patrick.net

StuckinBA,

I won't buy now, the reason? Watch the dollar. USD just breached 1.35 with Euro, lost ground against all major currencies. What does that mean? Whatever cash I have today, if exchanged into an anti-dollar position, I come back in 5 years, I will be buying a much bigger home and better location.

Over the last 5 years, USD depreciated over 50% against Euro, and it is far from being over. I expect CAD, AUD to be at least reaching par with us if not more. Euro is just representing the first wave of currencies to appreciate against us, at some point, the Asian currencies will have to start moving too. Did BA average $200K household become $300K household over the last 5 years? The answer is obviously NO.

That means, the market may have a softer crash due to the currency movement, but the value of BA homes expressed in other currencies or other assets is bound to go down.

For someone with a big chunk of cash, the best strategy is to sit in anti-dollar asset and wait for dollar to crash, then buy the cheap assets expressed in dollar terms. USD is worth a lot more today than in the future, why should I pour my valuable $200K USD@2007 down the drain? I will commit to spend my $200K USD@2011 instead.

Anyone who can spell “loser” correctly is not a looser.

Anyone who gives birth to a kid is certainly looser.

As for 'In the Fortress' more houses are falling into my search criteria (Sub 1mill, 3+ bed) in MV and PA as the time wears on. This may be because of the bounce in listings. It'll be interesting to see how it holds up into the summer and fall.

OO,

Oh yes ... I was just reading at Bloomberg. Nikkei is down over 200 points, Yen is up and USD is at 2 year low.

I am very uncomfortable in putting cash into other currencies. I do have some in MERKX and GLD, but only 5% in all. I was looking at FXA due to the yield. But nothing else. I wish Vanguard had an international bond index fund ;-)

SP :

What investment options do you suggest ? (Not investment advice etc.) But apart from foreign bonds and ETFs (like FXA, FXC) I am not aware of direct currency plays. I did not like those specific currency CDs - forgot which bank was doing it. So I am leaning towards using ETFs like FXA and FXC.

TIA

StuckinBA,

I would recommend GIM (mutual fund version is Templeton Gloabl Income fund), widely spread across a basket of currencies, low management fee (0.8%), actively managed but 0 leverage, current distribution about 5.xx%. I have had it for over 3 years, and have seen the manager actively migrating across different geographical regions to maximize the gain in NAV. This is probably one of the most pure play non-USD high quality sovereign bond funds.

I got it as ETF long time ago, but won't recommend going ETF now, because it is a closed-end fund that is currently going for 6% premium. I never buy any closed-end fund at premium. You can buy the mutual fund at its NAV.

not investment advice.

Anyhow, I’m a little surprised that no one said anything, nice or otherwise, about Kurt Vonnegut.

Human beings will be happier - not when they cure cancer or get to Mars or eliminate racial prejudice or flush Lake Erie but when they find ways to inhabit primitive communities again. That's my utopia.
Kurt Vonnegut

Thought you would appreciate that one DS.

Vonnegut is one of my favorite authors too, but my favorite novel of his is Hocus Pocus, which makes me kind of an oddball.

I would buy this house if it were $1.2M:

http://tinyurl.com/2tuuxp

Unfortunately, it is not.

I would not dump every last penny I owned into a house and hope that everything worked out, no. I would want at least a six month reserve, after the downpayment. Before my daughter was born, I might have been willing to take the risk, as long as I had a plan to rebuild my reserve afterward.

the myth of 'hard work' getting you ahead is only for the working poor being exploited on minimum wages... the rest of us are leading a leisure life, where the higher up you are, the less work you have to do.

astrid, maybe your BF should become a MB. if you can't beat 'em, join 'em :twisted:

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.

Doesn't PITI come out to be about 50% of the combined income? Will it be beef or chicken flavored ramen for dinner tonight?

Thank you all for you kind words for me and for Kurt Vonnegut :)

DS,

Thanks but no thanks. The mortgage brokerage business is collapsing in the US and current business practices are very unsavory. I would rather my boyfriend became a fry cook or a professional gambler than be either a MB or join the military.

No offense to former and current military folks. I have great respect for military people, but the current leadership resemble the British leadership for the Crimean War.

hmm, I wonder if MB is really crashing. And is there such a thing as a reputable, blue chip MB? Apart from expansion/contraction in MB jobs due to the boom/bust cycle, you would find there is always scope to write loans to folks -- even in a downmarket, people are still buying houses, just paying a bit less than last year. Same for RE agents, the gordon gecko days are over, but houses are still going to be sold...

DS,

Fair enough, there are good people in every field but that's no reason to enter a field that is generally speaking, an ethically dubious bust.

Randy H,

You're aware of course the liklihood that B. Gross would admit his monthly newsletter was a "knock-off" are just about nil, right? :(

"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 ?"

Our income is higher than that and we have a similar down payment. I cannot even imagine paying $1.3 million for a house (especially for what it buys you in the Bay Area).

"No offense to former and current military folks. I have great respect for military people, but the current leadership resemble the British leadership for the Crimean War. "

You are correct, Astrid. Unfortunately, the only way the generals who are primarily politically skilled get replaced in favor of more qualified leadership is through a major war. That's when the fops get fired and the passed over majors get battlefield promotions.

Today a General who wants a policy of all first term combat troops to be single would be replaced by a General who would emphasis full time day care, plus maternity and paternity leave.

Headset,

I never take offense to any comments that might be seen as less than flattering to military personnel at all. You see, I had MY OWN Navy! :)

All you had to do was make your division officer and dept. head look good and you could literally get away w/murder. Just jump through the hopes from time to time and make sure that none of your guys ever got an article 15 (by whatever means available) and you were golden. I've even had several DO's that came right out and said it!

hoops?

justme,

Aptitude?

DinOR

I'm not going to take a "I want credit" approach with Mr. Gross. I figured I'd hit him up for a job as his economic strategist, or maybe just some consulting work.

Prospecting, prospecting, prospecting. I'm sure you know the drill.

DinOR,

Your own Navy, cool. Is this a reference to the "McHale's Navy"?

I bet the "murder" you got away with would be interesting to hear about.

Negative comments about the military do not bug me either, especially if they concern the Navy. All kidding aside, you gotta admire folks who can crash and dash from carriers, go to sea for months at at time, or cruise undersea for similar long periods.

What abut the genetic study of random blood samples that indicated that 11% of children born ino marriage are not he offspring of the husband? Seems that a lot of these reformed women still have a stud(*) on the side.

It makes perfect sense. A woman wants a man who can invest a lot in her child, so marries a man who can and will do that. She also wants an attractive child so she will happily get knocked up by the handsome rouge and let the husband invest in the child.

Note, by 'wants' in this case I mean 'finds it likely to increase the odds of her genes hitting the next generation' and not in any coldly conscious calculating way.

"It makes perfect sense. A woman wants a man who can invest a lot in her child, so marries a man who can and will do that. She also wants an attractive child so she will happily get knocked up by the handsome rouge and let the husband invest in the child."

I wondered why some some ugly guys have attractive kids

I think your numbers are wrong TOS, in a couple of ways:

On $1.1:

Mortgage @ 6% - $6600
Taxes - $1300
Insurance - $500

That gives me $8400, not $12,5k. Also, the tax rate for that couple should be 40%, not 30%, at least in California. Though that couple is probably paying AMT, so they can't deduct their taxes, just the Interest. Furthermore, only the first $1M of the mortgage is deductable at all.

But yeah, that leaves them with $5/mo after taxes to live on, which is plenty. But it leaves no margin for error, if one of them loses a job or something. I have made this argument before, that higher earners can pay a larger proportion of their incomes on their mortgage. You can imagine the reception I got here. But I think that is what most people are doing, certainly newer buyers.

lunarpark said:
I cannot even imagine paying $1.3 million for a house (especially for what it buys you in the Bay Area).

Well, that is why you are not buying a house here, right?

Randy,

You never answered my question about the Berkeley MFE program. What do you think of it and its graduates?

Yeah, except you can't rent a $1.3M home for $2000/mo. $3000 is more like it. I asked you show me examples a few threads back and you couldn't do it. You said you know someone that has that deal and I accept that, but that is not the market rate.

Jimbo

Sorry, I thought I had answered. Maybe it was one of those I hit submit and got a timeout. Comcast cable sometimes really sucks.

I think highly of the MFE program at Berkeley. It's probably the best or one of the best (there are only a handful so far) programs in the world.

My warning is to be sure it's right for you, and will help you by returning what you think it will for your career. My opinions of the positives and negatives:

+ MFE skills are in extreme demand right now, and likely to remain in demand for a number of years to come.

+ MFE skills are starting to become coveted outside of traditional finance by larger multinational corps with complex financial requirements (companies with lots of currency concerns, etc.).

- MFE is new, and a lot of grey hair bosses don't know what it is or the value of it.

- MFE is new and not yet worked its way into the consciousness of recruiters.

+ Executive recruiters in the finance industry know about MFEs and increasingly search specifically for the degree.

+/- It's not an MBA (even a focused finance MBA). Minus if you want to be more well rounded and you don't already have an MBA or equivalent management experience + a BSBA. Plus if you don't want to be a manager, but instead a superwonk.

- Superwonk = Technical Contributor which is always at some risk of eventual mass-panic offshoring, like happened to programmers.

+ It probably will not ever become a large enough field in and of itself to attract the kind of mass university education that attacked software and hardware engineering. For example, most quant finance software programming jobs are still in the US, and those that went offshore quickly came back.

+ Since it's officially in the world of High Finance, it's very likely it will enjoy certifications. Certifications are a big barrier to rapid offshoring or other dislocation.

Make sure you *really* like complex math (and statistics). It's the same kind of math a quantum physicists do, only intensely focused on a very narrow range of application. You should also have some interest in the computer sciencey stuff that overlaps like neural networks, Bayesian networks, genetic algorithms, and evolutionary computing. I don't actually know too many MFEs, but the one's I do know have to "code" a lot of their own models. Not like writing big server apps, but more like writing hyper complicated macros in Mathematica kinds of stuff.

I agree with you and that why I clearly hedged my bet in my post (by using “?” and “may”)

You left too much gamma unhedged. :)

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 ?

With 200K down, you will be left with a 1.1M loan. Can 200K income support 1.1M debt?

200K may have difficulties with a loan of more than 600K? (I am hedging ToS style)

You cannot rent a $2k/mo home which is directly comparable to a $1.3m home. I'd say $3k/mo minimum; more like a range from $3.5k/mo-$4.5k/mo.

Keep in mind there is one big qualitative differentiator: condition of the home.

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.

Even if the owner is a smart landlord and keeps the roof patched, the garage door working, and the pipes from leaking, after 10-15 years as a rental the house will be *distinctly* different than an identical home next door which is owner occupied.

Examples are replacements of things such as microwaves, dishwashers, efficiency-related maintenance of HVAC, fixing broken sprinklers requiring digging up pipes, tree trimming, pest control, the list goes on. Again, not big things, but part of the equation for most people in real life. My current situation: I'm not asking for a Miele dishwasher, but the 35 year old rusted monster that costs 10x a nice Whirlpool to operate, and is louder than a A380 on takeoff from ORLY which the landlord says "Is just fine" grates on me every single day.

Randy, how much is an MFE?

I am at a crossroad right now. Stars are telling me to make a leap.

My wife and I are in about the same boat as the 200k + 200k.

She balks at the idea of paying 3k rent, but smiles at the thought of a 1mil house. :D

We're paying 2.1k for a 2-bed apartment with no yard for the dogs, and she's unhappy. We've agreed to move into a rental SFH or town house with a rent of

Huh, lost half a post up there.... anyway, we're moving to someplace with a rent of

A 1M house with 200K down requires a monthly PITI of about 6K.

At 3000/month rent, you can afford to rent two apartments. :) (Perhaps a vacation "second rental")

*slaps self*
Rent of less than 3k a month. I will not use the 'lesser than' sign on a place that parses for HTML anymore. SHAME ON ME! Anyway, being in the 200x200 situation, we've decided we need to find a place we can tolerate (preferrably like) to rent for the long haul while being able to save more towards a down payment while we watch the market to see what it's up to.

Use &lt; instead of <

SFBubbleBuyer: don't use the angled-bracket greater/lesser than, the blog thinks it's an HTML tag.

By comparison for some perspective:

My wife and I had around $250K/yr combined salary in 1996, when we bought into the Bay Area. That salary plus $75K bought us into a $365K home in Redwood City. We wanted Menlo Park, but there the same house would've been $650K (I refer to my earlier discussion about how non-prime areas like RWC have risen to close the gap with places like Menlo, which is clearly not justified or sustainable).

Anyway, we felt that servicing a $290K debt, which was a Jumbo back then, at 8.25%/yr 30yr fixed was a risky proposition and depended heavily upon our ability to grow our incomes substantially over the next 10 years. We had a hard time qualifying because I was categorized as self-employed, and I had the higher salary in those days.

We did grow our incomes, but that was rendered irrelevant by the fact those homes now sell for ~$1.0m.

But think for a moment. We had trouble qualifying for a $290K first loan 30yr fixed to buy a $365K house, with $250K/yr in income, and that was just over 10 years ago.

We've come a long way (in the wrong direction). If even a quarter of that rigor was reapplied to mortgage lending, houses would drop by 50% in 6 months.

SFBB,

Sounds like a great compromise. If your wife is happy with your rental, she may no longer worry so much about owning.

My mom hated her first rental after my parents sold their home, and consequently, she kept regretting the niceness of her old home. She's been extremely happy with her current rental and now would be happy to rent for the rest of her life.