patrick.net

I cry "bubble."

I can afford it.

Your first statement is false.

No matter which side you look at the pile of crap - it's still a pile of crap.

Oh, by the way, the bubble has popped. You'll hear it in the numbers over the next 4 months. For those who didn't get out in 05, God help them now.

Some says the world will end in fire, some says in ice.

I think the world will not end because it is round.

Sorry, I thought we are talking about the end of the world. (whew)

But the bubble burst will feel like the end of the world for many.

Gotta hate it.

OK

I went to the realty site the troll posted.

I found this thing, it looked kind of like a house, on a really steep hill. It was ugly. The neighbor's "houses" were touching it. It was listed at 1900 square feet. And, they wanted about 1 million for it. Doink!

For that price I could get 20 acres and a really nice new house in 1/2 the country.

So cali people, can each of you list the top two reasons you would subject yourself to that kind of lunacy? That is, what are the top two things making the bay area special? Because me, unless all the chicks walk around naked in the streets giving out free lap dances, I don't see paying 1 mill for the thing on the Internet.

I was in Asia on a job assignment when Hong Kong went through the bubble burst of losing about 60% of the realty value within 5 years. It was not as drastic as Tokyo, which lost 90% of the property value in the course of 12 years. I don't think we will get that bad, but there are some lessons to be learnt.

First, Asia went into deflation right after the bubble popped. However, our situation is a bit different. USD is the reserve currency, so far, and we can set whatever interest we like. Not the same case for Japan and Hong Kong, which in effect pegged their currencies to USD and could do little when it comes to setting the interest rate. Second, WE are the world's buyer and they are the world's seller/producer (if you see HK as an entrepot center circulating stuff made in China). So, their deflationary scenario may not be repeated here (my biggest fear).

Third, throughout the downtime in Asia, the only industry that kept doing well was, cosmetics. The reason is, the women who are paid less to begin with find it particularly economically worthwhile to grab a rich husband, so to speak. I think this may be replicable here because of the wage gap between men and women. I also concur with the security products mentioned above, because crime rate in both place did go up due to recessions.

When Japan was deep into recession, people started to lose confidence in their banks. Most Japanese banks were ladened with bad loans and some still are, they could manage to stay afloat only because the government wouldn't let them drown. You also started to see people in trolleys going to gold shops exchanging their lifetime savings into gold bars. This can only be done in such a low-crime country like Japan, if you are doing so here, prepare to get shot half way on your journey.

The complication that we are dealing with is, in countries like Japan, they don't need to worry about their currency, since we are probably the only country with persistent twin deficit while still precariously retaining the position of the world's reserve currency. For a Japanese investor during deflation, if he stashes away his money into Yen, he will be done. It doesn't work for us like that. We are too reliant on imports. If our currencies shrink, we will have a serious erosion on our quality of life.

The reason why we Californians stick around is because a lot of us got in cheap. I bought my home at about 40% of what it is worth now. The mortgage payment is quite affordable, and my lifestyle is quite sustainable if nothing drastic happens to USD or my job. If everyone gets to pay what I pay for my home, then life in BA is great. We have the best weather, some of the best schools in the country, so close to nature and national parks and all the goodies that I don't need to mention.

For all of us who got in early, there is no reason for us to move elsewhere. But I can totally sympathesize with those who arrived a bit late, because I myself was a transplant too. I faced the same situation 13 years ago and I was just lucky. Had I faced the same lunacy of today, I probably would have thought twice about settling down in BA. But again, the whole country is inflated, where else can you escape to? North Dakota? Thanks, but no thanks.

1) protect our asset/money/portfolio

Well, we've pretty much covered this in previous threads, but as I recall the general consensus for those predicting prolonged recession + non-RE inflation were advocating precious metals, oil/gas or other relatively recession-friendly commodities, as well as foreign currencies/securities. The problem with foreign currencies/securities is of course the impact a tanking U.S. economy could have on it. It really all depends on how badly the RE bubble burst impacts our macro-economy and the world economy at large.

Those expecting prolonged recession + general deflation would be wise to hoard cash, of course. I have my doubts on this, for reasons I've aired before. I really liked Iceman's idea about liquor and security related stocks and would also add gambling and porn as recession-friendly industries (if your personal code of morality will allow investing in such, of course).

2) minimize our contribution in whichever legal way in the bail-out effort following the burst.

Reduce maybe, but not eliminate --other than very extreme measures. Like emigrating to another country, applying for foreign citizenship & renouncing your U.S. citizenship. Btw, the U.S. is one of 3 countries that still taxes citizens who live/work abroad, so no ducking the massive MBS/pension fund/"investor" taxpayer-funded bailouts by merely moving somewhere else.

One less extreme strategy is to deliberately seek to minimize your W-2 income, while living on-the-cheap and/or bartering with friends/family for most of your basic needs. They can't tax/confiscate what they can't track. If the bailout gets really massive, though the government will likely come after any & all assets and cash as well as income, so it will be hard to completely dodge the bullet.

3) and best of all, take advantage of the bubble burst.

I'll leave this one to Peter P, Kurt S & all the hedge fund gurus here ;-) .

2 things I like about the bay area: surf & snow (I'm a simple person right now).
Weekend stories:
Went to couple open houses in condo complex that has EIGHT 1br units for sale (complex typically has 1-3 1br units FS). First one, older lady (~65YO) realtor puts down her book (I shit you not the title was: "Secrets of the Millionaire Mind" or something like that). The unit's been on the market for 6 wks, for sale by husband/wife/one child...husband lost job, so are very motivated to sell. Felt pretty bad. They 1st listed at 326.5K (because that's what they went for in early/mid-summer) but have since reduced to 305K, and the realtor said they'd be happy to work more on the price for me. Noone else came in there for the 30 minutes I was there for.
Second open house, MUCH younger realtor...kinda cute actually...tells me how it's such a great time to buy because prices are flattening due to it being in the slow season..."but the prices won't go down". I swear those were her exact words...and the sentiment was expressed at least 3 more times (but different words) within 5 minutes. Then I asked: "so with all the open houses, do the other realtors visit/co-mingle with each other?". Know what she said? "Sure, you've gotta do something to pass the time". ROFLMAO. I could barely keep a straight face when she said that, after just talking about prices never going down. You wonder if some people never had those dot-to-dot books when they were kids. There must be a secret Realtor Manifesto document somewhere...would love to get a hold of it. No other visitors while I was at this open house, either.
The bummer of the weekend is I found a condo w/everything I want, and then some, & it's taking a lot to restrain myself (offers will be accepted thru tomorrow).
Sorry to stray so much OT just want to relay my experiences.

Parker Brothers came out of the Great Depression rich by inventing the Monopoly game. Well, what else can people do if they don't have a job?

Its seems most of you all are from the BA. How do you feel the new SEC rules for accounting for stock options will affect the wealth in the BA area?

My company has drastically cut down on the number of shares given to non-executives. Some companys are scrapping it altogether.

Personally, I see the walls closing in on the middle class. First, many had their 401K/pension plans raped by the tech bubble. Second, this RE bubble will get a lot of the ones that escaped the first bubble and then some. Third, the new SEC accounting rules will cut down on future wealth generation for the middle class via stock options.

How many friends and family do you think Marina Prime got to buy into properties at the peak?

He may be joining the RE Agent Leper Community (REALC) here in San Diego soon. I'm going to be the developer of it. That's my post-HOUSEDAQ plan for $$.

It's going to be a gated little community where former RE agents can escape the humilation that their family and friends lump on them for telling them to JUST GET IN and that RE ONLY GOES UP (and then a month later it busts on them:-( -- Sad, sad, sad stories to be had by all)

There will be playgrounds with slides for the kids. I'll name the playground slide 'The Property Ladder' because you climb to the top only to slide down and fall into a sand pit at the bottom (6' below from where you originally started -- the kids have to scatch and kick their way out of the sand pit -- which I may nick-name the 'debt pit' -- it'll be good fun and educational too).

SJ JIM - Good story - thanks for the share.

Harm - I agree with your assessment. When the poop hits the fan, your money will be confiscated. The only quesiton is "to what extent?"

Owner Occupied - What? Respectfully i note that your post was indecipherable.

Realtors - Yuck. People are nasty. The problem (at least one of them) with that industry is you've got 1,000 people all making 2-3 sales a year at 50 grand a pop. What you need is to have 200 people making 10-15 sales at 10 grand a pop (for 1 mill houses, anyway).

Is there any less sympathetic character than an unemployed realtor?

Jack wrote . . ."Obviously, the credit bubble-fed high prices are a great reason NOT to buy here at this time, and I agree with that. But to say “name TWO reasons” misses the whole point. Most places only HAVE two reasons to live there. “Thats just it!” "

Well, it was a serious question on my part. I just don't get it. I think I'll have to come visit. Have never been to the Bay Area.

As for where I'm at now, it has . . . clean air, great schools, low crime, proximity to NYC, economic opportunity [not so much], proximity to nature [bears in our garbage], incrredible weather [very good here, Dec, Jan, and Feb are tough].

So I guess my thought is - is more economic "opportunity" and better weather worth me spending 1.8 million more for the same house I'm in now.

Like I said, I have to visit, I guess, because it would have to be 75 degrees and no humidity 365 for me to even consider it.

Jumped off in SF, Is there a link to that SF Magazine article? If not, can you summarize the main points of it? I'm curious what they had to say. (I could take a guess if I had to :-))

Like Bubble Sitter, I believe the bubble is already bursting. Maybe no big signs of it bursting on the peninsula, but elsewhere...

Escaped from DC, I've lived all over, and the BA does have some of the most beautiful scenery around. Proximity to ocean and mountains are huge pluses to me too. I need to be outside a lot, and the weather there makes it easy to be outdoors year round. I agree with you though that I don't think real estate there is anywhere near worth current prices. I'd be willing to pay a few hundred thousand extra for BA intangibles, but not a million extra.

There are some problems too though. It being such a nice place means having to compete with the zillion other people who also think it's a great place when you want to go out and enjoy the area. We were in SF during 4th of July and decided we wanted to go to Stinson Beach for the day, but instead we got stuck in the traffic trying to cross the bridge into Marin Co, inched along for an hour getting nowhere, and gave up in frustration and ended up going to a playground instead.

I love CA but the overcrowding really bothers me. We live in So Cal, and it's possible to get stuck for many, many hours in traffic here, even during non-rush-hour times. Also I don't like how stressed out everyone has become. And I hate that what should be the richest state in the nation struggles with school funding and lots of other infrastructure problems. It feels very poorly run.

Lately I've been thinking of choosing to live in the more desirable parts of CA as similar to marrying a really, really attractive partner. :-) Sure, you get to enjoy the scenery, but you're always having to worry about everyone else who wants to enjoy your scenery just as much as you do, maybe more.

However, if you choose a partner (or place to live) that has less obvious charms, you may have to work harder to find out what's to like about that person (place), but you also may find that the relationship ultimately is far more rewarding. And you won't have to worry so much about the competition.

(I'm joking...sort of.) That's my stupid metaphor for the day.

Jamie, thanks for the post . . .

I thought it was something like that.

I'm glad everybody places values on different things.

I place a high value on fewer people and congestion. I was in DC for 4 years, and, I'm guessing, the traffic in D.C. is not as bad as some parts of Cali. But the traffic in D.C. was miserable. I started to spend my days avoiding congestion.

I wouldn't leave the house between 12 and 2 and 4 to 8 PM. Forget it. Those times were gaurenteed waits in traffic. It got to the point where I would leave for CT for weekend trips at 10 PM just to be sure I wouldn't get stuck in an hour of traffic on the beltway.

When I saw that house in SF on the net, which I would hardly call a house - more like a row house or a town house or somthing - I was just dumfounded that anybody, for any reason other than making money, would spend 1.1 million to live there.

Really. To me, absolutely unfathomable. Life has so much to offer. 90% of what pleases me comes from within and from other people - I can find that in Tibet if I looked there.

So really, at 1.1 million, living on the side of hill with no yard, people packed in and touching your "house" to the left and the right. What the hell?

I hear ultra-discount food stores are doing well, and will probably do even better as there are ever more poor people. Supervalue (SVU) owns the ultra-discount chain Save-A-Lot which are mostly in bad urban neighborhoods.

Not sure it's a great investment, but that's the kind of business that might do well by serving the poor.

Patrick

According to weather.com, the Redwood city average high oscillates between 60 and 80. If the humidity is low, then that is damn good. My kind of weather. Not what I'd call "million dollar" weather, but maybe 500k weather.

:-)

Hey, if you think NYC is bad, Jeez, D.C. was absolutely miserable.

There's so much talk about gold these days, does anyone think that gold might be the next bubble? Just wondering.

According to weather.com, the Redwood city average high oscillates between 60 and 80. If the humidity is low, then that is damn good. My kind of weather.

And, just like everywhere in the Bay Area, there's a number of microclimates, sometimes with dramatic differences. For instance, RC near the bay can be noticeably cool and windy, especially in the summer. Towards the hills it can be dramatically hotter during summer. On the other hand, some hill areas that experience the fog flow from HMB can be quite cool too. The weather.com stats never reflect these differences. For a person moving into the BA, I think they should experience the four seasons (renting and saving I might add), before they buy.

A friend of mine was shocked after she bought a home in Berkeley and perhaps saw as much sunshine as a typical Seattle resident. Microclimates are key. Btw--any coastal area near Golden Gate is going to get hit with as much soupy fog as the worst areas of Puget Sound. That includes Sausalito, Tiburon waterfront, and...the Marina. You could be shivering half the year in these "prime" areas, but I digress. Meanwhile, those living just N. in the "banana belt" (relatively fog-free), enjoy a nice moderation between coastal cooling, and inland heating. I call that "prime".

"If you go a couple hours north of BA, property prices seem a lot more reasonable last time I checked. Any idea how long that is going to last?"

The entire State of California has gone up A LOT - doubled and then some - since 2000. From the toniest Bay Area city to the crappiest hole in Central Valley. That said, the Bay Area will ALWAYS be more expensive than places a couple of hours north, which will ALWAYS seem like a bargain compared to the Bay Area. Even though those locales have increased just as much percentage-wise as the BA.

SactoQt:

Go buy as many houses as you can, right now. Why do you troll? If you really think there is no bubble, vote with your wallet. There is a discussion to be had for those not buying into a perceived bubble. There is much to discuss. As for those who think property can never go down, you have an agenda (realtor, recent buyer) or you should not be talking here, but scheming every which way to get into real estate. Loan brokers are giving money away, run , quickly to them and buy many many houses!

Are you kidding me? I've been a very vocal bear. Think there is a housing bubble to beat all bubbles. Have you ever read one of my posts?? Btw, I'm the blog moderator, I can delete your comments if they get really rude. Why would I be here if I thought there was no bubble?

"I can delete your comments if they get really rude. "

Please, don't do that Mr. Moderator. We can all deal with rude. I'm guessing we'd all prefer not to deal with selective reduciton of words.

Hey John Haverty, I found your post very enlightening. Thank you for pointing out the bad things about Cali. You don't get that from a lot of the prideful folks.

I don't want to delete, I'm simply trying to keep the thread from disintigrating into a flame war. When that happens you might as well delete the whole thread as there ends up being no discussion only insults.

Economist

Thank you.

John Haverty

I think you may be confusing me with our resident troll, Pacific Heights Prime, aka, Dr. Doom, aka Marina Prime. He has been repeatedly voted for eviction from the blog but keeps coming back under new identities. The thread moderators have basically agreed to delete his comments in hopes that he will go away. He knows I am doing this and takes shots at me when he can. I can only assume you have seen some of the back and forth, and gotten confused by the gaps left by deleted comments. Hope this clears it up.

"I am thinking of towns north of Santa Rosa till Garberville (too north?). Salinas and even central coast (SLO) seem to be catching up with BA/LA. But north of BA there seem to be still significant discount? Job argument should apply to both?"

Again, in proportion to each other, nothing is new. Monterey County, San Luis Obsipo down to Santa Barbara have always been on the pricier side of California. LOts of wealthy retiress ahve long flocked to these areas eliminating their need to depend on the job market but keeping prices high for everyone else. These are medium sized metropolitan areas. North of Santa Rosa gets pretty rural, but even as far north as Eureka has really gone up. There are less jobs and people in this area than the central coast.

Moonvalley:"I think they’re just all overleveraged and scared stiff"

Yeah, that's it exactly.

My daughter's friend visited. His parents came. They plan on selling in spring 06. When I mentioned the dramatic ramp up in inventory in Fairfax (DC), they said all the right things . . . "won't go down, desirable area, blah blah blah." But I could see the muscle tone of their faces just disappear. No grins, no frowns. Just slack muscled numbness. The concept, for them, who have been planning to sell and move for 5 years and were just waiting for the son's graduaiont - the concept for them that they may have missed the peak and will be selling in a glut was a lot for them. I can imagine. As I once said, for them, retirees, the difference bewteen 600 and 700 is a lot of good steak, or tofu, whatever.

A $hitbox in SLO will set you back ~650K. The average wage is ~$10/hr, go figure.

Makes little sense, does it? I can't see why retirees will plunk down their life savings for a hovel in SLO when they can get much more elsewhere. Of course, I'm speaking of in normal market terms (outside of the recent boom/expectations). The wealthy aside, most retirees have a limited income source, and still: everyone likes value/money. That's why I suspect job-poor retiree areas could see a major correction in a bust. There will be far fewer "wealthy" people after this scenario is played out.

Central coast not only has a lot of retirees, but the market from Santa Cruz to Santa Barbara is loaded with vacation and second homes. Prices notwithstanding, I can see why. Close to beaches, near perfect climate and outside the hustle and bustle of LA and Bay Area.

I’ve mentioned before, we rent in Sonoma now and won’t be buying up there until things go down.

Moonvalley, do you follow prices/inventory in Sonoma? I was there this weekend, and at casual glance of listings, I saw a lot for sale. Last month, on Sonoma square, one realty office had a big article "THERE IS NO BUBBLE" taped to their front window. Gotta wonder if they've changed their tune now.

the sharks are so mean and nasty that they will actually follow you back to your SUV to attack you.

Last summer (I think), I swam out to the end of Avila beach pier, and one week later a woman was killed by whites in the same spot. yikes.

that fool woman was “communing with nature” dressed in a black wetsuit, trying to swim with a bunch of harbour seals, while dressed like a harbour seal

That's right, sounds like the sharks were following the seals, and she was picked off. Still a little shocking for such a busy beach. Entering the ocean food chain isn't my kind of "communing".

Central coast not only has a lot of retirees, but the market from Santa Cruz to Santa Barbara is loaded with vacation and second homes. Prices notwithstanding, I can see why. Close to beaches, near perfect climate and outside the hustle and bustle of LA and Bay Area.

And, I think we're seeing a high degree of speculation-driving pricing on the coast, due to the impression that "everyone wants to live there, they're not making any more land, bla bla bla". However, I'll also throw in that until a homeowner experiences coastal living first-hand, they might not realize how much money and work it takes to maintain a coastal home. That nice summer weather turns into a beast come winter, and I think many retirees will find themselves over their heads with constant pre-emptive maintenance. The coast gives the impression of endless leisure, but it's not as easy as it looks. I'm guessing the surprise factor will give some owners second thoughts.

@investwith6s & Surfer-X,

Thanks for the great laughs!

RE Agent Leper Community (REALC)...
It’s going to be a gated little community where former RE agents can escape the humilation that their family and friends...
There will be playgrounds with slides for the kids. I’ll name the playground slide ‘The Property Ladder’ because you climb to the top only to slide down and fall into a sand pit at the bottom (6′ below from where you originally started — the kids have to scatch and kick their way out of the sand pit — which I may nick-name the ‘debt pit’ — it’ll be good fun and educational too).

you drive by on any given weekend and over 70% of the $hitboxes have no open windows. So either no one is occupying them or they are doing their Silence of the Lamps tributes...
It pays the mortgage or it gets the hose.

Gotta respond to this. . .

I said that "I seriously doubt many" people benefitted [made money] from the depression.

Somebody wrote back . . .
"You are incorrect. My great grandfather bought a lot of oil stocks during the depression and held on to them. As a result he became very wealthy."

First, I didn't say "nobody," so I'm not incorrect based on your grandpaw.

If what you're saying is that your grandfather bought at the trough when he stock was undervalued, then hung on for some years until they were worth more, then, OK , he's an example of somebody who made out. But I'd guess that very few can be said to have "benefitted" from the depression.

In other words, had there been no stock ramp up and no crash, I think that virtually everybody alive in 1925 would have been better off without the depression that with it. Barring the people who bought stock and assets low and waited years to cash out, most people who made money during the depression would have made more money without a depression.

That's all.

1935, that is.

SactoQt:

sorry - i though you were an anti-bubble troll. please ignore, i havent read enough of your posts to know one way or the other.

My post got cut short.

John Haverty

I meant to say thanks.