patrick.net

To all $300k income households

Why are you people making so much money? $300K per annum is almost $1000 per day.

Is your company hiring? What field are you in?

How the heck am I supposed to afford to buy something when the competition makes so much dramatically more than I do.

Cripes.

How the heck am I supposed to afford to buy something when the competition makes so much dramatically more than I do.

Do you even want the same type of houses?

Do you even want the same type of houses?

Does it matter? The support is really high.

Despite a very brief stint as a JBO (Jealous Bitter Owner) due to my dad passing away, I have mostly rented since college ~15 years now. Unlike a lot of the regulars here, I did not have the Fat Stacks necessary to buy in CA with one of those old-fashioned, pre-NAAVLP amortizing thingies during the last down cycle (mid-1990s).

Wifey & I are in a much better debt/cash position now, but still earn well below a HaHa combined. So, I'm not sure we could manage a conventional mortgage on a place we really want in CA, even if/when real prices decline ~40-50% as I am expecting over the next several years (note: I said "real", as in "inflation-adjusted" prices, not nominal). We will probably end up relocating to a less expensive state with fewer arbitrary restrictions on supply (NIMBYism, UBLs, Prop. 13, etc.) and less pressure on demand (lower population density & illegal immigration/birth rate). As a Bubble-warrior, I have to remind myself that even with a full 50% real-price haircut, the median price-HH income ratio in CA is still going to be DOUBLE almost anywhere else. Instead of 10/12:1, we may end up at a more sustainable 5/6:1. This is still hardly "affordable" to a working class family of non-Googlaires.

For now, we're quite content to rent a house near Pasadena with pets/yard/garage for about 1/3 PITI carrying costs. Major Pros: calling the LL for plumbing/electrical/structural problems (I found out how big a relief this was when I needed to sell my dad's old place and had to repair item-after-item-after-item...) and being able to easily move with 30 day's notice. Major Cons: Not being able to renovate to the extent we'd be able to do as owners, and getting "the Look" from friends/family when we mention we rent.

Does it matter? The support is really high.

Just try to compete with those with 50% - 70% of your income. Then you will have an edge.

Umm... guys, having a $300K HH income not only puts you in the "Upper class", it puts you well into the top 5%. Upper-middle has a floor of only $55,331.

http://en.wikipedia.org/wiki/Household_income_in_the_United_States

No offense, but a lot of you Bay Aryans are either seriously out-of-touch with how the "other 95%" lives, or are just having fun measuring each other's dicks.

No offense, but a lot of you Bay Aryans are either seriously out-of-touch with how the “other 95%” lives, or are just having fun measuring each other’s dicks.

Bay Aryans are not out-of-touch with the reality. Bay Area is.

How about these definitions:-

Lower Class: uses labor to make money
Middle Class: uses time to make money
Upper Class: uses influence to make money

I'm not bragging or anything, but the other day, I was out shopping for a new gem-encrusted, solid-gold codpiece (just a plain, ordinary model for everyday wear, y'know), and I just couldn't believe how expensive these things are nowadays! I mean, if a man of my modest means (16,000 sft Victorian on Nob Hill, beach estate in Maui) cannot afford a SIMPLE gem-encrusted, solid-gold codpiece, then what hope is there for the rest of you hoi-polloi??

Tutt, tutt, well it's Polo time, boys, off to the Club for me...

LOL @ Harm

Bought unconventionally in 2000 (with another couple, two houses on one lot). Making ends meet with one income (live modestly, try to give generously, max the Roths and take company match money for Simple IRA). I am still amazed at how many people believe the sun rises and sets on the SFH. Jimbo, great post on the duplex (first time I have heard Berkeley call the suburbs, though) -- are you thinking about doing a condo conversion?
Many people who come to our home marvel at it and think we hit the tech jackpot or something (4bed/2 bath, ~1600 sq.ft.) No, we set a budget and decided to go a route where we could get more for our money. We tell people how we did it and most are like, we could never do that -- would rather throw their money down a sinkhole than hold hands with somone else financially (and yes, there is some risk, but a solid TIC agreement takes most of the guesswork out of it). Especially with today's loan products, so much to gain and little to lose. Converting to a condo is a fairly straight forward process (unlocks value) and breaks the financial bonds of a TIC for longer term security.
Then again, I buy used cars, so what do I know.

Uh, HARM, there aren't really any Victorian SFHs on Nob Hill. But that's OK, I'm sure you meant your chateau on Nob Hill.

Did anyone else get the email from Mercury News for

Montclair, San Jose, only $2139/month!

Then, the disclaimers on the bottom:
"All advertised loan programs may be subject to underwriting guidelines which may limit 3rd party contributions and are available to qualifying buyers for owner-occupied homes only through seller’s affiliated lender, Countrywide KB Home Loans™. Not all buyers will qualify."

It gets better:

"*[1–3] 1st-year monthly payment is for illustration only and is based on a sales price of: [1] $343,990; [2] $462,490; [3] $552,000 with (a) an 80% 3/1 fixed-period, interest-only, adjustable-rate 30-year 1st mortgage (“ARM”) with a 1st-year interest rate of : [1] 2.375%; [2–3] 3.500%, 2nd year rate of [1] 3.375%; [2–3] 4.500% and 3rd year rate of: [1] 4.375%; [2–3] 5.500%. 1st-year monthly payments and corresponding variable APRs are: [1] $545 (4.426% APR); [2] $1,079 (5.541% APR); [3] $1,288 (5.534% APR); and (b) a 20%, 25-year fixed-rate interest-only 2nd mortgage at 9.250% (9.250% APR), resulting in a monthly payment of: [1] $530; [2] $713; [3] $851 for the 1st 10 years. Reduced interest rates on the 1st and 2nd mortgage are a result of a note rate buydown paid by KB Home of up to 6 points. Both 1st and 2nd mortgage monthly payments include interest only; principal, taxes, insurance and any other fees such as HOA are extra. Rates effective 2/16/07 and are subject to change without notice. For the 1st mortgage, advertised monthly payments will increase at years 2 and 3; advertised ARM rates and monthly payments are subject to increase after the 3-year fixed period. For both the 1st and 2nd mortgage, after completion of the 10-year interest-only period, each loan will be fully amortized over the remaining term (as an adjustable-rate mortgage that adjusts annually for the 1st mortgage) and borrowers will be required to pay interest & principal on each loan, which may result in a significantly higher combined monthly payment. Interest rates and APRs may vary based on borrower’s credit score, actual closing costs and other variables. Scenario assumes the buyer has excellent credit, pays $0 down, provides full documentation, sets up a tax & insurance escrow account and pays estimated closing costs of $1,654. Closing costs estimate includes only lender costs, buyer may incur additional closing costs."

Did you catch that really good bit?

"which may result in a significantly higher combined monthly payment. "

EBGuy,

TICs are considerably less expensive in SF than condos because until very recently you had to share a loan, which many people are hesitant to do. Now a few banks are offering individual TIC loans. It is very, very difficult, nearly impossible to go condo in SF with a greater than 2 unit building, however. Our board of supervisors severely limited the number of condo conversions that can take place yearly, and there is a huge lottery each year to do that.

I still do not understand exactly what is the legal difference between a coop and a TIC. Coops tend to be in more expensive buildings here and tend to have higher down payment requirements (505 at each of the coops I looked at), but I don't understand any other difference.

So much for the myth that the GSEs only buy bullet-proof, AAA-tranche "conventional" loans:

http://www.marketwatch.com/news/story/freddie-mac-toughens-subprime-standards/story.aspx?guid=%7B3F839423-9407-4ED0-9351-4999979A647C%7D&dist=

Freddie Mac also said it would limit the use of loans that don't require income verification or other documentation, and will recommend that lenders collect adequate escrow for taxes and insurance payments.
Moreover, the company said it's developing new fixed-rate and hybrid adjustable-rate mortgages with the aim of giving lenders "more choices to offer subprime borrowers."

The company also will limit use of low-documentation loans, so-called "no income verification" products in combination with the 2/28 and 3/27 hybrid arms.

In addition, the company won't purchase "no income, no asset" documentation loans and will limit so-called "stated income, stated assets" products to borrowers whose incomes derive from hard-to-verify sources, such as self-employed persons and those who participate in the cash economy, the firm said in a press release.

In other words, they're tacitly admitting that NINA/liar-loans make up a substantial % of their MBS portfolio.

Glad to hear that the MBS carnage will be restricted only to the BBB & Alt-A tranches.

Was this already posted? Where's Nigel? SP- I hate malls too. And I particularly hate the smell of Cinnebon!

Home price slump continues
Realtors report that year-over-year slide hit its sixth straight month in January despite pickup in sales pace.
By Chris Isidore, CNNMoney.com senior writer
February 27 2007: 11:41 AM EST

NEW YORK (CNNMoney.com) -- Housing prices continued to fall in the latest reading on the battered real estate market released Tuesday from an industry trade group.

The median price of an existing home sold in January was down 3.1 percent from a year earlier, according to the National Association of Realtors.
The slump in existing home prices reached a sixth straight month in January, according to the latest report from the National Association of Realtors.
The slump in existing home prices reached a sixth straight month in January, according to the latest report from the National Association of Realtors.
Bankrate.com
Current Mortgage Rates

It marked the sixth straight month that prices have shown that year-over-year drop, a relatively rare condition for home prices before the current slide. Before the Realtor's price readings showed a year-over-year drop for August sales, it had gone more than 11 years without that kind of drop.

@SFWoman,

My bad. Of course, I don't live there, so I defer to your first-hand knowledge. Perhaps I got Nob hill confused with Russian Hill?

HARM,

Oh, I'm sorry. I hadn't realized that "Alt-A" wasn't "as safe as houses"? (And we're already seeing holes punched through it?)

This is the "bleed through" we couldn't get people to see 6 months back. I'd read earlier today that MBS defaults could effectively bleed through to fixed income in general. Amazing.

It’s good. I don’t think I’d even like downtown Palo Alto.

Downtown Palo Alto is full of demons (bums).

Now, if we can only get another asset class, real estate, to drop 3+% in one day, we bubble sitters will be a lot happier.

HARM,

That actually looks like a picture of Haight-Ashbury, perhaps. Russian Hill has some Victorians.

Dow is down over 450 points!!!!

Damn it! Where is the PPT NOW!

Losers for today.

All the markets are into the red except for crude.

This is what happen when euphoria has been ruling the market. Any external event - just ONE event - is enough to cause panic. Last few days the -ve breadth was telling a story which culminated in today's plunge.

Tomorrow should be interesting. The Asian markets may continue sell-off or suddenly reverse to upwards. More chance of a big move either direction than a stabilization. The Indian stock market has been crashing (or correcting) for a week as well.

The herd (of global investors) has suddenly woken up from the Goldilocks dream. And it is scared.

DinOR :

I know what you think about the covered calls. But boy, do I love my covered positions right now or what ! Closed some today. This is as close to free money as it can get in stock market.

GC,

Firstly, Hats Off to *astrid! She made the call for the sell off in China several months ago saying that it was a given. I agree. Many of my clients are up substantially so they're not that concerned, but we'll continue to monitor that.

This correction "should" have come late last year. Had we given in to that our "numbers" as managers would have suffered as far tax managed efficiency. Retail guys can't move the market like this so it will be interesting to see after the close and the dust settles.

Sorry about the late response, we had power go out briefly during our little storm.

Hot off the press.

StuckinBA,

I noticed some of my India holdings were selling off and was a little concerned. I'm well up there too but this correction looks pretty determined. My guess is we'll see a little "reflex rally" at the open and then trade lower for the balance of the day tomorrow.

The treasuries have rallied strongly over last few days. Man, I want to kick myself over this. I was under-weighted in bonds because I thought the bond market was wrong about inflation. Now not just stocks, but gold and commodities is down too. Live and learn.

I know what you think about the covered calls. But boy, do I love my covered positions right now or what ! Closed some today. This is as close to free money as it can get in stock market.

Covered calls still have downside risks. Just a little bit less than long stocks.

Covered calls still have downside risks. Just a little bit less than long stocks.

Yes. I don't buy stocks to write calls. If I like a stock for a long term, I buy it and then write the covered call. Then I close them on days like this. Sometimes the stock is called away and I am fine with that too.

Sometimes the stock is called away and I am fine with that too.

That has tax consequences though. Would you consider buying back the call at a loss instead (realized option loss, unrealized stock gain)?

Not investment advice. Not tax advice.

"Now not just stocks, but gold and commodities"

Good point. I guess there are flights to quality and then there's just plain flights!

That has tax consequences though. Would you consider buying back the call at a loss instead (realized option loss, unrealized stock gain)?

Good point. I have preferred to let the stock called away. There are always other opportunities. For me, realized gain is better than realized loss. If I am making money, I don't mind paying tax. For some holding on to the stock makes more sense. Buying back the call, and writing another one is also a viable strategy.

For me, realized gain is better than realized loss.

I understand...

But to me...

Realized loss is better than unrealized loss.
Unrealized gain is better than realized gain.

BTW, how much do you pay for option commissions?

Wow... it's been quite a day for the Stock Market.

If it slips to a full 10 percent correction, I wonder how the 'spring bounce' is going to look?

BTW, how much do you pay for option commissions?

Forgot the exact amount. Both Etrade and Ameritrade have very low rates. 9.99 + per contract fee.

Harm - Just wanted to state for the record two things:

1. We are not in the Bay area - I rent near Pasadena

2. Not trying to show off my fancy codpiece - I just wanted to point out that although we can afford to purchase a house at these prices, it would be insane. The fundamentals are SO out of whack it makes buying seem foolish. I am not buying a $800k house despite our houshold earnings/savings.

I hope the market tanks and validates our decision to sell and rent...