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The Internal Revenue Code Made Me Do It

By astrid following x   2007 Feb 17, 12:18pm 23,222 views   218 comments   watch   sfw   quote     share    


The Killer Rabbit
Home buyers frequently cite the mortgage deduction as one of the primary reasons for home ownership. Do you think this is a reasonable argument? Do you think additional considerations such as interest rate and pricing would affect the validity of the argument and if so, in what direction?

Secondly, many here have argued that Prop 13 and the $250,000 per person per home appreciation exemption played a much greater role in fueling the current housing bubble. Do you agree?

Your thoughts on the AMT? Was it created by the devil? Has it asked for your first born? Did the AMT invent granite countertops?

#housing

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179   Randy H   ignore (0)   2007 Feb 21, 5:39am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Doug,

There's a forum on my blog dedicated to the spreadsheet and the alternate flavors contributed by others. Click my name, and then click "bubblizer thread" in the upper left of my blog.

--Randy

180   Different Sean   ignore (0)   2007 Feb 21, 5:48am   ↑ like (1)   ↓ dislike (1)   quote   flag        

newsfreak Says:
Frank said Bush’s mantra–”Don’t believe your wallet, believe ME!”

That's the neocons propaganda machine in general: "Are you going to believe us, or your own lyin' eyes?"

181   e   ignore (0)   2007 Feb 21, 6:21am   ↑ like (0)   ↓ dislike (0)   quote   flag        

The graph stops at 1998. The spread has gotten much greater.

So many graphs! Which one to look at?

182   e   ignore (0)   2007 Feb 21, 6:23am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Speaking of income inequality:

http://news.yahoo.com/s/nm/20070220/wl_nm/korea_suicide_dc_2

South Korea seeks to curb rising suicide rate
>One reason behind the increase in suicides may be a widening gap between the haves and the have-nots in South Korea, with poorer citizens more likely to kill themselves than the affluent, according to government data.

183   e   ignore (0)   2007 Feb 21, 6:31am   ↑ like (0)   ↓ dislike (1)   quote   flag        

argh... another comment in moderation. Please unblock?

184   Different Sean   ignore (0)   2007 Feb 21, 6:34am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Something in today's paper:

Why renters fat and thin are singing

The beginning of wisdom is to realise that the rental market doesn't work the way landlords and real estate agents keep claiming it does. They try to tell us rents are set under a "cost-plus" model. So whenever the Reserve Bank raises interest rates or the government increases land tax, the higher cost to the landlord is "passed straight through" to renters.

That's the way landlords would like it to work and it's the way it does work if the landlords can get away with it. Oftentimes, however, they can't, so they have to shoulder any cost increases themselves rather than pass them on.

What stops them? Weak demand for rental accommodation relative to the supply of accommodation available. In other words, landlords are afraid to increase their rent for fear they'll lose their tenants to other, less rapacious landlords.

This is just what's been the case for the past six years or so, but is no longer so. Landlords now have the upper hand and are able to start whacking rents up.

During the housing boom that ended in late 2003, the supply of rental accommodation grew faster than demand as so many people sought to get rich quick by getting into negatively geared property investments. Smarties were buying as yet unbuilt apartments "off the plan", spurred on partly by the Howard Government's decision in 1999 to halve the tax on capital gains.

For the yield on rental property to have been maintained, rents would have had to rise in line with house prices. They rose by nothing like that because the supply of accommodation was growing so strongly relative to demand, leaving limited scope for rent rises.

At the time, in the heat of the boom, negative gearers weren't worried about the ever-lower running yields they were earning because they had their eyes set on unending capital gains.

Now, however, with the hope of capital gain evaporated, landlords' sights are set squarely on their low yields and the low rents that have caused them. And with demand running ahead of supply, they are well placed to put them up.

[etc]

185   SFWoman   ignore (0)   2007 Feb 21, 7:25am   ↑ like (0)   ↓ dislike (0)   quote   flag        

I see you just had a little temblor down in Los Gatos. It popped up as a M3 on my earthquake alert.

186   skibum   ignore (0)   2007 Feb 21, 8:02am   ↑ like (0)   ↓ dislike (1)   quote   flag        

Hey All,

Haven't posted in a while, but wanted to chime in on the Squaw condo thing. As others have pointed out, the second home market is usually more vulnerable during downturns, and it may be worse this time around than previous down cycles becuase all this funny money has left a lot of RE "investors" overexposed. And guess what they'll dump first - the primary residence or the Tahoe condo?

I LOVE skiing (hence the handle). In fact, that's a lot of what I've been doing instead of posting of late :) , and I would ideally have a second home in Tahoe too, but now just doesn't seem to be the right time. I've seen many POS's on the market in both the North and South shores, and prices do seem to be coming down for all but the mega-monster shorefront behemoths. As an aside, if you're looking for convenience and flexibility in Tahoe, I'd personally go for a place in Truckee rather than within Squaw. Traffic is easier in and out from the BA, and it's closer to other resorts (Northstar, SugarBowl, etc.).

Hey, maybe between all interested parties, we should have a patrick.net ski trip this season!

187   e   ignore (0)   2007 Feb 21, 8:40am   ↑ like (0)   ↓ dislike (0)   quote   flag        

I agree 100%, a person with a good college education should be able to provide for a family of 3 or 4 in a middle class lifestyle.

That's pretty much impossible given the trend of globalization. Which, is a bad thing for us Americans, is a good thing from a humanity perspective.

188   astrid   ignore (0)   2007 Feb 21, 8:47am   ↑ like (0)   ↓ dislike (0)   quote   flag        

It really depends on the definition of middle class. Could anyone nowadays live with one car, 1,200 sq ft house, and no name brand clothes? America has gone from a country founded by Puritans to a people who define their lives in very materialistic terms.

189   astrid   ignore (0)   2007 Feb 21, 8:51am   ↑ like (0)   ↓ dislike (0)   quote   flag        

eburbed,

I don't think that's impossible. Just think of all the headhunters, lawyers, administrators, HR people, realtors, dot.commers trying to make a billion or two selling dogfood via the internet. Do they really make our lives any better? A lot of modern life just seems to be make work building on top of itself. Materially, I think Americans will do just fine if they cut their consumption of raw materials by half - they might even lose a couple pounds in the process - without involvement by big pharma.

190   e   ignore (0)   2007 Feb 21, 9:18am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Materially, I think Americans will do just fine if they cut their consumption of raw materials by half

Why do you have our Freedom(TM)?

191   FormerAptBroker   ignore (0)   2007 Feb 21, 10:27am   ↑ like (1)   ↓ dislike (1)   quote   flag        

skibum Says:

> Haven’t posted in a while, but wanted to chime in
> on the Squaw condo thing. As others have pointed
> out, the second home market is usually more
> vulnerable during downturns, and it may be worse
> this time around than previous down cycles because
> all this funny money has left a lot of RE “investors”
> overexposed. And guess what they’ll dump first –
> the primary residence or the Tahoe condo?

Back in 1996 I was at a party at a Realtors home in the Tahoe Keys and he mentioned that he had 180 active listings. I was talking with other Realtor friends at the party and every one of them had over 100 current listings (everything from south shore foruplexes for $100K and $50K 1 Br I Ba Cabins in the Meadow Area to $500K Lake View places). It seems like most Tahoe Area Real Estate has gone up more on average since 1996 than even San Francisco…

I’m planning to buy a cabin up there in the next downturn but I’m not sure where since there are pros and cons of every area:

Lahontan – Nice homes, gated Community, Central location – Expensive, Have to drive to Ski

Sugar Bowl – Close to Bay Area, If you have kids they can join the ski team and network with the children of the super connected Sugar Bowl shareholders – Not much nightlife, Long Drive to dinner.

Squaw Valley – Close to skiing, lost of bars and restaurants, - can get trapped in the valley, not as good in the summer.

West Shore – Great for boating in the summer, fun summer parties, long drive to skiing, farthest drive from SF…

192   FormerAptBroker   ignore (0)   2007 Feb 21, 10:32am   ↑ like (0)   ↓ dislike (0)   quote   flag        

GC Says:

> Do people really love SF?

Yes

> How are the bohemian parts of SF?
> The real ones, not the parts inhabited by
> imitation bohes and bohe-wannabes.

They are shrinking fast as SF becomes “yuppafied” by the increasing number of 20 something tech people that commute to the Peninsula. You can still find some real bohemians in West Marin and the Sonoma Coast…

> BTW, is metrosexual the new thing or the past?

Most “Metrosexuals” are gay guys that don’t have the guts to come out of the closet (aka are not ready to take the train from Straightsville to Homotown)…

193   astrid   ignore (0)   2007 Feb 21, 10:34am   ↑ like (0)   ↓ dislike (0)   quote   flag        

I really look forward to the almost inevitable second home/vacation home crash. I don't care about owning primary residences but I'd like to have a nice little place up the Sonoma coast/Southern Oregon one day. It'd be a nice place for my parents when Shanghai is too hot or cold.

194   DinOR   ignore (0)   2007 Feb 21, 10:53am   ↑ like (1)   ↓ dislike (0)   quote   flag        

astrid,

Absolutely! It's not that I don't find the debate regarding critical metro markets/neighborhoods interesting. It's just that, I'll never buy there (SF or PDX) even if they were basically giving 'em away. At best I'd get a modest place, primarily for M-F convenience if anything.

I'd love to get some RE perma-bull come post here and tell us there won't be any downward price pressure in Bandon or Bend OR, Tahoe etc. Based on.... uh...?

195   SFWoman   ignore (0)   2007 Feb 21, 11:07am   ↑ like (0)   ↓ dislike (0)   quote   flag        

astrid,

Southern Oregon, with perhaps some exceptions in Ashland, isn't 2nd homeville. Medford, Jacksonville, etc. are inhabited mostly by working class folks who became house rich in California and then moved up to Oregon with the proceeds from their house sales. Have you been to the Medford area (the town in southern Oregon)?

It consists of subdivision after subdivision, all houses with three SUVs and an RV parked in front of their four car garage, then strip malls all along I5. Restaurants include such divine places as Applebies and McDonalds.

Ashland is nice, though, and I've had good food at several restaurants there.

196   astrid   ignore (0)   2007 Feb 21, 11:52am   ↑ like (0)   ↓ dislike (0)   quote   flag        

SFWoman,

I don't know much about inland Oregon (I drove past Medford once and didn't remember any thing about it), but the Lost Coast and the southern Oregon coastline is really gorgeous in a mist shrouded ethereal greenness that I really admire.

On the other hand, it's highly debatable whether my parents would ever live in a 5,000 redneck town 40 miles from the nearest other 5,000 redneck town. I could make it as long as there's high speed internet and UPS delivery, but no one else in my family would.

197   astrid   ignore (0)   2007 Feb 21, 12:07pm   ↑ like (0)   ↓ dislike (1)   quote   flag        

DinOR,

I would love to own in the BA if the price is right. As much as I mock the Bay Area intangibles, it really has a lot going for it weather/food/scenery-wise. I actually like what I've seen of Portland and Seattle.

However, I'm not going to mortgage my future merely for the privilege of owning. And no matter how low the monthly payments get, when a house gets to be 5-10X my gross annual income, there's a huge risk that I won't be able to sleep soundly at night. And sleeping is important for my complexion and mental wellbeing.

198   B.A.C.A.H.   ignore (0)   2007 Feb 21, 12:28pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Don't despair, Astrid. It'll take some time, but your folks can game the system on the benevolence of the U.S. taxpayer to get onto social security. A lifelong resident of California, over the years I've known lotsa people who've depended on those elderly parents' social security checks to make the housing/property tax payments.

199   astrid   ignore (0)   2007 Feb 21, 12:44pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

sybrib,

If you're mocking me, I fear you have the wrong target. My parents have been in this country for over 20 years. By the time they retire, they have earned their SSI/Medicare payouts as much as most Americans. We do know other people who bring their elderly parents to take advantage of Medicaid - though most who do so appear to be from Taiwan and not Mainland China.

I have no intention of living with my parents to make ends meet. I'd rather rent for the rest of my life. In a basement walk up. Next to a busy intersection. And I hate basement walk ups and noise.

200   B.A.C.A.H.   ignore (0)   2007 Feb 21, 1:26pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Isn't Taiwan a province of China?

201   B.A.C.A.H.   ignore (0)   2007 Feb 21, 1:35pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

You conveniently left out the part that it will take some time. Some time to have a payroll job, for awhile. I've known lots of families, and I never said they were all immigrants, who need that extra SS income for buying/owning the house.

202   B.A.C.A.H.   ignore (0)   2007 Feb 21, 1:46pm   ↑ like (0)   ↓ dislike (1)   quote   flag        

Of course there is too much school district hysteria involved.

It is a twisted and sick approach.

Remember, the newspaper headline cheating scandal a couple of years ago was in priviledged Saratoga, those poor little rich kids feeling so much pressure to have high grades. They got caught cheating, but they were just victims.

203   astrid   ignore (0)   2007 Feb 21, 2:06pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

sybrib,

"Isn’t Taiwan a province of China?"

That's a comment that will hearten the Mainland Chinese government's propaganda department.

204   StuckInBA   ignore (0)   2007 Feb 21, 2:27pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

And in other news today, the BOJ raised interest rates by 0.25%, (doubling the rate to 0.5%).

The BOJ rates are at a 10 year high ! The increase is very insignificant numerically, but it was rather surprising.

Add to that the CPI surprise. And what did Nasdaq do ? It closed at a 6 year high. Talk about disconnect.

Why blame the J6P when these supposedly smart money folks on Wall Street ignore what's going around them ?

I don't think there is stock market bubble yet, but I am reminded of something from the dot com bubble. I was just learning the ABCs of investing and it still struck me as odd when the "analysts" came to the same conclusions from opposite facts.

Once the CPI was lower than expected. So it's good for stocks, hence the rally. So buy, buy, buy.

Then once the CPI was higher than expected, and the dude on CNBC said, now Greenspan will increase the rates and inflation will be kept in check, which is good for stocks, so buy, buy, buy.

Convoluted logic or irrationality ? Who cares, buy, buy, buy. So I am buying. Puts. Just in case.

205   Jimbo   ignore (0)   2007 Feb 21, 3:58pm   ↑ like (0)   ↓ dislike (1)   quote   flag        

It really depends on the definition of middle class. Could anyone nowadays live with one car, 1,200 sq ft house, and no name brand clothes? America has gone from a country founded by Puritans to a people who define their lives in very materialistic terms.

Hey! I live in a 1300 sq ft home (actually, the top unit of a two unit building), with no car and all my clothes off the discount rack and I not only consider myself middle class, I consider myself upper-middle class!

Admittedly, I buy them off the Banana Republic discount rack, but that is more because my job requires me to dress at less halfway decently.

I agree that most Americans have screwed themselves good by being too materialistic.

206   Jimbo   ignore (0)   2007 Feb 21, 3:59pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Wow, there is a serious meltdown of subprime mortgages going on.

Is it time to start a new thread about it?

Is the meltdown of subprime mortgages going to finally bring about the collapse of the whole house of cards?

207   e   ignore (0)   2007 Feb 21, 4:05pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Remember, the newspaper headline cheating scandal a couple of years ago was in priviledged Saratoga, those poor little rich kids feeling so much pressure to have high grades. They got caught cheating, but they were just victims.

Let's put on the cynic hat for a moment: is cheating really that wrong? if anything, these kids are learning the right skills to get ahead and succeed in the future.

Remember that in the future, there will only be winners, and people working at Walmart. There won't be a middle class in America - it'll be in India/China.

Director level or above, or bust!

208   ozajh   ignore (0)   2007 Feb 21, 6:10pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Tamparenter,

That's a pretty dramatic one day move (Novastar).

209   ozajh   ignore (0)   2007 Feb 21, 8:57pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

HARM,

Here's another glossary possibility, thought of when posting at Ben's.

"Reset From Hell" (RFH) - Originally coined to describe a NAAVLP unexpectedly (for the borrower) and painfully resetting from a low teaser payment when it hits its LTV ceiling. More generally; any mortgage reset which results in a dramatically increase in monthly payment.

210   ozajh   ignore (0)   2007 Feb 21, 8:59pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

-dramatically
+dramatic

211   Doug H   ignore (0)   2007 Feb 21, 9:17pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Sybrib said: "Isn’t Taiwan a province of China?"

Astrid, you've been baited! :)

212   DinOR   ignore (0)   2007 Feb 21, 11:20pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

"instead of playing the bubble sitting game"

Close your eyes... The date is 03/01/2008. The market is down 32% from it's all time high in 2005. You're standing in a line to challenge your now outrageously fluffed up property tax bill and the line to the county tax assesor's office is down the block and around the corner.

Your funny money paper "gains" have evaporated completely and while you harbor little hope of getting your ridiculous tax bill reduced you are now just looking forward to "getting inside the building". Damn it's cold out here. :(

213   astrid   ignore (0)   2007 Feb 21, 11:50pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Doug H,

Surprisingly, that's how most Chinese people view the situation. I've always viewed Taiwan as a soverign nation, but that's because I believe in self determination - esp. democratic self determination - for any people wishing it. I feel the same way about Tibet, but it's not a popular opinion.

214   Boston Transplant   ignore (0)   2007 Feb 22, 12:01am   ↑ like (0)   ↓ dislike (0)   quote   flag        

I don't know if it's verboten to respond to theotherside on this board, but who goes.

"Your dream house in your dream school district is for sale and you can really really easily afford it… what do you do?"

Implicit in your hypothetical example is that rental yields are close to purchasing costs, and prices overall are near or below their long-term trend. Therefore, I buy the house.

"If you choose 1, you are in the same boat as current owners who bought a long time ago, have plenty of funny paper equity and decided to sit tight in their house instead of playing the bubble sitting game"

No, this is incorrect. Right now owners are at the peak. In your hypothetical example I would be at least 22% off-peak. Potential losses are reduced by at least 22%.

"So ask yourself, are you really going to choose choice 1 above or have you been recently been thinking hard about getting back into the S&P500 now that all records have been broken…"

Yes, I will choose #1. With regards to the stock market, I dollar-cost invest across time. I don't "get back in" to the market at all, as I have never left it.

215   Boston Transplant   ignore (0)   2007 Feb 22, 12:03am   ↑ like (0)   ↓ dislike (0)   quote   flag        

theotherside: in my opinion your post sets up a straw-man argument.

216   Claire   ignore (0)   2007 Feb 22, 12:47am   ↑ like (0)   ↓ dislike (0)   quote   flag        

With regards to good schoold district - I just want my kids to go to a school where they don't have to worry about wearing certain colors incase they get mistaken for gang members and attacked by another gang!

217   astrid   ignore (0)   2007 Feb 22, 1:08am   ↑ like (0)   ↓ dislike (0)   quote   flag        

"Isn’t it a rather popular opinion among the people of Tibet?"

Perhaps amongst Tibetans, though they are unlikely to share their opinions with a Han Chinese. Furthermore, similar to Russian settlements in the Soviet Central Asia republics, mass Han Chinese migration into Tibet (and the Muslim far west and Inner Mongolia) is really diluting the local population. A lot of Tibetans are now minorities on their own ancestral lands.

218   astrid   ignore (0)   2007 Feb 22, 7:56am   ↑ like (0)   ↓ dislike (0)   quote   flag        

I'm shutting this thread down to prevent more spam (stuck in moderation, thankfully). Thank you all for participating.

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The Housing Trap
You're being set up to spend your life paying off a debt you don't need to take on, for a house that costs far more than it should. The conspirators are all around you, smiling to lure you in, carefully choosing their words and watching your reactions as they push your buttons, anxiously waiting for the moment when you sign the papers that will trap you and guarantee their payoff. Don't be just another victim of the housing market. Use this book to defend your freedom and defeat their schemes. You can win the game, but first you have to learn how to play it.
115 pages, $12.50

Kindle version available


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