patrick.net

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?

Ha Ha writes:

Patrick, are you seeing increased ad revenue from the blog from this exposure?

Nope, the traffic for patrick.net barely moved after the WSJ article. Here's the traffic graph.

I guess that's because of the holidays.

Patrick

My husband has many engineers working under him at his company. He says the average pay for his engineers is around $90-$100k.

Patrick,

Actually I wouldn't worry about it all that much. When the holiday "glow" wears off and the sobriety of the anemic last chance cash out re-fi sets in the traffic will be there. Like Robert Cote' says, a last furious round of musical chairs and then...... the pain.

Ha Ha,

Good stuff. That is David Rosenberg of Merrill Lynch right?

Oh and don't forget that the seller in addition to paying my closing costs and 1 years golf membership also has to remember to come by once a week to feed the squirrels!

Casey gettin' a taste of his own medicene eh?

JasonSimcha Says:

> I’m a psychotherapist intern working for a non-profit
> working with homeless young adults in the East Bay.
> None of us there (Even the fully licensed clinicians/
> managers) make anywhere near $75k.

If you are good at working with screwed up kids you can make a lot more if you set up shop on the Peninsula and work with all the screwed up kids who’s hard working parents don’t have time for them (but have plenty of money to pay top dollar to a shrink). My best friends sister is making about 3x what you are making specializing in screwed up teens…

When I was a kid going to public school in the early 70’s none of the Mom’s had jobs and most of the Dad’s were home for dinner every night. Today many of the Peninsula kids will go months without ever even seeing a parent (who will pay a lot of money to try and fix the kids so they don’t feel guilty)…

Our latest real estate SSOTW (sob story of the week, per DinOR) from CNN/Money:

http://money.cnn.com/2006/12/28/real_estate/help_home_for_sale_Otts/index.htm?postversion=2006122814

"Help! Home for sale - the Otts
The housing slump has made moving on up more difficult for this Wisconsin couple."

Well, the housing slump has hit the trailer home crowd. And yet again, a phenomenon I don't understand, these people are screwed because they decided to buy a new place before selling the old place. When will this idiocy end?

I've just returned from an unplanned (and unfortunate) trip back East, and I'm also now very busy making up lost time on a year-end project (to be delivered in Feb 07 now, lol). So I'm only partially engaged here.

A couple of points:

Real-dollar value of rent, or alternatively rent yields, are historically LOWER than real-dollar PITI, or alternatively ownership carrying costs. The only way the claims to the contrary are true is if (a) one places a high value on the built-in real options associated with renting; or (b) one interprets "affordability" to not be a cold quantitative measure but instead a "normalized" measure. For example, the debate vis-a-vis two income households today versus early decades.

But, as a purely quantitative exercise, rent is less than PITI, except in areas afflicted by secular unemployment, like much of the Midwestern rust belt or many rural agricultural towns today.

And to the recent troll/bull/provocateurs: It's really quite simple guys (girls) -- people cannot buy that which they cannot afford. Endith the recent orgy of easy credit and mispriced liquidity (in terms of risk premiums), and thus endith the false high in nominal house prices. I'm seeing a home today in Larkspur priced at about $2m, which sold for about $800K only 20 months ago. I'll offer maybe $899K if I really really really like it. If another chump buys it for $2m, I'll wait and buy it from him in a year for maybe $919K, after he realizes he cannot service his $8~$9K per month real cost of ownership without the latest optionReverseNegativeAdjustableSoldToChina(tm) mortgage product.

skibum,

How in God's creation could you STILL have payments left on a what? $32,000 loan after 6 years? O.K, whatever. How far out will they go on a mobile home finance? What were the payments? $124.36 a month?

@theotherside

SP you are WRONG AGAIN: the devil is in the details:
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….

Thank you for proving you lack any credibility, whatsoever. If your landlord defaults you, as a renter, are protected for a statutory time period from forced eviction. In most areas I've ever lived, that period actually increases in the case of an owner-default. Plenty of time to find somewhere else to move, even if it is a pain in the ass. Further, you as renter have a financial claim against the owner if you are expelled before the term of your legal lease agreement (although if he/she's bankrupt it may be hard to collect, but few defaulting landlords actually go BK).

My current landlord thought about selling his shoddy Mill Valley McMansion last Spring. When he asked for my cooperation in this, you know, showing and stuff, I responded with an agreement from my lawyer suggesting a compensation rate structure for my inconvenience. He balked, was pissed off, but not so much so as to not sign another lease with me.

Who has the leverage again?

BTW, the tower in Stevens Creek and De Anza is EMPTY … just look at the tower in the evening …

HaHa,
Do you mean the condos next to the Cypress Hotell and Symantec? We pass by there often. Have you noticed how many "For Sale" signs there are at the entrance? There seem to be more and more each week.

are you seeing increased ad revenue from the blog from this exposure?

Nope, the traffic for patrick.net barely moved after the WSJ article. Here’s the traffic graph.

that might go a long way towards explaining why the dot coms dot bombed... dark fibre, anyone?

JasonSimcha said:
I have no other choice but to rent earning only 40k/year. I do put money away in my agency’s 401k that is set to get a 10% return this year. I have a small savings account earning 5% interest. And I have a mountain of student loan debt that will need to be repaid at some point.

With the coming recession demand for my services will skyrocket. The only issue is that this society places such a low premium on mental health, as if it’s not important. Who pays for the services, and how much?

I've been looking at retraining with a DipCounselling or else finishing Honours/Masters psych degree. You do wonder whether it's worth 6 years of higher education and student loans to buy a low-paying and uncertain 'professional' job -- 6 years will also get you a medical degree, and 3 years in liberal arts a plum govt job if you play your cards right.

Fortunately, the Federal govt here has just started paying psychs the same way they pay MDs, as of November, forking out up to $120 ph for a consult -- this should change the entire terrain of private practice. This is effectively a huge 'govt grant' for mental health -- half of which problems are caused by financial stress, workplace problems, etc...

Randy H Says:
My current landlord thought about selling his shoddy Mill Valley McMansion last Spring. When he asked for my cooperation in this, you know, showing and stuff, I responded with an agreement from my lawyer suggesting a compensation rate structure for my inconvenience. He balked, was pissed off, but not so much so as to not sign another lease with me.

Who has the leverage again?

Randy, do you have a little pine table next to the kitchen? :P

(Or maybe a pine baseball bat)

Congratulations on the well deserved accolades!

Hilarious stuff from Realty Times:

http://realtytimes.com/rtcpages/20061229_askrt.htm

Ask Realty Times
by Peter G. Miller

Question: I just signed the contract on a new house 10 days ago and gave $10,000 as an initial deposit. The builder has lowered the price of the property by $30,000. How can I get that new price for my signed contract house. Can I cancel the contract or ask builder to lower the base value on the existing contract or compensate me with $30,000 worth of upgrades?

I'm first time home buyer and I thought I made a good deal last week and now the price is even lower. I do not want to lose $30,000 on the house. What can I do?

Answer: Imagine if you had a contract with the builder to purchase the home for $300,000. Imagine that a week later the builder raised the price to $330,000 and people were willing to pay that amount. Would you then march into the builder's office demanding to pay an additional $30,000? What would you think if the builder came back and asked if you would accept a $30,000 price increase?

You have a contract which reflects the best price and terms you could negotiate at a given time. You can certainly ask the builder to modify your agreement, but generally I would expect little or nothing to happen. For specifics, show the agreement to a local real estate attorney to see if you have any leverage in this matter.