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astrid, you might ask them if they might want to consider something in a more affordable nearby city with still good schools, like Menlo Park. Homes are still very expensive there, but probably 3/4 of Palo Alto. I see plenty of very nice homes there in the 2200 sq ft + range for the price your friends are considering. Hopefully, they will buy something smaller though and lower their risk to the housing market.
HARM, I have never been as pessimistic as most of the posters here. Last January we all made guesses as to far how housing prices would go down in 2006 and I picked the smallest number at 10-15% for which I remember Surfer-X cursing me. I guess he curses everyone, so I don't really take it personally. Actually, I should probably be proud.
I predicted then that the most likely outcome is a small initial drop and then a longish period of zero nominal gain and inflation in the 5% range. 5 years of that plus a 15% initial drop puts us down 40%, which is probably about where we "should" be, in my book. From 1991 to 1996 home prices went down 10% while inflation was about 30% total. A repeat of that would be the most likely scenario, in my eyes.
I actually think now that inflation will be a bit lower and the period of stagnating prices much longer. As long as money stays cheap and unemployment stays low, I just don't see a big rash of home mortgage delinquencies in the near future. A recession could change everything, as would the end of cheap money, but I see no reason to suspect that either of those is on the near term horizon.
The comment about "buying vs. renting" was just to let the guy know that he really had to think about a bunch of different things before trying to do the math and that most of them were hard to predict, like the inflation rate 10 years in the future. I did say that he would have a tough time finding anyone who posts here telling him that this is a good time to buy.
I have always been one of the least pessimistic posters, but I am also a homeowner, remember. I have decided that the best course of action for my wife and I would be for us to sell the bottom unit in our duplex as a TIC to lessen our exposure to the market. Now all I have to do is convince her! I pointed her to RandyH's bubblizer and since she works in Real Estate finance, I think she will see the light.
I will let you know how it goes.
astrid, are you sure your friends aren't looking in the $1.5M range? For some reason, there are a couple of pretty nice large homes in the $1.5-1.7M range in PA but everything under $1.5M is crap.
It is like that in a lot of places in the Bay Area. I don't know why there is such extreme price compression. It might be a consequence to everyone having some "move up" money but no one having *that* much.
Jimbo, I've never considered you a troll, but I do like to curse ;(
Yeah, I am not offended, though I was kind of taken aback at the time. It is just your way! :-)
kind of a rimshot, but http://www.tmz.com/2007/02/14/annas-nanny-smith-underfed-baby-to-make-her-sexy/
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Please help the REIC and banksters! (for those unfamiliar with the term, please refer to the Housing Bubble Glossary).
They need our help. Signs their beloved mega-global housing/credit bubble is beginning to falter are now everywhere and unmistakable. No matter how low toxic-mortgage lenders lower "standards", it appears that they've exhausted their supply of typical FBs (innumerate 'tards and Marshall Reddick-worshipping specuvestors) and now they're even running short on falling-knife-catchers.
Sure, they're counting on a taxpayer-funded federal bailout of banks/lenders and GSEs --after all isn't that what taxpayers are for? They don't call it "Privatize profits, Socialize Risk" for nothing, do they? That's a gimme. Problem is, even with suckers like YOU footing the bill for some f***ing idiots' mistakes, there's still no way to avoid some pain for the industry players. Some toxic lenders have already gone out of business, while others are restating incomes/losses and teetering on the edge of insolvency --and this is only the beginning! Plus, lots of newly minted Realthwhores, fly-by-night mortgage brokers and hit-the-number appraisers are now facing unemployment.
This just will not do! Pain and negative consequences are for thrifty, responsible suckers like you --not the REIC!! Oh, the humanity... what to do, what to do?
Wait --I've got it!:
The biggest problem right now with maintaining that permanently high plateau is that rents cannot easily be inflated with debt, the way housing prices can. There is no such thing as a fraudulent cash-out refis, HELOCs or neg-ams for renters --they must pay their rent with real earned income and/or savings (yes, some people out there still have savings --can you believe it?!). Since renters must pay rent using real money vs. monopoly bubblebucks, there's no way to ignite crazy bidding wars on rentals. And global wage arbitrage is keeping wages firmly in check --no inflation happening there (crooked CEOs excepted, of course). Sadly, there's currently no way to funnel huge amounts of Fed/MBS/Chinese liquidity into the hands of renters, so they can bid rents to the sky.
And herein lies the solution: the REIC must create new debt vehicles for RENTERS!
Your assignment: How can the REIC and banksters create enormous new debt vehicles for renters, capable of inflating rents as high as house prices, thereby cancelling the rent-vs.-buy imbalance --without having to resort to any of that pesky wage inflation?
Discuss, enjoy...
HARM
#housing