patrick.net

Back on topic, my beef is “The American Way” of work, work, work, so that you can consume, consume, consume, and that as a result we live relatively isolated lives with not enough family time, socializing, community involvement, and travel to maintane balanced priorities.

Or the James Bond way, work hard, play hard, drive fast cars. ;)

(Obey all posted speed limits and traffic laws.)

Longtime reader first time poster. Peter, be proud of what you’ve created with this site, it’s the most useful compilation of info and opinions on this subject on the net.

BeWiser, Patrick created this site, I am just a guest like yourself. :)

The only truly “safe” investment is TIPS (treasury inflation protected securities). These yield a real return of about 1%.

There is no such thing as a truly safe investment. There are risks no matter how you do it.

For example, TIPS are tied to some CPI measures, which are subjected to "hedonics" and other governmental manipulations.

I guess one safer investment is to have your self sufficient ranch and your own private security force. Still, you can be robbed by your neighboring ranch with a bigger security force. ;)

When you get the chance, take a look at the ratio between house or apartment prices and median incomes in economically successful areas of Europe and Asia, and you won’t feel so bad about the situation in the Bay Area.

I'm not sure that's a fair comparison, because there are stark differences between the US and Europe, including attitudes towards housing, and how cities are structured. In dense, urban areas of Europe, the "American dream" of an oversized home are impractical. Many people prefer living within urban centers, but they don't whine about their limited space; they deal and enjoy life. What's more: housing hasn't inflated at skyrocket rates like here (I'm thinking of Germany and Switzerland) And, unless you're a country farmer, you won't typically have the land to support a large rural-style home.
Some countries have growth restrictions to preserve farmland, keeping development vertical in urban areas. Add to that--negative population growth in some EU countries.
Just my take based on living there a short time--US and the EU are vastly different.

Third world work culture and social culture runs rampant in SV.

To be fair, Silly Valley actually has Second World work and social culture. The problem is recent past success is creating a sense of complacency.

Boogieboarder-Y, if you wish to escape from certain social elements, Marin is Prime. ;)

Cars too plentiful and large for the shitbox garages.

Vehicles are just to large. It is a nuclear arm race. I need to get a big a$$ SUV next time just to be same. ;)

The thing that irks me the most is, as a person who can own his home free and clear in a prime BA neighborhood, I feel poor. I know I am worth a lot, on paper. But there is little I can do. I live here, it is not like I can cash out and move somewhere else. I thought about selling and pocketing the cash, but what if inflation hits? That means I will have to kiss goodbye the nice property tax break that I have enjoyed by being here earlier than recent settlers, and I still need to buy the same home at the same price.

The thing that many renters may not be aware of is, we owner occupiers dislike the situation as much as you do. I want to see my home appreciate in a nice steady and SUSTAINABLE way. What is the point of making paper money if all this paper money can vanish in the thin air, and you are left with a ghost town?

That said, I am still counting my blessings. At least I won't be pressured to get into the interest-only crap just to buy a beat-up home in a shabby neighborhood. Cash-rich renters out there, don't bow to the pressure of buying, protect your money well (put them in some foreign currencies), when the bad time hits, I am counting on you guys to save the BA realty market because all the recent buyers will be handing their keys over to the banks.

Forgot to mention, I'd really like to see a lot of these stupid investors go broke, because they deserve to, but I am afraid that our stupid government would have no choice but to bail them out later, with MY money and penalizing my financial prudence. Therefore, the only way I see that I can get back at them is to park all my money in non-USD betting against the USD so that these morons can only end up with worthless US pesos later.

LaColt,

it’s because everyone on this blog missed the boat on RE

Bit of a snap judgement don't you think? There are a lot of people who post here who are owners and still think the market is over-valued.

MP isn't disliked because of real life examples, he is a braggart who rarely keeps to a consistent story and doesn't keep his word. (such as when he claimed he was going to leave the blog) Many of us tried to give him the benefit of the doubt but his posts generally deteriorated into flame wars with other posters. Since the flame wars always seem to include MP it seemed prudent to kick him off. You'll notice that if other posters don't respond to him his posts become increasingly rude and provocative. In short, he's an annoyance.

What bugs me?

1. I have to get caught up in this.

2. The blame will not be put in the correct places, which are - the Fed and stupid Americans.

Finally able to meet with Jack and Kurt. Both are very nice guy. We should have more meetings. :)

Face Reality, one must be able to derive income from global assets to win the next "class" war.

My gripe is the growing population of gangbangers in my east san jose area. In the last few years the flood gates seem to have been left WIDE open for mexican immigrants.

I am pro-immigration. However, I have to agree with your gripe. From my Downtown San Jose apartment, I am blogging with police sirens in the backgroud again.

I’m seeing larger numbers of teenagers just hanging out. Many are clearly gangbangers.

I would support a curfew on teenagers in San Jose. Anyone? ;)

Inquiring mind - gosh, so bitter!

Bitter is prime. Bitter melon - delicious!

Gotta love it.

Bitter melon tastes great and it has excellent nutritious value.

Gotta love it.

Bitter is Prime

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Anybody that’s making $100K+ can easily afford a condo in the Bay Area without an NAAVLP. Problem is a lot of people insist on single family homes.

Not really. A decent 2/2 condo frequently costs 600K, with 20% down one would have a loan principal of 480K, which requires household income of 160K+ under the 3X guideline.

Horizons need to be broadened. The majority of 2 bedroom condos in the East Bay are not THAT high and is sitll a resonalble commute to SV and SF.

600K is in central San Jose. A nice 2/2 condo in the Peninsula approaches 1M. If we keep broadening horizon we will be living in apartment conversions in Tracy. ;)

(2/2's in Fremont still frequently cost more than 500K, a 400K loan after 20% down still requires 133K+ income to be "conventional")

I live in a 3-bedroom, 1400 square foot townhome with attached 2-car garage in Dublin which, price per square foot, tends to be HIGHER than Fremont. Last one like mine sold for $560K.

Most Fremont condos are not that expensive. I’ve seen 2 bedroom condos in the $400Ks and some even still in the 300s.

That is a pretty good deal.

BTW, you are right, I am now seeing a lot of East Bay condos selling for 400's. :)

I like condos philosophically because I think it is a sustainable way to live. SFH's in urban or near-urban locations are not the best way to allocate resources.

hey
LeftCA to go to Azirona . . .

Hey, a good move.

Thanks for the post. It was very informative and I liked reading about your experiences in CA.
I know many on this board won't agree - because of the old "it's my town" mentallity - but I see CA degrading rapidly over the next 10 years.

You wrote . . .
"Overall, we are glad we made the move. I miss my friends the most. It is harder to make friends in your 30s than it is in your 20s."

What I've found is the older you get, the fewer friends you want/need.
So just find the right girlfriend, and that'll be most of what you need.

Good luck, and congratulations on the home swap killing.

If we keep broadening the horizon we will be living in apartment conversions in Tracy.

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P -
"A decent 2/2 condo frequently costs 600K, with 20% down one would have a loan principal of 480K, which requires household income of 160K+ under the 3X guideline."

Well yes, but under the "anything goes to make a profit and damn the long term risk" guidelines, a household income of 100k a year would be sufficient . . . .

Excuse my ignorance, but where is Dublin, and how far is the commute to San Francisco. How many miles is it? I’ve heard of Antioch, but that’s b/c i’ve heard it’s really, really far away and some people make the commute.

Dublin is quite far away for Bay Area commuter. It is in Ireland, so I guess it has an easier commute to London.

Dublin, CA is near the 680/580 junction. So it is actually pretty good for someone who commutes to East Bay work locations. I believe it also has BART. ;)

It is a bit far for Peninsular commuters like me. :(

I wonder how many first time homeowners from any generation were able to buy nice homes in desireable school districts with comfortable financing while maintaining a pre-ownership lifestyle of vacations, etc.?

Mr. Right, I thought mortgage payments are usually similar to rent so long as one has the 20% downpayment.

Good school districts are unimportant to me in the forseeable future. I want good tree districts instead. :)

…oh, but I do get annoyed that Peter P continues to insist that the macro economy is zero-sum…I wonder what shape he thinks the world is? (J/K, I love the debate)

The world is obviously flat, otherwise we will have trouble walking.

I see economic activities as a transfer of wealth from one group to another. This "rank" based view is inherently zero-sum, isn't it? ;)

P -
“A decent 2/2 condo frequently costs 600K, with 20% down one would have a loan principal of 480K, which requires household income of 160K+ under the 3X guideline.”

Well yes, but under the “anything goes to make a profit and damn the long term risk” guidelines, a household income of 100k a year would be sufficient . . . .

50K income is sufficient too. Heck, no income required!

But one must "resist [his/her] biology". ;)

Welcome back, Escaped from DC.

I have 140K sitting in bank….besides my retirement account. I have NO DEBT…

I have 140K debt and no money in the bank, I will be a perma-renter.

But I am not misallocating capital. :)

Are you pro illegal immigration?

How can anyone other than criminals be pro-crime?

I feel that with “legal” immigration we get the creme of the crop.
With illegal immigration, there’s no telling what you get. I also feel that it’s the 2nd generation illegal immigrant that is the worst problem.

US-born children of illegal immigrants are US citizens. So they are not illegal anymore. This policy may be seen as an incentive for illegal immigrations.

My countries, including UK, have laws that require the mother to be a legal resident before the newborn can be conferred citizenship.

I have 140K debt and no money in the bank, I will be a perma-renter.

Okay, I am a bad liar.

I am annoyed with the enormous mis-allocation of capital that has gone about because of the current housing boom. Literally trillions have gone into building more mushrooming suburbs, more Wal-Marts, more shopping malls and more freeways, instead of America building toward a more sustainable future.

Everyone wants a huge house on a big lot with a three car garage and is not considering the consequences of these choices in the macro. Meanwhile, commutes go up, congestion gets worse, the best farmland in the world is getting paved over at an alarming rate and quality of life goes down. Even worse, when gasoline hits its inevitable $4-5-6/gallon, which it will sooner than you think, no one will really want to live 100 miles from work anymore, it will just be too expensive.

We could have spent the last five years building mass transit, recovering "brown field" urban spaces for infill development and weaning ourselves from our unhealthy dependence on the automobile. But instead, due to poor individual choices and even poorer political leadership, we have locked ourselves even further into fealty to the Oil Barons of the Middle East.

As for the constant complaining from all the six digit incomes who cannot afford to buy the house of their dreams, I am mostly going to pass on commenting, except to say that I agree with Mr. Right. I did it on two high five digit incomes, in Noe Valley no less, which is a very desirable area in San Francisco. You just have to live under your means, save 10-20% of your salary for a decade, and then give up on the idea that your first home is going to be as nice as your parents, who got that home after a lifetime of hard work.

I *do* agree that homes are due for a correction, but they will never be cheap in such a desirable place as the Bay Area. If you can move to Pheonix and convince yourself that your quality of life has improved, more power to you. If you are a young couple with children, I can see that it probably would even be true.

Finally able to meet with Jack and Kurt. Both are very nice guy. We should have more meetings.

Hey, glad to hang out w/you guys saturday; great day to sip a beer! :)

As for the constant complaining from all the six digit incomes who cannot afford to buy the house of their dreams, I am mostly going to pass on commenting, except to say that I agree with Mr. Right. I did it on two high five digit incomes, in Noe Valley no less, which is a very desirable area in San Francisco. You just have to live under your means, save 10-20% of your salary for a decade, and then give up on the idea that your first home is going to be as nice as your parents, who got that home after a lifetime of hard work.

When you have children your ability to live beneath your means is somewhat lessened. My husband makes 6 figures, but not high six figures. It's possible your two high 5 figure incomes equal more than ours. Anyway, we can't buy a two bedroom because it just wouldn't be enough room. I suppose we could put the kids in one room, but as I have a boy and a girl that would only work for so long. So if we gamble, pay too much for some tiny $hitbox that we have to stay in for the next 10 years, we could have some issues.

It's not that we're trying to be greedy, we're just trying to plan for a family that is growing up. Frankly, I just don't think it should be so hard, especially on an income that just 5 years ago was more than enough.

I got my first home in CA in 1993, when I had worked two years out of a top graduate school, on a single salary. It was a modest bungalow in a nice West Valley community that probably is worth 1.1M in today's market, 3 times of what I paid for. I don't see my line of job, which is NOT being outsourced, paying three times the salary across all levels. I don't see three times the population since 12 years ago. 12 years ago, BA already had a worldwide brand name, it is also not getting three times the fame today. Not to mention that our employment hasn't yet returned to the pre-dot com crash period.

So who are buying these 1.1M homes that I was able to afford on a single salary? People who are well into their 30s, two-paycheck families. Don't tell me there is nothing wrong with that. BA is becoming too pricey for young talents (I think I was duely qualified 10+ years ago), which will lead to brain drain in the brain-intensive industries here that gave our homes such ridiculous valuations to begin with. The brain drain problem will even be more accentuated by the fact that in the future all the people who can afford BA starter homes will be double-income couples in their 40s with no time to take care of the children. So we have no fresh supply of new brains, and a sloppy supply of stale brains who are tied down to BA simply because of the paper value of their homes. This is not a sustainable future for BA.

Therefore again, as an owner-occupier, I urge all renters to keep renting in this market, don't buy. Don't pass your hard-earned cash to those blood-sucking, stupid realtors who don't deserve to be in BA because their work has no contribution to the long-term value of BA, and the valuation of my home. If I had to face such a crazy RE market when I graduated 14 years ago, I wouldn't have bought a starter home. I probably wouldn't have come to BA and sweat for it. At the current valuation, there is absolutely no more space for appreciation. The best case scenario will be for such price to come down 10-15% and sustain the nominal value until inflation catches up. So protect your earnings, put in some non-USD hard currencies, and wait for the judgement day. Actually, the more money we stash into non-USD, the more urgently the Fed needs to pull up the interest rate to make USD more attractive for foreign investors to fund the deficit, and the higher the mortagage rate will go for these NAAVLP loans, and the more imminent the realty crash will be.

Most owner occupiers who don't pull out their home equity loan don't mind a crash. If it is lower than what I paid for, I still pay the same mortgage, and I can even get a tax break on realty tax. If it is higher, I am still paying the same mortgage, and I still need to live in it. A crash is even better for those of us who want to upgrade to a better home, because the pricing difference between a mediocre and a prime home is always much smaller during the down time. And of course, we pay far less commissions to the realtors.

Disgusting
This whole thing is grossly out of balance. I dragged my young family through 9 yrs of school + 2 yr residency to give us a better life, and instead find that I’ve done exactly the opposite. So yes, I make 3 times the national median income, but that is severely tempered by a nasty tax bill, 9 years of sub-human wages, and huge educational debt, and I earn it.
I now am scrutinized as a “renter” and the neighborhood morons who bought last year sing me songs entitled “I made 80k last year in equity” , masquerading as the geniuses their poor disappointed mothers always wished they were.

Dear neverbuy.
I couldn't agree more. i am an anesthesiologist . however i cannot see value in buying a house in the central valley in california. in fact i am thinking of moving to indiana. however i got this awsome contract from this central valley california hospital that i will wait for 2 more years.

the nurses in the OR constantly tell me how they are buying houses in vegas etc and every time the new hom,e builders are releasing new houses they raise the prices some more. BTW i take care of lot of illegal immigrants who are construction workers at the new houses. They all have fake insurance cards.

However this is america and being a legal immigrant myself i will honor all the llaws of this land and provide care to the indigant .
However i have no problem with the illegal immigrant because i respect them as a human being and they desrerve compassionate health care. but the sad part is that the construction company is getting the benifit of my charity.

i have 2 more years before i get my citizenship then i am free to do what i really want. I am thinking of moving to a latin american country or just go back to india. the reason i say that is houses and land is still affordable in latin america.

I am annoyed with the enormous mis-allocation of capital that has gone about because of the current housing boom. Literally trillions have gone into building more mushrooming suburbs, more Wal-Marts, more shopping malls and more freeways, instead of America building toward a more sustainable future.

What people do with their own money is their own business and I pray to God not subject to wiser allocation by non-owners.

----

Yeah, I agree with you here. Don't get me wrong, I am a liberal but not a socialist: I don't think that the government should be deciding where we all should live or how we should spend our money. But I reserve the right to be annoyed about it.

And I reserve the right of a bit of Shaudenfreud when I see the SUV owners grumble about the high price of gasoline and switch to driving their wives' Civics. The same SUV owners who, no doubt, who are shaking their fists and honking their horns at me on my bicycyle. Let 'em fume, it doesn't bother me one bit.

---

SactoQT, please don't take my comments personally, they are certianly not intended that way. I am still pretty sure you could find something in Sacramento that your family would fit into and still be in your budget, but I don't really know the details of your situation. At this point, you would probably have to compromise heavily on location or condition. And yes, I have no children yet but one is on the way, so I will probably symapthize with your situation more in the very near future. Having grown up in a very large, poor family, I deliberately waited until I thought I could afford kids before thinking about having them. This meant 35 in my case. But I was still single at that point, so I had to find the woman I was going to marry and live together long enough to know we were compatable before starting a family, which meant 40!

Renting probably makes more sense in your case or possibly moving to a less expensive location. Weren't you considering a move to Albequerque? Still considering it?

---

As for the first home concept, is it unreasonable to think that one should be able to afford the typical first home that the previous generation purchased? In previous generations, Americans were more able to purchase first homes at a younger age than today, it was typically in their 20’s. In California, unless you get money from the Bank of Mom and Dad or some other dubious source, the 20’s gets delayed until the 30’s and then you are living in a lousy home that would only be deserving of the underclass factory and farm workers in previous generations. Outside of California and some other liberal areas with strict land/zoning controls, one can reasonably purchase a home within several years out of college.

Well yes, actually it is. The Boomers got lucky and lived very much better than their parents for a whole raft of reasons, none of which are being replicated in our generation. In fact, real incomes have fallen for the last 35 years due to globalization, the declining power of the labor union and other reasons that are mysterious to me. The only thing that has kept up the American standard of living is the massive infusion of women into the work force. It is unreasonable that Gen X is going to live as well as the Boomers.

I think that a lot of the malaise in this blog is due to this economic reality hitting home (no pun intended) for people in a way that really affects their life.

And hey, if you hate zoning so much, nothing is stopping you from moving to Houston. Good planing is what makes the Bay Area and most other parts of the state so desirable. Lots of parkland, good transit systems, decent schools, clean air and water all come at a price, but they are all worth it to me. Lots of people must agree with me or home prices would not be so high here, would they?

I hear you can still get a nice 4/3 on a big lot for $150,000 in Tulsa.

Jimbo

I'm not offended, I'm simply saying that for some of us it isn't so simple. I didn't have my first child until 30 and at the time (5 1/2 years ago) there was a reasonable expectation that we could own within a year.

Unfortunately my husband's job took a hit with the tech bust. He's a financial consultant and stocks account for a lot of business. Our daughter was born a month after the tech marktet busted and we went to one income at the same time. So we had to reevaluate our position, to say the least. We've been very frugal, but kids do cost money and we haven't been able to save as much as we would have otherwise.

Now, my husband earns enough that had the market not gone so far beyond normal yoy gains we should be able to buy. But we can't, not anywhere any person who is concerned for their safety would want to anyway. I'm not kidding. A teeny tiny 2 bedroom shack goes for $350,000 or more. And there is no question it would be a disaster as a long term investment. A co-worker of my husband bought a house in one of these neighborhoods in the last housing boom, payed $160,000 only to watch it fall in value to $80,000. It took ten years for the property go up in value to what he paid for it. And that was in a market that was less overvalued than this one.

Btw, Surfer-X was the one who was looking at Albequerque. We are currently moving into a very nice 1900 sqft home we're renting for $1350 in an excellent neighborhood. We'd pay twice as much (or more) to buy. We expect to rent for 2-3 more years and if the market comes down 20% we can buy. I think that's a fairly reasonable expectation in this area since there has been so much building.

One more thing. I'm kind of tired as being thrown in this generic Gen-X category and labled lazy or spoiled for thinking this market is crazy. Any rational person should be able to recognize that seeing home values double in a matter of a couple of years is not normal or sustainable. My parents are not as frugal as I am and don't have as much put away for retirement as my husband and I do. I have always been a saver and have sacrificed mightily to stay home with my kids. I think it stinks that I am labled so negatively for wanting to put my kids first and yet still have the nerve to want a home.

Stanman, you said:

The revenues to California state government have been SOARING since the early to mid 1990’s. However, over that same period, the spending has FAR outpaced the revenues.

I just don't believe this. Do you have evidence that per capita revenue to the local and state governments has increased since 2000? I am almost certain that it has not.

Here is a graph of state revenue from 2000-2005:

http://www.lao.ca.gov/analysis_2005/2005_pandi/pi_part_3_anl05.htm

You can see that we are just now to where we were in 2000, but there are far more people in the state.

Here is another way of looking at the same information:

www.ppic.org/main/publication.asp?i=424

Tax burden as a percentage of GDP has held steady since the early 90s and even dipped a bit in 2002. I would like to see that graph to the present though, since the above indicates that it must have gone up a bit recently.

It is per capita numbers that matter here, not overall, since almost everything that government does costs more the more people there are.

QT,

Hey, I am a Gen-Xer too, maybe the first Gen-Xer, but definintely not a boomer. I really didn't see us as the whole slacker, self-entitlement stereotype, since everyone I knew was working hard and not expecting much. A lot of cynicism to be sure, but that is the typical response of the powerless to their situation. It beats despair, at least.

I don't think there is anything *wrong* with wanting it all, but it just isn't going to happen for us, at least certainly not in the way it happened for our parents. Well, not my parents, but you know what I mean. Add to globalization and the increased percentage of corporate profit going to shareholders the spectre of deficit spending as far as the eye can see. I don't really think it has hammered our standard of living yet, but I suspect just about the time I am ready to retire, the whole crumbly edifice will start to sink into the sand. We will feel real pain from it long before that, too.

My mom lives in a trailer on a piece of land that *her* father bought for his retirement. It is in Murrieta, in an area that was very rural when he bought it and is now surrounded by McMansions. I don't know how much longer the city is going to let them live there, but the worst thing that could probably happen to them would be for that land to be condemned and them given $1/2M for it. And I do literally mean the worst. They would probably spend half of it on some poor unfortunates worse off than they are, blow the other half in Vegas and then be on my doorstep looking for a place to live a year later.

My father is a retired probation officer living waaay out in the desert past 29 Palms. He recently bought two homes that he is renting out in Joshua Tree, but they are both cash flow positive, so I can't really say too much about it. He has quite a bit more money sense than my mother and step-father, so I don't worry about him as much.

And oh, congratulations on the move! Sounds like you made the right choice for your situation. You know I think 20% yoy appreciation is unsustainable as well.

Maybe KurtS and I can convince the “godfather” of the blog to move from Silly Valley to Marin and become a tele-commuter!

There must be plenty of good options for "rent to time the market" now. Could be a few savvy investors are dying for some "positive cashflow" (or cashflow at all).

There is ample evidence out there that this market is “complete stupidity” and I am defering purchase decision by 2-3 years.

What's a better term for a situation where home speculators ignore every caution, boldly going where every get-rich fool has gone before? I think quite a few will be completely taken by surprise--despite ample warning. And, that's pretty lame.