patrick.net

RE: rent vs buy

An "unimproved" crap in a good location can cost little to rent and a lot to buy simply because you do not rent the "potential."

Plenty of choices around $3K for a 3/2 house on a decent lot in Cupertino, Saratoga or Los Gatos, just don't expect any fancy interior. But again, you won't get any fancy interior with a mere $1M budget either.

With $1M, you either get a fancy interior in a crappy location or a crappy interior in a good location.

But again, you won’t get any fancy interior with a mere $1M budget either.

You can get fancy interior for under $1M in a decent location if you are willing to live in a condo or townhouse.

Semi-fancy interiors (worker-bee standard) don't usually cost more than $100K for a 2/2.5 townhouse.

Aventino, the brand spanking new apartment just finished about a year ago along Los Gatos border rents for below $3000 for 2 bedder, very posh interior and amenities. I was visiting a friend there the other day, I'd say that's probably the best apartment I have ever been to.

Spending $1M on a townhome or condo is downright silly. Most of that $1M you pay for a SFH goes into the value of the land, with condo or townhome you get almost no land.

Not to mention the $400+ and fast increasing condo fees which definitely tracks the TRUE inflation. Condos are always the first to crash and last to appreciate in real estate cycles.

Spending $1M on a townhome or condo is downright silly.

One pays to live. Remember that.

Aventino, the brand spanking new apartment just finished about a year ago along Los Gatos border rents for below $3000 for 2 bedder, very posh interior and amenities.

I did check that one out. It was quite nice. Smallish bathrooms though. Nevertheless, back then the units we wanted were not available. Perhaps we should call again.

Check out this $300M townhouse in London:

http://tinyurl.com/5c67v7

If one has $300M to spare on one of his residences, I don't think he is not looking at it from an investment point of view. It's just a toy, very expensive toy.

The rent distribution is is far more volatile than the purchase price distribution across micro-markets in Bay Area. In Cupertino, some apartment complexes charge over 2K for a 2 Bed 2 bath - but I know people who have been renting uncrappy (!) and of course bigger SFH for less than 2400.

If you are willing to spend only(!) about 1M in the same neighborhood, then what you can get is really nothing but a sh1tbox - you have to keep convincing/deceiving yourself that it's all worth it.

Let's not kid ourselves though. These cities/areas are very small. In Cupertino, all it takes is 20 idiots per month to keep the madness going.

What is changed is this. While I was watching over my kids while they were playing in a park, an impromptu discussion started with other parents and topic soon went to housing. Every single person expressed disbelief about what people are STILL paying in this area. Instead of thinking of the buyers as lucky folks on their way to riches, everyone ridiculed them to be the last idiots to hang themselves.

Such are my unscientific indicators of market psychology. Every single one of them is negative. But not enough to go contrarian yet.

If you are willing to spend only(!) about 1M in the same neighborhood, then what you can get is really nothing but a sh1tbox - you have to keep convincing/deceiving yourself that it’s all worth it.

Just tell yourself that it is only(!) GBP 500K. ;)

At a certain level, we can all prosper, no matter what we read in the papers. Most of us are not at the macro level described in the news anyway. I did well in the last recession, as well the one before that, but also hit hard times during a couple of boom times.

I did not know that I lived in the Rust Belt in 1980 -- there was not such thing as the Rust Belt then! I moved to California, where at least I had a chance to find a job. Frankly, it has been a struggle for the last few years already, and I am doing what I can to get out of it, hoping that I am ahead of the curve by a few years. Good luck to everyone else.

As consumers max out their credit lines and banks clamp down on lending, many older and middle-class Americans are resorting to pricey, often-risky alternatives to stay afloat. Some are depleting their retirement accounts, tapping 401(k)s for both loans and hardship withdrawals. Some new fast-cash options allow homeowners to squeeze equity from their houses -- without the burden of monthly payments. One new product offers a one-time payment. In exchange, the company shares in as much as 50% of any future gain or loss in the property's value, typically collecting proceeds when the house is sold.
...
Reserve Solutions Inc. of New York offers debit cards to help workers access funds from preapproved 401(k) loans.
...
Despite the risks, business in the fast-cash lane has been accelerating. In 2007, 18% of workers had taken a retirement-plan loan within the past year, up from 11% in 2006, says a recent survey by Transamerica Center for Retirement Studies.

There are 129 million housing units in the United States, comprising owner-occupied, rented, and vacant units. Of these, 18.5 million are empty. This vacancy rate is 2.5 percentage points higher than it has been at any point in the half century the data have been tracked, translating into at least 3 million too many empty housing units in the country. This number, moreover, is rising. This is the most intractable part of the real estate bubble, for we cannot find a true bottom to home prices until this inventory of empty units starts to clear, and we cannot find a bottom to the mortgage finance market until home prices bottom out.

HSBC quickly stopped offering some of the riskiest loans, including stated-income mortgages, which require little documentation, and those generated by brokers, a channel where it had less control.

But trying to help homeowners stave off foreclosures through loan modifications or restructurings is taking longer than expected, McDonagh said.

A modification is generally temporary; after the end of a certain period, the loan resets to its original terms. A restructuring is a permanent redoing of the contract, including new terms and conditions.

"We typically would do six- to nine-month modifications" for troubled homeowners, he said. "Now we're looking out two to three years because, with the severity of the issues they've got, they need longer than six months to work things out."

The number of modifications and restructurings have been rising and represent 22 percent of its mortgage book, or about $18 billion.

Of that, $1.9 billion in modifications, in 11,900 loans, has occurred since late 2006 as part of a program to address the interest rate resets of adjustable-rate mortgages. . . .

Struggling as we are with the housing bust, the credit crunch, shrinking consumption, rising unemployment and faltering business investment, we can be forgiven for thinking that all the big shoes have dropped. There is another one up there, however, and it is about to come down.

State and city governments have yet to shrink the economy; indeed, they have even managed to prop it up. They have quietly maintained their spending at pre-crisis levels even as they warn of numerous cutbacks forced on them by declining tax revenues. The cutbacks, however, are written into budgets for a fiscal year that begins on July 1, a month away. In the meantime the states and cities, often drawing on rainy-day savings, have carried their share of the load for the national economy.

That share is gigantic. At $1.8 trillion annually in a $14 trillion economy, the states and municipalities spend almost twice as much as the federal government, including the cost of the Iraq war. When librarians, lifeguards, teachers, transit workers, road repair crews and health care workers disappear, or airport and school construction is halted, the economy trembles. None of that, or very little, has happened so far, not even in California, despite a significant decline in tax revenue.

Yea - not enough media play on the budget crisis in CA. It is huge and windening.
Not even a hint of rolling back wages. Or cutting positions.
If CA thinks it can tax its way to a balanced budget it is crazy.

If CA thinks it can tax its way to a balanced budget it is crazy.

But CA *is* crazy.

This is a great article from NYT.

It's not so easy being less rich.
http://tinyurl.com/6s4l45

“A year ago, he would have only flown Gulfstreams,” Mr. Sullivan said. “Now it’s moving to the point where he’s flying Beech jets and Learjets.”

LOL!

I was at EBACE and I had the opportunity of sitting in those jets. I have to agree that moving from Gulfstreams to Learjets is a big sacrifice.

My hairdresser has the same complaint, but my haircut only cost $25 including tips. She said the her business suddenly fell off the cliff in the last two months, not because her customers stopped coming, but because they are all stretching out from 2 months to 3 or 4 months.

It seems true luxury goods (e.g. jets) are still selling very well. However, I heard that sales of "affordable" luxury goods are starting to hurt.

OO Says:
My hairdresser ... said the her business suddenly fell off the cliff in the last two months

My neighbor's sister lost her job in some backwater of the financial "industry" a few months ago and my neighbor just helped her buy a partner share in a hair-salon in Cupertino. You can't time the market, but timing a freight train to get hit by is not that difficult...

Peter P Says:
“affordable” luxury

Oxymoron.

Peter P Says:
“affordable” luxury

Oxymoron. True luxury is when affordability is not a criterion.

If one has to worry about 'affordability', then it ceases to be a luxury and merely becomes an ill-advised indulgence of expensive temptations.

RE: Oxymoron

True, but the affordable "luxury" market used to be lucrative.

From OO's link:

THEIR spouses could leave them when they discover that their net worth has collapsed to eight figures from nine. Friends and business associates could avoid them as they pass their lunchtime tables at Barney’s or the Four Seasons. And these snubs could trickle down to their children.

How could such weak, socially conscious sheep have the courage, disipline, and smarts to make a fortune in the first place? I thought a succesful type would just take the lumps and accept a new challenge. Must have been an article on inheritees.

Anyway, divorces should be outlawed. We should not even recognize divorces carried out overseas.

I am not entirely against gay marriages, but I think something must be done to fix the institution of marriage.

We need a constitution amendment to define marriage as a contract that lasts as long as the natural lives of its participants.

How could such weak, socially conscious sheep have the courage, disipline, and smarts to make a fortune in the first place?

9-digit is hardly a fortune. IIRC the Forbes 400 list now starts at $2B.

Good point Peter. Even so, your income is just a rounding error to "nine figures."

Everyone notice the 1:30 selloff in the stock market? Some pundits suggest the cause was the news that the Fed will hold on rate cuts for a while.

Even so, your income is just a rounding error to “nine figures.”

More like the rounding error of a rounding error. ;)

Some pundits suggest the cause was the news that the Fed will hold on rate cuts for a while.

The market is the cause AND the effect.

The market has priced a pause in rate cuts at 96% probability for weeks. So no, I don't think the Fed has anything to do with the selloff.

What I am lookng for is the de-leveraging.

Interesting article that noted that banks are lending money to people to help them afford to buy the banks' troubled assets.

When those banks pop there is going to be a very loud kaboom.

As I look at asset re-pricing I do not see the rest of the world absorbing the current market cap of US stocks, so net loss will be real and large. Best I can guess is $2t to $5t of contraction.

When cheap money was everywhere, if you were positioned close to the spigot known as the Wall Street, you didn't need to be that smart to make 7 or 8 figures a year. I know a few real-life examples like that. One of them is particularly "smart" to have bought a $4.xM house in 06 thinking that his 7-figure bonus could grow and last forever. I will check back with him to see if he still holds on to his depreciating asset in 12 months.

To be honest, I really enjoy watching how they will crawl out of their highly leveraged lifestyle as the great de-leveraging unfolds.

The weak snobs who never had the true courage, insight and smarts to make their fortune last will get wiped out in this financial tsunami, bring it on, let's have some redistribution of wealth from the paper-pushers to people who create real values.

Thanks OO, you made my day.

How is everyone? It's been a while. I hope you all are well.

If Hilary concedes now, I would be very disappointed. :(

I heard that she would be open to a vice-pres. nomination to "keep the party together". This is gonna be fun to watch.

I heard that she would be open to a vice-pres. nomination to “keep the party together”. This is gonna be fun to watch.

Fun indeed. I thought it will drag all the way to August. :roll:

I like Obama as a person but somehow I am still afraid of him.

Peter,

Is it because you, like many West Virginians think he is Muslim?