patrick.net

ajh,

My primary objection is that there is a significant difference between mean and median when considering home price movements. This is because the distribution of houses is skewed by so much it distorts even the percentage changes in any overall descriptive statistic, and leaves absolute changes pretty much useless.

Also, you can't set a hard number for your nominal definition without knowing what future inflation will be. A 10% nominal drop means very different things if inflation is 2% or 12%. In fact, if inflation is high enough and the nominal drops is small enough number I can make a mathematical case that owning a home with a fixed-rate simple-interest mortgage is advantageous even if it loses value; so long as it doesn't lose more value than you gain in by deflating your real loan payments.

Stumbled upon this on the freakomics website:

Letter to Senator Sarbanes: I'd Like to Change My Status From Citizen to Illegal Immigrant:

Tuesday, July 11, 2006

The Honorable Paul S. Sarbanes
309 Hart Senate Office Building
Washington DC, 20510

Dear Senator Sarbanes,

As a native Marylander and excellent customer of the Internal Revenue Service, I am writing to ask for your assistance. I have contacted the Immigration and Naturalization Service in an effort to determine the process for becoming an illegal alien and they referred me to you.

My reasons for wishing to change my status from U.S. Citizen to illegal alien stem from the bill which was recently passed by the Senate and for which you voted. If my understanding of this bill's provisions is accurate, as an illegal alien who has been in the United States for five years, what I need to do to become a citizen is to pay a $2,000 fine and income taxes for three of the last five years. I know a good deal when I see one and I am anxious to get the process started before everyone figures it out. Simply put, those of us who have been here legally have had to pay taxes every year so I'm excited about the prospect of avoiding two years of taxes in return for paying a $2,000 fine. Is there any way that I can apply to be illegal retroactively? This would yield an excellent result for me and my family because we paid heavy taxes in 2004 and 2005.

Another benefit in gaining illegal status would be that my daughter would receive preferential treatment relative to her law school applications.

If you would provide me with an outline of the process to become illegal (retroactively if possible) and copies of the necessary forms, I would be most appreciative. Thank you for your assistance.

Your Loyal Constituent,

Pete McGlaughlin

Spike66,

Thanks for your reply. New York City is a great place and the housing markets are high beta, so the cycle affords stronger profit opportunity.

I gave serious thought to buying in Battery Park City during the early 1990s when I was working at the World Trade Center. Prices were very low in NYC compared to now, and you could buy rentals and have strong positive cash flow with practically nothing down. I was really tempted as I expected prices to skyrocket eventually - but I have never been comfortable with the ownership politics in NYC so I bought in other places. However, I would have made more money if I bought in NYC.

The WTC was a great place before those murderous fanatical monsters attacked us. They bombed us in 1983, (lucky for me I was a few blocks away when it went off) and they kept hitting us in various places around the world for the next 8 years. Finally they hit really hard on Sept. 11, 2001. That was so terrible – so many dead. I was not working there at the time.

should read "1993"

The WTC was a great place before those murderous fanatical monsters attacked us.

The crystal ball says that those cowards will be hunted down very soon.

On his numbers people from rich countries could combine procedures with a holiday cheaper than the straight procedure at home.

A lot of Australians are doing this, particularly to Thailand. Australian doctors are complaining that they have to fix up the mistakes that the overseas doctors make on the public purse... hence the Thai administrator stressing that the hospitals are of 'western standard' -- perhaps high standards of sterility, but you have to trust in the procedures also. South Africa was offering a 'safari and surgery' package where you could get something done and then spend a token few days on safari snapping animals to tell your friends that's where you'd been... even brazil has cheap surgery and other healthcare, especially for citizens...

Muggy,

Vacant homes have a tendency to spontaneously ignite in FL do they?

Hmm?

austingal,

I'd prefer not to get mixed up in family issues but adult children simply do not have ANY credibility with their parents. They remember the time we broke a window with a baseball (and gloss over our expertise in finance). There's likely little that can be done for her now except to find someone she DOES respect (more likely someone here age) and have them tell her to bite the bullet, cut off a finger to save the hand, "harvest" the tax loss and live to fight another day. If not, sounds like they've put all they had into RE and could wind up being your burden down the road. At this point it's the lesser of two evils. IMHO.

*NIA

Let’s face it. Old people are richer than younger people. (Why wouldn’t they be? They’ve had longer to accumulate wealth.)

Old people will be wealthier when you’re old, too.

Let's see if this is true.

I checked the Tarot cards and I was seeking advice on an Option ARM, the Death card kept turning up…..I wonder what that means?

IIRC the Death card simply means a new beginning. Perhaps a "new life" when it resets?

I shook the 8-Ball this morning asking if housing prices were going to fall more than 15% over the next three years and stagnate for another 2 and sigh……it said “Ask again later”.

I asked it whether house prices will crash in the Bay Area. It said NO. But crash is relative to the querent. So I guess prices will fall less than what I have expected.

She owns two properties with interest only mortgages.

Sweet baby jeebus how I love this statement. Pretty much sums up the Amerikan mentality (no offense to you austingal!).

"own" in same sentence with "interest only"

Love it, rally I do.

I checked the Tarot cards and I was seeking advice on an Option ARM, the Death card kept turning up…..I wonder what that means?

As Peter P points out, the Death card isn't neceesssarily bad - it just means change, either good or bad.

Now, if you'd turned up the Tower...that would be the time to run away, bravely run away....

Well, lots of boomers started out like you are starting out. In fact, I’d bet that on average, boomers were more squished at your age than you and your peers are. There are fewer and fewer babies per family and houses are bigger than ever.

MA,

Though I value your regular contributions to the blog, I must respectfully disagree on this. See austingal's response above. Like her, I (38) and my wife are also jealous bitter apartment dwellers, mainly by necessity.

What's different for us vs. Boomertopia?

1. Crushing student loan burdens. Unlike most of your fortunate Boomers (esp. early Boomers) & Silent Gens, we had to finance most of our higher education via Sallie Mae. This left a massive debt overhang for me just in time for... the job recession of 91-95.

2. Job recession of 91-95. I say "job recession" because, while well fed economists will tell you "the recession" officially only lasted from 91-92, anyone out there looking for a job can tell you otherwise. I didn't break out above 30K/yr. gross until 1997, when the tech boom really took off.

3. (Do I really need to say this?) Completely unaffordable housing. When I was born, my parents could easily buy a median priced house in a decent neighborhood anywhere in L.A. County on a very modest public servant's salary. Median prices were around 3-4X median HH incomes, roughly in line with the rest of the country at that time. Nowadays, it's closer to 10-12X and even rents --a bargain by comparison-- will still run you 40-50% of your net income.

4. Medical insurance costs. Also much higher vs. incomes than 30-40 years ago, plus many more working people are uninsured than then.

5. Wage/benefits/tax squeeze thanks to unrestrained illegal immigration, which has the added "benefit" of driving up housing costs long-term as well. Even if there were no Fed/GSE-engineered credit bubble, housing costs would STILL be far higher than 30-40 years ago.

6. NIMBY/SMUG/Prop. 13 constraining new supply and creating powerful disincentives for retired empty-nesters to move & free up housing stock near jobs for families.

Btw, that "bigger houses" stat you mentioned is likely the result of a skewed average, resulting from higher-end homes owned by the moderately rich to super-rich, as well as multiple-families living in one house. In my neighborhood, a lot of families double or even triple-up to make the monthly nut. Bifurcated economy, bifurcated housing situation.

Bay Bear,

Interesting observations. Your theory sounds plausible but you probably haven't sampled enough properties to get a statistically significant set.

Also:

I expect prices to fall, not sure how much though because much of the inventory in my area might actually just turn to rentals, and rents might climb to meet home values in the middle somewhere.

This does'nt make sense unless you are suggesting other factors (inflation, increased jobs, etc.) exerting price pressures on rents in CC County. If more units are turned to rentals, supply/demand would cause rents to decrease, wouldn't they? And as far as I know, the East Bay and North Bay have the poorest jobs situation within the BA.

Also, the few times I've visited out that way, it seemed like continuous development sprawl out to Brentwood and beyond. That certainly has some effect on your local market.

MA,

Loved the "Breathtaking? Yes. Quick sale, not a chance"!

This was a glaring example of flippers gone mad but even the less prolific Vegas "listings" were revealing. They just don't get it! What I've found frustrating is that these people have zero skin in the game (nothing down) and wouldn't live in LV on a bet. They're completely underwater and are wasting everyone's time! Why are we even having to deal with these punks? I'll bet the lenders would love to have them all the way out of the picture as well. Flippers have gone from being experts in properties to being experts on default, carefully calculating their dwindling options on the inevitable path to foreclosure.

Why are we tolerating this? These aren't someone's home. These aren't some poor family's only residence. Why should foreclosure regs. apply here? These are "margin" positions that have no chance in hell of being covered. I say blow 'em out!

Now, if you’d turned up the Tower…that would be the time to run away, bravely run away….

I agree... think house of cards. ;)

MA,

It's almost at a point where I feel embarrassed for them. When you have a situation like that how much longer can one conceal the obvious?

11 out of 17? Lock boxes on most? For crissakes it's got all the makings of a high rent slum! (No offense) but as the "owners" slide on down to the I/O Blues how many will have the resources to keep these "shells" up?

Notice how many listings on C/L boast "Never lived in"! Doesn't really matter what town you rifle through seems most were built between 2003 and 2005 and many have never had anyone actually spend the night. Or the interior photos of the living room have a big screen, coffee table and two overstuffed chairs. Like some flipper let his college age nephew hang out there on weekends?

Let 'em keep building!

MA,

Sounds terrific. I look forward to plentiful and cheap vacation rentals in 2010, when I can afford them.

I know the Bay area and vacinity has the high tech jobs and higher incomes. If you took the state as a whole and looked at statewide median income to housing cost we are still fucked.

Like Harm said if you are barely in the 30 -40k range you'll never be in step with the cost of living. I found it harder and harder each year thankfully I had some money from my divorce settlement put away. I watched things double and triple for six years. I finally decided to split for awhile. Things will either get addressed and dealt with or in the next ten years there will be a big exodus.

Nobody wants to work thier ass off for decades nd still have nothing to show for it.

granted that is just for apartments, but when you look at residency rates, it becomes more clear that things for renters are going to get worse before they get any better.

Wow. I must rush to buy so that I can start paying $4000 PITI before my rent skyrockets from $2000 to $2500!

Nobody wants to work thier ass off for decades nd still have nothing to show for it.

Exactly. It may be better to be lazy and get into a brand-new section-8 McMansion? :)

BayBear, what I love about that article is its fear mongering, who was the data source for that article again? Oh, wait a moment, the realtwhore crowd. A little tid bit from the article, rents in SF are still lower than in 2001. Funny that.

Buy now, RENTS ARE GOING THRU THE ROOF. I love the total and complete lack of logic. Say you are a swaggering home"owner", you have good tenants who pay say 2k a month for your $hitbox (or is that the banks $hitbox), and you are amongst the current crop of debtlovers, that is, and I know this is a stretch, you property is cash flow positive. Ok, so what are you going to do, kick the current tenants out and bump the rent to 3K? Nope, ain't going to happen, ok how about a nice fat 10% increase to 2200/month. Thats all fine and dandy, but the place will stay vacant for at least a month, by by 2K, and you will likely have to do some sort of renovation when the prior tenants leave. You are looking at a minimum of 6 months before you see a dime more money. Plus what if the new tenants crap on the carpet and are dirty hippies?

Nice attempt of the chewbacca defense though.

Ok, lets run the scenario of the McDebtor, you are underwater on your payment, by say 2-4K a month as the spread of rent to mortgage in the BA is at least that. So you kick the tenant out and what double the rent? Good luck with that one. Ahh the dream of the 5 million dollar apple stand, no not the stand, the fruit, "how much for an apple", 5 milllllion dollars, "how many do you expect to sell at that price", I only need to sell one.

Again, nice usuage of the chewbacca defense. "folks, mortgage costs are >>> than rents, it just doesn't make sense, and if don't be making some sense, you gots to be be raising them rents".

MA,

Sometimes I wonder if the very things that made Bend "unique" will be the very the very same to send it into a tail spin?

It's by no means commutable to Portland (or anywhere else for that matter). This made for great "resort" appeal but when it comes right down to it what will CA's or Portlanders let go of first if push comes to shove? Yeah, uh huh, it's bye-bye to the spacious and well appointed 2nd home in Bend! No question. This is where the area's "attributes" become "millstones".

BayBear,

BA rents from the article you linked:

San Francisco $1,947
+8.8%
97.4% (occupancy)

San Jose, Calif. $1,487
11.6%
98.2% (occupancy)

First, the article doesn't mention if this is median, mean, all units, a certain BR size, etc. Given that caveat, less than $2K rent vs. a comparable PITI payment of $3-4K (less mtg deduction)? That's a 50% to 100% increase in current rents to make the rent vs. buy equation favorable towards buying. This horse has been beaten dead back to oblivion, but that doesn't even include gains from investing the difference.

Surfer-X, is the blog party on Sunday 9/3? There is a chance that I may be in the area.

easy on the messanger.

I was joking. :)

Surfer-X, is the blog party on Sunday 9/3? There is a chance that I may be in the area.

Peter P, that's the plan.

Peter P, that’s the plan.

Will it be in the Goleta/Sanata Barbara area?

SF Woman - thank you for posting that tidbit from NPR. Very interesting.

As for empirical data, just check CL and try to find a decent place to rent under $2350 in the East Bay

Dude, you are smelling an awful lot like a troll. I just did the C/L search on the east bay, >2 bedrooms 3

Peter P.

$anta Barbara, Eastside off of Milpas

MA,

Good on-site intel! Thanks.

I was rummaging through listings in the Salem area and it was strange to notice SO MANY high end properties joining the inventory. I had no idea there were that many 800K-1.2 mil props. in the state!

"On the river", "Mountain views", "Ocean views" etc. In truth some of them actually represent some of the better "values". Major acreage w/major sq. footage. But they'll come down. At the prices they're being listed at you just know FB (or f'd builder) KNOWS it will sell in no time! (Evidently these guys haven't been following their own market) and it shows.

BayBear Says:

easy on the messanger.

All in good nature. Take a look at the *asking* rental price chart here on patrick.net. After the increasing trend for all BR sizes over the early summer, it's interesting to note that 3BR prices are stable to slightly decreasing. I wonder how much of this is related to a "glut" of SFH's being put on the rental market by FB's who can't sell? I would imagine these units command a higher asking price than units in some soulless apt complex on El Camino somewhere (apologies to anyone who lives in one of those). With more supply-side competition, you'd expect an eventual easing of asking prices. Is this the trend we're seeing? The optimistic side of me thinks this is true. On the other hand, we're all just talking out of our a$$es anyway.

whoops post got cut off,

>2 bedrooms, EAST BAY, 3

Also, higher rent is an indication that demand for housing has finally shifted away from ownership. We are marching towards the tipping point.

dammit!

greater than 2 bedrooms, EAST BAY less than 2350 has over 3696 listings.

greater than 3 bd. EAST BAY, less than 2200 has over 1700 listings.

Again, very nice usage of the chewbacca defense. I say buy now otherwise you are likely to be priced out forever. From my personal experience, my friends and the CL data, rents are not skyrocketing, but hey it's your credit rating and with you belief of skyrocketing rents, which are soon to catch up with the PITI payment, I say go for it. Just stop bother us with the fear mongering attempts as the data doesn't hold water. Rents aren't skyrocketing, dispite what the realtwhores tell you. Hmm, a quick question for the Patrick.net brain trust, do realtwhores get paid if nothing sells?

Surfer X,

A friend who's step daughter will be attending the Art Institute of Portland (in the ultra trendy "Pearl District") tried the same stuff with me. The Oregonian is lousy with studios for as little as $275.00 a month! BUT, he and the Mrs. (true boom believers if ever there were) did the math and decided to buy a 600 sq. ft. concrete bunker for 375K!

(logic?) Well there isn't any but their excuse was that she'll need a place to stay anyway and at the rate these babies are appreciating just think what it'll be worth when she graduates! Why it will practically PAY for her entire education!

Uh, a little late to the dance.

ARM rates are still going up....

http://www.hsh.com/natmo2006.html

And the Fed resumes the tough talk....

http://tinyurl.com/le5pz

You can't scare this renter, but I'd be terrified to be an ARM owner.

Even if rental prices are going up, what's an extra $200/month in increased rent compared to squandering my life's savings? If they get too bad, I'll leave.

X-Man,

Don't be too hard on Baybear, I too have been seeing first-hand evidence of low vacancy rates, high demand and rising rents in my area (SGV / L.A.). It's no illusion --the supply is much tighter than normal, while demand is up.

The wife and I are moving into a new place in October and got picked out of a dozen applicants --several of whom were there the day we did the open house. We were picked primarily due to excellent credit rating & superb references from our old landlord (12+ years). I guess sometimes a good credit rating CAN help after all --especially when you're a JBR.

Now whether or not this is permanent or short-term phenomenon is another story. My guess is the latter. CA is on track for a housing bubble-triggered recession starting no later than summer of next year. Check out the excellent research and charts over at Calculated Risk, The Big Picture & Piggington if you'd like some hard data. There's no "if" about it --the housing ATM is shutting down, and the only question is WHEN we go into full blown recession and mass layoffs.

Once we're in recession, landlords will have only fond memories of the days of 97%+ occupancy rates, when they could demand 10% rent hikes, renters with AAA credit and probably get both.

Hmmm Senor HARM, I guess from my vantage point in asspack $anta Barbara, the rents are already so high that any further increase just isn't likely to happen.