patrick.net

For example, you can get a 2BR condo in a decent school district like Walnut Creek (average SAT score 1140) for $200k. To get a 2BR condo in an LA school district with that kind of average SAT score, you’d have to spend at least $400k, and probably $600k.

Are there 2BR condos for 200K? In the South Bay (Sunnyvale, Santa Clara) a reasonable 2/2 condo will still cost more than 500K.

In Condotino, a newer, recently converted, 2/2 condo costs more than 650K.

In Palo Alto, a nicer 2/2 condo can cost more than 1.2M.

I'll repost the link to NAR's metro area Q2 price info published today:

http://www.realtor.org/PublicAffairsWeb.nsf/Pages/2ndQtrMetros06?OpenDocument

Median prices of SFH Q2 2006 vs. 2005:
LA/Long Beach/Santa Ana is up +14.6%
SF/Oakland/Fremont is up +3.4%
SJ/Sunnyvale/Santa Clara is up +0.4%

Looks like LA's still on the upswing part of the bubble price curve.

SQT,

(from previous)

If these guys are playing with their own money I guess they can do what ever they want. Since they'll hold the deed on your primary residence SURE, they'll loan you the money to buy at "BARGAIN PRICES". Sounds like in the end they'll wind up with both!

Tannenbaum,

From Realtor.com. Here are a couple of listings, both in the Walnut Creek School District:

http://www.realtor.com/Prop/1064079981

http://www.realtor.com/Prop/1065890686

I am not saying that Walnut Creek is all that -- I spent a couple of weeks there last year taking depositions and found it to be pleasant but very dull -- but it's a decent place to live, and there are condos there for $200k. Along these same lines, I am not saying that a middle class family would want to live in a 2BR condo -- I wouldn't -- but at least they can.

Are you kidding?

The bubble is even more intersting in places like NYC. There, a generic 2BR condo in a one of the nicer areas of NYC’s Upper West Side will cost you $949k. We’re talking about Jerry Seinfeld’s apartment here, not a high-end place with a view of Central Park or the river. The upper-income suburbs of New York are dirt cheap by comparison. Private schools are a must.

Here is the reality:

1. Manhattan (the parts that people think of anyway) is beyond expensive. And if you can afford to live there, your kid isn't going to public school because of the paparrazzi.

2. Harlem is cheap (yes I know its part of Manhattan) - there are also some other cheap areas. But you wouldn't want to have kids there. But even if you did, and they were smart, they could get into Stuy/BronxSci etc - the magnet schools.

3. The outerboroughs like Queens and Brooklyn are far more affordable, but your smart kids would have to commute to Stuy/BronxSci. (They'll also be a lot less sheltered than Cali kids. I was always amazed to see 10 year olds taking the subway by themselves to go to class during rush hour. Most Cali natives wouldn't even know how to walk correctly)

4. And then there are suburbs like Long Island. The public schools in Long Island (Jericho, Great Neck, Herricks) are all in the top 25/50. Heck some are even top 15. There, you only send your kids to private school if your last name is Baldwin, or because you're ultra-Jewish/Christian.

Private school is definitely not a must in the suburbs. Why would it be? They don't have Prop 13 so everyone's property taxes are like $6-12k a year (unlike here where some people pay $400 a year). The facilities that some of these schools have (and the teacher pay) put my college to shame. :(

On another note, I never really thought of Walnut Creek as being in the Bay Area. I guess I'm very Peninsula'ed.

From the subject line, I really thought this would be "California vs Florida" or something else... as opposed to "one part of california versus another."

Reminds of people who are from LA and introduce themselves as being from "Down South". What? You're from Alabama?

Home Sales Decline in 28 States, D.C.

_snip_
"States with moderately priced areas that have experienced healthy job creation are seeing sales gains," said David Lereah, chief economist for the Realtors. "The economic backdrop remains favorable for the housing market, which is helping home sales level out."

Righhhhhhhhhhhhhhhhhhhhhhhhht.

Walnut Creek? It's certainly /near/ the bay area, but IMO once you cross the hills you're out of the BA. Of course, I don't consider SJ part of the BA either, but that's only because it's one of the empty zones in my mental map. (Yeah, I know better now, but it still feels odd.)

"For example, you can get a 2BR condo in a decent school district like Walnut Creek (average SAT score 1140) for $200k. "

Are you sure those are recent numbers? I haven't seen condos priced in that range (even in bad neighborhoods) since 2002 or 2003. A 2/2 condo in Walnut Creek should set you back 500K or more. The only BA listings going below 250K are trailers in trailer parks.

Joe,

Do not succumb to the temptation to try to rationalize prices anywhere in California. The whole state is completely out of whack. If the situation doesn't improve in the next couple of years, then many of the under 40 crowd will move to Atlanta, Austin or Raleigh. Wages are less in those places, but you can more than make up for the difference by purchasing a non-bubble priced house.

Just wait until Bush pushes through tax reform next year. One of the "big ideas" is to eliminate the deduction for state income taxes (possibly to be replaced by a deduction for sales taxes). This will absolutely kill high income homeowners in California and other highly taxed blue states. Aside from mortgage interest, state income taxes represent the largest itemized deduction for most homeowners.

RE: The "common wisdom" about Texas being the fabled land of easy home ownership and reasonable prices--

Unfortunately, there are many Texans who have never experienced the rewarding feeling of owning a home. That’s because Texas has one of the lowest homeownership rates in the nation — 45th out of 50 states — and the news is even worse for Austin. With a homeownership rate of only 62.1%, compared with a national average of 68.3, Austin ranks 12th from the bottom of a list of the 75 largest cities in the United States.

Clearly, we have a lot of catching up to do. And we have an opportunity to do just that if our legislators take a few important steps.

[...]

Texas has some of the highest property taxes in the nation and, due to high property values, tax bills in Austin rank among the highest in the state. High property taxes represent a significant barrier to homeownership. It’s important that significant cuts in school property taxes make it through the legislative process.

[...]

That’s right. In addition to myriad costs already in place when buying a home — inspections, title and hazard insurance, appraisal, document preparation and various other fees — Austinites would be forced to come up with an additional $2,000 or more at closing that most banks will not roll into a mortgage loan. Combine that with Austin’s high property values, and the negative impact of a real estate transfer tax — particularly for first-time buyers — becomes increasingly clear. In light of our already alarmingly low homeownership rates, do we really want to increase the cost of getting into a home?

Source: Texas Association of REALTORS®

My question: What's so special about Texas? Save on the price tag; pay on the tax line.

Just wait until Bush pushes through tax reform next year. One of the “big ideas” is to eliminate the deduction for state income taxes (possibly to be replaced by a deduction for sales taxes).

I am all for tax reform, but this may disincentivize charitable donations because minions like me will not be able to itemize anymore.

possibly to be replaced by a deduction for sales taxes

Too complicated. I hate having to account for all purchases.

If the situation doesn’t improve in the next couple of years, then many of the under 40 crowd will move to Atlanta, Austin or Raleigh. Wages are less in those places, but you can more than make up for the difference by purchasing a non-bubble priced house.

I don't see that happening. People have been saying that for years about Boston, California, New York - the great sucking sound has never happened. A mild fizz - yes, but that mass exodus will never happen.

There's a fatal assumption there that people will get what it's like to live in a place that's affordable. If you can't afford anything, you're certainly not going to be able to afford to see what its like in Atlanta, Austin, Raleigh.

That said, from the people I do know who have been stationed in Atlanta, I've only heard "I'm so glad to be back" comments.

The UCSB troll from 2 threads ago did have a point: people are not going to leave in droves. Didn't happen in 2000 when rent was $2k a month for a 1br, didn't happen in 2001 when the economy tanked in the BA (people left, but not like... say... in Grapes of Wrath), and not going to happen in the future.

Randy,

The legislature in Texas recently reduced property taxes. It is quite possible that Texas will have a "taxpayer revolt" at some point and they may end up with something like Prop 13. Needless to say, this would be good news for anyone who bought in early.

Besides, CA property taxes are not cheap if you buy in a bubble market (1.25% x $600,000 = $7,500). And what is a couple extra thousand a year when you save $200-400,000 on the purchase price?

http://www.texasrealtors.com/web/1/rally/letter051606.htm

No, I was mistaken, see above. The $200k 2BR condos are part of a retirement community, realtor.com does not mention that.

Still, Walnut Creek is more a part of SF than, say, the Inland Empire is part of LA. Walnut Creek is served by BART, and the commute into the Financial District of SF, even by car, isn't that bad. Walnut Creek may be dull, and it certainly isn't the cultural or intellecutal focal point of the BA, but it's part of the BA just the same.

I still think that the bubble is worse in LA. My Walnut Creek example did not hold water, it's true, but what about the Cupertino example? The simple fact is that the price of admisssion to the best public school district in SF is 550k (Cupertino) while in LA, it's $800k (San Marino.) And needless to say, average incomes are a LOT higher in the BA than in LA.

"Just wait until Bush pushes through tax reform next year. One of the “big ideas” is to eliminate the deduction for state income taxes (possibly to be replaced by a deduction for sales taxes)."

I guess the argument for is to prevent high income tax states from getting a free ride on federal tax deductions (so the citizenry doesn't feel quite as much of a pinch). The argument against is that this is an awful lot of like double taxation.

I don't think such a thing could ever get passed. All the governors (except for states without income taxes) will cry bloody murder and it'll be harder to get through than even a mortgage deduction. At least most people do not take a "below the line" mortgage interest rate deduction. People will miss an "above the line" state tax deduction much more.

Refusing to do anything about AMT will squeeze rich blue states much more than going after state taxes. I doubt taking out state tax deductions will have much traction outside of a tiny minority of starve the beast types.

California has really appallingly high taxes, esp. given the poor conditions of its public schools and roads.

There’s a fatal assumption there that people will get what it’s like to live in a place that’s affordable. If you can’t afford anything, you’re certainly not going to be able to afford to see what its like in Atlanta, Austin, Raleigh.

That said, from the people I do know who have been stationed in Atlanta, I’ve only heard “I’m so glad to be back” comments.

You can do all the research you need to do for free on craigslist or realtor.com. A lot of people in LA or SF were originally from some other part of the world or some other part of the country. They will not be loyal to CA (nor should they be) if they see better opportunities elsewhere.

The simple fact is that the price of admisssion to the best public school district in SF is 550k

That will give you a 1BR condo in Cupertino. Hey, where is the room for the kid?

I don’t see that happening. People have been saying that for years about Boston, California, New York - the great sucking sound has never happened. A mild fizz - yes, but that mass exodus will never happen.

Well I don't know about Boston or Cali, but in LI NY, it's been happening. and is picking up momentum; I will be leaving myself.

Peter P,

No need for condos, OO did the math for families with kids a month or so back. For the cost of that 1 bdrm condo mortgage, you can rent a 2 bdrm apartment in a good south bay school district.

For the cost of that 1 bdrm condo mortgage, you can rent a 2 bdrm apartment in a good south bay school district.

I think you can actually rent a 3-BR apartment in Cupertino for under $3000/month.

I don’t think such a thing could ever get passed. All the governors (except for states without income taxes) will cry bloody murder and it’ll be harder to get through than even a mortgage deduction.

A lot depends on the congressional elections. There could be a coalition of Republicans and red state democrats that could push it through. Or there could be a movement by Democrats and blue state Republicans to defeat it... But if the Republicans want it, they probably have the votes to get it.

Refusing to do anything about AMT will squeeze rich blue states much more than going after state taxes. I doubt taking out state tax deductions will have much traction outside of a tiny minority of starve the beast types.

One school of thought is that Republicans want the AMT to really start to bite first. Then they can repeal it, while enacting tougher to swallow reforms like the elimination of state income tax deductibility and take credit for a fairer, simpler tax system (with no AMT!). Something will need to be done in the next couple of years to raise revenues, IMO. The AMT actually is a flatter, fairer tax than the regular tax rules. So why not just scrap the regular system, expose everyone to AMT, then lower rates across the board? I know... it will never happen. Too many vested interests.

California has really appallingly high taxes, esp. given the poor conditions of its public schools and roads.

My guess is that this is more fallout from Prop 13. With most homeowners taxed at artificially low rates, the gov't needs to make up the lost revenue with higher income taxes.

We really should look at the jump in housing prices not as an additional strain on wages but a supplement to wages. So far unaffordable prices are only hitting young families, and even they are buffered by low interest rates, family loans (from their parents' home equity) and 0% down mortgages. Most home owners are still living it up complement of their homes. Even most buyers in the last five years have seen paper profits on their purchases and were able to borrow against that increase.

We haven't really seen the drag of housing prices to the cost of living yet. Once it comes, I believe the RE prices on the coast will drop like a stone. The BA may be wealthy, but it's not immune to its high price to income ratio.

Glen,

It's not just Prop 13, it's the whole proposition system of government. Something like 80 or 90% of the state budget is tied up by passed propositions. It doesn't leave much money for discretionary improvements or efficient expenditure.

Incidentally, it doesn't do much for making CA state legislature or the governor accountable for anything. The only way they can raise money for big projects is to borrow against the future with bonds.

Glen,

I'm fine with AMT for everybody. I'd like a graduated flat tax return that can be filled out in 15 minutes flat. The tax system is a rather wretched system for social engineering and works mostly as a permanent employment program for accountants and tax lawyers. Right now, it's really just the upper middle class getting pinched by the AMT...I'd like to see the wealthy and the uber-wealthy being forced to take income and pay their proper share of income taxes.

It’s not just Prop 13, it’s the whole proposition system of government. Something like 80 or 90% of the state budget is tied up by passed propositions. It doesn’t leave much money for discretionary improvements or efficient expenditure.

I agree. We have successfully tied the hands of our elected representatives with budget carve-outs and term limits. Too much democracy, IMO.

I don’t see that happening. People have been saying that for years about Boston, California, New York - the great sucking sound has never happened. A mild fizz - yes, but that mass exodus will never happen.

eburbed,

Can't speak for Boston or NY (allah has a good link above for LI), but this is flat out wrong for CA. The Great Exodus is already upon us and is bound to accelerate as the local RE-driven economy sputters and then founders:

http://www.usatoday.com/printedition/news/20051222/a_census22.art.htm
http://www.bizjournals.com/sanfrancisco/stories/2003/08/04/daily29.html
http://www.freerepublic.com/focus/f-news/1271057/posts

The ONLY thing keeping CA's population from going negative right now is massive amounts of illegal immigration (est. 1/2 million/year) and high birthrate among said immigrants, who are mostly abject poor and illiterate laborers.

"Only the little people pay taxes" * Leona Helmsley (The Queen of Mean)

-CA’s population from going negative
+CA’s population growth from going negative

astrid,

A graduated flat tax, or a threshold flat tax is definitely preferable to the current mess. But it is not panacea. Flat taxation of income is flawed by:

1. A truly flat tax which does not discriminate on income is "regressive" because the consumption curve is not linear, whereas the tax would be.

2. A threshold flat tax will over time cause price and wage inflation up to the threshold. This phenomenon is well studied for existing tax credits.

3. A progressive flat tax isn't flat, it's progressive. That is no different than the current system, just repackaged.

I support a total elimination of all income, property and arbitrary state taxation and a replacement with a nationally managed use-tax. It is the only philosophically fair system, and still allows the powers that be to "engineer" our society.

I support a total elimination of all income, property and arbitrary state taxation and a replacement with a nationally managed use-tax. It is the only philosophically fair system, and still allows the powers that be to “engineer” our society.

Please elaborate. Is this similar to a national sales tax or European-style VAT?

Randy,

I agree that a graduated progressive tax system (so that the results are not regressive) always has to face the problem of inflation. I think the solution would be to peg the thresholds to the income quintiles (maybe institute two additional brackets for 10%, 5%, and 1% top earners). I think the foundations of the current system is quite fair (though I'd like to characterize capital gain above inflation as regular income), it would just be nice to close ALL the stupid loopholes. Those loopholes distort normal efficient business transactions into bizarre forms just to avoid taxes - I'd be happy to see them gone.

We shouldn’t just trash prop 13 and raise property taxes to 3%. The shock of that would be devastating for CA. I think CA should do what the Fed does: adjust it in small increments over time.

Something like 80 or 90% of the state budget is tied up by passed propositions.

Hey guys, just to let you know - it wasn't evil inept politicians (who are voted for by people) who did this... it was the citizens of California.

We* chose to have this horror brought upon us - and poll after poll shows that we love. And... you can expect more states to have Prop 13 clones.

Prop 13 is the height of the typical taxpayer in America thinking. Lower taxes now! What could possibly go wrong?

I bet that if you poured a cup of water from short wide cup, to a tall skinny one, most people would also tell you that they have more water. :(

(*Not me. I came to california about 22 afterwards.)

The ONLY thing keeping CA’s population from going negative right now is massive amounts of illegal immigration (est. 1/2 million/year) and high birthrate among said immigrants, who are mostly abject poor and illiterate laborers.

I think that's mostly SoCal and inland. It doesn't strike me that the Peninsula has a giant illegal immigraiton problem.

We shouldn’t just trash prop 13 and raise property taxes to 3%. The shock of that would be devastating for CA. I think CA should do what the Fed does: adjust it in small increments over time.

If we bumped property taxes from 1% to 2% over, say, 10 years, I think CA could absorb that shock. Those who own their homes outright would have to learn to be content to be only worth $300K on paper instead of $700K. Other than forcing a bunch of people to stop being delusional, I don’t see a downside.

As a practical matter, any proposed change to Prop 13 is a nonstarter.

My solution is to impose a state-based inheritance tax. This way, anyone who inherits CA property will pay the taxman when their parents die leaving a house with a low Prop 13 basis. Sure, people would move all of their non-real estate assets outside of California, but they won't be able to move their RE.

This will result in a de facto automatic sale of appreciated RE on death, which should loosen up the housing supply. Also, more elderly people would choose to sell their appreciated houses and move to Florida before they die as the result of such a system (in order to avoid the tax). Good riddance. They are a drain on social services anyways. This solution also eliminates Prop 13 dynasties, which I find particularly odious.

And needless to say, average incomes are a LOT higher in the BA than in LA.

I think you're mixing apples and oranges here. You compared San Marino to Cupertino for housing prices, but then you compared the greater LA area to the greater Bay Area.

San Marino may have higher housing prices than Cupertino for equivalent properties (I suspect they're in better shape though)... but look at the incomes:

http://www.muninetguide.com/states/california/municipality/San_Marino.php
San Marino $139,455

http://www.muninetguide.com/states/california/municipality/Cupertino.php
Cupertino $119,391

From what I've gathered, San Marino is the creme de le creme. Maybe San Marino vs Palo Alto (gunn) would be a better comparison.

Well I don’t know about Boston or Cali, but in LI NY, it’s been happening. and is picking up momentum; I will be leaving myself.

They've been saying that since 1992. It's a meme that comes up every few years.

-Recession! Everything sucks, everyone's leaving!
-Boom! Everything is too expensive, everyone's leaving!

It's the nice thing about LI - they beat themselves up with reality. In California:

-Recession! Buyer's market! Quick move in!
-Boom! This time it's different. The rules have changed. Get in while you still can!