patrick.net

Confused Renter let loose with:
The lesson? Time goes by with or without you and education and love make you much wealthier than you could have imagined.

Let’s enjoy the weather!

Absolutely! Don't waste precious time looking at overpriced properties to buy. Enjoy life for a few years, and buy after prices have dropped. And oh, by the way, you don't need a useless realtwhore to 'help' you buy.

SP

FAB raises some legitimate methodology debate with the HSBC research, and I appreciate that. They are not, however, making the "median temperature from Chicago you will think it is always 65 degrees there" error, however. I'm also not convinced that their opportunity cost of money equations are flawed either. I'd like to see a candidate equation to beat how they compute apples-to-apples opportunity cost of money. There's plenty in there to take issue with outside of that, though.

Suman said:
All I need now is to challenge myself and work out a strategy/career path towards finding a job in DE Shaw

Suman,
You sound like you are motivated, adaptable and willing to work to succeed, instead of wallowing in a state of entitlement. With an attitude like yours, you don't have to worry about jobs that are inevitably outsourced for lower wages. You will find more rewarding work when that happens.
SP

Allah Says:
There you’ll find the most recent median salary for Stanford was $156,126, Columbia $148,778, Haas $123,968, India $5,000

Wow! Is the India number from FT, or is it just something you made up? It wasn't clear from your post, and I didn't find this number in the FT link.

SP

# lars39 Says:
Any chance that more home buyers will buy smaller, less expensive houses that they can actually afford? Maybe ones without granite, stainless steel, 400 sq ft bathrooms and more room than they can maintain? Probably not.

Why not? After prices fall, I fully intend to buy a house that is smaller, cheaper and more modest than the maximum that I can afford. A house has to 'fit' my family's needs. To borrow a phrase from another context: Anything more than a mouthful is a waste.

SP

@ConfusedRenter, master of anectode and manipulation of data to prove your point,

Lemme ask you this: how many top MBA program grads are there out there in the world? Not many, relatively speaking. Now how many are in the US? Less than that. How many in the BA? Even less. How many of those earn the median incomes you quote or higher? Even less so. How many of those are married to someone else with equivalent salary? Miniscule. Most MBA's, like lawyers and doctors, aren't married to other professionals. Having both spouses work hellacious hours is a tough road to take (believe me, we're doing it).

My point is, your examples barely make a dent in the overall BA RE market.

Enjoy the "whether".

RMB,

Most of them go into high finance or strategy consulting. Those heading into finance were mostly already in a big investment bank, and after graduation return (not always to the same IB) or go into a private equity fund (M&A, LBO, etc.). I'd be very surprised if very many of these guys were making less than $100K _before_ entering the full time MBA.

Strategy consultants will easily make $100K after graduation. There are tons of these jobs, and have been for many years. Doubtful a bubble.

There's a good argument that HFs are a bubble. Some say PEs are a bubble, but probably not. PEs are very cyclical, with huge money inflows during periods of consolidation driving massive M&A activity, like the last half decade. It'll dry up eventually, and tons of these guys will be trying to get into corporate development jobs, probably for pretty nasty salary cuts.

I would have thought a MBA from U. of Phoenix would detract rather than improve a resume. Such a diploma would certainly bring up more questions than it would answer.

Peter P,

Did you meet lots of Chinese students at your Stanford class?

Premise: Plentiful employment in SF, but RE stays unaffordable while tanking in the non-commutable/commute-from-hell hinterland -> What I will call the London response.

ah, markets are so good at delivering what people need...

i can barely bring myself to write the several doomsday scenarios that have occurred to me over the months:

40% of new mortgages are for investment property -> if specuvestor FBs can just hold out long enough making a loss, they can control rent and purchase prices -> will force JBRs into renting from them forever, thus ensuring a golden retirement for themselves and creating a new class of permanent renters to feed off -> welcome Victorian England/pre-Revolution France/pre-Communist China!

Actually the top 10 MBA schools generate about 8000+ graduates each (Stanford generates the least number, but 80% of Stanford graduates stay in the Bay Area).

About 25-30% of these MBAs come out to the Bay Area, I saw statistics from HBS, Wharton, Kellogg etc before, and that is my impression. That gives you about 2000 graduates here, each year.

Cumulatively, you get about 35 years of these MBAs in the Bay Area who are still in the workforce, making it a total of 75,000.

Now, what you quoted was a median salary, and out of school, most of them are filling IB, consulting jobs (at least 50% of the class). The median salary most likely includes bonus. At McKinsey or BCG, the associate to partner ratio is 7:1, or 6:1, so not everyone progress along that pay scale. Lots of them fall off the ladder and take a pay cut at the industry. We cannot possibly hire a middle level manager at 150-200K.

So the first year median salary is a bit high because of two factors:
1) IB salary + bonus in a good year, or consulting salary
2) Sign-on bonus which ranges from 25-50K

I know of these things because many of my friends are MBAs from top schools who are several years out of school. A lot of them are not earning 200K+ salary 10 years out of school. Once they fall off the consulting or IB salary scale, they will just have to deal with the industry pay, unless they hit a jackpot with HF, VC or stock options of a startup.

oops, corrections. There should be around 70,000 of them around in California, not Bay Area.

Assuming Bay Area takes about half, that will make it 35,000.

That's why I have been saying, for the prime areas, I wonder if there will much of a hard landing at all.

Have the subprime lenders fallen enough?

I am planning to short CFC. Not sure if it is the right time to get in yet.

OO Says:

> Actually the top 10 MBA schools generate about 8000+
> graduates each (Stanford generates the least number,
> but 80% of Stanford graduates stay in the Bay Area).

Let’s not forget that most female MBAs (and other high earning women) stop working after a few years to become stay at home mom’s.

I remember reading a study that said that just over 1/3 of the HBS gals were still working and found a reference to the study at this URL http://tinyurl.com/bwny2

Most of the females that I went to undergrad and business school with (who have kids) are no longer working…

ConfusedRenter Says:

>The FT rankings are a joke. Very few read the FT in the US.

I bet most of the realtors CR works with have had a lot of time to read People and US Magazine waiting for couples making $500K to walk in to their open houses...

Erc,

I think OO (OwnerOccupier) has made a good call there. Why....... I can't think of a state that ISN'T contemplating a law suit against CountryWide? Building materials pricing has slid in a meaningful fashion, everything from copper to concrete and they could be some solid shorting candidates as well.

I am considering doing part time MBA at Santa Clara University. I can not get into stanford or HAAS based on my previous academics and GMAT scores. I am a 27 yr old professional gal already making little less than 100K. Is it worth my time and money? Any ideas on how much SCU MBAs make after graduation?

These are just my opinions, and they are very biased by my own experience and decisions in life. Others will surely disagree.

An MBA from a non-top school is seldom worth the investment, with a couple of exceptions. Remember that going to earn an MBA costs a ton in tuition, it costs in lost salary and advancement opportunity, and it costs very heavily emotionally, especially if you're married, with kids, etc.

Part-time or executive programs allow you to keep working but (a) they cost an astronomical tuition, (b) they will practically kill you because you quickly find out it's still a full load of coursework, just compressed into fewer marathon length classes.

Lower tier MBAs can be worth it if you're going to a school that has a particular specialty in your industry. If you were a director at Monsanto, then an MBA from Ohio State probably will take you farther than one from Haas.

The problem with SCU is that it's only regionally recognized, and even there it's regarded as average. C of W&M is more respected on that comparison.

My advice would be to *just try*. You may very well surprise yourself. In reality, you only need a 650+ GMAT to get consideration if you have a few good years of experience and some career success under your belt. If you can't get in now, then just try to raise your GMAT a bit and try again in a year. (And don't over-focus on the GMAT. Most top schools don't use it to determine who gets in, only the minimum cut-off. Plenty of 700s GMATers get rejected.)

I can’t think of any good MBA schools that has part time programs (Haas being the only one, even then I don’t know if you consider them top tier).

All of them do except Stanford and HBS. The EMBA programs. Wharton, Columbia, Haas, Kellogg, Chicago; even internationally LBS, INSEAD, and so on. These pretty much all cost +$100K in tuition, be warned.

FAB,

good point. I know 3 women from HBS and GSB who are no longer working any more, and their husbands are making "merely" 200s. However, they all got into a home much earlier at half the current price, like 5-6 years ago, so making the mortgage payment is no longer an issue.

For those MBAs, JDs, or MDs who graduated 5-10 years ago, they are pretty set and unless they commit some blunders, hardly anything can kick them out of their homes.

Can the newly minted MBAs, even from the best schools, get into a decent home in a decent neighborhood at the current price in the sought-after parts of the country where the high-paying jobs are located? No, very unlikely. Of course we are not counting exceptional examples of those who can make partners at VCs, IBs, or hit a jack pot with IPO. I am just talking about the average crowd.

If you are not targeting Los Altos Hills or Atherton for your next residence, you shouldn't really worry about the top-earning MBAs, these people who can pull in 1M+ annual income fall into an entirely different category. Yes there are in fact lots of people (relatively speaking) here making multiple millions a year. But in absolute numbers, they still represent a very small part of the population.

I'd say for the Bay Area, if you are focusing on the middle upper class areas in the Bay Area, the median household income is around 200K-250K income, and that is your competition.

I am wondering if I can get the following data anywhere without much pain?

1) Total SFH stock in each zip code
2) # of transaction of SFH in each year, dating back as much as possible
3) Ratio of SFHs entirely paid off

CB Says:

> One went to Stanford MBA while the other has a
> MBA from Harvard. Given that there is no way that
> I would’ve gotten in to either programs, I’m not that
> jealous They are probably very smart, but the
> (big name) MBA connections definitely open doors.

There are definite advantages to going to a top tier school but many people forget that huge numbers of the kids at top tier schools don’t need the schools to open any doors (a friend was in the same section with GE Chairman Jack Welch’s son at HBS and when I was down at GSB Billionaire John Arrillaga’s (hot looking) daughter was a student).

Then OO Says:

> Can the newly minted MBAs, even from the best schools,
> get into a decent home in a decent neighborhood at the
> current price in the sought-after parts of the country where
> the high-paying jobs are located?

In the Bay Area most people under 30 that own homes get help from their family. Most (white) MBA grads come from wealthy or very wealthy families so they should do fine since wealthy successful parents will help their kids buy a home and give them enough money for the wife to stay home so they won’t have to watch their grandkids raised by a nanny from Peru…

*unlurks*

Yeah, let's drift this thread a little off-topic onto the topic of MBAs / pay / part-time MBA programs.

Like HonestHunk I'm looking at a part-time MBA. Why? My job lacks sufficient intellectual stimulation, but I'm not willing to give up the very good income it brings. In fact, I already make near the median that a graduating MBA in my city would get. I have a technical background and am now in administration, so what I learn (and the community) could be very useful in teaching me how to comport myself in business.

I sure am not contemplating the part-time MBA to make a 50% bigger salary! I don't even have a career change in mind (I did that with the last job switching out of engineering).

I'm already 29, and I might just stop working after the first or second kid (e.g. 5 years from now). With a graduate degree and a professional designation, I kept putting off applying to MBA school....until I got really bored which is now. I may not even quit working post-kids (I'm not domestic enough to want to stay at home everyday) and it could be "useful" in 10 years.

If it wasn't so expensive I'd probably have started by now. It's not a problem to pay for it but I could find other uses for $50K. Damn expensive way to get some intellectual stimulation. I guess that's why I spend so much tie reading Patrick.net threads...it's good and it's free! (even if I give patrick $5/ month for his links).

Comments?

*relurks*

OO Says:

> I am wondering if I can get the following data
> anywhere without much pain?
> 1) Total SFH stock in each zip code
> 2) # of transaction of SFH in each year, dating back
> as much as possible
> 3) Ratio of SFHs entirely paid off

If you have someone (like a realtor) that does business with a title co. call their title rep. the above info should be easy for any title co. research dept. to pull. As mentioned before any home with out "secured" debt will show up as entirely paid off...

-tie
+time

I recall a thread discussing MBA's a while back. Many of us asserted that the value of the degree is not so much the academic content of the coursework (just look at ConfusedRenter - MBA and he's selling real estate now...); rather, it's (a) the "label" of the school you get to slap on your resume 2 years and $50-100K later, and (b) the connections you develop with other business types there, which are more valuable the more top-tier the school. So my non-first hand experience advice is, ask yourself, is going to a place like Santa Clara or any other place you're contemplating going to get you these things?

@Boston Transplant,

I guess we have opposing views on the "value" of the MBA.

allah said:
They will whore themselves to that occupation and America will hire them instead of their own.

Why would you consider someone training for a professional career to be 'whoring' themselves? Is it just because they can do the job for less money than you are willing to do?

Not trying to start a flame war, I just found your choice of phrase a little extreme.

SP

Boston Transplant,

you are talking about a nice home in the best area, of course you should not be able to afford one. My understanding of a nice home in the best area is a 4000 sf home on an acre lot in Atherton, why do you think just by having an MBA degree from the best schools entitle you to such a prize? There are 1000+ graduates from HBS each year, if all of them can afford such a home, how many Athertons should we have in the Bay Area?

OO,

As I understood Boston Transplant, his gross household income would be about $250-300K. Out of that, they would probably pay pretty substantial student loans. They could probably afford a $750K-1M house pretty comfortably...but that's not very much in all but the most ghetto South Bay neighborhoods.

But until the prices get cheaper, there's always renting as a option. Maybe one of those VC wives or the proverbial 30 yr long absentee landlord would agree to a 5 year lease with fixed rates of increase. That would be a pretty cushy deal while waiting for the RE market to deflate.

Beats me. I've always been lead to believe (except from the MBAs on this blog) that HBS was just one long grueling marathon network session.

astrid,

the operative word is "nice" and "best" :-)

I think for a family of 250-350K to afford a 1.2-1.5M is not unreasonable (not that I encourage their buying at this stage). 1.2-1.5M will get you something decent in the good parts of Saratoga, but not a "nice" home. It is probably a 50-year old 2200 sf home on a 1/4 acre lot, not "nice", which probably means a larger, newer home on a larger lot. Any "nice" home in the "best" neighborhoods in the bay area cost at least 5M+, and frankly nobody should be able to afford them except for those exceptions we talked about: CEOs, VC partners, IPO founders, successful HF managers, etc.

FAB, thanks for the info.

Boston Transplant,

is Boston cheaper than the Bay Area? Somehow I am always under the impression that Boston is even more expensive, because it is much smaller than SF geographically. When I was there over 15 years ago, Boston was decisively more expensive than the Bay Area.

Beacon Hill is very nice, I remember the rent of 15 years ago for a 2-bedder was higher than that of Pac Heights.

p.s. I apologize if my name has confused anyone. I am transplanted TO Boston FROM northern California. I do hope to return someday and it would be nice to buy a home (not a mansion) somewhere near Stanford or SF.

Also, using the 3X salary number that pops up here from time to time, we would not consider spending over $800k, and in reality our budget is much lower than that because one or both of us may work part time in the future. I know, we can't have 1 to 1.5 salaries and live near Stanford or SF. Sigh...

OO,

I think Boston is now less expensive than SF, but I'm not sure. Our apartment in Beacon Hill has 1000 square feet and rents for $2400/month. We even have a roofdeck with a view of the Charles. This same apartment would probably sell for $750k or more...

Ha Ha,

You stand on immigration and Democrats makes less sense with each new iteration. You can vote Republican or Libertarian if you like (since your vote means zilch in the coming election), but I don't think their platform would be less illegal immigrant friendly compared to Democrats. Perhaps you need to look up some of the more xenophobic third parties for something more amenable to your sensibilities.

OO,

I was being conservative since BT's wife probably had substantial student loans in addition to housing costs. Arguably, yeah, only the most successful/lucky will end up in an Atherton mansion, but it is a big cognitive dissonance for people who've been super performers all their life. Why can't they have the 3,500 sqft McMansion that their loser classmate in Austin lives in or own outright like the teachers next door to their rental?

Boston Transplant,

the rent to value ratio certainly sounds much better in Boston. Down in the south bay area, there is no way you can get 3.8% gross rental yield on the house or apartment, everywhere I look it is around 2.5%, some even as low as 2%.

Well, while I believe that the big correction will set in, I am not sure of how big the correction will be for certain prime neighborhoods (not Portola Valley or Atherton, just blue-ribbon areas with good schools). It just seems to me that there are quite a few 200-300K families targeting these locations (or are already rooted there), so when the correction happens, there still may be more demand than supply.

The odd thing is, these neighborhoods that we are talking about, Menlo Park, Palo Alto, Los Altos, Cupertino, Saratoga, etc or even Almaden, seem to have a stabilized number of SFH listings (except Los Gatos all other are below 100) at the moment. Let's say that the general market starts dropping a lot, all you need is just another 1,000 households with 200-300K income to jump in to pick up the slack. The problem for all of us here is, we are all looking at the same areas, so no matter how much east bay cracks, it is really not helping much.

If you are planning to come back, don't buy a house out on the east. I've been told many times before, and it seems to be true, those who left CA and bought elsewhere always found it very hard to buy back in, because when CA starts to pick up, it picks up much faster than the rest of the country, and it is always one of the most expensive spots in the world.

@Boston Transplant and OO,

Having gone to school in the BA, then moved to Boston for about 8 years, and then recently moved back to the BA, I can address the comparative housing costs questions. Simple answer: Boston is a LOT cheaper than the BA. Even in the nicest parts of downtown (Beacon Hill, Back Bay, South End), only the super-luxe full service condos go for anything close to $1000/sf. Compare that with your typical crappy POS condo/TIC in lower Pac Heights that is in need of a complete rehab. The "prime" suburbs (Newton, Wellesley, Brookline, Weston) are nowhere near as expensive as Atherton, Woodside, LAH, etc. $1M in prime Boston suburbs still gets you a lot. Try this: http://tinyurl.com/ska33

If you're looking for a downtown Boston place, have you looked at the South End? The housing stock is beautiful, there are lots of young professionals with kids (most move to the 'burbs by school age b/c of the city's lousy schools), you get more space than on the Hill, and you can often get a parking space out back.

Boston Transplant/BT Says:

> OO, I think Boston is now less expensive than SF,
> but I’m not sure. Our apartment in Beacon Hill
> has 1000 square feet and rents for $2400/month.
> We even have a roofdeck with a view of the Charles.
> This same apartment would probably sell for
> $750k or more…

I'm no expert on Boston (since I grew up, went to undergrad and grad school in N. Cal), but over the years I've got to know a lot of people that grew up, went to undergrad and/or grad school in Boston and it seems like home prices and rents on the Peninsula and SF have always been higher than similar Boston and Boston suburban areas. Today a 1,000 sf place in Pacific Heights with a view of the Bay and a roof deck would probably rent for at least $4K a month and sell for well over a million (I saw recent sale of a 1 br condo on Broadway in Pac. Hts. without any view that went for $1.1mm)...