patrick.net

Also, if you look at the income distribution of the Bay Area, it peaks at the 100k – 150k level with 18% of the population at that range. Then it dips to 7% at the 150k to 200k range with another 7% at 200k or more. So that’s 32% of households earning 100k or more. I’d imagine many with the means to do so buy multiple properties in highly desirable. Finally, the Bay Area still has lots of high paying jobs left and many people with ample savings accounts.

SF vs US Income

Bobby,

There's a nuanced symantic in that reference about household income. In my working class neighborhood, the households can have as many as four or even more adults working in the same household. parking their vehicles all over the place.

In the richer neighborhoods there is a preponderance of those households with two working parents, childcare bills, and other expenses they feel they need to keep up appearances, they may have a high income but that doesn't mean they're not strapped.

Read "The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke", by Elizabeth Warren, she discusses the Beautiful People mainly on the other coast who may have high household income but on the balance sheet appear to be the working poor.

thomas.wong89 says

Much of this wealth came from the stock bubble of the late 90s.
There was very little talk of ‘wealth’ before that.

exaccoly. The IPO bubble was essentially minting millionaires by the hundreds if not thousands. Not that many houses in Atherton for all these millionaire types, LOL.

Doesn't matter if the dotcom was a bubble since all the smart money cashed out.

thomas.wong89 says

Troy, who do you define as ’smart money’?

Industry professionals who took the dotcom money and ran. I personally know many semi-retired MSFT and GOOG millionaires living the good life in the MP->LG corridor. How much valuation did the dotcom stocks have on Jan 1, 2000? A trillion? Ignoring the VC contingent, how much of this valuation did the worker bees cash out? 5% maybe?

Thats $50 billion dollars, 100,000 dotcom winners @ $500,000 each. Seems about right, if anything a bit low. Anyhoo, this money flow can be directly measured by the California state budget surpluses of the time. The smart money banked the money into their house and is now living off the interest like good capitalists.

Having poked around for contract programming jobs in the last few months, I can tell you for sure that salaries are down dramatically. I got offers that were HALF of what I used to make, and just had to laugh. The best one was 82% of my old rate. The high unemployment rate makes employers think you're desperate and will take anything. I'm not there yet, but I know people who are, and I have to compete with them...

Mass unemployment is good news though, since it means that housing prices will keep falling! When even one spouse in those two-salary couples gets laid off, they'll have a very hard time getting the same rate in their new job.

Population doesn't pay the rent, j-o-b-s do.

Granted, welfare disbursements DO pay the rent. Conservatives who rail against the welfare state simply do not understand how much these transfer payments end up in landlords' pockets. The ones who do go radio silent on this issue, LOL.

Guys, I think you can objectively cite objectively collected objective statistics till Kingdom Come, to make your points. It **IS** your ***SUBJECTIVE*** incites that you "subject" to the stats that add value to the discussions.

So many enterprises here like the Central Pacific railroad and YouTube and much've everything between would've busted with backward beancounting bent "objectivity" which necessarily lax vision and creativity.

California has the greatest opportunity compared to any other state which is why people will continue to come here and smart people will continue to come here.

The really smart people will visit. Southwest flights are cheaper than rent.

When you punish capital, it goes away.

Austinhousingbubble says

When you punish capital, it goes away.

Capital is not wealth. We could reinstitute Eisenhower-era taxation and not be one iota less wealthy.

The funny thing is I personally think taxing capital before land is wrong, wrong, wrong.

The greatest inherent virtue of land value taxation is that rentiers can't move the land anywhere.

California is not wealthy due to its capital but due to its labor --all capital comes from labor.

Troy,

are you saying that california is "NOT WEALTHY" because of its labor costs or are you saying that california "IS WEALTHY" regardless of its capital?

Regardless, you and Austin could consider another perspective of wealth that was enunciated by professors Stanley and Danko in their 1990's book "The Millionaire Next Door": an alternative measure of wealth is the money (or wealth) in RESERVE to sustain one's expenses without getting any wages. In that measure some bubba living in a trailer in the boondox outside of Austin could be a whole lot wealthier than a Hip and Cool Beautiful "millionaire" in the Hip and Cool Bay Area. Think about it. With our GDP per person in the USA you'd think we're one of the richest nations, but if you look at the balance sheet you'd say we're broke.

sybrib says

With our GDP per person in the USA you’d think we’re one of the richest nations, but if you look at the balance sheet you’d say we’re broke.

This is because our economy is structured to require nearly everyone to run the rat race to pay for housing.

Show me a person that has their house paid off and I'll show you a comfortably positioned family.

You'd think that after occupying this country for more than 400 years (and California for 5 generations) we'd have the land paid off now, yet home equity is the lowest ever, with around $11T borrowed against homes currently. In 1990 this was $2.5T.

If rents were 50% lower we'd all be a lot wealthier, no? Why are rents so high??? The sticker on the microwave in my apartment says made in 1988. This apartment should be halfway depreciated by now, yet the rent is 3X what it was in the late 80s.

E-man says

My wife and I currently have $1.3 million in debt. All at 4.75% to 5.375% at 30 years fixed. Our home mortgage and property tax are currently being paid by our tennants. Beautiful isn’t it? Good debt is your friend.

But gross rents in the Bay Area are generally lower than 5%. So you must have a net cash flow loss on a monthly basis because of taxes, maintenance, and insurance. Or maybe your rentals are not in the Bay Area, and gross rents are higher than 5% where your rentals are.

These posts are making me laugh! Lets get real? When the next stock market crash---claims its next victims by a drop of 2-3,000 on the NYSE than we shall see what happens!

I hear lots of people are preparing for an unraveling of the social fabric. If you have an office job and are OVERHEAD, you better prepare for a pink slip. I just can't see Concord as anything other than what it REALLY is. The Naval Weapons depot! It may have changed names, but their are TONS of NUKES stored in those hills. It is NOT Beverly Hills! Hopefully they dont' have ANOTHER port Chicago disaster. I met people who SAW it. They believe to this day ---WHAT THEY SAW. Google it. No one in Government wants to talk about what happened. And you want to live there?

E-man,

You assume you can refi in 6 months. What if prices drop and you can't get an apprisal then your stuck with that heloc loan. No?

Big Man,

Your tenant is getting gouged.

I rented in that neighborhood before, even though I had a good job at Lockheed at the time, so save some cash for other things. On a Sunday afternoon while my roommate was at the beach and I was out playing golf, some thugs literally busted the front door off the frame to get in, ripped us off of our gadgets, rifled through my roommate's fiance's lingerie, busted up a bunch of stuff in the house and even deficated on the floor. And nobody in the neighborhood saw anything. Yeah right.

We were out of there very soon after that, and it was the landlord's problem.

I moved into another rental not too far away. The next door neighbor, also a renter had pitbulls. Both landlords of these adjacent properties could not care less about the fence being in disrepair, even though I told them both in certified letters putting them on notice that if those dogs did anything to hurt my family I would not bother with their tenant instead I would sue their asses. But the tenants were the kind of "unsavory" people who I think the landlord was afraid of, so he did the only thing he thought he could do at the time without the tenant coming after him: he sold the property, probably at a loss.

Happy landlording,

sybrib

E-man.
225K/1700, 330K/1300, and 360K/1700... $4700 rent income looks like negative cash flow to me. Hope nothing bad is gonna happen to your property, otherwise we may be seeing another "help us keep our home" website in the future.

E-man says

Have you ever considered of borrowing money from credit cards to buy investment properties?

I've got $15,000 from US Bank at 2.9% fixed that I put in the stock market Oct '08. . .

I fully agree that playing the investment property game is the way to make a lot of money in this world.

Being a Georgist I find it the most immoral, socially parasitical if not outright slimy economic activity imaginable, but no one can deny that the PtB have stacked the deck to encourage the permanent enslavement of the lower classes by their social betters. 'twas ever so, except perhaps for the 30-40 year window where the Homestead Act was in operation (but even then homesteaders were under the thumb of railroad barons and NYC financial manipulators).

I'm fully convinced that we as a nation lack the collective IQ to perceive the malinvestment into real estate., the counter-productive nature of bidding land values up, and the totally ignored tax base that is the $20T real estate basis.

We're immersed in site value like fish in the ocean. It influences us completely, yet we do not really sense it, nor can we. Only the sharks among us know the secret.

The mistakes of 2002-2006 will be repeated, just as the mistakes of 1926-29 were.

Ugh.

Wise was the man who said that if every whiz who bloviated about the markets was really as slick as they fancied, they'd be in a Chateau screwing twins instead of playing # crunchy grab-ass on internet forums.

Sybirb is likely and fairly unnerved by the fact that somehow, in some way, a portion of your potential investment losses have a very good chance of coming out of his pocket at some point in the future, or perhaps his kid's pockets -- especially if any of those loans are FHA insured. Maybe it'll be during the next downturn? In any event, speculative/real estate wealth strikes me as one of the most unimaginative smash-n-grab wealth building schemes there is. Wealth for the sake of wealth. It advances nothing.

E-man says

My tenant offered me $1,700/month. I thought it was reasonable and agreed.

Yup, while the LL tenant relationship is rather asymmetrical once established (moving is a colossal hassle for most people), when it starts it's strictly a free market.

That e-man was able to steal a rentable house on the courthouse steps isn't his problem. I'd be doing it too if I could. Put that $215,000 balance on a 15 year loan at 4% -- that's $700/mo in credit expense.

Just like individual, decentralized actions can collectively benefit society -- Smith's Invisible Hand orchestrating supply to meet demand -- individual actions that maximize profit can also be an eventual detriment to society -- the Tragedy of the (Unmanaged) Commons. Sharks looking for free money buying up the housing stock is a long-standing example of this. Winston Churchill on this, 100 years ago:

"I hope you will understand that, when I speak of the land monopolist, I am dealing more with the process than with the individual landowner. I have no wish to hold any class up to public disapprobation. I do not think that the man who makes money by unearned increment in land is morally a worse man than anyone else who gathers his profit where he finds it in this hard world under the law and according to common usage. It is not the individual I attack, it is the system. It is not the man who is bad, it is the law which is bad. It is not the man who is blameworthy for doing what the law allows and what other men do, it is the State which would be blameworthy were it not to endeavour to reform the law and correct the practice. We do not want to punish the landlord. We want to alter the law." (Speech here)

As for term life, I have no idea how to crunch those numbers. Better to be overinsured than underinsured I guess.