development, and engineering is increasingly being done in places like Boise, NC, TX, and GA. While nobody can claim there has been an exodus from the BA off tgech jobs, the companies that exsist here are in a very flexible situation. If things get nasty here, they are now set up in cheaper areas with younger talent and can simply do a track switching manuver. Pretty smart if you ask me. All I know is that many of my friends who stayed back home and went into tech careers are now suddenly finding a lot off work available where just 3 years ago there was nothing. That is very telling of the shift in economic fortunes that we could see within the country to new regions.
Glen (in a great post) Says:
> I prepared a spreadsheet comparing nominal median
> household income to nominal median home prices in
> California since 1984. The final column shows the annual
> multiple of household income to home price (eg: 4.5
> means a home costs 4.5x median annual income. As
> you can see from the data, prior to 2002 the multiple
> was never greater than 6 and averaged around 5.5.
You need to remember that almost half the people in the state do not own homes and most of the people that don't own homes don't make much money and can't afford a home. If you look at census track data over the last 50 years in areas where most people own homes the multiples are in the 3 to 4 range. Statewide data includes college students, people in housing projects and tons of real poor people packed in to crappy apartments that lower the average and median income increasing the multiple....
I agree that the numbers are only suggestive, not dispositive, for the reasons you mentioned.
But at a certain point, there does need to be some correlation between incomes and housing prices. Of course, a median income family is not going to purchase a median income home (so the 10x multiple is a little misleading). But they may very well purchase a home at 6-7x their household income.
If I may make a rather blatant statement, I find it ironic that so many people in SF desperately want SF to be like a "mini-europe", with the only diffrence being the inconvenience of being attached the the "other" chunk of the country.
Well.. at least economically, SF has suceeded in that respects, making sure that their economic situation has much disparity as you'd find in any number of those old word economies. Bravo! Bravo!
Man am I feeling GOOD on a Friday! I hear Leslie Appleton-Young is doing a COMPLETE 180 on her "soft landing" statements! "We'll have to come up with something else" says Leslie.
Michael Anderson (what kind of car do you suppose she drives)?
Speaking of "repairs" my gutter is still dangling.
HARM: I'll have daughter #2's boy friend show me how to upload the pic's.
Damn I'm feelin' good on a Friday. Under three hours to go!
I'd LOVE to hear that. I've written to her repeatedly, for 2 years about this subject, and her company never got back to me, which isn't a surprise really, bbut to hear her say something I suggested 2 years ago would be rewarding.
New thread: New term to describe the housing bubble future
European home prices are not all that bad outside of London and Paris. SF's situation seems more like NYC.
Do chill out some. You're in a good situation in Alameda and you have the option of moving away if you want instant gratification. Life is really not that bad. As sucky as the situation seems to be now, at least I have all of the internet and Futurama reruns (and the prospect of new episodes in 2007) to play with. My dinners are not constantly threatening me with cholera and botulism. Plus airplanes (even if coach) and air conditioning. Just enjoy the good aspects of your life while waiting for other aspects to turn around. Don't let the bad part piss you off too much.
WooHOO!! New Futurama episodes next year?
You've made my day :-)
I live in Cupertino; Earn 160K per year; Have 170K in Bank; Do not own a home â€¦â€¦
Which means everyone in the Bay Area does also, right? Your logic is amazing, clearly you deserve your meger salary.
Regarding Google, Google doesn't pay squat, sure if you are a Sr. Developer, but come on, they make money everywhere. Google stock options? Big deal, you only make money if they go up. Sure the pre ipo employess made money, but the brunt of Google is post ipo lackys. Google employees how many in the gold bricked BA? 4-5000? And what's the poplulation again? Move on, there is no rational justification for the housing cost, no matter what our resident idiot HaHa says.
My bad, it looks like the wait will be to 2008. Still, hopefully they can keep this run up for a couple more seasons.
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