patrick.net

it just struck me how similar investing in a highly speculative market....

Speculative markets are not always wrong, history looks back and decides if they were speculative or precursory.

I BELIEVE in the Flying Spaghetti Monster!

Everybody say RAMEN!

Not all speculators end up being paraded in front of Congress as victims.

Speculative markets are not always wrong, history looks back and decides if they were speculative or precursory.

It is always speculative going forward and precursory after the fact.

The whole point in life is about finding slopped playing fields.

Absolutely, I think you figured them out. My engineer realtor happens to be my best friend, I sort of mentored him and that is when he became a realtor and I let him do some deals for me, but it was very interesting to see the a ha effect when he saw me doing things like during negotiation that were counter intuitive. Perfect example, the funny thing I hinted at earlier, the buyer came up $5,000 and I came down $500. He's like, "Malcolm don't you think you should come down the same amount they came up?" Or on another deal, I was asking $320K, their initial offer was $310. I countered back at $325 and he was stunned when they took it. They just have no concept of human interactions.

Mind games are always interesting. ;)

I think that is what I was saying. The point being if I'm speculating I'm paying a premium for something which may or may not be inline with the current way of pricing, but sometimes you get rich going against the grain. When I bought my first house I was considered a speculator, even my family thought it was a crazy move. You know, the trend had been downward in 1995.

I educated him very quickly about the balance of power in a sellers market and now the buyers market. I wasn't even playing mind games, I knew the buyers wanted desperately to buy, and out of all the sales they did the best because they bought early 2004 and they have some equity if they didn't do something really dumb.

And it's logical that's why I don't get engineers.

Probability of asking to get an outrageous price on something or a deal on something else admittedly is less than 100%.

Pobability of getting the same result by not asking?....0%

I think it is fine to speculate.

Pobability of getting the same result by not asking?….0%

Yep.

dear wishful, welcome back maggot fucking confusedrenter, ahhhh whats the matter bunky not getting sufficient traction on craigslist?

Sweet del.icio.us Amerikan capitialism. mmmmm now that's some tasty profits.

tinyurl.com/3ay5dk

I think IT is coming. IT being the recession.

I thought IT was another order of Uni?

I thought IT was another order of Uni?

That is coming too. :)

I still think uni is better cooked.

http://www.freddiemac.com/pmms/pmms30.htm

All, please forgive my "poetic license" but also notice that the late 70's and in fact the entire decade that followed would *not be characterized as an "era of low interest rates"

1978 9.64
1979 11.20
1980 13.74
1982 16.04

I could go on but please to notice that the 30 yr. did not revisit "single digits" until 1991 at 9.25%. Let's keep in mind, these were FRM rates! I can't even talk about c/c and auto loans! So 1977 marked the LAST year of near normal rates and our descent into interest rate HELL! To say that making a major purchase in this environment would have been a "no brainer" is beyond me.

Boomtown Says:

> Anybody find any parallels between Elite College
> admissions/tuition rates and Tier 1 properties in
> coastal cities?

I have said before that the tuition at top schools and the price of homes in top areas should increase more than the tuition at crappy schools and the price of crappy homes but that does not mean that we don’t have a bubble.

In 1976 tuition at the Junior University in Palo Alto was ~$4K
In 1976 Charles Schwab bought a home just north of the University for ~$230K (188 Fair Oaks in Atherton if you want to look it up).

Today the tuition at the Junior University is ~$33K (Up 824%)
Today big homes like Chucks around Fair Oaks are selling for about $12mm (Up 5,217%)

Paul,

That would be correct. The data I posted above is actually annual averages. (And people today complain about a "loan lock"?)

For our ever bullish friend, 1977 was a VERY fortunate entry point. I was in high school at the time but I DO recall parents counselling young couples to *not buy at the time as it would be suicidal! Long term leases were really popular and people worked w/ their LL to make improvements and do decorating. Why? Because we're going to be here for a long, long time! Many renters at the time had verbal/written agreements to actually purchase the home when rates returned to a more normal level.

If they couldn't work with the LL they'd find someone else that would work w/them.

FAB,

I believe that was the year they de-regulated securities commissions (prior to that they were "fixed") ushering in the era of the discounters. I hear he also has a place in MT, ID, CO...

I love reading posts by a JBS'("Jealous bitter seller")

I am soooo frustrated at this point! Why can't I just find a buyer? I am so sick of picking up constantly, for what? Crappy offers and flakey buyers.

Yes, yes I know it's a buyers market these days, and buyers are dictating the market (obviosuly), and it does indeed suck for sellers, but why can't I find just one normal person willing to commit? Can you tell I am getting very bitter about this process?

Replace the words normal person with the word sheep.

History always tends to repeat itself doesn't it. Do you think it's because humans are creatures of habit and we have a short memory? Alot of us still remember the early nineties housing crash in So Cal. Nonetheless it happened again didn't it.

I'm finishing the last of my packing and despite the current market in LA I'm looking forward to establishing and hopefully not miss the bottom. I found this local HB blog in my area.https://www2.blogger.com/comment.g?blogID=4846814498283585105&postID=9203155008180311072

Dude, you really should Trademark (add little “T” here) that little phrase. I think that it is part of the daily chant performed by all true NAR Realwhores. As a matter of fact, I’m thinking they will add it to the bottom of all business cards and on the back of each car they own ….. right next to the gold plated fish.

I think the Realtwhore's have that already on all their contracts in very fine print.

I’m looking forward to establishing and hopefully not miss the bottom.

I think when the bottom finally presents itself, it will stay there for a few years.

http://westsideremeltdown.blogspot.com/

Sorry here it is.

Allah,

I'm counting on it... I'll just rent my 1\1 in W. LA in a rent control zone and wait for wages to catch up or housing to tumble whichever comes first. I've already found the local west side HB blogs and can watch the property values in my hood. I'm five min from Santa Monica, UCLA, and fifteen from Bev Hills. And I didn't pay through the nose either. I was lucky enough to find a gal on craigslist who needed to get out of her lease so I assumed it on the condition I got her old rent. Normally in LA they can raise it to current market value when the former tenant vacates even under rent control. But she negotiated for me she got a place in Santa Monica way under market value and had to move quickly so it worked out for us both.

"The "for sale" signs are in full bloom" LOL!

Ahh yes, the signs of spring!

You have to wonder what a JBS (that's had their place on the market for months/year + price reductions) would say to the "hadn't heard about a "slowdown" crowd?

Especially if they were in the same area or even same block. JBS must really be getting a chuckle when they "get a load of the "new guy"! (Hey honey, that couple w/the blue colonial down at the corner thinks they're going to get____! Pffft if they only knew what they were in for!) :(

What's up with the "Critical Smash" outside of Japantown? I guess blowing off red lights and terrorizing families in minivans will "save the environment"? Sheesh. :(

I took a walk through the area of Mountain View near castro street yesterday to stretch my legs. I saw 8 houses right near where I work who were in the last stages of 'remodel'. I suspect at least 7 of them will be on the market soon.

life is good in Mexifornia

Have some Fajitas. :)

theotherside

I accounted for ALL of your math, but included opportunity costs and holding costs, as well as future value debt service costs, which you slyly omitted.

Why are you scared to make good on your offer to show my model for the fraud you claim? C'mon. Going on 7 months now since that promise.

Do you get it now?

And btw, please quit invoking FAB as if he is chiming in support for you at every turn. theotherside, please ask FAB 2 questions for me:

1. Does he rent and if so why?
2. Does he have an MBA, which you earlier declared are worthless?

Do you get it now?

Most people barely understand rundimentary math much less can build a spreadsheet to model all the details that come into play in financial matters so it's not unexpected they give such simplistic interpretations of data. Especially if their initial answer supports their preconcieved biases. Let's take this 1977 scenario and do a more detailed analysis. If you put in $20K into the S&P500 on 1/1/1977, you would have:

$265K -- if you spent all the dividends
$686K -- if you reinvested the dividends
$1133K -- if you reinvested the dividends and invested the difference between renting and owning

The final calculation, I modelled using a price-rent ratio of 200 and added inflation in based on the T-Bill Rate - 1%. Mortgage + Property Tax (prop13) was locked in at a fixed rate based on a 80K loan (100K house, 20K down). Other home owning costs indexed to inflation.

Looking at the median housing prices in SF, 1.1M looks to outperform the 1977 100K house. A few choice neighborhoods match or exceed this amount. Majority of neighborhoods would lag by 5%-20%.

The final calculation, I modelled using a price-rent ratio of 200 and added inflation in based on the T-Bill Rate - 1%. Mortgage + Property Tax (prop13) was locked in at a fixed rate based on a 80K loan (100K house, 20K down). Other home owning costs indexed to inflation.

Don't forget to factor in the costs of repair and maintainence throughout the owning period if you want more accuracy.

Looking at the median housing prices in SF, 1.1M looks to outperform the 1977 100K house. A few choice neighborhoods match or exceed this amount. Majority of neighborhoods would lag by 5%-20%.

I wouldn't waste my time with median price data, it is practically useless.

Ooops! I meant this link.

I used 1% of house value per year inflation-indexes as the maintenance cost. My personal feeling is that it's way higher than this but then you'd have people fighting over the numbers. But I'll bite anyways -- let's look at improvements and repair. An article in the NY times showed these items as typical work done over a 30-year owning period:

* Two mid-level roof replacements (repair).
* Three exterior paint jobs (repair).
* Two HVAC / furnace systems (repair).
* New kitchen (improvement).
* New bath (improvement).
* Master suite or family room addition (improvement).
* Modest lawn/patio upgrade (improvement).

The article then estimated the total after-inflation cost over 30 years would be about 100%-150% of the original house value. At 100%, prorating the cost over 30 years inflation indexed comes out to $1600 per year. So a fiscally prudent renter who also reinvested the upgrade+repair money into the S&P500 would see an additional $485K.

Now a home owner can claim the upgrades & repairs increased the value of their home. While true, it's already factored into the current housing prices.

I've seen 1%-1.5% as conservative maintenance and repair.

Funny how "theotherside" invoked FAB, who she says "knows what he's talking about" when he clearly thinks that "capex" for home ownership is significantly higher for Bay Area homes. I think his assessment is based on the notion that many homes are aging and neglected, and will require massive upgrades to keep them standing.

@theotherside

I'm waiting on a fax, so I've got the time. Let's engage in a little bit of basic transitive logic, since I "don't get it yet".

F = FAB; R = Randy; T = theOtherSide

F R T
------
Y Y N Believe there is a bubble
Y Y N Believe prices will probably go down nominally
Y N N Believe prices will surely go down nominally
Y Y N Believe renting can be financially superior to buying
Y Y N Believe right now renting is financially superior
Y Y N Believe an advanced degree in business is worth at least something
Y Y N Have such a degree
Y Y N Rent now
Y Y N Believe people who buy now (or at least in past 2 years) will lose $
Y Y N Believe inflation matters
N N Y Believe it's "always a good time to buy"

By my tally, you and I are more in line than you and FAB.

Regardless, since FAB and I are in agreement on so much, and he "knows what he's talking about", and he and I have reconciled our numbers many times over in past threads (flushing out what we disagree on in the process), then I also must know what I'm talking about.

Do you get it now?

TOS
Peter P and Malcolm, my crystal ball tells me that you will be VERY successful in life…

I'm proud of where I've put myself, but it is not an exclusive club, and I love to share/exchange experiences, ideas, and fun debate. It is how those who aspire to be something get there.