patrick.net

The mortgage interest deduction wasn't a big factor in my decision to buy in 2005.

However, I just completed our taxes, and my Wife forgot to change her witholding last year. Now we're looking at $16.5K refund. I'm happy for the refund, but I wish we had been getting interest on the money all last year instead of letting Uncle Sam hold it for us.

Lunarpark,

I was all set to post the last paragraph from that SFGATE article: "if history is any indication, prices will start to climb again before you know it" I remember thinking about how high prices were in 1995. They never did come down. I know someone who bought a $1M place in Los Altos for cash last month. I have some friends who just bought a place last month in San Carlos for $1.6M. As long as that is still happening, don't expect any miracles on the Peninsula. It is still "different" here.

Has anyone checked out Vantage in Palo Alto? What are your impressions?

justme,

Tech is booming in The City. It is getting really hard to hire good system engineers and programmers. I recently switched jobs, to a Director level job, and I am getting head hunted like mad. It has not been like this since 1999.

Unix system engineering, unix operations, WAN network engineers, java programmers, you name it.

The labor market is getting pretty tight. Not just tech, but finance, MBAs, and even experienced marketing and HR.

Tech, finance, MBAs, experienced marketing and HR, the "labor" market?

"I know someone who bought a $1M place in Los Altos for cash last month."

Was it condo or townhouse? We looked at a tiny shack in Los Altos with an asking price of $1,050,000 - after seeing it I would not even rent it, let alone buy it.

Please don't tell our H/R person about the labor market. She's still making less than the admin.

Amen palo alto renter, amen. Unless rents truly "skyrocket" I am happy to stay on the sidelines and accumulate cash.

From the NYTimes piece:

Jane LaFarge Hamill, a 25-year-old painter who lives in a “small, kind of stinky” studio in Chinatown, said she had looked at 60 apartments over three months, trying to take advantage of the lull she had noticed. “We decided to look while sellers were still worried that the market was crashing,” she said.

When she started looking last fall, there was still “wiggle room,” she said. But now, there is frenzy, said her mother, Leita Hamill, who, with her husband, Bill, is helping her daughter search for and buy a new home. The Hamills had gotten into a bidding war, one of many reported by brokers these days, for a two-bedroom co-op in Gramercy Park. They had started bidding above the asking price, but it wasn’t enough.

frickin a:

1) There goes my dreams of ever owning in Manhattan.

2) I totally had the wrong parents.

wtf Says:

Oh! job market is tight now! should I jump-in and buy now?? or else, doomed to be a renter forvever with my meager savings, worth over a quarter million dollars now??? oh god!! help me!!! please, help me!!!!!
_____

You should sit back. Munch on some Cheetos. Slake it all down with a ice-cold glass of Hi-C fruit punch. Belch. Wipe the crumbs off you shirt. Yawn. Click your heals together five times and say, "there's no place like Silicon Valley, there's no place like Silicon Valley, There's no place like Silicon Valley."

Then wait five years before doing anything with your hard-earned $$$.

Just my two cents.

THE END...

I forgot another reason the mortgage tax deduction is so psychologically powerful:

Lot's of regular, otherwise law abiding Americans feel quite comfortable cheating, claiming rental homes, investment homes, vacation homes, etc. as primary residences.

Not just paper divorces, but I know people who cheat with all kinds of paper-ownership family arrangements -- usually involving elder parents and adult children and grandchildren. I read somewhere probably 10 years ago that tax returns show "primary residency" claims in up to half of estimated 2nd homes in the US.

It is sad that you can count on any good economic news whatsoever being immediately knee jerk boo'd down on this blog. Just because there's another nascent tech boom gathering steam doesn't invalidate your decision to not buy an overpriced house. But for some a housing correction isn't enough. They won't be happy until Silicon Valley lies in ruin, and all the overeducated nerds are sent to labor away in the salt mines.

There is a lot of hiring going on in SF and SV right now. Sorry if that is bad news to some people. But, if you enjoy economic masochism so much may I suggest moving to Gary Indiana.

I think Detroit would be just fine, it's depressing as heck right now.

I can rent just about forever, so as long as BA rent stays reasonable, a good job market is fantastic for me.

Randy H.,

I don't see this boom as having been the result of anything other than cheap credit and a bubblehead mentality that took over (get rich quick transferred from dot coms to real estate). I don't think that good economic news will stave off a bubble contraction.

Prop 13 has personally made it far, far less likely that I will ever sell my city condo. Why would I? I like it and it's almost free. I suppose a small number of properties are permanently off the market that would have been sold because the carrying costs are so low, so maybe there is a miniscule contribution to the squeeze in supply?

skibum,
I went on a boondoggle this weekend where we had ski champions ski with us and take us on races at Squaw. Tamara McKinley was one of the skiers we had. She is a Realtor in Tahoe when she isn't skiing.

Lunarpark and Palo Alto Renter,

The place you looked at in Los Altos went for cash. No loan, just cash. I don't know why. If places like that sell for cash, I can't see anything being "affordable" around here anytime soon.

"If places like that sell for cash, I can’t see anything being “affordable” around here anytime soon."

I don't expect that Los Altos will ever be truly "affordable." But it doesn't mean that it is not subject to a downturn. Personally, I expect it would take a long time for a such a downturn to play out, with peaks and valleys along the way.

Have you guys noticed this type of attitude in your neighborhood?

I mentioned this house a few weeks ago here:

http://www.burbed.com/2007/01/29/spring-bounce-is-here-people-lining-up-for-open-house/

Today I noticed it was "Sale Pending" already.

http://www.mlslistings.com/common/properties/propertyDetail.asp?open=0&page=1&mls_number=703938&type=property&name=

I wonder if the sale price will be over asking. For a condo above a garage on a busy street across from safeway's dumpsters.

Fan-frickin-tastic.

Argh, another comment of mine is in moderation.

RentingForever,

Sorry, I didn't look at real estate while I was there- I don't want to feel obligated to ski every single weekend in the winter and that's what I'd do if I bought a ski house. There were, however, a lot of 'For sale' signs.

bikes2work Says:

> Lunarpark and Palo Alto Renter, The place you looked at in
> Los Altos went for cash. No loan, just cash. I don’t know why.
> If places like that sell for cash, I can’t see anything being
> “affordable” around here anytime soon.

Over the years I have seen a lot of real estate sell to Asian buyers (and a few properties sell to non Asian buyers) as “all cash” (no loan recorded on title) but more often than not they have a private loan from friends or family. There are very few people in the world smart enough to save $1mm that don’t know that they have an arbitrage opportunity where they can invest $1mm and make more than the after tax cost to borrow $1mm…

Randy H Says:

> I forgot another reason the mortgage tax deduction
> is so psychologically powerful:
> Lot’s of regular, otherwise law abiding Americans
> feel quite comfortable cheating, claiming rental homes,
> investment homes, vacation homes, etc. as primary
> residences.

By “cheating, claiming rental homes, investment homes, vacation homes, etc. as primary residences.” Do you mean “committing massive tax fraud by not only taking the interest deduction but not declaring any of the rental income”?

RentingForever says:

"Have you guys noticed this type of attitude in your neighborhood?"

Honestly I don't see the conditions the article describes at all. I would say the complete opposite is happening. Particularly in the boroughs, I see increased FSBO signs, asking prices at least 15% below last summer and some as much as 30%. The talk of the town is about how some poor sucker is close to foreclosure. I personally came across 4 foreclosures in just one weekend while browsing around in Northern NJ. Inventory of condos in Manhattan have certainly decreased, but I see no evidence that this is a result of increased sales.

In my neighborhood this weekend, we drove by a home that has been on the market for seven months now. We noticed a new FSBO sign and lying beside it, half buried in the snow, was the RE/Max realtor sign that it recently replaced.

It’s cold and quiet in the Northeast.

It looks like the Bubble is not just on the coasts… From Ben’s BLOG:

“The Kansas City Star reports from Missouri. “Last year, the average resale price of existing homes declined in almost half, 44 percent, of almost 100 ZIP codes tracked by The Star in the six-county area. ‘The market has been going up and up and up, and what goes up must come down,’ said agent Sue Walton.””

The tax break can be considerable, if you are at the overall marginal rate of 40-50%, which most Bay Area home buyers will tend to be.

On a $1M, 30 year fixed rate 6% mortgage, it is about $2500/mo, at least initially.

But that assumes that you will get a tax break on the "T" part of the PITI. If you are paying AMT, which more and more people are, then you lose that and the overall tax break is more like $2k.

Which is still pretty substantial.

Personally, the Prop 13 tax break is one of the reasons why we may keep our duplex as a rental property instead of selling it, if and when we buy a bigger place. The numbers probably wouldn't pencil out otherwise.

Yeah, the midwest is getting hit the hardest right now. This is actually pretty good evidence that this was a credit fueled boom, like the bubble proponents have been claiming all along.

"The Realtors' survey showed that sales were down in every region in the fourth quarter, while prices fell everywhere except the West.

The fourth-quarter decline in prices was led by a 4.2 percent drop in the Midwest, followed by a 3.7 percent decline in the South and a 2.5 percent fall in the Northeast. Prices were up by 0.4 percent in the West."

Randy H,

You're absolutely right! When everbody is doing it this totally "legitimizes" their actions. Remember, these are people that do their tithing, volunteer and file every year. Strategies of this sort are openly discussed w/CPA's, lenders and fin. planners.

I have personally sat in on client conferences where "musical houses" are being discussed. We can poo-poo it all we want but the truth is virtually anyone that owns multiple properties considers it. But no, it's not a factor.

I find the article about tech moving to the City proper very encouraging, but not for reasons related to housing prices.

Back in 2000 I interviewed with a number of tech places on the peninsula but fould the idea of working in San Jose (or equivalent) appalling. There were some places up in the City, but they were few and far between. In contrast when I came to Boston, there were many opportunities in Kendall Square (near MIT) which allowed me to live in Boston proper, and still have a 15 minute subway commute.

Meanwhile my friends who moved to the City had to deal with hour-long driving commutes. Not dealing with that commute is one of the best features for a techie in Boston, in my opinion.

Plus my wife, who is a consultant-type, can walk to work in just 15 minutes (in the other direction from me, towards the financial district). The Bay Area seems so big and scary now.

I suppose the peninsula life-style will become more appealing now that we are having a baby. But it wasn't during our 20's...

Jimbo,

It would be pretty futile to claim this was anything other than a "credit fueled boom" which is the quick and easy answer everybody seems to be comfortable with so who am I to challenge that? :(

I got into an epic battle w/SoCalMortguy as he insisted his industry (and the scumbags that work it) take ALL the blame! Fine, whatever. Cheap money explains it all, right? Then how do we explain the "insatiable" demand for second and third homes? How hard up do we have to be in order for this to make sense? If writing off MID on your primary home is "good" then writing off MID on your second and soon to be "primary home" must be twice as good! :)

I have to agree, things wouldn't haven't gotten near as silly w/9% mort. money but the very instant rates were "percieved" as relatively or slightly cheaper, the fuel hits the "pilot light" and Kablammy! Ignition!

So...... in short, I'll tip my hat :) to the "cheap money" camp!

But to have "continuous combustion" we need to add fuel, right? If it were just cheap money alone 2005 "might" not have happened as this thing petered out of it's own accord. Factor in the added incentive of f@ckin' the gub'ment and it was just too much temptation for blowed up daytraders that felt this was "their window" to go double or nothin' and make it all back and then some!

I mean they were "owed" this, right? I don't know how many times I've heard the flopper's lament what a bummer it is that they missed on their market timing thingee? Now just getting these people to "wait" the TWO WHOLE YEARS seems like an awful lot to ask? I mean if I can pick up a property on the cheap and flip the same day without ever having spent the night there and clear a 100k I should get to "keep" all of that, right? Provided I can just find a greater fool.......? Hmm.

DinOr,

Nice analogy. I can't help thinking that capital exiting the equity markets in 2000 - 2001 played a contributing role. That was a lot of money looking for a home. Easy credit no doubt proveded the spark, but there was a lot of fuel for the fire.

otherside,

Won't this product only be available to people who have equity in their houses? There go most people who have bought in the Central Valley the past couple of years, or recent purchasers in the city, or people who bought in Sonoma County the past couple of years. I don't think it will help the FBs.

But but bu... these are our homes! Not some fly by night specuvestment, right? Oops, guess not?

I've always wanted to have a HF own part of the upside potential of my home, I'm calling "Rex" T O D A Y!!!

The Bay Area seems so big and scary now.

I suppose the peninsula life-style will become more appealing now that we are having a baby. But it wasn’t during our 20’s…

Just remember, cars=freedom. Sitting in traffic=super mega freedom. Other countries would die to have our freedom(tm).

This guy has a lot of freedom:

http://www.burbed.com/2006/04/20/bay-area-man-wins-longest-commute-award-370-hours/

SFWoman,

Well... uh... actually you're right! In the case of these late to the party specuvestors Rex would just make the deal directly with their lender! I mean, C'mon. :)

But what if you're not a boomer? What if I want to sell the house next week and move to La Paz (with cash in hand) for that much deserved "ride into the sunset" after a demanding career at DMV? What if I want to rent it out to my buddy 'cause it'd be ideal for "grow" operations? Huh, HUH?!? :)

Call Rex T O D A Y!!! And DON'T D E L A Y!!! :)

Even though this is about as desperate and rock stupid as it gets, it's not new. The Portland Development Commission made a similar "sell your soul" deal with the devil when they started the loft craze in NW. It isn't hard enough just getting along with your spouse and family NOW you've got a HF manager in between the sheets too? Uh, no thanks. My life is PLENTY un-rewarding as is. :(

And where the f@ck do they come off making all kinds of reassurances like you won't have to pay any taxes on it? The guy didn't even make the usual qualified disclaimer like "in (many) cases the cash out re-fi "may" be taxeductible!"

Whadda country! You just buy a house and they give you cash (which is just as good as money) TAX FREE! Whadda country! I've argued (with limited success) that I am *not* a boomer. Well with a deal like this I don't give a rat's die'n @ss WHAT you call me! (Honey, wouldn't it be nice if we got a "maid" when we get settled in La Paz?)

SP,

Why do you hate Amerika? :(

This is the God send boomers have been waiting for! Now they can get that Harley AND a motor home they so richly deserve T O D A Y! Oh and don't forget about the "maid"!

No. Wait a minute, theother and Rex are on to something here! I'm taking the deal! That's the ticket! (Oh and don't forget boomers, if you get a "maid" the wife get's to have a "lawn boy"!) See you guys in La Paz, I'm outta here! :)