patrick.net

I'm predicting the other side we will see within the next 2 years.
and that will be when house prices AND rents start to go up.

What I'm most interested in is which one will rise faster than the other. My guess is that house prices see the more dramatic increase.
I'm curious to see how this site evolves to explain that one but I suspect is we'll start over again with Bubble Part II.

I buy a house tomorrow, my monthly payment (PITI) is probably 2x as much as my rent is today but 1) the house is close to 2x as large and 2) to rent the same thing would mean I would pay 1.8x I do now, due to the larger space. In a case like this, the premium for owning is acceptable to me.

The concept that you “should not buy unless it costs less than rent an equivalent property” is an invalid argument.

these two lines are confusing.

maybe you could clarify.

toothfairy says

I’m predicting the other side we will see within the next 2 years.

and that will be when house prices AND rents start to go up.
What I’m most interested in is which one will rise faster than the other. My guess is that house prices see the more dramatic increase.

I’m curious to see how this site evolves to explain that one but I suspect is we’ll start over again with Bubble Part II.

Based on what? Record unemployment, record foreclosures, record debt or the flat to declining wages?

There's zero actual data that supports prices, rent or sale, going up anytime soon.

The current prices can't even be supported by 4% unemployment, without undocumented, creative loans.

CrazyMan says

toothfairy says

I’m predicting the other side we will see within the next 2 years.
and that will be when house prices AND rents start to go up.

What I’m most interested in is which one will rise faster than the other. My guess is that house prices see the more dramatic increase.
I’m curious to see how this site evolves to explain that one but I suspect is we’ll start over again with Bubble Part II.

Based on what? Record unemployment, record foreclosures, record debt or the flat to declining wages?
There’s zero actual data that supports prices, rent or sale, going up anytime soon.
The current prices can’t even be supported by 4% unemployment, without undocumented, creative loans.

My rent decreased 8% last year and has remained same this year. House prices have remained same as last year(because of declining mortgage rate)....and this is in very desirable neighborhood of OC, and now people are predicting bubble II? How will that happen? Yeah banks will start giving away easy loans to people pets. LOL.

CrazyMan says

toothfairy says

I’m predicting the other side we will see within the next 2 years.
and that will be when house prices AND rents start to go up.

What I’m most interested in is which one will rise faster than the other. My guess is that house prices see the more dramatic increase.
I’m curious to see how this site evolves to explain that one but I suspect is we’ll start over again with Bubble Part II.

Based on what?

easy. it's based on blind hope, massive denial and inability to think rationally.

it's amazing what people can deny when their money depends on not understanding the situation.

"2) Given that the American Dream, has been for many to “own” a house."

Many infact acheived it without even thinking about a home, house, dwelling.

The American Dream, sometimes in the phrase "Chasing the American Dream," is a national ethos of the United States in which freedom includes a promise of the possibility of prosperity and success. In the American Dream, first expressed by James Truslow Adams in 1931, "life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement" regardless of social class or circumstances of birth.[1] The idea of the American Dream is rooted in the second sentence of the United States Declaration of Independence which states that "all men are created equal" and that they are "endowed by their Creator with certain inalienable Rights" including "Life, Liberty and the Pursuit of Happiness."

Be careful how you define that dream...its been hijacked, rewrapped and marketed by the NAR at a highly inflated price.

"Home ownership is sometimes used as a proxy for achieving the promised prosperity; ownership has been a status symbol separating the middle classes from the poor.[3] Sometimes the Dream is identified with success in sports or how working class immigrants seek to join the American way of life."

3) Although I agree that massive inflation will be seen within the next decade due to the fed’s moves to manage this crisis, I also expect that it will work both ways. Those that have solid, jobs that add value to their company will be able to demand salary increases to not only keep up with, but marginally exceed, this future inflation.

You will find employees who are "value added", typically dont live anywhere near their employer. Im am talking about in the field sales people who generate sales/revenue for their company. Sales teams are the highest paid employess who earn more as they book more in revenue. Inflation doesnt factor in for these high paid earners. All they do is exceed their annual quota to get a higher comm rate and bonus. In other functions, R&D, Finance, Marketing no such thing as value added. Your a cost center expected to perform your function.

In short, thing aren't as bad as they seem, and housing is closer to a bottom than many around here want to admit to.

That depends where your at.

SF Bay Area.. not even close to the bottom...

Florida... you bet! Be sure not to trip over the bodies as you go home shopping in Miami...

thomas.wong1986 says

You will find employees who are “value added”, typically dont live anywhere near their employer. Im am talking about in the field sales people who generate sales/revenue for their company. Sales teams are the highest paid employess who earn more as they book more in revenue. Inflation doesnt factor in for these high paid earners. All they do is exceed their annual quota to get a higher comm rate and bonus. In other functions, R&D, Finance, Marketing no such thing as value added. Your a cost center expected to perform your function.

That's what you think adds value? Salesmen? Not R&D or operations or engineering? But sales?? So, it's not the guy that comes up with the technology. Or the guy that figures out how to build it cheaply. Or the guys that take the raw materials and make it into something valuable. No--it's the sales guys. Genius Thomas. Thanks for the tip.

The "American Dream" is to reach a self-sustaining state of material happiness and to achieve a certain level of personal liberty, free from having to worry about basic necessities. While this was never guaranteed to everyone, it was attainable as long as your expectation was reasonable.

While your point about geographical disparity in housing-price correction is very valid, I don't think buying a house in most parts of the Bay Area is a step towards the above dream - and very likely to be a step backwards from achieving it.

It is a combination of aggressive, cynical, manipulative marketing, a tabloid fascination with the lives of celebrities, and a notion that everyone "deserves" that life regardless of their ability just because - that has led to the dream being hijacked and repackaged into the hamster-wheel of a debt-driven "consumer" economy.

As an ironic meta-trend, it is the consumer himself who has become an object of consumption - to the extent that even the President addresses his subjects as 'consumers' rather than as fellow-citizens.

tatupu70 says

That’s what you think adds value? Salesmen? Not R&D or operations or engineering? But sales?? So, it’s not the guy that comes up with the technology. Or the guy that figures out how to build it cheaply. Or the guys that take the raw materials and make it into something valuable. No–it’s the sales guys. Genius Thomas. Thanks for the tip

You can ask as many CEOs in the valley as you wish... you will eventually come up with the same answer. It is what it is! That is the real world we all live in.

I been to enough exective staff meeting where its the same topic. How are sales doing, what are we going to bring in by this quarter, and by year end. R&D live outside of reality of what goes on in corporate offices. R&D lives in a cave with their marching orders and time to execute with what the customers have asked for. But that is down the road and takes time.

No! Engineers are not that important, nor is Accounting/Finance (my career). All our lives hing on a few in the field who can sell the product, bring in revenue and sustain our expenses in a matter of 90 days. So welcome to the real world and get over it.

The interior of the country 1) did not have as significant a run-up in prices during the boom and 2) has probably returned to normal in most markets

A year ago the national debt was $1.8T less than today. That's quite a flow supporting things.

A year ago a 30 year mortgage was ~5%. now it's 80bps (16%) lower. I don't know where interest rates are going from here (taking the Japan example, I suspect down) but if they get forced up there will be carnage.

Given that the American Dream, has been for many to “own” a house.

The American Dream, 1945-1995 worked pretty well in front-running incipient wage inflation as the nation expanded into available opportunities and production efficiencies, plus experienced the baby boom onset into adulthood in 1965-1975 and middle age 1985-1995.

Things may in fact be a bit different now. We've opened our economy to cheap-labor competitors like never before. We've experienced the giant sucking sound and mfg employment has fallen to levels last seen in the 1950s:

http://research.stlouisfed.org/fred2/series/USGOOD

We've been able to divert employment into the soft sectors of health care and education:

http://research.stlouisfed.org/fred2/series/USEHS

But we have yet to establish an actual TAX BASE that meets this payroll cost. We've just been borrowing the money on the state and federal levels for this economic activity and this is not sustainable.

This is not the 1970s.

^ I agree with Thomas. Sales is Hard.

thomas.wong1986 says

I been to enough exective staff meeting where its the same topic. How are sales doing, what are we going to bring in by this quarter, and by year end. R&D live outside of reality of what goes on in corporate offices. R&D lives in a cave with their marching orders and time to execute with what the customers have asked for. But that is down the road and takes time.
No! Engineers are not that important, nor is Accounting/Finance (my career). All our lives hing on a few in the field who can sell the product, bring in revenue and sustain our expenses in a matter of 90 days. So welcome to the real world and get over it.

Thomas--Of course that's what CEOs ask about. They want to know how the product is selling. That doesn't mean sales adds the most value... Sales dept is important, but just one of many important departments in a company. And it certainly doesn't add the most value.

Troy says

^ I agree with Thomas. Sales is Hard.

I agree too. Lots of travel. Rejection around every corner. It's not a fun life. And that's why good salespeople get paid well.

CrazyMan says

There’s zero actual data that supports prices, rent or sale, going up anytime soon.
The current prices can’t even be supported by 4% unemployment, without undocumented, creative loans.

Thomas,

While I know what you mean, you have a limited view of value. every role in an enterprise should add value, just in different ways.

For a sales position, the value added is easily identifiable, it is sales generated which flow to top line, as simple to evaluate as it gets. R&D is values a little differently. Accountants add value differently and any IT person that work on project quantify the cost with the benefit added.

If it's all about cost, woudn't Pixar, Lucas Films, Dreamworks etc. create their animations in Idaho instead of Coastal California?, because before you worry about efficiency, you have to make sure you have to be effective first.

You are probably aware that a company like SanDisk is valued solely based on the value of their IP portfolio, while all that R&D effort may be a cost, the IP has signifcant value, the salespeople are almost irrelavant to the value of the enterprise. You can't create what Facebook, Salesforce, etc. created in places like Nevada, Oklahoma, Nebraska, that is why the valley is still a wealth creator, but in different ways than in the past. From a VC perspectibve, the first concern is how to build the value of the enterprise within the parameters of the budget. While Facebbok may have spent a billion dollar, they have also created and enterprise that is worth 10+B. It is not an accident that 5 out of 10 of the most valuable social media/networking companies are created in the SFBA.

zzyzzx says

CrazyMan says

There’s zero actual data that supports prices, rent or sale, going up anytime soon.
The current prices can’t even be supported by 4% unemployment, without undocumented, creative loans.

Can't say prices, but personally, I believes prices reaches March 2009 lows but not below when the #'s come out in March for activites in Dec10/Jan11. Which means if you buy now, you are buying around the same envirnoment that was seen around Dec 2008/Jan 2009 which lead to the lows.

For Rents: but here's rent from latest Avalon Bay transcripts. It's pretty much the same message across all the apartment reits.

"Based upon the strength and demand combined with the sharp reductions in supply, we are projecting demand-supply rates in our markets over the next two years to be similar to what we experienced in the 2005 and 2006 time period, which is a period of strong rental growth."

http://seekingalpha.com/article/233126-avalonbay-ceo-discusses-q3-2010-results-earnings-call-transcript?source=qp_transcript

For sales: Here's pending sales index in the west. Looks like sales are headed up this fall and likely Winter and Spring.

http://www.realtor.org/wps/wcm/connect/b9a432004490b2ebb302f35d6aeab3b5/PHS1009.pdf?MOD=AJPERES&CACHEID=b9a432004490b2ebb302f35d6aeab3b5

May 2010 85.3
Jun 201 85.1
Jul 2010 95
Aug 2010 101.1
Sep 2010 104.6

I don't know what things are doing nationally, but I can tell you Condo's are affordable in NJ. Patrick's rule is if you can buy it for less than renting it, then it's a good deal. Rent for a condo is averaging is well over $1,100 in my area. And you can buy a 2 bedroom condo for as little as 80k, average is 100k. So assuming worse case, the entire amount is financed, that $536 a month, add in PMI $66, Taxes $280, condo fees $200, grand total, $1082. That's less then renting.

For a house, prices are under 200k now, so that's $1,083 to finance 200k at 5%, $560 a year in taxes, $130 PMI and add another $100 for house insurance, that's about $1,900, house rent range anything from $1,600 to $2,500 depending onthe house.

robertoaribas says

If these 3 are bad, I might still consider lowballing if I really want to be an owner…

The math I did was figuring paying list price for everything, I'm sure you could do better by offering less. Also for simplicity I was figuring 100% financing, I'm sure you will be required to put down at least 5%, if not 10%.

SF ace says

You can’t create what Facebook, Salesforce, etc. created in places like Nevada, Oklahoma, Nebraska, that is why the valley is still a wealth creator, but in different ways than in the past.

Have a read.

http://www.xconomy.com/national/2008/08/19/non-competes-might-help-early-stage-growth-but-not-everyone-buys-the-argument/

"Franco and Mitchell argue that Silicon Valley gained the upper hand because its workers could spin out more businesses based on skills and knowledge developed at other companies. That much fits with conventional wisdom. What’s surprising is that their analysis also suggests non-competes encouraged young companies in the Northeast to come up with more ideas and inventions in the early days. And non-competes also kept workers in their original companies long enough for their ideas to become established, the research suggests. “There are times when you want to allow non-compete clauses and times that you want to allow labor mobility,” Mitchell said in a statement. “Now we have a structure to evaluate the two forces involved.”

thomas.wong1986 says

Franco and Mitchell argue that Silicon Valley gained the upper hand because its workers could spin out more businesses based on skills and knowledge developed at other companies

That's not right. It was because they had better salespeople, right Thomas?

SF ace says

While Facebbok may have spent a billion dollar, they have also created and enterprise that is worth 10+B.

You may be surprised to note they dont have that much in sales revenue to justify a hefty valuation. Perhaps 150M total today based on Ad Revenue. Anyway, when someone like Msft waltzed in and paid $400M for 1% share, that inflated the remaining 99% of equity. So you get a huge valuation. All it did was make it expensive if not impossible for anyone to buy Facebook. It would result in Billions of losses for the acquiring company. MSFT was smart, they took out the competition with pocket change.

thomas.wong1986 says

SF ace says

You can’t create what Facebook, Salesforce, etc. created in places like Nevada, Oklahoma, Nebraska, that is why the valley is still a wealth creator, but in different ways than in the past.

Have a read.
http://www.xconomy.com/national/2008/08/19/non-competes-might-help-early-stage-growth-but-not-everyone-buys-the-argument/
“Franco and Mitchell argue that Silicon Valley gained the upper hand because its workers could spin out more businesses based on skills and knowledge developed at other companies. That much fits with conventional wisdom. What’s surprising is that their analysis also suggests non-competes encouraged young companies in the Northeast to come up with more ideas and inventions in the early days. And non-competes also kept workers in their original companies long enough for their ideas to become established, the research suggests. “There are times when you want to allow non-compete clauses and times that you want to allow labor mobility,” Mitchell said in a statement. “Now we have a structure to evaluate the two forces involved.”

Yes, so the substance is the next Facebook will likely come from this region or Boston, Seattle, Metro New York, etc.

tatupu70 says

Sales dept is important, but just one of many important departments in a company. And it certainly doesn’t add the most value.

Gosh! I was only invited once in my Career to attend the annual Sales Conferences in Vegas my employers picked up the tab for. A very expensive $300-500K Tab! Do any other departments shut down and take a trip Vegas for a week and meet the customers... I think not!

SF ace says

Yes, so the substance is the next Facebook will likely come from this region or Boston, Seattle, Metro New York, etc.

Microsoft isnt here! Its up in the NorthWest. And yes, FB wasnt from here either, had it been the lawsuit would have fallen infavor of the plantiffs back in Boston under more strick laws.

thomas.wong1986 says

Gosh! I was only invited once in my Career to attend the annual Sales Conferences in Vegas my employers picked up the tab for. A very expensive $300-500K Tab! Do any other departments shut down and take a trip Vegas for a week and meet the customers… I think not!

I'm sorry you weren't invited. But I don't think you can draw the conclusion that salespeople add the most value because they had a conference in Vegas. What about engineers that go to technical conferences? Or operations management that have retreats?

Hey, ECCB.

Do you mind tell us what made you believe this balance thing you're talking about is?
Because to me, you look frustrated and tired. You being a renter, a saver, and a homeowner wannabe that believes in american dream, it's been little too long and too hard. A kind of correction happened in other side of US is not happening in your market, and you can't see the light at the end of tunnel. Fatcasts still prevail, and working people suffer. Things are bad, but people will hang in there any way, so that maybe is the way it is. You are losing your faith on american dream and your patience is running out. Is that it?

@ mike4518

I'll use easy numbers to demonstrate what I meant:

Lets say rent is $1000/month for 800 ft2 apartment.
To buy a 1600 ft2 house would cost $2000/month
However to rent a 1600 ft2 house would only cost $1800/month. (but they are few and far in between)

So there is a slight "premium" of $200/month for owning as compared to renting.

@seaside - yes this is probably due to fustration. Between 2002 - 2009, this site helped me keep perspective, and reminded me why I had not bought yet. To not buy was a "slam dunk" back then. Now, the math is trickier - but many at this site still profess a "prices are going to crash" mentality, and I just don't see that happening.

Prices will come down more, but a full fledged crash just does not seem likely, at least not in my area. The balance comment has to do with my perception that we are closer to the bottom than the top, at least in most of the east cost markets I actively follow.

ECCB, that's what I thought.

Chin up, man. You're happened to be a ordinary guy living in freakin resilent area. That's it, there's nothing for you to be ashamed about.

You may not able to see the kind of chance that Rob got now down there in Phoenix, at least in near future. But the way I see is that, even those resilent market can go down little bit, and you will find bigger number in your saving account by then. That will increase your chance of getting home. While you're at it, think about what native94027 told you about american dream thing. You shall not be hungry when you work hard, is what it's all about. It's not about luxury or something automatically deserved as an american. You'll make it happen. Keep up w/ it.

CLINT EASTWOOD " A Man must know his limitations ".

TMAC 54 " A Man must know why Real Property values rose from 2.5 times annual income to 8 times "

The computer ? made popular around 1983. Manufacturing etc. executed overseas by 2007. (compare to real estate sales prices ) That invention Made HELLA lot of money for a percentage of the working class. THAT same percentage drove the increase in real property values. THAT percentage is now dwindling and Real property values are returning to normal.

Real Estate Agents, Loan Arrangers, Bankers, freddie, fannie, Obama etc. DEPEND on your believing in the word "RECOVERY". Ask,"Recovery from what ? From the computer engineering, manufacturing, internet bubble ? Will we recover those jobs ?

We will return to the normal competitive lives we were accustomed to in the 60s 70s. Hopefully, like Germany we will bring back some manufacturing.

Real Property; as well as Personal Property is simply TIED to income. (not government tax credits or incentives) Only BUYERS make value.
If I hit the lotto and offer more than everyone bidding, the value increases. If I have the last ocean view mansion on top of the world with the best view of the moon, the yacht included , but nobody makes an offer, What is the value ?

Real Property values became detached from reality when a small percentage of the working class were given a great amount of money generated by this new technology. The only remaining technology is related to "APPS" used on wireless devises. When those ideas are saturated, Bay area home values will follow suit with the rest of the nation and return to 2.5 the times that area's annual income.

Based on average annual income of $42,000. Home values will approximate $160 to $200 K after all govt. programs fail.