patrick.net

Not a bad idea. It feels like a Sushi Ran night.

Well, it has one Michelin star...

groupthink ... Krugman

The best thing the NYTimes ever did for me was lock Krugman up behind a pay wall. IMO he is the consummate idiot columnist. He checks all his academic credentials at the door when sitting down to write a column for the Gray Lady and produces, no matter what the subject, a nonsensical partisan rant with an "It's all Dubya's fault" subtext.

Lots of things are Dubya's fault. Arguably the worst president in the last hundred years, he has botched things so badly that there is a good chance history will consider him the worst president of the 21st century. That's a bold prediction given that he's the only one so far and the political pool of possible successors contains 99.94% slime as usual, but I'd bet money.

I digress. I don't want to talk about Dubya. I want to talk about Krugman.

Am I a victim of housing bubble groupthink? Maybe. What would I accept as an indication that I've taken the wrong side and need to rethink? Krugman talking up the bubble and why it has to burst. Krugman is an almost perfect contrary indicator. If he says white, you can be sure the truth is black, and vice versa. If Krugman says house prices have to fall (I guarantee you it will be Dubya's fault somehow), then I would look seriously at revising my position. I know this is faulty reasoning - an argument from (negative) authority - but having Krugman on my side would make me start questioning my judgment.

On a vaguely related matter, i.e. idiots with a media slot, take a look at http://www.cramerwatch.org/ and LYAO.

Randy H Says:

> Speaking of Marin, I’m becoming so annoyed by the
> average denizens of this enclave that I’ve taken to
> toting around my new Sony HDR-SR1* everywhere
> so I can document their lunacy for later blog publication.
> On Monday some guy rolled down the window of his
> S-Class and yelled that he would sue me if I didn’t quit
> filming him, because he was a lawyer.

How about posting to YouTube and posting the link here (I’m wondering if it might be a Marin atty. I know that has a black S Class (and a yellow 996 TT)…

I’m amazed at the quality of the video that my little digital camera (smaller than a deck of cards) will take.

edog :

Bookmark the following site. Inventory and median "asking" price information.

http://www.housingtracker.net/askingprices/California/SanJose-Sunnyvale-SantaClara/

The best thing the NYTimes ever did for me was lock Krugman up behind a pay wall.... no matter what the subject, a nonsensical partisan rant with an “It’s all Dubya’s fault” subtext etc.

Ok easy there. He's a hero of mine, so I'm slightly biased. If you really agree with his view of G.W.B. (worst president ever), his stuff should be like nectar. He's been a MIT Professor, still counts as Princeton Professor I believe, and is up for a Nobel Prize one of these days if he hasn't spoiled it with his very public political views. He's a smart egg, like it or not, but he's rankles some people. Oh well. You're not going to change the opinion of his fans.

RE: contraindicator, Krugman and The Economist have been predicting a housing pop for a long time now (~2002-2003 for both I believe). The problem with smart people in a bubble is not that they're behind the curve, it's that they're too far ahead to be believable. They see the approaching tsuanmi from their lookout and shout "Tsuanmi!" to the people on the beach. The masses shout back "what? Not only isn't there a wave, but the sea is receeding. See, I'll walk out on this sandbar to prove it to you!"

That's kind of how most of us here feel too, even to the point that last year we we're beginning to wonder if we should take a looky-see down on the beach just to see what's going on. "Hey, this shack is pretty cute. $800K you say?"

WHAM!

He’s not a contrarian this time, he’s an opportunist.

Not true - check the record.

edog Says:
I know that I’ve seen charts showing historical and current inventory levels for BA housing, but I can’t find them today. Can any of you fine ladies and gents groupthink me in the right direction? My parents were just told by a realtor that inventories are back to “normal” levels and I want to show them the facts. Thanks much,

Here is one: bubbletracking.blogspot.com
For example, here is inventory for San Jose/Santa Clara County
Nov 05: 3,403
Dec 05: 2,638
11/30/06: 4,402

And another: www.viewfromsiliconvalley.com/id264.html

And one more: www.housingtracker.net/old_housingtracker/
With the numbers for SanJose/SantaClara coming in at:
YOY Inventory: +24.8%

Hope this helps,
SP

Face Reality :

If you are still around, can you please look up MLS number 666792 on Zip Realty. It has reduced asking price by around 90K.

Guess where it is ? Not in Sacramento/Phoenix/las Vegas. This is in Lincoln / Monta Vista school area. Most people I know consider it to be a sacred area where the fountain of home equity wealth runs perpetually.

Randy, since X isn't here, I'll say it:

MMMMMMM sweet delicious hate... Drink, drink from the Hate Fountain. Give in to the Dark Side. Good, gooooood...!

I think Krugman is just jumping on a giant ball that’s already starting to roll down a hill so he can look back at his legacy as having presciently reported on the upcoming housing bubble collapse. He’s not a contrarian this time, he’s an opportunist.

we called it first. and who are we? nobody. where's our paid column, emeritus professorship and fat salary? :cry:

edog said:
My parents were just told by a realtor that inventories are back to “normal” levels

Isn't that kind of like a Used Car Salesman telling you that this 1989 Ford Tempo was owned and driven exclusively by one very careful nun?

The funny thing is that you don't buy ANY other thing just because the vendor has high inventory. "Oooh look ma, this furniture shop has a lot of unsold chairs - let's hurry up and buy it at asking price."

SP

The High Price of Mobility: Take Three
I still think a large benefit to home ownership is seen once the mortgage is paid off (around retirement time -- take the "almost free" money when you are working along with the generous mortgage deduction). This is also the reason that boomers who have withdrawn a lot of their equity are going to be hosed.
An example: if Fuzzy Math has bought a pine box (will die in the house), his purchase may actually start to be more reasonable -- in the very, very long run.
Exercise:
Assume rents rise with inflation (also assume he finds a 30 year fixed mortgage!) :-)
Scenario 1: lives in home 10 years after mortgage is paid off
$2500/month rent * 12 * 10 years = $300,000 in todays dollars
Scenario 2: lives in home 20 years after mortgage is paid off
$2500/month rent * 12 * 20 years = $600,000 in todays dollars

Okay, admittedly, I left out maintenance, insurance and property taxes which will diminish the benefit.

This example also drives home the point that if you are renting, you need to be putting the difference into your piggy bank (which better offer decent returns), unless you like the idea of living in a senior subsidized studio apartment (This, to paraphrase a little old lady I know, "sucks". Welcome to my living... I mean my bedroom... I mean my kitchen).

The high cost of mobility title refers to not buying into the buy upgrade buy NAR merryground (that nets a 6% tarriff each time). Finding a place and staying in it has some significant long term benefits. If you need to be mobile, then run the Bubblizer! Please note, I am not endorsing buying at this time. Okay, be gentle.

EBGuy said:
The high cost of mobility title refers to not buying into the buy upgrade buy NAR merryground (that nets a 6% tarriff each time). Finding a place and staying in it has some significant long term benefits. If you need to be mobile, then run the Bubblizer! Please note, I am not endorsing buying at this time. Okay, be gentle.

:-) What, you don't like being cleverly insulted?

Actually, I don't think anyone here would disagree with you for suggesting that buying a place, paying it off, and LIVING in it is not a bad thing. Sure, you can run the numbers and "prove" that there is opportunity cost to the capital, but there is more to life than maximizing ROI.

The problem is with the suggestion (which you didn't make) that it is a good idea to "creatively finance" the purchase of an overpriced shitbox using a loan which eats up over 35% of your income. Or that this is preferable to renting an equivalent place for 60% of that. Or that prices will never go down because some idiot FB can't afford for it to go down. Or that it will go down "everywhere but here".

Like the woman I met in the cafeteria* today who thinks her Rivermark rowhouse (bought in 2005) will never drop. And she "knows" this because six comparable houses are on the market for $25K more than she paid. (Think about what it means for a minute.)

(*Dungeness crab. Oysters. Sautee'd prawns with Garlic & Brandy)
SP

I now declare Face Reality “not a troll”.

Ok, ok... I agree that providing a provide a concrete, testable definition of "crash" is progress, but let's not get ahead of ourselves here. I'd also point out that he didn't provided a timeframe. My guess is, he would require the 20% nominal drop to take place over no more than 6 months, or it doesn't "qualify" ;-) .

Like the woman I met in the cafeteria* today who thinks her Rivermark rowhouse (bought in 2005) will never drop. And she “knows” this because six comparable houses are on the market for $25K more than she paid. (Think about what it means for a minute.)
For those of you who need a clue stick (which I sometimes do), goto:
http://www.rivermark.net/homes.html
You will note that all the developments are "Sold Out". Hmmm.... maybe they got job transfers out of state :-)

there is more to life than maximizing ROI.
Hey, if someone wants to be a lifetime renter, go for it... not sure I would trust anyone (say, except Randy or dinOR) to be disciplined enough to save enough to come out ahead in the end. Also, lots of boomers have HELOC'ed themselves out of ever retiring.
Just to be clear, I wouldn't be buying any time soon, though.

So here’s the bottom line: yes, northern Virginia, there is a housing bubble.

shouldn't that read: 'Yes, Virginia, there is a housing bubble. Your little friends are wrong...'

Okay guys, I'm busy working today (no time to check out the blog), and it looks like I missed out on some fun here! FuzzyMath is a bit combative, but I really do think he is scared and concerned about his housing situation. He's a trooper for taking it from us and sticking it out. He seems to me someone who only very very recently realized what's been happening to the housing market - a true FB who somehow broke out of the real estate opium fog and looked around to see how far up $hit's creek he and other FB's are.

BTW, the greates idea posted today was Randy H's:

Kudlow is a partisan in rationalist clothing.

I say pull his show, cut that other sound effects clown back to a half hour, and put on Maria for an extra 90 minutes a day.

I'll second that! mmmmm Maria B....

the bio-sequestration of CO2 looks like a good idea - and kind of repeats the process of creation of the fossil fuels in the first place... My Green Party mates don't like the thought of geo-sequestration at all -- what goes down, must come up, in their estimation...

FAB,

How about posting to YouTube and posting the link here

I have plans for this footage I'm getting, but I'll most likely adopt some relatively anonymous front when I post it. I'll be sure to send you an email though.

SFWoman,

It's been my own personal experience that the annoying, arrogant lawyer types think that no one else could possibly comprehend the law but them. Same with doctors, computer programmers and indian chiefs.

I suspect in the long term something similar is going to happen here, and fossil-fuel power stations and the like will actually be able to sell (or profit from) their CO2-rich gas flows. Now THAT will drive the extreme greens crazy.

nuclear will drive the extreme greens crazy... actually absorbing CO2 is better than carbon trading credits, i don't think any green would disagree with a process that is 'CO2 neutral'

there's a non autoclaved aerated cement developed in the states that uses MORE and lower quality fly ash from coal burning power stations than is usually used in cement production -- and it doesn't require steam autoclaving with its massive energy cost. it uses 1/4 of the cement of ordinary concrete per unit volume. i'm trying to find out more about this technology, not sure if it's proprietary or protected. apparently only 15% of fly ash produced as waste by power stations is currently converted into cement at present, the rest goes to landfill... can't find the site now, grrr

CB,

Thanks for the info ! Man, I would have never imagined it happening so fast in Rivermark. (I missed earlier posts about Rivermark).

For those not familiar with BA, Rivermark is a nice little new community in Santa Clara. Ideally situated between a triangle of freeways and almost walking distance to many hi-tech jobs.

The problem is school district. The new school has just started there. Brand new. First year. But prices were bid up with the assumption that this will become a great school district. Classic bubble logic. Since "VA Linux" is going to be the next Microsoft in future, it should be valued today like Microsoft. After all you don't want to miss the guaranteed appreciation. Risk is a four letter word. Don't say it.

I live among a crowd that worships any land of good school district. I got so fed up after listening about how great Rivermark is that I stopped following it.

Prices are below 2005 level ? Amazing. Now I am sure I will hear the other part. "But it is near Amtrack", or "You know, outside Rivermark, the area is not that great". The fact is, it is like any other part of BA, with both positives and negatives. The bubble logic ignored the -ve.

SFWoman Says:
DS,
I really like that Schiller graph you put on your blog. We should periodically post it here on new threads.

yeah, you have to examine it carefully -- it's housing inflation controlling for monetary inflation against time (I think) -- some of my text on the blog is a bit rough I just realised, I don't spend much time on entries ;)

my intent is to expose laissez-faire economics, hence the anti-govt polemic is a bit strong...

I'll be up in the glory filled gold brick paved oh so special bay area the 7-10th. Remember I'm 37% less offensive in person. Staying at the Sir Francis Drake as their pet policy is most uber bitchen. Blog Party NorCal?

CB Says:
For the house that I posted, the following is the approx. price for the last few years for the same model.
2002 650K
2004 900K
2005 1.05 M (peak)
2006 958K
2007 ?

I like my house a lot and I am not an FB, but I think only the RW’s that are selling houses here would like you to believe that this is a prestigious area, LOL.

Actually, I like Rivermark too - close to a lot of jobs, good public transport, shopping and dining. Reminds me of a Dutch town I briefly lived in many years ago. I wish more communities were built like that. Even the lady I ran into today is actually happy with the place - her husband works somewhere on North 1st, and she hops on to the light rail to work. No kids yet, so school is a non issue.

The main problem though (as you pointed out) is that it was built during the bubble years and _started_ selling out at over 600K, and prices became progressively more ridiculous.

SP

Reminds me of a Dutch town I briefly lived in many years ago. did you visit said dutch town in 1650? If so I totally Grok. San Hosebag and a Dutch town circa 1650 are pretty much equal. Rampant crime, fascist police, no center, a lack of community, ethnic violence, no freedom of movement after nightfall, I could go on and on but what would be the point of that? All san ho needs, is like all turds, is a good flush. Whooooops sorry, san hosebag is after all the "capital" of silicon folly.

contrary to all popular belief it’s not all pass the guacamole and the Eagles...

Dinor, DryFly, FRIFY, etc.

I think your arguments are right on. Great thread.

CB Says:

...Yes, there is a housing bubble in the Bay Area.

2002 650K
2004 900K
2005 1.05 M (peak)
2006 958K
2007 ?
___

Oh, that's easy...

2007 = $29.65

And even that's too much.

_____

Surfer-X Says:

San hosebag is after all the “capital” of silicon folly.
___

Silicon Folly! Great term.

Ha, ha, haaa...oh, yeah! The hope of all mankind springs eternal from... Silicon Folly.

Now, put down the bong, pass the Guacamole, kick the Chihuahua and crank up Hotel California...

Vicente asks, "RandyH, Not sure what I did to offend you."

Perhaps he thought you were referring to him with:

"Yawn, indeed there are some amateur economists who will have complex explanations"

Btw, agree that no complex explanations needed here.

I openly admit to being an amateur economist, as I do not have a PhD in economics. I certainly don't get paid for doing macroecon work either, although I do sometimes incorporate quite a bit of microecon into financial models I am occasionally paid to create.

Although not offended, I am always troubled by anyone claiming that something rather complex, such as any market or economic sector, is "just that simple". If it's "just that simple", then how did all this bubble trouble come about in the first place? Asserting it is "just that simple" is proclaiming that decades or centuries of learning are irrelevant, and those who pioneered our current understanding of things were trivial. I, for one, consider Friedman much smarter than I ever hope to pretend to be, and he thought the housing market was complex.

Gravity is "just that simple"; you through something in the air and it comes back down. Ok, now please use that to solve FRIFY's challenge many comments above.

I openly admit to being an amateur economist, as I do not have a PhD in economics.

Bill Gates does not have a PhD in business. Is he an amateur businessman?

I think it is that simple. A simple combination of easy credit, low interest rates, greed, and RE guru seminars. And the apparent neverfailing wellspring of irrational exuberance in a money-making, market-crazy society. A simple equation in people's heads of 'rent in, mortgage payments out' in the case of investors. Or 'flip that house' in other cases. I don't think it's worth modelling, as its easy for the models to go wrong. But then I have a healthy postmodern mistrust of money markets, econometrics and so on. It's like trying to model the behaviour of a beehive -- why do it? Let's just watch the real bees and see what happens.

There is some value perhaps in attempting to predict what a single independent variable change might do to 'the economy', such as changing interest rates or the taxation regime, and so on. I don't remember which economist is famous for restricting their work to just this sort of analysis -- was it Bernanke?

btw, Friedman wrote some real crap about the housing market back in the 40s as a young economist -- the situation then was uncannily similar to today, and his remarks and dry right neoclassical view was just as ill-considered and wrong and full of arguments of convenience favouring 'neoliberalism' and the people holding the reins.

JMHO

This whole thing goes deeper than economics, past trends, world geo- financial markets and currency. See post WW II we created a model for the world to follow. We created a lifestyle utopia of abundance and consumption. The entitled notion that we deserved far more than we earned in reality. A different psychology took hold over the last twenty years especially in the western coastal U.S.

The boomer generation grew up with this grandiose notion that living large was the only way to live. They passed that down to their children who couldn't see past their own need to "have it now". Many of these people got into the investor class sometimes leaving their morals unchecked. It was about getting their piece of the wealth at the cost of others. Greed replaced decency and fair profit. Corporate america was sick of the middle class advancing and paid the electorate to pass Nafta and Cafta. They soon found a new source of cheap slave labor overseas and the middle class slide begun about ten years ago.

For the last eight of those we've had a government who big business could buy. Now we've lost our position of power to the Chinese who we are beholding to. Through our own fault we stopped being a great producer nation. We let other nations overrun us because we need their "investment in our debt. Until recently the checks and balances on wall street didn't exist. The banking and lending models have been bastardized billions of dollars soon to default. Don't think for one damn minute that this administration doesn't know how we are on the edge as a nation.

Basically we the Great American People did it to ourselves. Short sighted and self centered never looking past today... And like a virus this attitude spread to the rest of the world.

Syvie, I agree with your observation about the rise of the consuming psychology. And greed and other evils are prevalent and a problem. However, this is not new at all. It has always been this way.

We are not as beholding to China as they are to us. Yes, we enjoy buying lots of their stuff – but we buy it real cheap and then paying them with debt. That debt is denominated in dollars - declining in value. So the Chinese send us real stuff, and we return a promise to pay in a fiat currency that we control.

We could choose to stop buying their products and better balance our budgets. However, China cannot afford to stop selling to us on these very cheap terms. If we stop buying they will have a social and economic disaster on their hands.

Surfer-X said:
1650? If so I totally Grok. San Hosebag and a Dutch town circa 1650 are pretty much equal. Rampant crime, fascist police, no center, a lack of community, ethnic violence, no freedom of movement after nightfall, I could go on and on but what would be the point of that?

Lol. No, the area around Rivermark is not even remotely as interesting as that. It is a fw communities of small townhouses on small lots, more or less surrounded by office-parks.

The comparison to townhouses near Eindhoven was only on the basis of scale - culturally they're fine olive oil and dirty dishwater. :-)

SP

RandyH, wasn't addressing you and perhaps "it's just that simple" was poorly chosen. What I was trying to say was that FOR ME, it's "just that simple" that I don't factor in nebulous guesses about inflation or long-term economy into my buying decisions. Can I afford this now, that is something I can grasp. Other people may have more complex standards. What those would be I do not know.

On the flip side of this, the original post...

If anyone remembers at this point

Was someone positing that, somehow, inflation in some murky way, would make it a good idea to buy RE just now after all.

Do I need to re-read this thread a 3rd time? Perhaps it's buried in there somewhere. I just don't see how prediction of inflation would make me want to run out and buy RE now.

I picked up Al Gore's Inconvenient Truth at the video store just the other day. If and when the California real estate crash ever arrives here in any truly significant fashion, gaining California land at mid elevations would seem prudent. According to Al, if things continue to go unchecked the meltdown of the Greenland, Arctic and Antarctic ice sheets will bring us new coastlines.

Buying in at a severe California real estate crash at mid elevations, then waiting things out again for rising sea levels can make your well located land become the new beachfront. With much of what we have known of as California underwater, your now prime beachfront property is likely to see the soaring California real estate boom of the 2040's. Hang on. Take care of your health. Live a long life, then enjoy your profits. Booms, busts and turning tides tend to be cyclic. Ride them rightly and profit accordingly.