patrick.net

All too true. Let me ask you this. Do you think people like this will be as hard hit as those who pay too much for a house?

I think people get hit because of unsustainable spending based on unrealistic expectations. Unless they have "spent" the money it on sound investments it is not going to help at all.

After all, my friends can sell a lot of their stuff (probably not the implants) and get out from under at least some of the debt. They’ll still be on the hook for home improvements, but some would argue since that increases the value of a home it’s not at much risk.

Hmm... well, as far as the cars/RVs go, they could always sell them, but will no doubt take a significant hit as new autos depreciate rather quickly. As far as appliances & home electronics go, it's even worse. They basically lose most of their (retail) value the moment they leave the store.

As for those home "improvements" go, it all depends on what kind of improvements were made. It's very rare to get a 100% dollar-for-dollar increase in home value for what you spend on improvements/renovations, I've read that 60% or less is much more typical --and that's assuming you sell reasonable soon after completeing them AND you were smart enough to select the kinds of things that made the most sense re-sale wise. From what you've already said, I'd assume that's highly unlikely.

Here's a good link on the subject: tinyurl.com/9aapu
(Note that the %s listed assumes the home is sold in ONE YEAR after improvements are completed --they drop off rapidly after that)

Oops, forgot to thank you too Peter. It makes sense when you look at it your way.

On a side-note, I have a couple of Realtors(tm) in the family who have told me two of the most overlooked, yet extremely cost-effective ways to increase curb appeal/re-sale value:

1. Give the place a thorough cleaning --inside & out. Just removing trashy/debris & clutter, raking up leaves, towing dead cars, etc. can have a surprisingly huge impact on buyers.

2. Basic landscaping. Amazing how much better the place looks from the curb when you've converted that dirt & weed patch to a nice green lawn, and pruned that exploding wisteria bush back so you can see out your front windows again.

Did you guys already see this? Interesting as well

Kiplinger's Personal Finance list of the 10 most vulnerable housing markets.

1. Boston: "Has lost 200,000 jobs since 2000."

2. Los Angeles: "Speculation and explosive price increases."

3. San Francisco: "Median home price ... is highest in nation."

4. Sacramento, Calif.: "Prices have climbed 27 percent in the past year."

5. Providence, R.I.: "No population growth and stagnant job growth."

6. Detroit: "With GM and Ford struggling, prospects ... look weak."

7. New York: "Big problem is out-migration."

8. Minneapolis: "Housing prices ... have climbed an annualized 9 percent over the past three years."

9. Fort Lauderdale, Fla.: "Aggressive buying by investors warrants ... inclusion."

10. Denver: "Concentration of employers in troubled telecom sector leads to ... risk."

2. Los Angeles: “Speculation and explosive price increases.”
3. San Francisco: “Median home price … is highest in nation.”
4. Sacramento, Calif.: “Prices have climbed 27 percent in the past year.”

Not to worry, SactoQt, those CA PIBs (Positive IntangiBles) will keep prices HERE from falling much. And if they do, all those cash-rich immigrants and/or wealthy transplants (who are currently sitting on the sidelines just waiting for this to happen) will jump in and bail everyone out.

"...cash-rich immigrants and/or wealthy transplants"

Sorry - I forgot to mention magnanimous parents/relatives.

Hmmm... I wonder if there's a better way of saying "cash-rich immigrants, wealthy relatives and affluent transplants"...

I've got it! :

Moneyed Immigrants, Rich Ancestors & Generous Expatriates
(MIRAGE)

Current prices in the Bay Area and CA are supported by the MIRAGE. If they do begin to fall, this MIRAGE will prevent them from falling too far.

Why anyone would hemorrhage money for a mortgage while house prices are so ridiculously high seems crazy to me. Maybe I’m wrong, or missing something obvious here and I’ll never own a house. Perhaps I should sell my stocks and dive into the housing market.

I guess I’m just too risk averse - aka afraid.

Or, maybe you're just too sane for the current market.
Or, maybe you're capable of performing basic arithmetic.
Or, maybe you haven't drunk enough of the NAAVLP(tm) Kool-Aid to blot out all reason yet.

NervousinOakland

I COMPLETELY understand. I still think you're doing the wise thing. But there will be those who will tell you to jump in with an IO, own for two years and flip the property. Because as we all "know," interest rates will never go down and values will only go up. Supported of course by MIRAGE. (very clever HARM btw) ;)

I'm in a pretty close situation to you, and I don't feel right jumping in either. So I am biased in this case. But every time I look at the fundamentals and ask myself, "can I afford to keep this house if the market crashes?" I inevitably, inexorably, indelibly say no.

NervousinOakland,

Maybe "insane" isn't the most appropriate term. Maybe it's "irrationally exhuberant", or "excessively greedy", or "wildly optimistic". I don't know...
Like SactoQt said, keep focusing on the fundamentals and you'll do fine. And don't buy into the Realtor(tm) propaganda about "if you don't buy now, you'll never own a home!" It's just a way to push your "fear" button and get you to make a foolish (but lucrative for them) decision.

Even in a correction, if folks still have access to easy money, they’ll proportionally distort the situation to the high price side (aka dark side) for those people who’ve worked hard to save.

I'm certainly no expert, I think Peter, HARM and TWIT will probably have some great info to give you. My thinking is that the access to easy money will probably not always be around. Once the NAAVLP's come due and inevitable foreclosures, BK's and so on start happening, I would think the banks will have to tighten lending in a late-in-the-game attempt to cover their losses. IMHO I don't think the situation will stay so distorted because the market won't bear it long term.

Motorcityjim

I don't know whether to laugh or cry.....

Even in a correction, if folks still have access to easy money, they’ll proportionally distort the situation to the high price side (aka dark side) for those people who’ve worked hard to save.

If history is any guide, I doubt that will be the case. Long-forgotten/discarded concepts like "lending standards" and "credit-worthiness" have a way of suddenly re-appearing in the aftermath of a major credit market crash/correction. I'm not so naive to think NAAVLPs will ever completely go away, or won't stage a come-back during the next housing bubble, but all credit-fueled bubbles eventually pop. This is what eventually puts an end to easy credit (for a while).

You guys joke about an in-house refinance ATM, but my local bank has advertising to this effect. It shows a woman in her pajamas standing at the sink in her bathroom with an ATM machine underneath the counter. “Need cash? Get it from your house!”

:-o
motorcityjim - You have GOT to send a copy of that to Patrick (p@patrick.net) so he can post it on the "Crash" page!

NervousinOakland,

Your most welcome --and thanks.
Except for the "I’m sure we’ll feel pity for those same folks" part, i totally agree with you ;-). Seriously, I won't feel any pity for the greedy-assed speculators/flippers, but I'll feel bad for FTBs, who through ignorance or peer pressure, felt they had to overextend or they'd be priced out forever.

As for the Bubble metrics, check out "I See Debt People" (previous thread) from the main page. That was the whole point of that thread.

Thanks, motorcityjim --a scan would be perfect!

Ptiemann

Their home is soooo nice. A move up is based solely on greed. The wife is very status conscious and always wants more, more, more. I think the husband just gets worn down and gives in. I don't envy him.

When they talk about a "new paradigm without real estates" or "housing is dead", buy, buy, buy!

"They" refers to the lemmings.

"I do not understand why someone who already has 4 bedrooms does need to move up into a bigger house."

This touches on a pet topic of mine. It is interesting how monotonous the California housing stock is. We have such awful architecture that houses are essentially differentiated by three things: location, size and appliances, in that order. Location I can understand, but why someone would pay $500K more for more of the same stucco crap is beyond me. Its just more useless rooms to pay someone else to vacuum.

My theory is that, as our aesthetic senses have been dulled by modernism, the only attribute we can easily use as a social marker is size. California, being the end-point of rootless modern individualism, suffers from the problem in a comically amplified manner. Therefore, we have "Luxury" homes that have been thrown up in the same exact manner as the "Starter" homes the next development down, but which have maybe 50% more square footage, and better appliances. In ten years, they have the same stains on the stucco where the metal window frames and vents have bled onto them. They have the same cracked corners. They have the same permanent dingy aura that seems to attach to all new homes. They are simply bigger. It boggles the mind.

(I say this all as a native Californian. It is self-criticism.)

Cheerio,
prat

Almost forgot to mention Rock Financial. They are the local “screamer” type ads for mortgages, refinancing etc. They have a new loan product called “On The House”. If you listen to any radio here in the Detroit area you have probably heard these ads. “Want a fancy new car? How about a vacation? Plasma TV? It’s on the house! Get a home equity loan from Rock Financial and treat yourself today!”

Wow. I actually wish I'd thought of that tagline first --it's really clever. Scary... but clever.

EBR: Prat, have you read “Not So Big House?”

I haven't. I've flipped through it quite a few times in the book store, but it gives off a whiff of the westernized-peudo-asian aura of that bugs the living hell out of me (for reasons entirely irrational, I'll admit). I'm all for new urbanism, and particularly craftsman homes, but the quasi-japanese modernism that creeps into the pictures I see in the book sets my teeth on edge.

What I really want is Edinburgh's New Town, but here in California. Is that so much to ask?

Cheers,
prat

Prat
I think you hit the nail on the head with your theory about size over style or substance. The homes here are all pretty much the same. My parents bought in this area about 20 years ago, and every house in their neighborbood looks completely different. But the newer homes have about 5 different designs per neighborhood and that's it. So, I guess in the mind of the status oriented, the only way to get better is to get bigger.

I do actually have another bubble story, but I don't know all of the details. There is a house being built on the street behind us that's in a really weird location. I don't even really know how to explain it well. I think it's actually on the same lot as two other very small homes. It's wedged between one very small home that looks more like a guest house but there is no bigger house to go with it, and another standard middle class home. There is literally less than 5 feet from the house and the back and side fence. There is no front lawn as the house is probably less than 10 feet from the street. My husband and I have constantly remarked on the location, but we don't know much about zoning so we didn't think much more of it until a friend of my husband's came over. This friend used to build spec houses and he couldn't believe his eyes. He said there was no way this house was legal and no way it could pass zoning. He must be right, because the house is about 1/2 built, but no work has been done on it for the last 2 months or so. It's just sitting there. I don't know if they ran out of money, or can't pass the inspections. It should be mentioned that the place is pretty big too. It's got to be at least 3500 sqft. Every time I drive by, I think "who in their right mind is going to buy that thing." But I know that in this market there will be a "greater fool" sooner than later.

My Dad, who's in the car business has a saying about selling cars. "There's an ass for every seat." I wonder what the saying for the housing market could be.

TIM: "Probably another side effect of the credit bubble mania."

I'm a bit of a crank on this topic, and I lay the blame squarely on the modernist movement (and its bastard children) in architecture. By stripping away all detailing from buildings, the modernists destroyed the craftsmen and removed representation from buildings. This especially impoverished public buildings, but it removed meaning from the private space as well.

Basically, the architects and artists stopped believing in and speaking to our souls.

But I begin to bore...

Cheers,
prat

One other thing. My husband read some survey today that showed about 70-someting % of people polled thought that the housing market was fine and would continue on just like it has been. In his business, he and his associates say when the herd mentality gets to this point, it's time to do the opposite.

SactoQt: I meant to ask, did you grow up in Sac? I'm a sactown boy: I grew up in Granite Bay.

Cheers,
prat

You da man. I live in Granite Bay now, have lived here since 1985.

It was Roseville when I moved here. I graduated Oakmont 1987.

_laugh_

Excellent. So you know the *exact* homes I'm talking about then.

Great golf course though.

Cheers,
prat

The friend I have who wants the bigger home lives right up the street from the golf course. I run on the trail around the course several days a week, and my Dad is, of course, a member.

Regarding architecture...

I think ideally land developers should sell land with utility hookups directly to home buyers, which ten can decide what to build.

One can hire a fancy custom home builder to put a McMansion there, or build a post-modern pre-fab home with solr panels. :)

On the other hand, urban development requires more planning and the use of space must be efficient. Well designed condo towers with sustainable engineering in mind is perhaps a good idea.

Regarding space...

For a family with N children, I think (N + 2) bedrooms with (N + 2) bathrooms are more than sufficient. (Unless one needs a study, a library, an office, and a guest room.)

Perhaps I am calculating too much...

sqt: "I graduated Oakmont 1987.I graduated Oakmont 1987."

_LAUGH_ Oakmont '94. Go vike's.

Peter: "For a family with N children"

N + 2 isn't a bad number, if you have 1 or 2 kids. 1 for the parents, N for the kids and 1 guest bedroom. I think a small guest quarters/inlaw in the rear is even better. It allows your guests more privacy, when your children get late in high school and need some more independence they can use it, and when your parents get older, they can maintain some independence when you are helping them out.

Cheers,
prat

@mcj

"Huge SUVs are just gussied up body-on -frame pickup truck type vehicles using 1960s technology. They are slow, handle poorly, and don’t have any more interior space than a good full size sedan."

Oh, don't get me started. Toyota is releasing a new FJ next year that I'm moderately excited about (although it won't come with a diesel engine, so my biodiesel aspirations will have to wait). It's small and functional, although its not clear what the inside looks like. It's the first SUV (oh, how I hate that term) that I've been interested in in a long while.

"McMansions generally have way more space than people need and just require more cleaning and higher utility bills."

Just so.

Cheers,
prat

motorcityjim, the whole SUV thing is becoming a nuclear arm race. Many people feel compelled to get one because there are just too many on the road and they do not feel safe without one.

I am actually hoping for a $2/g gasoline tax to fund alternative energy. Gas in American is just too cheap. It needs to be at least 100% more expensive. Trust me, as a nation, we will be far more ahead in the long run with this.

"I am actually hoping for a $2/g gasoline tax to fund alternative energy. Gas in American is just too cheap. It needs to be at least 100% more expensive. Trust me, as a nation, we will be far more ahead in the long run with this."

Biodiesel. Biodiesel. Biodiesel.

Cheers,
prat

Hi Jack, where were you?

Where is Escaped from DC?

motorcityjim, the problem is that most people think that they are safe drivers and that they cannot be harmed by other dangerous drivers in an SUV. Too bad they are actually the dangerous driver.

I will take a large sedan with side airbags over an SUV any day. :)

But we really need much better driver education.