patrick.net

Jimbo

The long-term rate over the past century for housing, nationally averaged, is just a tiny fraction above 0%. That's right, after adjusting for inflation, housing has not appreciated even 1% faster.

CA has appreciated more, but not much more being the substantial gains only came in the past 3 decades. I think it's about 1.0-1.5% above inflation, but I'll find the reference later (again; we've linked all this before in the past 2 years).

If you take the 70s until present then you get under 3% appreciation after inflation. Under 5% in CA. But, as many will point out, the dataset for this shorter period CLEARLY shows the past 3 years as extraordinary outliers. So much so that were this any other kind of statistical data set we'd apply some kind of smoothing function, or eliminate the values from the set altogether (which we cannot do until after we revert to mean, of course).

I'll bet the 70s - 2015 end up showing about 1% nationally and 3-3.5% in CA, after inflation -- and that is a very generous estimate.

Jimbo,

just lock down your rate. If you have locked down a low rate for 30 years, then I think you have greatly minimized your downside. Everyone's situation is different, so one should play his card according to his advantage. What you are doing is actually borrowing only $320K, because the other half of the mortgage is self-sustainable through rental income, so that gives you only a 2.3x HH income debt load, which is so much better than many newly-minted FBs.

Jimbo:

I kinda agree with what you say. While I believe that housing prices in AZ will decline drastically, I am not selling my last 2 homes. ( 3 years ago I had 5) One, I need a place to live, and i know yadda yadda i could sell it and invest the money even at 5% and rent the same house, BUT IT IS NOT THE SAME. I don't want to move, as an owner I can do whatever i please to the home, I have 2 big dogs which makes renting a bit problematic anyways, and since I own the place I put a hottub behind it where I can get drunk on red wine whenever I want... the other property is paid off too, centrally located and the rents seem to be increasing nicely now that gasoline is too expensive for people to drive in from the burbs...

Looking at the development of phoenix, I think that a drastic change in the oil outlook could seriously disrupt our current rent/price structure. Both of my remaining homes are centrally located, near ASU, and within one mile of the long over due light rail stations. So, even if PHX takes a 50% inflation adjusted hit, it may not be evenly distributed, and long term, these 2 may do much better than most. Hell if it really drops alot, I will buy more.
Peace all

Mmmmm, Statricks...sounds like a delicious faux math filled sugary cereal.

(again; we’ve linked all this before in the past 2 years).

Sorry if I am asking something that has been covered before. I have read the blog here on and off for a long time, but not religously and probably missed it. I will try to Google for it, but have not had much luck with finding stuff on Patrick's in the past.

Yes, I am aware that recent events are an outlier, which is why I am asking for data through 2000 specifically to exclude the most recent runup.

Real estate benefits from two factors: discovery factor (which is the biggest driver of real estate appreciation), and inflation.

CA benefits the most from the discovery factor in the last 30 years. Now we are fully discovered and world's #1 in many aspects, there's not much appreciation potential left in that bracket. CA housing will only appreciate in line with inflation for the next 30 years.

SP: Human beings like to convince themselves of clear evidence. Interestingly, this blog is often divided among two circles. The first is the true statisticians who are studying the overall trend from a historical perspective. The second is people trying to divine an opportune moment from an individual perspective.

Like a Venn diagram, these two circles heavily overlap on patrick.net. But I am always interested in the possibility that there is significant personal gain to be had, even though the major trends are against me. Perhaps we should have more threads on how to spot an opportunity, the proverbial needle in a haystack. We've beaten regression to mean into the ground.

:o

Avoiding exposure to an overpriced asset class is not a conservative strategy, but a survival strategy. Especially so when the liquidity that inflated the asset’s price is being withdrawn.

Don't get me wrong, I am not advocating buying real estate right now, I think it is headed for a tumble too, though a slower and slighter one than most posters. I *do* advocate taking appropriate risks overall, in the stock market, bonds, etc.

completely OT, but I went to a speech night by 2 social democrats and a marxist last night, all truly brilliant individuals. this is a page of transcripts and other speeches by one of them, winton higgins, and others, as listed.

reading anything by winton is quite inspirational, and should give any unreflexive 'received wisdom' market fundamentalist food for thought.

Transcripts of Talks

Even more OT, I really liked this Norman Mailer interview and Mailer's interpretation of bureaucratic hell (literally)

http://www.kcrw.com/etc/programs/bw/bw070412norman_mailer_part_i

If you go to the OFHEO web site you can get the rise in prices for California and for other big cities in California. However most of this data starts around 1976.

We could use logic to guess the price growth in the 1950s and 1960s. During those decades many people from the Midwest moved to California. The prices in California could not have been much higher than in the mid-west otherwise people would not have migrated west. In addition this was before the environmental movement and there were few restrictions on building. Also homes were built at a very high rate so the supply is likely to have kept up with demand keeping prices reasonable.

However since 1976 prices have increased at a faster rate than most other states. At the city level, the fastest growing prices have been in the ay Area with the number one city being San Jose. In fact, San Jose beat both San Francisco and New York City. This is because San Jose was transformed from orange groves to the technology capital of the world.

If you want to buy in the number one growing city over the next thirty years find the wheat field, cattle farm or orchard that will become the nano-tech or bio-tech capital of the world. It is also likely to be near a top university. It is unlikely to be San Jose or New York City as both are priced for perfection. It will be next to impossible for them to maintain their leadership position over thirty years and even if they do prices will not rise as much as the currently small city that will be a leading city.

- Il Fornaio: overrated, bland food
- Bucca de Beppo: chain store quality
- Rose Pistola: overrated, flavorless
- Kuleto’s: bland, feels like a “Cheesecake Factory” inside

La Strada is usually okay. Quattro (East Palo Alto) has good warm seafood salad. Lavanda usually has pretty good pasta.

s/night/last night/

(haven't used vi for > 10 years, is that correct?)

Anyone tried Lupa in NY? It was pretty good.

Actually, I just had La Strada tonight. The spaghetti with prawns was pretty good. The heads of the prawns were quite tasty.

Again, many restaurants in the Bay Area are not as consistent as I would like.

Here are a few pretty good restaurants in the boring South Bay:

Alexander's Steakhouse (Valco Mall, Cupertino)
Sawa Sushi (some strip mall, Sunnyvale)
Nami Nami (Kyoto style food. Castro St, Mountain View)

I don't go to high end restaurants much, so I can't really comment on the Italian food, but La Chicchia, just around the corner from my house, is very good Sardinian food. Incanto is good, but kind of pricey to me.

I like Sardinian food. :)

Bap33 Says:
April 13th, 2007 at 7:47 pm
"Malcom, just to make sure, didn’t we mexifornians pass prop 187 in the same fasion?? "

Yes, both were initiatives put on the ballot by the petition process of the current state constitution. As a refresher, prop 187 somehow was in court and ruled unconstitutional almost the next day. How that happened I'll never know, since normally a judge needs an actual case to rule on something; not the ACLU convincing a pocket judge beforehand.

I wonder if FEMA will buy more trailers for the homeless FBs.

Perhaps we should have more threads on how to spot an opportunity, the proverbial needle in a haystack. We’ve beaten regression to mean into the ground.

go for foreclosures. spend $5,000 on a 'how to buy foreclosures' course/seminar/bootcamp from a guru who is 'trading every day', hah. or buy a book or two from john t. reed for $24.95 at www.johntreed.com (not a plug, just trying to save you $4,975...). he actually has a series of books in fact...

go hard!!!

A lawyer jumped off the Emprie State Building. I wonder if he was one of those wannabe high rollers who just opened his statement on his ARM loan. These kinds of incidents and rising crime are my biggest fears in all of this.

A lawyer jumped off the Emprie State Building.

I hope he bounced a few times on the way down.

Don't know how respectable this journal is, but the facts are pretty much correct.

http://pn.psychiatryonline.org/cgi/content/full/40/5/28-a

From the mid-1980s to the mid-1990s, Hong Kong experienced a breathtaking economic "upper," or as Alan Greenspan would say, "an era of irrational exuberance," where properties increased 600 percent in value and the stock market soared over 400 percent.

In 1997, however, as Britain handed control of Hong Kong over to China, Hong Kong plunged into a severe, unexpected recession, accompanied by psychological repercussions. Between 1998 and 2000, more and more Hong Kong residents killed themselves, and many used a novel tool to achieve it—carbon-monoxide poisoning created by burning a charcoal grill in a small, sealed room.

Between 1998 and 2000, more and more Hong Kong residents killed themselves, and many used a novel tool to achieve it—carbon-monoxide poisoning created by burning a charcoal grill in a small, sealed room.

Are you sure they were not trying to make yakitori? If my mortgage was upside down I would surely want some grilled chicken.

interestingly enough, Hong Kong's real estate bubble had not played itself out at that time. Real estate had just turned negative, but did not hit bottom to 2003. If you thinkg the usa has the worst housing bubble, I invite you to compare price to rent in Hong kong, Shanghai, Beijing, or even Bangkok.

Maybe the strawberry picker could get financing for this fixer-upper (on 5.87 hectares which is about 15 acres).

http://www.propertylook.com.au/listing/default.asp?lk=80093

(And I'll admit I do expect that site to fetch beaucoup, beucoup bucks.)

I thought 'La Raza' was Wolfowitz's girlfriend that he organised the big pay rise for. She would just about be able to afford $725K.

If you thinkg the usa has the worst housing bubble, I invite you to compare price to rent in Hong kong, Shanghai, Beijing, or even Bangkok.

AFAIK rent in Hong Kong is not cheap. My friend told me a decent apartment costs $5000+ / month.

Huh? My uncle in Shanghai rented out a flat for 2000 RMB that he sold in 2006 for 700K RMB. It's really hard to find decent places in Shanghai though, you either go ultra high end or really low end.

ajh,

She was paid nearly $200K after taxes or equivalent of $400K pretax.

@ randy

please think this over and tell me if it's plausible

all of us for free log onto 2nd life and get reborned
then you tell us where we should all meet as a group
since cbanker won't sell to you, perhaps 1 of us could buy a cheap home in their development
then all of us could teleport there and move in
we could assemble and hang out and drink kool aide
then you could direct our group activities and we could assemble like the upcoming immigrant march in may
or just hang out where newbies come into the linden village and just be pests perhaps like krishna's panhandeling?
we would be like a cult with you our leader
you speak german which would be helpful
also would be like LOST which alot of people hear claim to watch
kind of like the hippie days in the 60's but utulizing the lindens platform for a revolution of sorts

thought i would throw this out and am interested in the brilliant collaborators here to pick it up to perhaps having a great deal of fun with it as it seems to be a better use of time then reading about some strayberry picker or eating where they treat you as a dsyfuntional family

can you picture your avatar leading a group of 50 avatars into coldwell banker's virtual office ??

OO Says:

> A $160K household on this blog will consider themselves
> losers and wonder how they get by for the rest of their lives.

When I used to caddy as a kid I used to look at the home in the video below and think if I worked real hard I could buy it some day. Over the years I’ve mentioned wanting to buy that specific home and after all these years there is still no home in the Bay Area that I would rather own. A friend (who bought a tiny $1mm+ Burlingame home from Anne Riley) sent me the video.

At the current $18.8mm list price $160K will cover about ¾ of the annual property tax bill. If I bought a more modest home near my parents for 1/3 the cost I would not have enough cash to pay the property tax and maintain the home with my after tax take home pay if I made $160K. A Gross salary of about $300K will just about cover the tax bill every year…

http://www.anneriley.com/annes-listings.php?show=all

I second FAB's idea.

Maybe we should make it a criminal cult. Racketeering, extortion, rape, pillage, all that. Would that be plausible?

Jimbo Says:

> I agree that people who post here are too conservative
> investors. I am pretty sure that I am the most aggressive
> investor of them all, or at least amongst those who talk
> about the financial risks they take. You should take more
> risk when you are young, when you have more time to
> catch up to recover from your mistakes. I lost half my net
> worth in the dot com crash, but I recovered it all in a couple
> of years.

Not many people would describe me as a conservative investor especially since when after losing my life savings buying apartments I bought a couple more (pile of crap) apartments less than 10 years later.

The one thing I learned the first time is that (unlike what the gurus tell you) is that buying investment real estate without a lot of cash is a bad idea (even a worse idea if you don’t have a lot of cash and you have a 100% commission sales job tied to real estate).

There are good deals in any market (if you have a plan) and I actually thought we were closer to the top when I bought in Sacramento a few years ago. In the first year when I was evicting a lot of people I carried pepper spray in one pocket and my Derringer in the other every time I was at the property.

P.S. If the NASDAQ peaked at ~4500 and was down to ~1500 two years after the peak how did you recover so fast (my net worth peaked in ~1992 it took me over 10 years to “recover” and start moving higher)?

azrob Says:

...I believe that housing prices in AZ will decline drastically, I am not selling my last 2 homes...So, even if PHX takes a 50% inflation adjusted hit, it may not be evenly distributed...I will buy more...

Peace all
_____

Peace out, bro!

Umm, I'm in Phoenix. The NW valley.

Phoenix is expanding like Pam Anderson's bosoms under an arc light: People are pouring in here like strawberries on a shortcake (what, 100K people per year?); however, that 50% adjusted-for-inflation number doesn't seem that wacky, since houses exploded upwards in price in the summer of 2004.

You know, thousands of jobs are being created here each year, but 93% of them (I heard this on the news) are service industry related and pay in the $8-$13 an hour range.

Woe unto the inhabitants of this hot, hot desert!

I wonder if FEMA will buy more trailers for the homeless FBs.

Katrina cottages! Same cost, but a real little home. The humility would do them good! :)

If I recall, FAB utilizes one or more hedge funds. That is hardly conservative investing. Actually, I think a large portion of us here are far more aggressive in our investing than average retail investors. Just look how many here deploy options strategies.

Bruceb

I actually like your idea, though I'm not sure about the whole cult-leader part. But if there were ever a group of folks who could run the table it would be us here at Patrick.net. All it would take is about 50-75 of us willing to be active maybe once or twice a week, and we could move in and cause havoc with the whole cartoon "land" market. For example, one of the more nefarious ways to buy land is to intentionally devalue valuable land, then buy it and repackage it for sale to other clueless fools. To do this you either need unlimited money you're willing to risk, or a good sized group of collaborators.

Of course we could also just be a pain-in-the-ass group that would grab a fair amount of media attention from time to time. I'm not sure what that would accomplish besides a bit of dark side schadenfreude. But in that case I would propose something completely satirical and provoking like creating a Cult of the JBR, where we go around begging and trying to get L$ so we can afford to someday buy real homes in the real world. But then as satire we would make sure we own a lavish Second Life island and castle estate fully appointed with virtual servants and virtual concubines.

I think gentrification is a very risky, longterm bet.

I was the one who brought up this topic originally. Maybe it would be a good thread topic sometime?

Anyway, my observations are based on a few areas around the country that I've seen firsthand change significantly in the past 20 years. Around the Bay Area, Jon's right about Emeryville - a perfect example of local government "forced" gentrification that hasn't worked out quite as planned.

In SF, I'd bring up as examples of gentrified or gentrification-in-progress areas as Noe Valley and Protrero Hill, respectively. In NYC, the examples are too numerous to count. In Manhattan, there's Soho (going back to the 70's), more recently Tribeca, parts of the East Village, Meatpacking district. In Brooklyn, there's (older time) Brooklyn Heights, Park Slope, and more recently DUMBO. In Boston, the South End, Jamaica Plain, Charlestown come to mind. There are many areas in these cities in the "midst" of gentrifying, where housing is overpriced beyond the level of gentrification IMO, that will suffer greatly during the downturn.

Just look how many here deploy options strategies.

Some options strategies are not more aggressive than buy-and-hope.

Not investment advice