patrick.net

But for the large majority of FBs, this is all moot because they are saving nothing. Actually, less than nothing, hence negative national savings rate.

One of my colleagues once countered with: "Isn't paying a mortgage considered savings?"

Um...

Yeah, uh when you buy into the "you should be borrowing all the money you can get your hands on and buying as much house as you possibly can" school of thought it does have a tendency to limit one's self.

Better to be a McDebtor homeOwner than face the shame and embarrassment of having to admit that you do not participate in the American Dream.

I might do it just to get my parents off my back. :(

"At least you'll own something after 30 years instead of paying rent forever!" - gah! stop it!

SFWoman,

Minor correction, please?

FB's "were" enjoying life.

It was funny b/c the wife and I went to the OR coast this Sunday to see the storms (pretty cool) and after lunch got a bunch of RE mags. The newest development (believe this or not) was for 1,100 to 1,700 sq. ft. cottages just outside of Depot Bay. They were priced "Starting at $184,500" on 7,000 sq. ft. lots. True, they don't have a "pee-a-boo" beach view but it looks like a real nice area and is only about 1/2 mile to the beach. Isn't this what living by the beach was supposed to be about? Simple?

DinOR,

That actually sounds cute. Although, I remember seeing beach houses near Cannon Beach for about $35,000 when I lived in Oregon (~1991).

1/2 mile might be beach front after a good temblor/tsunami.

Palo Alto Renter,

People hit the 35% income tax bracket pretty quickly, around $70K for singles. The upper limit for Roth IRA contribution is around $95K. So the "upper income bracket" issue can come up periodically.

I can attest to the damage done by the "urge to own." Many of my boyfriend's coworkers who "own" can't even afford to contribute up to his employer's rather measly match (I don't remember the exact amount - maybe $1,000 or $2,000 a year). Most of his coworkers complain when the company deposits their year end bonuses to 401K rather than give them the money.

@SP,

RE graphic: You're welcome :-) .

But judging from the quality of contribution here, a lot of bubblesitters are very concerned about their retirement accounts.

I recently set up my company Roth 401K account and had the Fidelity rep tell me that Roth 401K is so much better than traditional 401K because I don't have to pay tax at the end of it. I guess he forgot about time value of money for all the income taxes paid before the money went into Roth 401K.

I think this mentality might shed some light on people who think owning after 30 years of rent payment is always a good thing.

eburbed,

Tell your parents that if they want you to "own" that badly, they can pay the downpayment, transactional costs, and the difference between rent and your monthly PITI for an equivalent place. Otherwise, politely inform them that they have no controlling authority over money you've made.

Better to be a McDebtor homeOwner than face the shame and embarrassment of having to admit that you do not participate in the American Dream.

It never ceases to amaze me how large a chunk of the population really believes this, heart and soul without question. Really, I would love to see a Gallup do a national poll that asks the following questions:

1. Which crime would you rather admit to having committed to your family & friends?:
a. being a child molester
b. being an executive at Enron, Tyco or Adelphia
c. being a renter

2. Which would be a worse fate:
Being a life-long renter or getting beheaded by Al Queda on live T.V.?

3. After 9 straight years of a booming real estate market, why do you think it is that some people still don't "own"?
a. they hate America/freedom
b. too stupid/illiterate to sign name to neg-am loan docs
c. we've finally run out of land

I would be interested if anyone here has any knowledge about converting (if at all) retirement accounts (IRA, 401K, Roth) during emigrating to Canada or Australia. This is actually a very serious for me since I'd like to get out of this country one day, hopefully soon.

SFWoman,

They're also at a fairly good elevation on the east side of Hwy 101. I've lived in beach communities of and on for years and believe me, if you live within 1/2 mile you're going to see ALL the beach you can stand. Nice to get in from the wind a little too.

I just thought it was so funny that with all these high dollar monsters "rubber necking" for a glimpse of the waves that someone introduced a development that actually made some sense. Many of the beach towns are just dead Mon-Thur and only come to life during the weekends and summer months. Many of the high dollar homes in the Tsunami Zone look ancient when they're only a year or two old.

HARM,

I think being a renter is more like Autism or Cretinism than outright criminality. They should be showered with compassion and encouraged to buy (even if doing so would annihilate JBR's rational little minds). It's really not the renters' fault that they can't get ahead like everybody else.

astrid,

I've had friends and neighbors etc. liquidate IRA's when going to the P.I and other tropical places. One did have a problem when he re-entered the U.S for a funeral and they've been making life difficult for him ever since. Be careful here.

@astrid,

:lol: Such compassion! Yes, yes --renterism is more like a social disease... sort of like alcoholism or drug abuse. Perhaps what we need is a 12-Step program. Rentaholic's Anonymous.

Hello, my name is HARM and I'm a lifelong JBR...

Here's a great article that compares Roth 401k to Plain 401k:

http://www.pcarbi.org/retirement/Roth%20403b/TaxDiversificationandRoth403b.pdf

It really depends on how you feel tax trends will go. If you think we're going to be paying 50% of our income in taxes when we retire, Roth is for you.

dryfly,

Well.... I'm sure there are plenty of people that just "fall off the radar" right here in the good old U.S by simply no longer filing! Actually that may be safer b/c you don't have "Customs issues" going to OR? Least not yet.

A lot of people say, well if I leave I'm "never" coming back! That's easier said than done b/c either it's family or it's health issues but either way trust me they won't have just forgotten about your prematurely liquidating your IRA's!

Who should adopt?
High-replacement-income participants. Our general
rule of thumb is that any participant who is wellprepared
for retirement is a good candidate for Roth
savings. These are participants who are “on track”
to generate a high level of replacement income in
retirement. Conversely, any participant who is not
well-prepared and expects to rely mostly on Social
Security benefits should probably remain with
pre-tax savings.

Who are the “well-prepared”? They are participants
who have accumulated substantial private retirement
benefits and savings on top of Social Security. They
are participants who are saving adequately on their
own (above the Vanguard median participant savings
rate of 6%) and receive generous employer defined
benefit (DB) and DC benefits, or who are saving
at double-digit rates and receive an employer
401(k) match.
Why does the Roth feature make sense for the wellprepared?
The well-prepared have a higher probability
of being in the same tax bracket in retirement. They
also are exposed to the risk of higher tax rates in
retirement—whether triggered by the current rules
on Social Security taxation or by any possible future
tax increase enacted by Congress.

Yes, and don’t make too much income or else you can’t have a Roth… that’s another good way to decide. :)

This is a Roth 401k - there's no income limit. It's just whether your company offers it or not.

astrid,

I think there is no reason why you should convert 401K or Roth out of the country. The only thing I would like to stop paying is SS and medicare, because I will never see my money back. But 401K and Roth, IRA are mine, I get to determine how to invest and the US is still the best place for investment.

If you are going to Australia, you will find the Aussie capital market quite limited in investment options and rather inefficient. Down under people are still putting money into unit trust (a dumb version of mutual fund) with a standard 5% upfront load and a standard 1-2% annual management fee. No load funds are rare, and even rarer are ETFs. Most of my Aussie friends invest their money in the American stock market, even if their money is parked on Aussie assets, sounds strange right? Here is why. The US market gives you the widest access of investment options in all parts of the world through ADRs, ETFs, mutual funds etc., and the transaction cost is by far the lowest while the trading volume is multiple x of that of any other country, which means you can get in and out of the market much more efficiently. If the American financial system falls apart, I can tell you there are really no places to hide out elsewhere in the world.

If you are heading to Australia, don't give up your American citizenship yet, because giving up your US citizenship will shut you off access to many mutual funds that are ONLY available to Americans. As an American living overseas, you get a tax break for the first $80K earned, so if you are not making very high income yet, the extra tax you pay is very minimal. When you are making serious dough, that's when you start to consider giving up your American citizenship. Australia permits dual citizenship, so there is really no hurry. Plus, you can also give your future kids an option to come back to the mothership, if she hasn't sunk by then :-)

Foreclosures increase 51 percent nationwide

Nationwide, almost 971,000 foreclosure filings were reported last year, 51 percent more than the 641,000 in 2005, according to the annual report.

Foreclosures are exploding, but according to Alexis McGee:

"Home inventories now are dropping and markets are improving," she said in a news release. "That means relief to overextended homeowners who bought homes they could not afford with the help of little money down and low teaser-rate mortgages. Until now, with mortgage payments adjusting upward, housing inventories climbing and prices stagnating, these homeowners have had few options but to lose their house to foreclosure or capture some of their equity with a fresh start with a quick, honest investor purchase."

How could foreclosures be exploding at the same time inventories dropping?

Then she goes on to saying:

The current housing market may be the best opportunity for home shoppers in the next six years, McGee said.

Now remember, when the housing market is booming, the foreclosure market is non-existent. It is a very bad time for McGees company foreclosures.com. When the market is crashing like it is and foreclosures are exploding, it still is a bad time for the foreclosure market because as long as investors believe that the market will get worse, they don't want to buy foreclosures because they really don't know what the market will be like when it comes time to resell the properties, so her company will still suffer.

It is only when the market is starting to recover (when we truely hit bottom) that the foreclosure market becomes profitable again; thus be a boom time for McGee's company. This is why McGee is acting optimistic about the market even though we are no where near the bottom.

Just like Lereah is feeding propaganda to generate transactions, so is McGee!

eburbed,

both my wife and I wouldn't have made into our college if we were not lucky enough to be born at least a decade earlier, thanks to our parents. Our SAT and GRE scores would be a disgrace to the school.

both my wife and I wouldn’t have made into our college if we were not lucky enough to be born at least a decade earlier, thanks to our parents. Our SAT and GRE scores would be a disgrace to the school.

At the end of the day, succeeding in America really means being born at the right time by the right parents.

To have been born in time to buy a house in CA before Prop 13. Now that would've been awesome.

allah,

Agreed. We're a long way from foreclosures being attractive. At best you'd be side stepping the commissions and a few other normal closing costs but over all, they're no bargain.

Owning is better than renting 80% of the times. It just so happens from 2004-2010(?), purchasing a home is a very very bad idea.

I was just reading a report on the luxury home segment in Hong Kong, which had the most spectacular comeback since the bubble popped. The first hand properties from the developers already double the per sf price compared to the top in 97. However, here is the footnote: NONE of the second-hand properties were able to make it back to their top 97 per sf price. Which means, if you were an investor (not a developer), you still have not seen your money back nominally, even though the luxury market as a whole did extremely well in the last couple of years.

Same thing happens in Tokyo's luxury market. Record-breaking recent transactions all happen in new constructions. Japanese depreciate their homes on a 40-year basis. Buy and hold doesn't help you much if you enter the market at the top.

I am all for owning one's own home, it is a decent goal everyone should strive for. Just that one should not buy at the top, buying at the top with a leverage is a serious self-destructive move in life.

EBGuy Says:

> FAB, For the curious onlooker…. Are your parents
> cashing out any of their rental homes during this
> boom cycle? Do they move into them and take the
> $500k deduction or do they just sell?

It would make sense for my parents to sell at least some of the homes they bought for $25-$55K for the $1-$1.5mm they could get today, but since they don’t need the money they just hang on to them and invest all the rents they get most months (since unless they go on a trip they spend less than they get from Social Security)…

My Dad often jokes that he likes having the rentals since it gives him something to do and when I point out the tiny return on equity he tells me that he does not care and mentions that I’ll probably get lucky and inherit all the real estate in 2010 (the year the estate tax goes away allowing an unlimited tax free transfer of wealth from parents to children).

> Also, since you are the closest thing we have to a Robert
> Kiyosaki, what do your think about the small investor
> owning a 4 unit building as part of their retirement (long
> term, not some flip-o-matic)? Of course, someone wouldn’t
> invest until GRMs and other metrics are a bit more favorable.

Real Estate has always been a great way to get rich slowly and hedge against inflation. Unlike a lot of seniors my Dad does not have to worry about “running out of money” since the cash flow from over 100 debt free rental units that provides plenty of cash flow today will almost certainly be enough to live on even if my Dad lives for 25 more years and dies at 100.

A small 4 plex is usually only a good investment if you live near the property and have the time and skill to manage and maintain it yourself. When you pay a management company to manage a little property they will take a big percentage of the income and the vacancy will be higher since they have no incentive to go out and knock on doors in the neighborhood to try and get people to move when there is a vacant unit (like my Mom did when I was a kid and we needed someone to move in so we could pay the mortgage).

Most of the housing stock in the Bay Area is old, so unless you are handy (or are willing to buy the Time Life Home Improvement series and invest a lot of time and money in tools) expenses will be out of control. Most of the contractors I know that live around here (really) make more than the doctors I know (who will start to turn blue when anyone even says “HMO”). If you need to hire a licensed professional every time a tenant has a problem or moves out it will really cut in to the cash flow.

Last week I saw an interesting statistic in Harper's- the number of security clearances that the US government has had to rescind from military/defence personnel has increased 900% the past five years due to indebtedness (when my father was a defense contractor they used to always make sure people knew financial help was available if anything (college/gambling debt/drunkards/whatever) came up because people were espionage targets if they were in debt).

Today I heard an elaboration on this on NPR. Currently the military families are so stretched financially that many survive paycheck to paycheck using paycheck cashing services, which can charge interest rates as high as 400% a year. (Yes, 400 percent). Apparently a large percentage of the military families are broke and are indebted to these paycheck cashing services.

I was quite surprised. Have things changed this drastically in the military? Has the pay been eroded by inflation and lack of increases? Do people waste money now buying consumer goods that were previously not bought? Why should a large population of the military be impoverished? The NPR piece didn't go into the 'how' behind the people getting into debt, it was more about the check cashing business. I'm assuming some are probably national guard who are no longer getting their regular pay.

OO,

It's NOT a wrong idea to buy at the top - if the top is of a 'normal' cycle. People who bought at the top of previous cycle have done well at today's price or even at 2003 or 2001 price. If you are buying to live there, and unless something tragic happens, the original price wouldn't matter in the long run. Market timing is very hard and shouldn't matter.

But this is not a normal cycle top. Prices have not gone up 10-15-20-25% from the bottom. They have doubled. tripled depending on the area. A correction of 10-15-25% nominally is very very likely. Given how out of whack they have been with income, even a 10% drop (which is close to 100K for BA) is a HUGE amount for these incomes.

Hence it is not prudent to buy at THIS top.

"knock on doors in the neighborhood to try and get people to move when there is a vacant unit (like my Mom did when I was a kid and we needed someone to move in so we could pay the mortgage)."

Former......I've never met your Mom but I LIKE HER! The "old school" way of doing things.

NOBODY today wants to do what's necessary to be successful...I guess they feel like it's beneath them.

Most of the housing stock in the Bay Area is old

That's something I don't get - I saw a house built in 1960 the other day, and it was just absolutely in horrible shape. The owners did -some- maintenance, but it's clear that the way it was built originally didn't help.

On the other hand, the house I lived in in NY was built in 1942 - during frickin' WW2 and it's in great shape.

What happened in 1960 here? Sheesh.

. Currently the military families are so stretched financially that many survive paycheck to paycheck using paycheck cashing services, which can charge interest rates as high as 400% a year. (Yes, 400 percent). Apparently a large percentage of the military families are broke and are indebted to these paycheck cashing services.

I was quite surprised. Have things changed this drastically in the military?

I'm not surprised at all. I remember seeing a Dateline on this back during the Clinton years.

Being a soldier doesn't pay well. Period.

And then the soldiers, who are trained to fight, not calculate APRs, get taken advantage of by the 129480 check-cashing/used car/liquor stores right outside the base entrances.

This stuff happens to any poor community. Just look at the success of RAC (Rent-A-Centers) and where they tend to be.

OO, dryfly, et al,

Many thanks for your explanations about the Aussie/Canadian fiscal policies. The possibility of dual citizenship would be a great option. I like Australia and Canada mainly for their universal healthcare and comparatively superior education system (in case that biological clock boogieman seizes unsuspecting me) - so money management is not the major concern.

Palo Alto Renter,

I agree with the experience thing but I'd like to add an additional wrinkle. Most boomers don't know economics or history - even (maybe especially) otherwise intelligent seeming boomer.

It's impossible to cram basic economic concepts like time value of money or economic bubble or dangers of leveraged buying into boomer parents. At least with my parents, they sort understand what I'm talking about while I'm explaining stuff to them (even though they'll repeat the same old tripe 7 days later, rinse and repeat). Whenever my boyfriend or I try to explain money management issues to his parents, we get deer in the headlights looks all around.

This really sucks since my boyfriend's remaining grandmother (the comparatively well off grandparent) is likely to not be long for this world, and I fear his parents are going to go on a spending spree with the "free" money when they have very little saved for retirement and are pretty clueless about how to live cheaply.

eburbed,

My mother had a house from the late 18th C. in Oxfordshire- it was in great shape. It had been constructed of good materials and the people who had owned it before her had all lived in it for very, very long periods of time.

The stuff built in the Bay Area in the 1960s and 1970s was a lot of cheap, slapdash speculative construction. Some of it was built specifically to get it up before certain regulations took place (the housing that is on the part of Market Street going up the hill away from the Castro going toward the zoo). These were never built as true places to live in long term, they were built as a quick way for the builder to make money.

SFWoman Says:

> Today I heard an elaboration on this on NPR.
> Currently the military families are so stretched
> financially that many survive paycheck to paycheck
> using paycheck cashing services, which can
> charge interest rates as high as 400% a year.
> (Yes, 400 percent).

I’m not a fan of check cashing services, but a $20 flat fee to cash a $1,000 check and hold it for two days until payday is equal to 365% (Yes 365 Percent) interest per year…

> Apparently a large percentage of the military families are
> broke and are indebted to these paycheck cashing
> services. I was quite surprised. Have things changed
> this drastically in the military? Has the pay been eroded by
> inflation and lack of increases?

The US military has never paid very well. Back in the mid 1960s (1960’s not 1860’s) the base pay for E1 enlisted men in the US Navy was $18 per week (under $0.50/hr). In the mid 1980’s there werer a bunch of news stories in the press that the lower paid enlisted men (working full time risking their lives defending the country) all made so little that they qualified for both welfare and food stamps…

http://www.goarmy.com/benefits/money_basic_pay.jsp

Private (E1) $15,282**
** Pay for Private (E1) will be slightly lower for the first four months of service.

How does the Census Bureau handle cancelled sales contracts in the published estimates of New Home Sales

http://www.census.gov/const/www/salescancellations.html

$15K for a year ?? Does this increase if you are actually sent on a duty ? If not, then as a tax payer, I am ashamed how cheap we are. We ask people to risk their lives so that we can worry about things like which 401K/IRA is better but not pay them anything ?

More surprising is why hasn't some politician figured out a way to get mileage out of this ? Shouldn't "Support the troops" slogan be easy to merge with increase pay for servicemen ?

eburbed Says:

> Private (E1) $15,282**
> ** Pay for Private (E1) will be slightly lower
> for the first four months of service.

I can’t figure how they get anyone to sign up for $15K a year when you can make almost $20K a year working at In ‘n Out Burger…

http://www.npr.org/templates/story/story.php?storyId=6288944

Shouldn’t “Support the troops” slogan be easy to merge with increase pay for servicemen ?

[cynical] Assuming the budget is fixed, increases in pay means less money for weapons/contracts. If you were a politician - which has a better political pay off? Soldiers or corporations? [/cynical]

More details about pay:

http://answers.yahoo.com/question/index?qid=20060720180203AA8hKkp

I can’t figure how they get anyone to sign up for $15K a year when you can make almost $20K a year working at In ‘n Out Burger…

You do get free Room and Board at the $15k pay level...