patrick.net

I run the numbers and try and compare it to owning a home and having $30k in deductions from the interest and property taxes if I owned.

Deductions from interest and property taxes? Expenses that you do not have if you rent.

Do people really hate IRS so much that they rather pay more just so that the taxman has less?

SFbubblebuyer,

Count me in for a ride.....'04 Fatboy.....my contribution to Global Warming and excessive comsumption. Astrid, my wife's only concern with my riding is an accident where I'm injured instead of a trip to the morgue......accidents are EXPENSIVE; funerals are cheap.

That link to the house on top of a ridge.....wait, on the side of the ridge....no, wait, sliding down the ridge for almost ONE FREAKIN' MILLION DOLLARS is unbelievable!

1960's + SF + drugs + sex = Today's SF generation of home buyers. Drugs will do it every time.

_________

Dinor, about the fight...... can I put a rubber glove on my pit bull and call him a rooster?

Doug H,

Wait a sec.

The "governor" says..... it's a GO!

I may be the only American (or person for that matter) to have ever fallen asleep at a c@ckfight. (Araneta Coliseum, 1994) Too many San Miguels! :(

eburbed,

And really more from an anecdotal perspective, o.k?

Here's what my experience has been in dealing w/retirees here out west. Wife say, you OWE me much big dreamhouse! Not this rinky dinky 2,800 s/f crackerbox! BUT some place NEW where our (her) friends/relatives are!

Uh, let's a' see here:

Selling costs= 6%
World class world tour= 35 grand +?
Moving expenses= 5 grand?
Ahem, redecorating expense= is 15% of sale price unreasonable?
Joining gated community golf club= 12 grand (min)
RV and Harley (God only knows)

And the Grand Total IS.......

Welcome to Mortgage Payment (1) and only 359 to go!

Lest I be accused of being sexist insert "husband say"

(Many of the guys are just as bad!)

http://tinyurl.com/2zeomo

I know she is annoying, but never heard she is gay....not that there's anything wrong with that.

Who is Suze Orman?

Here’s what my experience has been in dealing w/retirees here out west. Wife say, you OWE me much big dreamhouse! Not this rinky dinky 2,800 s/f crackerbox! BUT some place NEW where our (her) friends/relatives are!

That's insanity!

In any case, back to my original question- how do people who rent when retired deal with inflation?

According to the US Census Bureau, national home price median was $119k in 2000 and $396 in San Francisco.

http://www.census.gov/prod/2003pubs/c2kbr-20.pdf

(see Table 2)

This is also a 3.3 ratio.

The median value of a home in 1980 in SF was $109k (1980 census). The US home value was $47k. So the ratio was 2.3.

http://www.census.gov/hhes/www/housing/census/historic/values.html

So I am obviously wrong. I wish I could remember where I saw these graphs of median home prices per municipality over time. I am pretty sure it was on the SF Federal Reserver web site. I will keep looking for it, but I have already spent waaay to much of a day I was supposed to be working on it!

I think most people, when they retire, buy a small place. Or factor rent and inflation into their fixed income. I mean, people who never bought and never saved a dime and plan on living on SS and Medicare get screwed by inflation. As they should be.

eburbed,

The same way that people who own retires, by living off my savings. And since the savings will be liquid rather than tied to house, so much the better.

eburbed,

Well that was kind of my point, they DON'T deal with it! Regardless. If they're equity fat? Splurge! If not? They hope next month will somehow be better.

What's really weird is that so many people really have (2) distinct "plans" that the wire-houses and mainstream fin. planners are only too happy to facilitate. 50 is the new 30, remember? This is the Splurge Cycle, deny yourself nothing! Then w/annuity and long term care policy in hand they attempt to limp into full retirement. On your dime of course.

Last week Fidelity came out with a report that said they foresaw dangers where too many Americans were relying heavily on their home's appreciation as a cornerstone of their retirement. Seems common sense to us here. In the general population however it was rec'd as "consider the source" and "it's a great time to buy OR sell a mutual fund".

"I think most people, when they retire, buy a small place"

No offense, but you must be talking about my relatives back in Chicago? If anything, the Splurge Cycle means that many empty nesters are going big. Yes, BIG! Kids move out? Time to get a bigger place! :(

To be fair, my parents retired and bought a HUGE house, so I shouldn't say that. But it seems like nobody these days :

1) Pays off their mortgage
a) Lives in that house payment free while saving more for retirement.
b) Sells house for smaller house and uses difference to fund retirement.

Or

2) Rents, throwing money into retirement accounts and not touching them.

And a mea culpa... I did almost no retirement savings in my 20's. But how people can hit mid 30s or 40s with no retirement plan is beyond me!

@"Jimbo",

When it talks like a troll, denies like a troll, and brags like a troll...
It's probably a troll.

HARM,

I think your characterization of Jimbo as a troll was uncalled for.

He's identified himself quite clearly in this blog, he has not attempted to pick fights for the sake of picking fights, he's been quite polite and backs his arguments with good facts, and he has been responsive to critical replies.

While his views are not in the mainstream in this blog, it's quite common in the "real world."

I, for one, welcome his responses - at the very least, he keeps this blog from becoming a monoculture of JBRs, however reasonable I may think the JBR position happens to be.

Nor am I convinced that the unregistered person who is now using the blogname "Jimbo" necessarily the same (honest intelligent) individual who used to regularly post here under that name.

HARM,

If you check the email given by the current Jimbo and the email of the previous Jimbo postings, you'll see that they are the same.

Jimbo has disclosed his home ownership status from the start and has staked out a consistent and defensible position. I may disagree with his assumptions, but I never thought he behaved in a trollish manner.

astrid,

Perhaps I am wrong (might be time formme to revisit the archives), but some of the comments this guy makes sound quite reasonable, while others border on blatant REIC-speak.

Btw, I just approved "Jimbo's" 1:55 pm post (was in moderation because it contained 2 links).

I'll reserve judgment for now.

SFBubbleBuyer,

I appreciate and respect your candor! It's refreshing, believe me! :)

A properly handled "downsizing" gets filed right along w/all the other stuff we're supposed to do like flossing and showing up at a church from time to time (yeah, right!)

You'd be absolutely amazed at how many people I know that bought a HUGE place they have practically no use for and tell me what a screamin' deal they got on it! Great...... have fun.

astrid,

The email matches, but the IP/subnets do not. Of course, he may have moved, switched ISPs or could simply be posting from a different location. If this is the "real" Jimbo, he has certainly changed his tune from a year ago.

No offense, but you must be talking about my relatives back in Chicago?

Hm, maybe that's the disconnect - I'm not West Coastized enough yet. :)

But it seems like nobody these days :

1) Pays off their mortgage
a) Lives in that house payment free while saving more for retirement.
b) Sells house for smaller house and uses difference to fund retirement.

Hm, fwiw, I actually don't know anyone like that in my circle of Californian friends. But then again, my circle of friends has a collective min salary of $70k, a min age of 25 and a max age of 34.

I guess the one exception is my friend who has a $600k mortgage - but then again it's 30 year fixed and he's a firm believer (as am I beginning to be) that inflation is going to soar in the next few years.

SFBubbleBuyer,

That's the new paradigm. These days, no homeowner really wants to own the home !

All that mushy talk about American Dream is patently false. They just want to own an ATM that pisses money when they are thirsty. In my book they are specuvestors, just one notch above flippers. The BA may not have many flippers, but almost everyone I know is a howmuchamonth specuvestor. They keep talking about the utility/tax benefits etc. But without the unshakable belief of perpetual appreciation, none of these would have bought.

SFBubbleBuyer Posted a link to a ~$1mm Woodside Fixer and Says:

> The owner wants to sell ‘as is’ but will do 70k worth
> of foundation work before the sale completes.
> The foundation report says that the foundation needs
> REPLACING, not fixing, at a minimum cost of 100-200k…

Then PaloAltoRenter (PAR) Says:

> sfbubblebuyer, Things to know about Woodside: there
> are actually two Woodsides. One is the affluent,
> VC-community and the other one is way the hell
> out in the middle of nowhere

Some other things to know about Woodside is that due to the Bay Area microclimates it gets a lot more rain than the rent of the Peninsula and has a lot more mud slides (and the more expensive “home slides”). If you buy on a slope in Woodside make sure the previous owner has put in plenty of drainage (a friend that bought in Woodside a few years back couldn’t afford to do the drainage work right away after spending almost $2mm on a home so now he still has to do the drainage work and $200K worth of work on the end of the house that slid a foot down the hill)…

P.S. Mixed in with the rich VCs in the affluent part of Woodside are a lot of old money girls that like horses…

P.P.S. All my friends that live in the “poor” part of Woodside (and the poor part of Los Gatos) carry shovels and chainsaws in their SUVs all winter and often need to use them to get to work in the morning…

Me, I want a house I can live in for a good long time. My wife's parents sold their lovely paid off house and bought a bigger lovely house with a view. My thought was "WHY would you want to have a mortgage again?" Their house was awesome. Their new house is awesomer, but I still can't help but wonder why they'd want to make mortgage payments again. They moved about 10 miles away from where they'd lived before, I think. 20 at the most. They're still working, though, and plan to be working for awhile, so another mortgage might not seem the burden to them as I think it would be for fully retired folks.

In my parent's case, they moved to a different state. My mom told my dad she was done with snow. Finito! And although they bought a monster sized house, they could have concievably paid cash if they wanted to cash out enough stock. They figured the mortgage deductions would offset the liquidation cap gains costs a bit, and it was 'cheaper' to have a mortgage than to pay cap gains all up front. They built the thing themselves, and installed all the 'home care' stuff they'd need when they're 90 and still living there. (Roll in showers, seperate housing quarters for live in help, etc.) So I can sorta see it in their case, and since I KNOW they have enough cash to live on even with the big house, it doesn't bother me that much.

HARM,

I have consistently said that I thought home prices in the Bay Area have been overpriced and that I expected a modest, long running downturn. I have not really changed my mind about that, but I am certainly open to the possibility that it really is "different this time" and home prices will collapse. I still think that this is extremely unlikely, barring a major recession, inflation shock or other financial catastrophe.

The one thing that I feel differently about is the feasibility of working class or young people to be able to afford a home here: I used to claim that "two bus drivers" could afford a home in the Excelsior. The reason I have changed my tune on this, is that home prices in the Excelsior have skyrocketed in the last two years. If anything, this puts me *more* in tune with the "Party Line" here, since you all seem to think that homes are out of reach.

I think the biggest change has been the change in the outside worlds perception of home price gains. Two years ago, I was predicting a downturn, along with the rest of you, and we were a minority against the world.

Now everyone is predicting a downturn and your position is the common wisdom.

Now I am predicting a smaller, slower downturn, so I am the pariah. *roll*

Earthquake! Maybe that will finally bring home prices down... :-)

Hey......I got popped by the TWO LINK moderation thingy....didn't know that was a no-no.

I made a post about liking McMansions and it never got past moderation, is there a McMansion filter too?

"I made a post about liking McMansions and it never got past moderation, is there a McMansion filter too? "

There should be! :)

I guess the one exception is my friend who has a $600k mortgage - but then again it’s 30 year fixed and he’s a firm believer (as am I beginning to be) that inflation is going to soar in the next few years.

This doesn't sound like the words of a bear!

House prices are going to fall, it's that simple. When the lenders are all bankrupt and no one is funding suicide loans, it will be impossible to pay such high prices for a house; inflation or not. There are alot of people who can pay those prices for a house, but the vast majority of people cannot.

There are only 2 things that can possibly keep prices from falling dramatically.

1) Hyperinflation - This would be worse than housing prices falling for everybody including the FB's. In this scenario we will certainly have a dollar crash. By the time you are done paying for food, gas, utilities, etc. you will have nothing left to pay the mortgage. You'll have to help out your retired (grand)parents who are living on a fixed income. America would be totally crushed. Like Peter Schiff says, "What good is a million dollar house if it costs $10k to fill the refrigerator".

2) Everyone's boss giving a 100% raise (never gonna happen).

Jimbo who Says that SF Housing has “always” been 3X the rest of the US:

> FAB, I am still not seeing your source. If you are telling
> me that it is your own experience, I respect that, but since
> I am naturally a skeptic, I will keep looking for hard
> numbers to back it up. Hope you don’t mind

My numbers are from the US Census and are the “median home price”. The census.gov site has been changed and I can’t find out how to drill down to the data like I could in the past (I used to spend a lot of time looking at changes in specific zip codes and the even smaller census tracks). The 2000 Census data (showing SF at over 4X the national median at the height of the dot com boom) is easy to find with a Google search but the older info is harder to find. I spent some time at on census.gov last night but all I could find (on a bunch of different pages on the site) was 1980, 1990, and 2000 median info (from memory I think that the SF 1970 median was closer to 1.5X the national median). My point is that things tend to revert to the mean and when I drilled down to census track lever “median family income” (that is obviously much higher than the “per capita” income) vs. “median home price” in census data from 1960 to 2000 it is almost always on the 2.5 to 3.5X range…

Jimbo,

The only New Paradigm-ish opinions I've recently read about this RE downturn being "different this time" have mainly come from you. Have any of the regulars here been predicting financial Armageddon or prices dropping 100% in a single year? Hardly.

Most of us have been expecting a long, slow several-year grind of low sales and small, cumulative nominal drops, with the remainder of bubble-era gains being eroded away by inflation. Personally, I doubt this thing will bottom out before 2010-2012 at the very earliest --and it could be a lot longer that that if the Fed tries to re-inflate a-la ZIRP.

If that's what you meant, then my apologies --we have no argument. But that's not what it sounded like to me.

No, interest rates going down another point would prolong the bubble.

If people could borrow money at 4%, home prices would actually go up some more.

I don't think that this is very likely, but that is the other thing that could drag things out even longer.

While I might find it fun to watch house prices crash, I have relatives in retail so I hope they don't actually crash.

However, with a wife whose uterus is a ticking timebomb that dwarfs the sub-prime lending in potential devastation... I hope they crash as quickly and as hard as possible so we're not forced into buying on the downslope to have a home for the babies. :D (And look... I know we don't have to own a home... mkay? But I also have to keep her feelings in mind, and she'd rather overpay for a home than rent.)

All in all, it wouldn't be a huge tragedy, but hopefully I'll talk her into renting until we've seen prices come down or wages increase.

SFBB,

Have you looked into rental houses, especially on places where you might be able to get a longer lease. Tell her you want to rent a house for a while to help you decide what you'd look for when you buy.

"A woman's test is material. A man's test is a woman...if a man could f*ck in a cardboard box, he wouldn't buy a house." - Dave Chappelle

No, interest rates going down another point would prolong the bubble.
If people could borrow money at 4%, home prices would actually go up some more.
I don’t think that this is very likely, but that is the other thing that could drag things out even longer.

I am no Nostradamus but I am willing to bet my money on this NOT happening. It's as impossible as it can possibly get.

And I won't even pretend to understand the bond market. But the various reports very clearly indicate that "prime" very soon will no longer be prime. Duh, even Jim Jubak wrote about it.

So this "if people can borrow at 4%" argument is similar to "if pigs can fly" at this stage in time. Yes, I am going out on a limb here. Credit tightening (if not an outright crunch) seems unavoidable.

Even ZIRP may not solve this problem. And given what BOJ has done, we won't see a ZIRP anytime soon here in US.

Here is a real live situation of what market reality reflects.

“The sub-prime market was designed with a built-in time bomb. In testimony to the Senate Banking Committee in September, Michael Calhoun, the President of the Center for Responsible Lending (CRL), showed an example of the most typical sub-prime loan, known as a 2/28, with an “exploding ARM” (adjustable rate mortgage). Buyers can qualify for this type of loan if the original (”teaser”) monthly payment is not higher than 61% of their after-tax income. At the end of two years, even without a rise in interest rates, the payment will typically rise to 96% of the purchaser's monthly income. No wonder then, that the study conservatively forecasts that one-third of families who received a sub-prime loan in 2005 and 2006 will ultimately lose their homes!”

I didn't realize that these things reset to 96% of someone's income - wow! There's no way people who have these will be able to keep their houses!