patrick.net

So I have a question for Patrick.net bloggers. If you were earning around 200K, had 200K in down payment, would you buy a 1.3M house ?

In my company of 500 people we only have 8 people making 200K and above.

Many more are making 85-100K... the least paid has 10years of experience. Even so, a persons salary does not add value to a overpriced home. What your seeing is Wage Inflation, the same wage inflation we had back in the early 70s.

skibum

I think some of that will happen. I can only speak from experience about RWC, and comparatively say Menlo, San Carlos and Belmont, the latter where I also owned a home.

It's true there's been a big turnover of basically retirees and a few ill-maintained stucco s-boxes in the past 10 years to college educated professionals. This is good for the area. In fact, the grade school in that particular RWC neighborhood was of the top ranked of all CA grade schools a couple of the past 10 years.

But the high school is a war zone. And the population of the non-prime RWC has grown much much faster than the population of neo-prime RWC. This forces young families into private schools, increasingly much sooner because of competition (existing students get priority), thereby guaranteeing the high school stays broken.

Comparatively, San Carlos and Belmont have been much more specific about subtly and purposefully gentrifying themselves. They discourage growth in the non-prime areas with zoning, but suddenly become looser on zoning when a redevelopment comes in. RWC recently voted down a huge redevelopment effort which probably ensures for the next 20 years no major will want to move in and undertake any large projects.

You can't have a prime area in a diverse town like RWC without a reasonable middle class. All I've seen happen there is a growing barbell.

Space Acer, for a family, 2 x 100K = 200K.

Randy,

Yes, but $50 would be manageable compared to twice that much (for Boalt, UVA, or UMich law degree) or three times as much (for a Harvard, Yale, or Stanford law degree).

A greater concern to me is how crowded and stifling the law school career path happens to be. A smart person with a finance or engineering degree do lots of interesting things with his or her degree/skill/experience and jump into a totally different career if the current one is not to their liking. With a law degree, if you want to make good money you pretty much have to make partner.

It takes just a few non-belongers to ruin an area. If prop 13 stays, it is going to take decades to flush out bad elements.

Comparatively, San Carlos and Belmont have been much more specific about subtly and purposefully gentrifying themselves. They discourage growth in the non-prime areas with zoning, but suddenly become looser on zoning when a redevelopment comes in.

Yeah, I basically agree with you. Anectodally, in San Carlos and Belmont, for example, peri-El Camino appears pretty stagnant, while I continually see new McMansions being put up (both tear-downs and infills) up in the hills closer to 280.

Also, I want to encourage some diversification. His sister is engaged to a lawyer (and have voiced interest in law school on several occasions) and his brother's liberal arts degree will probably eventually land him law school (provided he doesn't get blown up in Iraq or Afganistan or Iran first).

astrid, looks like MFE is a good deal for your boyfriend then.

TOS is certainly listening more, a very positive sign.

I wonder what kind of income mix makes for the most stable marriages? Would 2x$100K > $150K+$50K? would $200K > $160K+$40K?

astrid

I agree, except that I think there are more options open to those holding law degrees too. Many IP attorneys do quite well in the corporate world. I went to B-School with one who made quite a bundle riding through a couple biotech acquisitions. If anything, IP law will become more contentious in the next decade.

I wonder what kind of income mix makes for the most stable marriages?

Interesting. I think 2x 100K and 200K + 0K are all good candidates.

With a law degree, if you want to make good money you pretty much have to make partner.

astrid,

When you say good money in the law partnership context, you're talking about significant multiples of HaHa's at the expense of losing your soul and lifeblood. Many shoot for this, obviously few get it, and those who do often seem miserable. As you probably know, a huge (probably majority) of associates at big law firms end up bailing and going into other avenues, many of which make perfectly good, if not great salaries. In house counsel is popular, especially for tech/science background IP types, and if you look at the rosters of investment houses, many, many of their army are JDs (not that the lifestyle there is much better). Bottom line, there are options other than the shoot-for-partnership up or out track.

How about environmental law?

I once thought of going that route. Corporations need environmental lawer to combat increasing draconian regulations.

RE: eternal winter

The global warming crowd has been very quiet lately.

skibum,

My understanding is that most in-house counsels make 1-2 Ha Has. I work in a pretty fancy law firm and have been around long enough to see some interesting personnel changes, I get the sense that in-house counsel positions are highly coveted and not particularly easy to get.

Peter P,

You've described Environmental Law as it is practiced around my firm. Remember that huge multinational firms need defenders too :)

Space Acer, for a family, 2 x 100K = 200K.

Long term I dont see this!

And after you have a kid or two???
It drops down to 1x100K = 100K
I see plenty of women who drop out
to raise a family.

You’ve described Environmental Law as it is practiced around my firm. Remember that huge multinational firms need defenders too

Yes. Even China has strict environmental laws.

newsfreak,

Please do click on my name and have a look at my seed list. I can't believe it's mid April already.

He could specialize in windmills like Don Quixote.

LOL :lol:

If he goes to Sedona and experiences a harmonic convergence,
he will have special powers.

You mean the vortex experience?

This is so funny though, we're talking about my boyfriend as though he's a 2 year old Chinese adopted baby. Good thing he never reads this blog.

Maybe he's really Daniellynn's daddy.

skibum Says:

> We’ve made an assumption that homes in “subprime areas”
> like RWC have increased in value to come absurdly close in
> price to “prime” areas, and this is silly, unsustainable, and
> bound to revert to historical norms. What if this trend doesn’t
> revert? Many (but certainly not all) of the people buying these
> $1M stucco boxes are usually educated, make at least BA
> median household income, and would have preferred buying
> in Menlo Park, Palo Alto, Los Altos, whatever. Say these folks
> stay in RWC (or wherever) and permanently change the
> demographics of the place. Won’t this essentially be a “forced”
> gentrification of these areas?

As a student of real estate I have never heard of an area that changed from a bad area to a good area without the use of “eminent domain” where the government forcibly removes large numbers of poor people. Can anyone name an area that changed from “bad” aka “scary” “gang infested” that changed without government intervention?

> I’ve already noticed this has happened in places like San
> Carlos and others.

San Carlos (and Belmont and Burlingame) have gotten “better” and “richer” in the last 10 years but there were never any “bad” areas in the cities ever.

P.S. Big business likes close in poor areas (since they like low paid employees to have a place to live). Every time politicians try and “clean up” an area nothing really happens. The parts of town that were bad areas (like the Tenderloin and 6th street between Market and Mission) in the 1940’s when my parents were little kids are still bad areas…

P.P.S. Of course I may be wrong and “since they are not making any more land” we might see 1,200 sf homes in Redwood City East of the tracks selling for $2mm by 2010…

This is so funny though, we’re talking about my boyfriend as though he’s a 2 year old Chinese adopted baby. Good thing he never reads this blog.

You have said nothing negative about your boyfriend yet.

@astrid,

I'm late to the party, but Kurt Vonnegut was also one of my favorite authors. I did a paper on him in H.S. and used a "Kilgore Trout" dystopia from Breakfast of Champions as my inspiration for Jurassic Popsicle.

If you folks are bored, there's this fun thread today:

http:/s.fark.com/cgi/fark/comments.pl?IDLink=2737347

"P.P.S. Of course I may be wrong and “since they are not making any more land” we might see 1,200 sf homes in Redwood City East of the tracks selling for $2mm by 2010… "

LOL, Sarcasm im sure! Not going to happen..No one, No one I knew from the 70s to today would ever ever make that statement. Infact many even back 30 years ago said ... "there not making land anymore" ... they were proven wrong. East side will never see $2M as with othe $1M Peninsula homes will decline in value to half their valuel returning to equilibrium.

CB Says:
April 13th, 2007 at 1:06 am
"So I have a question for Patrick.net bloggers. If you were earning around 200K, had 200K in down payment, would you buy a 1.3M house ? Because someone I know just did. If you run the numbers, they can afford it
The can’t afford it even if there is no housing bubble."

Loan would be about 1.1m with total mo/pmt of no more than 9,000/mo for everything on a 30 fxed.

200K is about 120K after taxes, which is 10K per month.

They can't come close to affording the house. They should qualify for something half as much.

Didn't someone provide evidence about a year ago (FAB maybe, or Robert Cote') that actually the ratio of units to residents had actually increased over the past 25 years. Thus, they actually are making more land, if by "land" you mean "ownable, occupiable real property".

Unless you’re renting a short-term situation from an absent owner who intends to reoccupy the home later (usually ex-pat situations), the house you end up renting is inevitably not nearly as well maintained, upgraded, or cared about as would a home you owned yourself.

It's hard to argue with this if you've ever gone rental-hunting in CA in the last 20 years or so, but I can tell you that this is not necessarily the case elsewhere. When I rented in Atlanta, I had no trouble finding brand-new apartments of townhomes with all-new built-ins, central air, nice kitchens and immaculate landscaping. I often visit relatives in North Carolina, Alabama, and Florida, and can tell you rental properties there are far better maintained as well.

Come to think of it, are most mortgaged stucco sh*tboxes in CA all that well maintained either? I've seen quite a few houses for sale all over LA County that were in serious disrepair, dilapidated (one literally falling off its foundation), and badly in need of appliance upgrades. Add to that, the fact a lot of new "owners" are so seriously strapped for cash, they will not be performing much maintenance for a long time to come.

Are rentals generally worse maintained than "owned' houses on average? Probably yes. However, I would not assume the difference is as large as you may think it is.

I've taken the Tube Worm conversation from "Cat's Cradle" as my own personal mantra over the years- its very simple and its never let me down.

Basically "up-diddly-up-dee-UP!" and "Down-diddy-downy-down-DOWN"

A tuebworm's life is simple, and I aspire to it.

Thank you, Kurt Vonnegut. Have fun in Tralfamadore.

So our $300K/yr, $365K house, 8.25% 30yr, $75K down scenario had us at about 10% PITI to gross income, but we had troubles qualifying even with ultra high credit scores in 1996 because:

a) I was categorized self employed which implied another 10% PITI/Income in the eyes of the underwriter.
b) We had a non conforming loan since $250K was jumbo.
c) We had moved too frequently in the previous 5 years (rented twice in short succession after moving to BA from Chicago).

Standards were so tight then that we were evaluated as if we were at about 22% PITI to Gross, which was in the usual range back then. Over 25% was considered risky. 28% was a "you're crazy, but if you really think so" maximum.

I was buying in 1996 and I remember just being grinded to demonstrate total debt to income under 35% front end 40% back end. It was not easy back then.

A surplus of money due to low interest rates. Investors had to move more and more money into markets they deemed safe to earn a normal rate of return on portfolios. There is still more money out there than deals to place them in and it is getting worse. You will not see dramatic interest rate increases until this glut goes away.

HARM,

That's a good point and cannot just be captured using rent to buy ratios. The apartments that I have rented till now were in big complexes owned by corporations, and have always been very well maintained.

The homes I saw during open houses were often times in extremely bad condition. When they say 50 year hold house, sometimes everything in the house is 50 year old - including carpet and appliances.

The decreases in living standard - when moving from a rental to a sh1tbox is often ignored in arguments over cost of owning. No one adds the cost of necessary changes to the purchase price.

28% was a “you’re crazy, but if you really think so” maximum.

Now that number is 82%.

28% is a “you’re crazy, but if you are that cheap” minimum.

Astrid, the Berkeley MFE program is only one year long and the tuition cost is $40k. I am glad to see that Randy agrees with me that this is an attractive option as it was one that I seriously looked it.

I decided to go the IT management route myself and may end up getting an MBA or MIS instead.

@HARM,

So true. The supposed disparity between the conditions of rental homes and owner homes isn't as broad as many imagine. How many times have we looked at homes on the market and you're trying not to be hyper-critical and at some point you just have to wonder to yourself, "I find it hard to believe that any female would live here?"

I mean yeah, I could see some frat or biker buddies but a WOMAN? What kind of woman would put up with this!?!

Jon,

Excellent! LOL!

I'll be watching the Edgar Filings for your "10-Q" and "10-K"!

Good for you man!