patrick.net

ubermonkey,

Additionally TIPS don't have a vacancy rate!

Some might argue that cash, cash equivelants, money markets and CD's to be less risk but given your explanation (and application) I'm willing to consider it!

What "The Other" further fails to realize is that for the immediate future the avg. American is going to be much better served devoting his/her time toward getting a better understanding of his/her tax position and maximizing their investment options rather than playing "flip this house" with their weekends!

Watch for home improvement projects (and many TV shows) to drop off the radar in 2007. Looking back, our obsession w/RE will look about as cool as getting caught at a stop light blasting 80's "big hair" bands on your radio. Nuff said.

tinyurl.com/y4ddra

Less than 3% of California makes 200K or above, so riddle me how the fuck the other 97% can afford a 700K stucco $hitbox without funny money loans. That's right HaHa, you are in the 3% provided your wife works a little.

sorry, it's actually 3.3%, contrary to what Fucked Rectumlicker has to say, it is "not common". But hey, party on.

Less than 3% of California makes 200K or above, so riddle me how the fuck the other 97% can afford a 700K stucco $hitbox without funny money loans.

What if that stucco comes with a Sig Saucer?

Odds are the landlord is actually making a relatively low cash return on equity if they own a Palo Alto rental home free and clear (take your annual rent - $4K /Home Value to get the return on equity)

FAB,
Just curious, how likely is it that folks like this will sell during this cycle? Are LLs any more rational than the rest of the lot, or will they tend to ride the sale price down like everyone else?

I'm pretty sure these are the correct "bubble deniers" from Pomona College Dept. of Econ.

http://www.collegenews.org/x5508.xml

Aren't Gary & Margaret Hwang-Smith the same couple that said "Damn the Bubble, full steam ahead" and bought a ridiculously overpriced POS very recently? Some of the quotes in the article were just hilarious! It's the 3rd. of April 2006 and there are some places in SoCal that are still UNDER-valued.....? Yeah, there's some real credibility for ya'!

1- I beleive that we will surely see a drop (20%-30%) from all time high of mid 2005. Buying today is crazy, but not selling one’s primary residence bought a long time ago is NOT

Translation - I own a house and I want to justify not selling it.

Analysis - If you can afford the PITI and you plan on retiring here, I agree that's the right call (mainly because of Prop 13 and 6% exit fee). If your retirement depends on your home equity, you might want to rethink that as future reverse mortgages might be less favorable than they have been or are currently.

2- I beleive that it will take a lot more time that is widely assumed (5-7years)…
Translation - I have numbers in my a$$. They hurt, so I pulled one out.

Analysis - 60% resets for the subprime market over the next 2 years will definitely produce some interesting fireworks. If interest rates drop, maybe it will follow the classic pattern that you suggest. If rates rise, not a chance. It's all guesswork. Either way, we agree to wait on buying a house.

I also believe that people who are trying to time the market will have the WRONG timing.

Translation - I bought a house a long time ago. Patrick and the rest of you didn't. Suckers. You'll keep sucking because you suck.

Analysis - At least we'll sleep soundly in our rentals. Better than living with the night sweats like the FBs or cursing the drip-drip-drip as our paper wealth oozes down to the Bay.

8.9 million U.S. households have a net worth of at least $1 million, not including equity in a primary residence.

Things are not very dire.

However, many of these households will enter some form of retirement soon. 1M 2006$ is not a lot of money to "burn" for the next 30 years. That is less than $35K a year. Now property tax will be at least 10K a year for a 1M home. It leaves less than 25K for other expenditures. Food for 2 can be more than that.

It is pretty common in the areas where people on this blog actually want to buy, but certainly not everywhere in CA.

The majority of my friends have superpowers, so it stands to reason (well at least using FR logic) that the majority of people also have superpowers. I believe superpowers are much more common than everyone realizes.

Face Reality,

Here's a more interesting income breakdown (albeit 6 year old):

http://www.census.gov/prod/2003pubs/p70-88.pdf

It looks like there are lots of retirees looking to Social Security or home equity to save them in their bronze years...

Who are they gonna sell to? Gen-X? Children, can you say "supply shock"?

FRIFY, come on now, mostly everyone with the exception of nearly everyone in the Bay Area makes 200K plus. Mostly everyone is at the top of their respective game, be it software/hardware architect or any other flavor of tech professional. Why at Genetech alone over 90% of the staff makes 300K plus. Why the statistics alone show that almost 8% of US households have 1mil in investments. Those other 92% let them eat mother fucking cake.

The slight increases in sales were not enough to halt a slide in home prices. The median price for an existing home sold in November dropped to $218,000, down 3.1 percent from the price a year ago. It was the first time on record that sales prices compared to a year ago have fallen for four straight months.

Whoooooooops. Well at least a record has been set.

FRIFY, come on now, mostly everyone with the exception of nearly everyone in the Bay Area makes 200K plus. Mostly everyone is at the top of their respective game, be it software/hardware architect or any other flavor of tech professional.

A few hi-tech coworkers and I were talking about this a while back. While it's crazy to think that every -one- in the BA makes 200k+, it's not insane to think that many couples make 150k+.

2 YHOO/GOOG/MSFT/DNA/EBAY could easily reach that.

According to Salary.com:

Benchmark Job Title: Web Software Developer
Work Location: Mountain View, CA 94043
$61,418 $110,699
Local Low Local High

If you do a simple search on Google, you can find Microsoft's pay scale. (Irony.)

Now, of course a lot of people don't have husband/wife working - and a lot of people aren't in tech. But a lot of people are also sitting pretty in PreProp13 houses - or heck, even 1996 era houses. Those folks only need one income.

I need to have some kids and get them to start knitting rugs so I can afford a house in Mountain View.

X,

What I'm trying to square is this tidbit from the Census bureau's report (page 11):

Fifth (highest) quintile:
Households: 20M
Median Net Worth $185K
Excluding Home Equity: $98K

...against Face Reality's CNN figure of 8.9M households with $1M or more, excluding home equity. Presumably, these 8.9M are in the highest quintile above. So, in the highest quintile, the median household (the poorest of the richest 10M (1/2 of 20M) households in the country) has $98K in non-house assets and yet somehow by the time you've removed another 1.1M households on your ascent to Bill Gates, you've jumped to a MINIMUM networth of $1M.

It seems highly suspect, but I'm sure it's an error in the Government's Census bureau report and not an error in CNN's "Key Stat" (references uncited).

Then again, DOW 11,000 in 2000 has jumped to DOW 12,500 in 2006. Maybe that explains the disparity.

FRIFY, the Feds? Surely CNN wouldn't skew the data to paint a rosy picture. Now that would be just plain bad journalism, and I just cannot see how an industry with such high standards would succumb. The Bay Aryans are just plain ballers. Shit, if you want to make money, open a rim shop and put 24"s on AMG Mercedes.

EBGuy Says:

> FAB, Just curious, how likely is it that folks like
> this will sell during this cycle? Are LLs any more
> rational than the rest of the lot, or will they tend
> to ride the sale price down like everyone else?

Almost all the rental homes in the US and at least half the apartment units in the US are owned by “Mom & Pop” investors (like me and my parents). Most (but not all) small investment property owners follow the “buy and hold” strategy and rarely sell investment property. Here in California with Prop. 13 that keeps property taxes low there is a real incentive to hang on to property (my Parents own some homes in San Mateo where they are paying under $400 a year in property taxes when the people that bought last year are paying $15K a year).

It will be interesting to see if the bigger numbers get more investors to sell this time (especially the large numbers of boomer age investors who don’t want to do maintenance work in their 70’s). When S. Cal rental homes went from ~$300K to ~$200K and apartments went from~60K/unit to ~$30K a unit owners were looking at less than a $1-3K per month decline in value. If N. Cal prices drop 50% from current levels more owners may decide to cash in on the way down as they watch values drop by $10K to $20K per month (over $100K a year)…

theotherside Says:

> On the surface, the growth of the US economy
> has been impressive since 2002.

The problem is that the economy didn’t actually “grow” by much in the traditional sense… In the last few years we had millions of people go deeper in debt than they were ever allowed to go in the past maxing out credit cards and pulling out cash with HELOCs.

Securitized lending has allowed millions of stupid people get more debt than they can ever realistically pay back (go to http://iamfacingforeclosure.com/ to see just one example of why the economy has “grown” so much over the past few years)…

My point is that people who are trying to buy in desirable areas (such as much of the Bay Area) are competing mostly with the top 10%-20% of US households, and these are doing quite well these days.

Sorry Face Reality, let me explain the disconnect a little more clearly. The Fifth (highest) quintile IS the top 20%. To repeat, the poorest of the top 10% is this guy (in 2000):

Median Net Worth $185K
Excluding Home Equity: $98K

For the sake of your employees, I hope you hired some smart math folk to help you run the numbers in your business.

I agree with your second paragraph. I part ways with most of the libertarians on this board by advocating progressive taxation to address the inequal distribution of wealth.

Sorry Face Reality, let me explain the disconnect a little more clearly. The Fifth (highest) quintile IS the top 20%. To repeat, the poorest of the top 10% is this guy (in 2000):

Median Net Worth $185K
Excluding Home Equity: $98K

Aren't those national stats?

It may be different for the Bay Area. Heck, just look at the median income stats:

http://money.cnn.com/magazines/moneymag/bplive/2006/snapshots/PL0617610.html

Cupertino, CA
Median family income
(per year) $123,320 (Cupertino) $76,893 (Best places average)

As my earlier comment noted, it's not out of the question to have a median family income of this level. All it takes are 2 tech workers.

We keep moving in the direction of an increasingly unequal and unfair society with a large segment of the population not being able to afford basics such as education, housing, health care, and retirement. I don’t like it, but all I can do is to try not to fall into this group, and to help as many people as I can to do better.

Hopefully things will get better when Pluto moves clear of Capricorn around 2023.

From today's Chicago Tribune: "David Lereah, the Realtors' chief economist, estimated that each 1 percent fall in home prices brings an additional 50,000 buyers into the market."

Now if we estimate that there are at least 1 Mil. excess homes available and we agree with Lereah; this means he is calling for a 20% drop from here (1,000,000 / 50,000 = 20). My guess is that there are more than 1 Mil. of excess and we will see growing inventory over the next two years. The counter argument may be that the 50k per 1% is not a linear function. Even if we leave the last two factors alone, I think Lereah's comments should scare the crap out of most owners.

http://tinyurl.com/yf64mk

It may be different for the Bay Area. Heck, just look at the median income stats:

Well, of course, that's why we're all huddled here renting when we could be earing half as much and owning in 90% of the country. Haha's numbers for single salaries aren't out to lunch - perhaps the top 2-5% of tech workers make that? (Anyone have networth figures for the bay area?). CNN's numbers were presumably national figures as well, so my comparison confusion was a fair one.

If you squat in your BA rental, earn good pay and save, what's the worst that could happen? One day you decide you're sick of the tech rat race and you buy a foreclosed house in Denver/Austin/Boston/NorVA/Florida. Either way, waiting is the right play for the foreseeable future.

If you squat in your BA rental, earn good pay and save, what’s the worst that could happen?

That's a good point. I agree with it 90%

The 10% is that its -relatively- harder to save here because of the high cost of living. Heck, even groceries are 20% more here:

http://www.burbed.com/2006/12/25/heres-your-christmas-gift-20-savings-on-groceries/

That's one of my biggest gripes about living here - people say "Well aside from housing, it's not that expensive." How is that ever possible?

Face Reality,

If you wish to buy real estate in the areas where these households dominate the buying population, then you’d better belong to that group.

I think many people here in the bay area flipped that argument on it's head:

"If you wish to pretend to be in that group [in the bay area], you should buy real estate."

Through the magic of the bubble, they have house paper wealth. They just never had the income to justify their mortgage.

Ok, enough. I'm going to follow Randy's example and take a blogging break...

The median single family home price in Cupertino in 2000 was $871,400. In 2005, it was $1,040,000.

Is the median-priced house in 2000 comparable to the median-priced house in 2006?

1- The only thing that stands between YOUR CHEAP RENTAL and HAVING YOUR FAMILY on the street is the willingness/ability of your landlord not to default….

Well that's certainly a true argument if the LL is indeed a FB - not so true if the LL is a management company like the despised Avalon corp.

But at the end of the day, how do you quantify this?

RE: Cupertino... central location

Central to where?

I would agree if you say Burlingame or San Mateo has central location.

I do like Cupertino though. It is boring. I love boring places.

But I am not going to pay the school premium.

Of all the things I lay awake worrying about, my LL going tits up doesn't even make the list (and I have a pretty long list!)

There are extreme cases like Sam Samulian (and his lovely wife) down in San Diego using straw buyers, collecting rent checks and then *not forwarding one thin dime to the lender but these instances are rare. If you're making a check out to a guy who's only means of contact is a cell phone and he comes by to collect the rent?

Some of the tell tale signs your LL is in financial trouble are:

1. Wife hits TV reporter in face with plastic water bottle.

2. Wife says she "knows certain people" in Mexico that are going to do unspeakable things to your _ss.

3. Husband joins the fray by wrestling with reporter and another evicted renter on front lawn of rental office.

oh and;

4. Wife goes back to car to get gun.

By the way, even SF is not exactly one of the most exciting cities in the world.

SF is too exciting for me. I like Menlo Park more than Palo Alto (aka Bumsville). Berkeley is just impossible.

Even if you don’t have kids (and don’t plan to have them), the school premium may still be worth paying because home prices there are more likely to remain robust, homes are likely to sell faster, and the good schools attract a certain population.

Very true. I have to think about that. But I also hate to be surrounded by engineers.

surfer-x Says:

"...Why at Genetech alone over 90% of the staff makes 300K plus..."
_____

I thought it was more like $580K plus...but whatever. The point is, is that most people in the Bay Area make hundreds and hundreds of thousands per year apiece. Couples (with at least a GED of education between them) average $1M plus.

It's just beautiful and amazing and luscious. That why I love the Bay Area.

& God bless Tiny Tim!

-sigh- just another day at the office fighting trolls...

I agree with your second paragraph. I part ways with most of the libertarians on this board by advocating progressive taxation to address the inequal distribution of wealth.

That bit is true. How can a libertarian who depends on others for their presumably high salary and quality of life then turn around and deny those same living conditions to others? There is an interconnectedness of persons and wellbeing that the libertarians conveniently overlook in their rationale (which is really just a complacent 'i'm alright, jack'). I just discovered the whereabouts of a mentor of yore on this topic, Prof Anna Yeatman, who has moved to canada:
http://www.uofaweb.ualberta.ca/polisci/news.cfm?story=19607

"Dr. Anna Yeatman rejects the traditional liberal theory, stemming from John Locke and Jean-Jacques Rousseau, that individuals exist naturally and that the goal of the state must be to enable individuals to express their own nature.

"The individual isn't just already 'there'. A self-determining individual is a complex achievement on the part of government, society, the family, and the individual. In this sense, the individual has to be made. There has to be an entire infrastructure of support that prompts, prods, and facilitates you to become a self-determining individual," Yeatman said.

Her research centres on democratic governance and approaches to public policy that suits a globalizing world and create a genuinely inclusive citizenship."

SFwoman2 Says:
The population of Silicon Valley is roughly 2.3million. How many engineers do you think there are in the peninsula? I doubt that I would be surrounded by engineers everywhere. Sure there are a lot of them, but there are other occupations in the Valley too.

Here's a wacky theory:
In the late 90s, there was an unprecedented inflow of highly educated people into the Bay Area, many of them from overseas. These people mostly earn way above the median income of the area, and for many years now have bought up all available housing supply in the area, causing a spike in demand that was much greater than the limited supply.

Thus, prices rose rapidly. The rising prices, together with the credit bubble, artificially constrained supply even more by enabling folks to hang on who would otherwise have been washed out, and encouraging others to hold who would otherwise have sold.
The credit bubble also generated artificial demand at high prices by enabling people to buy second and third homes as investments, and/or pay prices they could otherwise not afford.

Voila, a full-blown, self-reinforcing bubble.

I would speculate that when the number of folks who earn great money, but haven't bought yet, is finally so low that it doesn't cover the available supply anymore, the bubble psychology will be destroyed, and all the above effects will reverse, causing the whole thing to collapse quite violently.

Or at least that's what I like to believe to keep me sane :-)

Hey, I thought you said you liked boring!

Yes, but I am entitled to self-hatred. :)

About Salary - from my own experience.

The figures (150K+) given by Ha Ha and Face Reality are pure BS. Average - and that is the key word "average" tech job pays nowhere near that.

The "Distinguished Engineers" at companies like Sun may very well earn 200K+ in cash compensation, plus stock options and standard benefits. Very few, very very few engineers are actually at that grade.

Due to network of people, I have had access to salary ranges of start ups and big companies. 110K is more like average cash compensation. Plus medical and other benefits. What you make on stock options is pure luck.

There is one point where I agree with Face Reality. Many people have earned one big payment. For example, many companies have ESPP plans, where employees can buy stock based on a 2 year period, and not 6 months period. Given the gains of the stock market in last few years, I know many who have quadrupled their money in this period. Before taxes, we are talking about a cool 50K. Still that is nothing compared to 800K for an average house in BA.

Due to such factors and many 2 income families, housing will always remain costly compared to many parts of the country. We all agree to that. But the disconnect (with rents, income etc) cannot continue forever.

What the bulls forget is, even with strong job market, good stock market and low rates - everything that is favorable to BA housing, the market has stalled. As if it has run out of ammunition. Everywhere in BA. In the fringe areas, the crash has begun.

Now that prices have stopped going up, and renting saves so much more money than owning, there is NO HURRY to buy. Even if prices stay the same in nominal terms, postponing the purchase going to be prudent decision.

For those that are truly bored this weekend I'd heard CNN is running an hour long special Saturday at 2:00pm called "Mortgage Meltdown". Could provide some much needed laughs while nursing a hangover!

In their pre-view they sighted 7 signs of predatory lending with the usual cast of characters, high fees, pre-payment penalties etc. What I found interesting is that #7 was with the high kickbacks to MB's a LOT of people that were actually qualified for convetional financing wound up getting slammed into sub-prime loans anyway! (Well duh!). Welcome to Sub-Prime Amerika!

The whole idea of being "put out in the street" because your LL got a "Crazy loan" (which "The Other" *didn't*) and you didn't buy "many many years ago" (such as "The Other" did back in 2003) is really clutching at straws!

Who will be worse off? Some guy with a foreclosure (or two) on his credit report or the renter that has to move? I'm willing to bet that properly handled if you really did like the home/area you'd be in a pretty good place to make the bank an offer significantly lower than what the specuvestor paid. Besides I'm pretty sure most folks that post here and rent are smart enough not to enter into a business arrangement with the likes ofCasey Serin for crissakes!

I'm surprised most let that 11th. hour last ditch effort slide! (Well it IS the holidays).

SFwoman2 writes:
I’m not denying that there isn’t a large population of engineers in the Bay Area, but I don’t think I am surrounded by them. Based on the stats from the Burea of Labor Statistics, it’s about 1 in 10 employed in the valley is an engineer/computer/math geek.

How long does it take to turn 1/10th of the housing stock around?