patrick.net

In moderation again but emailed to patrick this time.

eburbed,

Put me in the "your last check (to the undertaker) should bounce" camp!

Oregonians (by and large) picture their retirement as one filled with tending to horses, drift boats and their wine cellar. Not necessaily snobby wines (just not the rot gut stuff of our youth). So expectations in this part of the country are considerably different than say New Yorkers that visualize a "decent place" (insert opulent here ____ ) in Florida along with KEEPING their home back "north".

One of my clients lives on the southern OR coast and after an entire adulthood dedicated to grading commercial loans, I'm the LAST guy he wants to talk to! Normally I communicate through "the wife". When I DO get him on the phone ALL he talks about is...... salmon fishing? As a former bank employee between his defined benefit plan, social, savings and IRA they could WELL AFFORD better! They just prefer to live modestly and have no interest in keeping up any appearances. This is SO typical of Oregonians.

I just checked out my parents' old neighborhood in Leesburg Virginia. Selling prices for SFH down $100,000-200,000 from the peak, or approximately 20% less. Even Zillow valuations are now below the price level at which my parents sold in April 2005. And when I check on recently sold comparables, they're going for about $100,000 less than the Zillow valuation.

Soft landing indeed!

Punchbowl,

Couldn't agree more. I absolutely DETEST fee based management! It works out perfect though for west coast guys/gals that like being at their office, shall we say 9'ish? The steady stream of income appeals the most vice scrambling around taken "indications of interest" on an IPO that may or may not happen!

Dropping "account minimums" at most wirehouses was and is a major mistake! Now you've got rookies "pitching managed platforms" to folks with as little as 50k in assets? Here again the industry is testing the limits of just how many fresh out of college guys you can fit under a bus. YOU CAN'T MAKE IT! And the firms KNOW IT! So they take raw recruits, use them for about 6 to 18 months and then that fateful day comes when the sales manager taps the poor kid on the shoulder, walks him into his office, sits him down and says "Son, maybe this business isn't for you".

I mean think about it, IF you ARE going to "annuitize your book" you have to have "something" TO annuitize. These poor young guys are doomed before they get out of the gate. Now of course "the firm" keeps the assets and divvies them up amongst the usual assortment of former college quarterbacks and kiss ups. It's just criminal.

What the fee based platform DOES do though is it makes it MUCH easier for the firms (and the NASD) to monitor their interactions with retail clients. In that regard I reluctantly approve. Do they still drive Bimmers? I don't think as much as in the past. The "real money" isn't on the retail "sell side" and seldom is having worked the retail side a path toward becoming an analyst or fund manager. Chances are you'll die there.

DinOR,

I think many of those New Yorkers (and Bostonians, Los Angelenos, Washingtonians, Seattleites, etc.) will be lucky to retire to a 600 sq. ft. New Jersey condo and eek out an retirement on their social security checks and their Wal-Mart greeter jobs. I know too many 40+ years old people who are hoping the housing bubble will bale out their retirement and this whole situation cannot end well.

- bale
+ bail

If we look at all we'll find that the financial service model is shifting toward a "total wealth management firm". This means people are paying for legal counsel they don't need, estate planning they'll never benefit from along with son-in-laws and CPA's.

As much as it fries my @ss, I understand WHY things are morphing in this direction. Something strange occurs when people "get referrals". I have no idea how to explain b/c I simply don't think like this, but it's like all of a sudden they CAN'T WAIT to stick it to this poor guy! You mention that you have a client with a tax, lending, legal problem and they're reaching for their belt before you hang up the phone! This is why so many CPA firms are becoming "wealth management" firms. They got dog tired of ref. clients to others in different tagents of the ind. just to get feedback later that the guy botched their divorce or blew up their account! AND got charged a TON of fees to boot!

I personally referred one of my best clients to a MB (on a non-recourse loan) and the client called me back holding back his RAGE! The @ssclown I ref. the guy to tried to slip THREE points on the loan! Pffft. You're kidding me, right? Uh... no. (And this guy has a fico to die for!)

Half of being successful in this business is knowing when you're in over your head. Knowing WHEN to get a family practice atty. involved and who to call when someone needs to set up an LLC. What I've learned (yes the hard way) is to make YOUR expectations and standards known to that other individual! Just come right out and say it! No head games, no "read between the lines" BS. Screw my client and I'll PERSONALLY make sure that not only do you not get paid but I'll do everything I can to get you booted out of what ever organization it is that you're a part of.

Do we u n d e r s t a n d each other?

astrid,

Funny! But this very real possibility seems to have no effect on their decision making process? No effect at all.

Personally the prospect scares the living ____ out of me. But then I grew up in a lower middle class neighborhood and remember being told to go over to Mrs. Shitzengrueber's to help carry her groceries back from the store. Poverty is hard on you, and it doesn't get easier w/age.

Yet there has been a worrisome consequence: Working and middle-class families are moving out — and failing to move in — because they cannot afford a house here.

Is there really such shame in renting?

SP,

Sorry for responding so late, I missed your comments the first couple times around. I also found Flashman's Lady to be the weakest of the four and the Great Game to be the strongest. I enjoyed all of them and look forward to reading the rest.

I think we can make the housing market come back to realistic prices by regulating the way Voodoo money is made. Make intrest rates for home loans very high for people having less than a 20% downpayment. The inflation in home prices is being caused by the easy money being made at will by the Federal Reserve Banks.

It will be painful, but if this one simple rule were made and enforced, home prices would come down and the speculation will end.

Hey, a new real estate term:

Santa Rosa Press Democrat page R17 Century 21 ad:

Lake County
$278,500. Brand new and beautifull furnished single-story 3BR/2BA/2 car garage. "Carrion-type" (their quotation marks, not mine) counters, brushed nickel fixtures, lots of high end upgrades. Only a few blocks from the beach! #100732 987-8121

Mmmm, carrion-type countertops. I've always wanted carrion in my kitchen. I wonder what's in the bath.

Fake surfer-x - you should go out and buy more real estate. Seriously, if you believe it is a good investment now you are wasting your time here, and you should be out looking for and buying more 0% down real estate.

Admin, kindly delete the two posts above as they are not mine.

Mr. surfer-x,

Nobody would ever mistake that poor, scared creature for you. F@ck no!

Ah SJSU, uni of last resort. What I cannot fathom is why such a rhodes scholar would grace us with their pearls of wisdom. Truly heartwarmning the way they look out for our finances. Such concern that we are missing the opporutunity of a lifetime. I'm touched.

lil "surfer-x" said:
Sure, it’s nice if price appreciates, which it has for millions of years

Wow, this guy has really done his research, best not to argue with him...

Now I think of it, I do remember seeing primaeval Cenozoic condos on Walking with Prehistoric Beasts -- except they weren't occupied by people, they were super-intelligent shrews! More intelligent than you.

Keep up the good work, lil surfer!

DS,

Of course real estate has been going up for millions of years! Silly you. Well, OK, except for those times when it went down, like 1989 to 1995, (as it is starting to do now.) But, over the long run Scared-Pseudo-Surfer is right, real estate sells for more now than it did 45 million years ago.

wait just a minute, weren't they still making land millions of years ago?

"not be frowned upon by your neighbors as a “transient” and a “loser” behind your back,"

That is interesting, I wouldn't consider a neighbor a transient or a loser because they rent and I own. That's an interesting perspective on your psyche you have unwittingly shown us. What were the circumstances of your childhood that this type of shame is what you associate renting with?

surfer-x,

They are still making land today. Iceland and the Big Island both grow a bit periodically. There's a volcano near Borobudur erupting now (every time I have tried to go there it's something!). Over the long term, yes, they are still making land.

If you give the San Andreas fault enough time, you'll even have more beachfront shoreline opportunities, too!

SFwoman,

I agree, they are making more land or at least more land available. In Chicago on my way to work each day, I drive through the area formerly known as Cabrini Green. I've been watching the progress of the high rise projects being torn down to make way for new houses, and condos. With each high rise that is torn down, the massive size of the area becomes more apparent. It's like acerage almost as far as the eye can see with the city skyline in the distant background.

"Oh give me land, lots of land under stary skies above, don't fence me in"

Since when is U.S. inflation at 13-14%?

Hey, Paul. Is it safe to walk through the parking lot of the Jewel (I think it was a Jewel) at Division and Sedgwick yet? It was still a little dicey when I left in 2000, armed security in the parking lot, one "empty" shell looming across Division boarded up three stories from the ground, no windows above, yet flickering lights inside at night.

Cabrini's just a little patch too. You don't have to go nearly as far south of the loop as Cabrini is north and you've got square miles of possibilities.

And now I really want some ribs from Twin Anchors. Shoot.

Someone Said:

> Is there really such shame in renting?

Then surfer-x Says:

> YES! Renters are considered “transients” and are not
> considered part of the community. There is no sense
> of ownership or pride amongst renters and renters tend
> to let their residence go to hell. Not only that, the perception
> still exists that the only reason that people rent is because
> they simply can’t afford to buy. In 99% of the case, that
> is the truth.

Surfer-x is right that there is still a “shame” in renting, but the “shame” is just due to the fact that excluding the last 48 months or so it was almost always a smart idea to buy and 99% of the people that didn’t buy didn’t have the money. Most people don’t log on to Patrick.net every day and would be shocked to hear that Casey is having problems since “real estate always goes up in value”…

Just last night I was at a big party at a married friend’s house and had a early 40’s Cougar (who may have been hot 20 years ago, but was looking scary with the botox, colgan, boob job trifecta) come up and start talking to me. When I mentioned that I lived nearby she said: “how long ago did you buy your place”… Telling her I rented a crappy little apartment sent her on her way before I could tell her I was an apartment handyman (something that is not entirely a lie that I have successfully used to quickly end any conversation with a single woman I’m not interested in).

Later in the night I was talking to some guys who have watched their homes go up in value by millions of dollars in the past few years and we were talking about how most people don’t really find it strange that for 100 years homes have been selling for about 3x the “household” income in the area and all of a sudden it is up to around 10x the household income in some areas (and that homes that went from $10K to $1mm over 100 years with lots of inflation then went to $4mm in under 60 months with little inflation).

For the past 50 years the price of a new Corvette has been about the starting salary of an average plumber out of trade school, the price of a new Porsche 911 has been about the starting salary for an attorney who graduated from a no name school and went to work in a flyover state and the price of a new Ferrari has been about the starting salary of a top law school grad working at a top firm.

We were betting that if over the next few years the price of a new Corvette shot up to $250K, new 911s were selling for $500K and it cost $1mm to buy an entry lever Ferrari that people would find this strange especially if you could rent a new Corvette for $500 a month, a new 911 for $1,000 a month and rent a new Ferrari for $2,000 a month (since almost every home in the Bay Area is renting for more 1/500th of the current value)…

FAB: But wouldn't you have superior pride of ownership in that $250K Corvette? Only a transient loser rents such a fine vehicle. We can get you into a nice stated income, no money down 103% loan. Besides, you can sell it next year for at least $300K!

For the past 50 years the price of a new Corvette has been about the starting salary of an average plumber out of trade school, the price of a new Porsche 911 has been about the starting salary for an attorney who graduated from a no name school and went to work in a flyover state and the price of a new Ferrari has been about the starting salary of a top law school grad working at a top firm.

Purchasing power parity is an amazing thing, whether between countries or over time within the same country. It also demonstrates how ridiculously fanciful current home prices are.

If gasoline (standard grade) shoots up to $10/gallon, I have to pay a senior internet software developer $500K/year, and a Chimay Ale costs me over $30 per bottle, then I'll accept the claim that current house prices have reached a permanent new plateau.

Until then, I'll just have to live with my in-laws thinking something terrible must be wrong for us to have been forced back into renting after so many years of American Bliss.

Regarding whether retirees have saved "too much" to retire on, that just remains to be seen. Certainly the pension fund people like to scare people with that remark so that they will have more of their money to play with in the present. however, for people who will still be renting on fixed incomes, or people with large slabs of mortgage still to pay off, the situation could become grim -- and they will be in that boat in increasing numbers in coming decades because of the boom. It will then become a headache for govt at some tier to worry about, and they can have endless rounds of meetings about the huge number of near-homeless retirees suddenly popping up that they never anticipated.

I saw an interview the other day with an Irish guy in Oz who had gotten extremely rich in property development, who confided that "just about everyone who has far more than they need is actually very insecure, which drives them to squirrel away far more than they realistically need to live on." So the elites are actually insecure? A recent survey of millionaires, quoted by Hamilton in Affluenza, had many of them opining that they were 'poor' and don't have enough to meet their needs. So there's clearly not much hope for the rest of us. IF you have paid off your house by retirement, you don't need too much to live off. If not, that's a whole other picture...

The problem

with FormerAptBrokers little story is that it ignores the reality of globalism.

About half the world's population lives in India and China. The wealthy elites in those two countries covet to live in Vancouver, or the US cities along the west coast.

The formula is the same in both societies, send their kids to the top schools, get the H-1 visa to work in the west coast, buy the house, put a foot of the dynasty into the West Coast.

It does not matter if housing costs 3X or 10X or a millionX the household income here. The affordability here for the top 1% or so elites in Shanghai and Bombay is what matters.

Of course they don't want to live in Stockton or Redding, just the prestigous addresses along the coastal cities.

No one cares what the cost of a home is, what they care about is the monthly carrying cost. The cheap cost of money is what has driven home prices up.

Sybrib,

I can't speak for rich Russians or rich Indians but I can tell you that rich Mainlander Chinese are not that common, and most of them are too gauche to appreciate the "intangibles" of the Bay Area. The Chinese folks bidding up BA and most LA real estate are just well compensated working stiffs. Maybe Vancouver is different...

FAB,

What's a cougar? Is that a divorcee? A Carrie Bradshaw type? A vicious husband hunting amazon? Someone so into plastic surgery that she literally transformed herself into a cougar?

I must say, you sound more demanding than Mr. Darcy (I've been reading Pamela Aidan's Gentleman Trilogy this month). Good luck finding your lady.

sybrib,

You're pulling a "Bull$hitter" on us, right?

www.urbancougar.com - and it's based in SF too, good grief! :?

syrib,

My understanding is that the main wealth that most mainland Chinese and Indians hold is in real estate, and it is more difficult to flip out of Shanghai or Mumbai real estate than it is to flip out in the US. But you never know, all foreigners might just decide to move to the Bay Area and prop up our sagging market. I have heard that there is nothing uber-rich Chinese love more than a nasty little 1950s condo in the Richmond district.

Randy H.,

Maybe we should do a Big Mac comparrison, as the Economist does. i.e. In 1995 a SFH in San Francisco cost 100,000 Big Macs, where as today it is 300,000 Big Macs. (I don't know how much a Big Mac costs. $3.00, $4.00?)

Please sir, could you release my oh so clever comment of slightly forenoon yesterday from moderation?

I mailed a copy to Patrick as well, along with a request for guidance on how to avoid this dread fate in future. Was it the length? The one URL? The failure to tug my forelock?

SFWoman Says:

> They are still making land today. Iceland and the Big
> Island both grow a bit periodically. There’s a volcano
> near Borobudur erupting now (every time I have tried
> to go there it’s something!).

Whenever anyone says “They are not making any more land” I point out that they sure are “making” a lot more condos (especially South of Market, Las Vegas and San Diego).

Someone with a condo South of Market who thinks the lack of new land means they can’t loose money is like someone with a 1997 Accord who thinks the lack of new Bugatti Type 41s has anything to do with the value of their car…

sybrib Says:

> The problem with FormerAptBrokers little story is
> that it ignores the reality of globalism.

I’m not ignoring globalism at all. Globalism is another big reason that Bay Area home prices are due to fall even faster than expected very soon…

> About half the world’s population lives in India and China.
> The wealthy elites in those two countries covet to live in
> Vancouver, or the US cities along the west coast.

Over the next decade I’m betting that the Bay Area loses 10 jobs to China and/or India for every Chinese or Indian “Wealthy Elite” that moves here. The next big chunk of Bay Area job losses will be in retail (why would anyone buy a digital camera or ipod here in the Bay Area when you can pay way less and have it by FedEx the next day?).

> It does not matter if housing costs 3X or 10X or a millionX
> the household income here. The affordability here for the top
> 1% or so elites in Shanghai and Bombay is what matters.

You are correct that if 5 million Chinese and Indian “Wealthy Elite” all moved to the Bay Area tomorrow prices would go way up (I feel sorry for the Billionaires that got stuck in Martinez “where the sewer meets the sea”)…

> Of course they don’t want to live in Stockton or Redding,
> just the prestigious addresses along the coastal cities.

Stockton and Redding are outside the “nine county Bay Area”, but even in the nine counties there really are not many “prestigious” address. If these Chinese Billionaires really thought prices were on the way up they would have snapped up 2845 Broadway (nice place with a nice view, but still on the market after more than a year) and the Hills would not have had to reduce the asking price of 2920 Broadway (another nice place with a nice view) many times over three years (from 2002-2005) to finally sell for just over half (51%) their original asking price (if they didn’t sell in 2005 just before the market peak I’m betting that it would still be in the market).

There is a growing number of super rich people in the world, but with rare exceptions they only buy when prices are going up (not a lot of foreign investment in CA in the 90’s when the Japanese were trying to dump all the stuff they bought in the 80’s).

In the past few years there have been rich guys paying over $1mm for rare vintage Corvettes, Porsches and Ferraris, but if you look in Auto Trader you can find nice clean well maintained used Corvettes, Porsches and Ferraris for less than 10% of the cost of a new one (since rich guys don’t want at TPI engines, a torsion sprung suspensions or a car makes people think of Magnum PI)…

Repost on behalf of punchbowl:

@DS

Those are very cool liking bikes but let's face it: If the paint job is 600 Euros and they won't quote a price for the bike itself on the website, this is not exactly economical transport.

Your slavish devotion to deservedly obscure Australian social scientists is noted. First Yeatman, now Hamilton. "Coined the term affluenza"? Jeezus, he's about ten years late, filching de Graaf's mid-90s ideas.

http://www.amazon.com/Affluenza-All-Consuming-Epidemic-John-Graaf/dp/1576751996

It is naturally possible for GDP to rise while things get generally worse but some of your examples are needlessly alarmist. It's no surprise from a Fabian, because you can't remake the world unless people think something is wrong. US (and Australian) GDP is multiples higher than it was 100 years ago yet the air and water are less polluted and, at least in the US, there is more forest than there used to be, which most people would consider to be a good thing. (The cost of that is industrial scale agriculture elsewhere, which creates its own problems. I'm not trying to paint everything rosy.)

The bottom line is that there isn't one of us who, upon careful thought, would want to be transferred back a hundred years. The world has not gotten worse, all the wailing of today's jeremiahs notwithstanding. We wouldn't trade electric lights for candles or kerosene lanterns, air conditioning for sweat, polio shots for cripples, smog for streets deep in horse droppings, or half our life expectancy.

No, we don't need a whole lot of what makes up GDP. Live below your means if that's what you want to do. Ignore the hype of those who want you to buy buy buy and you will do just fine. But, although living below your means may result in independence and a sense of moral superiority, it does not give you the right to force others to live below theirs. If you want to live in relative poverty (I'm not suggesting absolute poverty) and are comfortable doing so, you should be encouraged. I only object when we start hearing a gentle (and sometimes not so gentle) insistence that "My way is the right way and everyone should be doing it." It's religious zeal in modern form and it makes me retch.

@eburbed

In the US, unemployment typically starts to rise when real GDP growth falls under 2%. It's no surprise because the population grows about 1% per year. Your NPR piece may have been referring to growth in nominal dollars, which would be equivalent around 5%.

A Spring Bounce will Test Your Resolve

Have at it.