patrick.net

"Whats going on? Comments?"

First they were profiting from the distress of the buyers as the market marched ever upward, now they are attempting to profit from the distress of the sellers as the market slows. I bet it's some kind of seminar for buying and selling strategies. Either they'll charge an entrance fee or the Realtor(TM) vultures will just be sinking their talons into every poor sot who walks in the door. Either way it'll just be some sort of glorified marketing event for the Real Estate industry.

For Jill and Bob McDebtor it doesn't have to crash for them to feel the pain. All it has to do is quit going up, and it has. Time to sit back and enjoy.

Well looky what I found:

http://www.financialsense.com/fsu/editorials/kirby/2005/1219.html

The ideas presented in that article give a possible explanation for how the FED could keep deflation in RE from happening and also a possible explanation for why they've decided to stop reporting M3 statistics.

Bernanke has already stated on numerous occassions that deflation is his main enemy, and this makes sense given the amount of debt that is currently propping up the US economy. But if he starts printing money willy-nilly and devalues the bonds that are mostly held by foreigners, he pisses off the rest of the word. Helicopter Ben has a Catch-22: he either screws the American citizens or he screws the holders of our Government debt who can easily screw us by dumping it and causing the yields to spike.

It's good to not have a jumbo mortgage and also not be the new FED chairman!

And some more stuff on M3 if anyone is interested:

http://themessthatgreenspanmade.blogspot.com/2005/11/m3-moneyness-and-conspiracy-theories.html

Look at you people being all chatty tonight. Many who didn't even BOTHER to show up to the blog party. Ahem. Er, um, anyway, I think I had some kind of point here. Oh, right, I draw the line at pink toilets. That's just WRONG.

So, to say something about HARM's questions about the party, it was interesting to me how much everyone's personalities in person were exactly like they are on the blog.

As America becomes more homogenized, I suspect the most overpriced areas will lose some of their cachet, regardless of how great they are. Twenty years ago certain parts of the US were very un-diverse, very limited in their cultural offerings...and that is far less true of many places today. It's easier to find hip, diverse, enlightened cultural pockets in the South and Midwest than it used to be.

So someday maybe all Cali will have going for it is the weather and some pretty scenery, and since too-nice weather has a way of making people complacent anyway, maybe the next cultural renaissance will emerge from someplace unexpected like, um, I dunno, Milwaukee.

I believe Jack is right that places like Marin will always be the most desirable places to the majority, but without a price correction, the smart young people will continue to decide that sunshine isn't worth THAT big a premium...

So someday maybe all Cali will have going for it is the weather and some pretty scenery

Try "right now" on for size. Anyone who still thinks the California lifestyle is so much better than anywhere else has either spent too much time behind the gates in their McMansion planned communities (and/or exclusive hippie enclaves) or hasn't experienced the "urban splendor" of huge swaths of ghetto in just about any major city in this state.

Yeah, we've got the beaches --big f@#%ing deal! For me (L.A. dweller) to get to the nearest beach requires sitting in gridlock traffic for at least an hour sucking down polluted air, so I can then start the always-thrilling Quest for Parking. This is followed by a lovely romp to a trash-filled beach with polluted grey surf, all the while surrounded by the local chapter of Crips/Bloods/(insert your gang here).

As America becomes more homogenized, I suspect the most overpriced areas will lose some of their cachet, regardless of how great they are.

Indeed, we can see this transformation happening right before our very eyes, as the bubble is accelerating the process of driving my generation out of California. I wish the landed Boomers good luck in selling those 1.5 million-dollar McMansions to a nice young FTB couple a few years from now, when they all start retiring and need to downsize.

Sorry, Jack --"Intangibles" my ass! California lost most of its intangibles vs. other regions a long time ago. The only thing it's still got is the good weather, and even that's mainly confined to the pricey coasts. In the broad interior regions where most mere mortals live (Inland Empire, high deserts, Central Valley, etc.), it often gets hot enough to fry an egg on the sidewalk in the summer, complemented with horrible air quality.

He forecloses on the $670k house and just reduced his payment a little. Since he’s on an ARM, his loan’s interest will be high anyway.

It will probably work in the early stage of the crash. Once lenders have reacted to the new market reality, lending standards will be further tightened, and this will no longer work.

"Twilight of the West theory"
-->Go east young man?

"And I LIKE pink and turquoise tile"
You are a sick man.

Vice
A two-jawed clamp used to hold tools or work in place. Hand vices typically hold smaller tools . Bench vices are used to hold stakes for forming.
IMPRESSIVE! (Or dictionary.com?)

“Whats Happenin’”, “Whats Happenin’ NOW!”, “Alf”, and “Small Wonder”.
Give the people what they really want: Mork & Mindy.

So someday maybe all Cali will have going for it is the weather and some pretty scenery, and since too-nice weather has a way of making people complacent anyway
My sister, raised in CA, moved to Philadelphia (actually Wayne burrough(sp)) four years ago. Loves it...loves the seasons, the muted silence of a blanket of snow, and the t-storms. It certainly can happen. (then again, she didn't like the snow nor the beach for that matter).

Hey, NY transit workers on strike...no bus, no sub. Bloomberg says he's gonna walk across the bridge to work. Urges NYers to join him.
Is this the big event?

I love this blog.

Oh, regarding RE: s.san jose inventory recently took a 15% hit over a two day period. They didn't sell.
Spring '06.

OH hell just realized "flak" is not a sick man...but rather a sick woman...err, actually maybe not so sick...chicks can like pink & teal, huh?
Regardless; sorry flak!

Oh, this guy has some interesting commentary, if anyone hasn't seen it:
davidyu.com

Conspiracy theories aside, the correlation of the Fed Daily Repo with the November market rally is rather uncanny (scroll to bottom of page). Foiled again PeterP.

Relating to the NY transit workers vacati...err...strike:

Jose Padilla, 34, said he and fellow Coca-Cola employees are meeting at 4 a.m. to come up with a plan to put more workers in trucks to ensure their product gets delivered in the case of a strike.

"We have to get the Coke to the people," Padilla said. "Just because there is a strike, people don't stop drinking coke." .

Ah jeeze that's too much.

"Oh man and Coke is REALLY BAD for you, read the book Fatland etc if you don’t believe it. "
But it's much better for you with bacardi.

I think they also wanted 1/2 pension at age 50, and 8% annual raises for X number of years. How can a job with a binary performance scale be given 2-3x inflation raises?
The flip side is their jobs are important to support producers...not always easy to valuate such (relatively) low skill but necessary jobs.
I think the employees complained to the unions that they couldn't afford housing. Same reasoning applies to the on-the-sly raise given to the garbage haulers here in SJ by our mayor.

Maybe they'll opt for a CA-style freeway system. Eminent domain and new deal projects...yeah! boost that economy!...taxpayers pockets: because they run deep & they run wide...and because you can.

Peter P,

"It will probably work in the early stage of the crash"

I've really wrestled with this one, the co-worker described here that is upside down can rationalize his actions by saying, "I just did what anyone in my situation would have". Or, "I just did what was prudent at the time".

I'd really like to get on board with that but the truth is the "prudent" thing would have been to keep it in your pants (rent) but nooooo! The buyer was motivated by the greater fool theory and now he's upside down and he doesn't give a rip who eats the negative equity.

What usually happens when we have negative eq? Yep, nearly every time we trade in a car. They just tack it on to the new loan! This what should happen. Will it? I hope so, what we should want to see executed is a "No Personal Soft Landing Clause". The market around me is crashing but with some slick moves I can evade the pain and "walk away" unscathed.

I get accused of being vindictive w/regularity so it's likely true. I do hope that lenders become alert to this tactic early on and not look the other way while these "victims" put the new house in their wife's maiden name or their folks or whatever fancy footwork they're contemplating. This would create more stress than GSE's could survive. My guess would be that the skater would contend that he/she is making a genuine effort to sell their former home and that there is nothing they can do about this darn slow market! Understand, they're not turning their backs on their obligations (I am buying another house). After all they can't be expected to make 2 mort. payments forever. "I had to move for job related reasons!" Yeah, but you're at the same job and the new home is a longer commute!? Tap dance, hem and haw. Let's all make a firm commitment to not allow this to happen!

Just did a search on the craiglist site using keyword "motivated" in my area (NY-LI) and it just reached 100.

While it’s kind of amusing to be seen as the Great Defender of Bad Taste - sort of John Waters-like - I think I’ll clarify: I like the 40s-50s pink OR turquoise tiles - the ones usually bordered with black. Laminate floors, on the other hand, will never recover from the taint of the crash once it comes.

Gah. So much material, so little time. Insert hand-wavey, poorly thought out, and possibly fascist argument for classical aesthetics _here_.

@SQT: thanks for the link. Look at that house in the background. I would commit seppuku before I would live in that thing.

Cheers,
prat

And places like Marin and other way-too-nice areas in the Bay Area ARE truly unique because they have not only one or two nice things about them that draw people to live there, but there is hardly a single intangible that they DONT have!...some of the Bay Areas nicest towns have the WHOLE F***ING LIST! How many places are there on EARTH like that, let alone America?

I've read some good arguments here for the "intangibles" angle. And from my perspective, I'd generally agree: the coastal pacific mountains are my favorite place to live. But, I'd venture to say that's because I was born and raised on the coast

As a balance, I got a different take on "intangibles" from talking to friends/family who have lived in other parts of the US. When they visit California, they're actually not very taken. The ocean and mountains mean little to them. Instead, they care more about cost-of-living, convenience, infrastructure, and community. By those standards, I think they win. After they finish commenting on local culture, they go on to complain about the weather! Too cold (cold summers), foggy, windy, etc. Simply, it doesn't feel like home. (From my perspective, the Bay Area is too hot for my tastes--but I manage.)

When we like our home, it's easy to extend that desireability to include everyone. However, I think everyone has slightly different criteria. And, I would venture to say many Bay Area professionals did not move here for the weather: they moved here for career reasons. I've met too many people who are consumed 24/7 with their jobs to ever appreciate the local environment, other than giving the scenery a casual nod. Such people learn to love a location for the income/spending it provides. I think this is a stark contrast to people like me who love the location first, and work here to stick around.

It’s easier to find hip, diverse, enlightened cultural pockets in the South and Midwest than it used to be.

Jamie-
Great observation. Anywhere has the potential to remake itself--and possibly "out-hip" the SF Bay. Lower costs of living/overhead often provide the biggest opportunities for growth, innovation, and creativity. If the Bay Area outprices itself, it could easily become another rust belt.

Tannenbaum--great find!

I found this particular exerpt rather interesting:
"The median loss was $23,500 on a house sold for $203,000, originally purchased for $226,500."

And, if I'm not mistaken, the actual loss is quite higher, due to transaction costs, mortgage interest (why doesn't anyone count that?), taxes, etc.

For example, I know someone who bought a home in '00 for $529K, now listing for $770K, which by a rough calculation of real costs...they'll just break even.
That is, if they sell for listing price.

Then you will need to add back the rent equivalent.

Sure, I suppose the gist of my comment was...even with appreciation, housing can be an expense, just like renting.

So can you elaborate what you meant with “a rough calculation of real costs”?

PTiemann-
Thanks for fleshing out those numbers, so perhaps my math was off.

My rough calculations took into account mortgage interest paid out (30yr), realtor commisions on both ends, taxes (but not deduction), and in this case, their kitchen remodel. I'll need to crunch those numbers again, and if I slipped up, I'll own up :)

"And, I would venture to say many Bay Area professionals did not move here for the weather: they moved here for career reasons." -- Kurt S

I am one of the people who moved here for career reasons, and the Bay Area DOES have a great local economy, especially in finance/financial services which is the industry I work in. However, the lifestyle and outdoor opportunities of a place are always a consideration for me, and I would think they have to be important for the majority of people too. So I certainly think the Bay Area deserves a premium in cost of living for these intangibles alone. But it most definitely does not deserve the premium it has now--when only 15% of the people can afford a median priced home you don't have a premium at work, you have an unsustainable economic imbalance. Anyway, it doesn't bother me all that much because of the fact that rent is so comparatively cheap. I don't love it here enough to feel the insatiable desire to jump on the runaway housing train at all costs.

H.Z wrote:
If you want to do the accounting right, you add all the cost of housing together

Well, I made an attempt...without getting too complicated.
For a $529K home over 5 years:
$109K down
$135K mort. paid ($34K is principal)
$28K taxes (1.06% for San Mateo)
$3K insurance
$15,870 realtor commision--what is it, 3%?
$50K improvements in this case.

This totals to around $340K for 5 years of home ownership.
Looks like there's $143K in equity, and the rest are costs (~$200K, or $3333/mo.)
So...what do they need to sell for to "break even*" (*not counting alternate renting costs, or opp. costs of that money)?

To break even, I'd want to cover that $200K in costs in the selling price. Oh wait...don't I need to also include the realtor commision in the sale? So, if they sell for their listing price of $770K, what's that--another $23K (3%) or $223K?

$529K + $223K = $752K.
And...they've also bought a new $700K home. So, unless I want realtor fees to eat my last home's equity, I suppose I should add another $21K.
= $752K + $21K = $774K needed to cover costs

Does that make any sense, or am I way off-base here?

"oh yeah forgot…. mountain biking, that came from the bay area too" --seattledude

Yes indeed, and the Bay Area is currently the USA capital of amateur and professional road bicycle racing right now too ya know. They're going to have a big multi-national pro race here in February called "The Tour of California":

http://www.amgentourofcalifornia.com/

SF Renter wrote:
the lifestyle and outdoor opportunities of a place are always a consideration for me, and I would think they have to be important for the majority of people too. So I certainly think the Bay Area deserves a premium in cost of living for these intangibles alone.

Yeah, ok--I may have overgeneralized: people like yourself blend work with an outdoors-based lifestyle. I do that too. That said, there are many locations that allow people to pull this off, for considerably less cost and hype found in the Bay Area. I can think of a dozen coastal or mountain states cities, which incidentally many friends have moved to.

"If only Iron Maiden came from the Bay Area- then I’d truly be proud"

Ever listen to "Live After Dead" live at Long Beach Arena? Best f'ing Maiden album EVER! See it took California to bring out the best in those foine English fellows...

Allman Brothers live at the Fillmore & 2nd set. I listened to those two so much I don't like them anymore!

Kurt, something is wrong with your numbers. I will not use more drastic words as I respect you too much.

PTiemann-
Thanks, and given your reaction, I should review those figures. What about realtor commision costs--are those included in your calcuations too? Am I way off base on that calcuation? We've owned our home for quite a while, and that detail is lost on me.

That said, since this example is not my home, I may have omitted something crucial.
Ourselves, we have no intention to hop between homes if the numbers don't line up well. That is, if my crazy math ever get things right. ;)

Flak, blush.

Jack, your "intangible" argument is getting a bit terse. Let me break it down for you.

What intangible actually means by Surfer-X Ph.D.

The North side of the Golden Gate is intangible. If you bought here say 15-40 years ago, man it fucking rocks, beautiful, clean, walls to keep the riff raff out. It has everything, plus it's a stones throw from Baghdad by the bay in case you're ever in need of a transvestite blow-job at 3:00am to stave off the cocaine crash that’s coming. Here's what it all means, if you are one of the gilded few who live in Novato/Marin/Mill Valley, you clearly are the chosen few, because either you or your parents have an assload of money, or you got very very lucky. If you weren't mind blowingly wealthy, aka Jack, you bought a long time ago, you see Jack from your elevated vantage point, the berets are just snazzier, and the pot stinker, of course you subscribe wholeheartedly to the "intangible" argument, you sitting on what 800K equity. Let me ask you this, you're an art teacher correct? How would you feel about the whole "intangible" argument if you were a new teacher in the Marin school district? Hmmm, puts a whole new spin on "intangible" doesn't it. I will give you this, Marin isn't likely to drop during the crash, too many fuckers with money already bought up everything there, and filled up the city counsels with anti-growth boomers. It's done. But the rest of Ca? Not too much intangible going on. Sure the coast is nice, but $anta Cruz isn't filled with intangibles, there are no jobs in SCruz county, none, just contractors and RE agents getting "rich" off each other and serial refinancing. Sure you can do the Hwy 17 death ride each day to slave away 12hr in the valley before running the gauntlet again. Again not a lot "intangible" there. Same goes for the SLO region, profoundly beautiful, but come the fuck on, intangible? Pretty big word for a pyramid scheme. And furthermore, how does the intangible argument account for prices going sky high in sac, Bakersfield, Fresno etc? From what I can tell there isn't fuck all for intangibles there. So, sit back, enjoy your equity and sleep well knowing that you live in the, and I mean the, greatest place on earth, and pay no never mind to the fact that you would stand about a snow balls chance in hell of every affording to live in the center of intangible if you had not arrived 20+ years ago.

Fucking Typos

Ptiemann--what the Hell are you talking about? You bought in 2000 and capitalized on the biggest property boom in history--good for you, I am happy for you. Buying in 2000 was the right choice for you and and your situation at that time. Anyway, I've only been hanging out here for a few weeks but it seems pretty clear that everyone's consensus is that a bubble began inflating in 2001. I didn't personally consider this thing a bubble untill end of 2004 when I realized it was more than just a spectacular bull run. So I thought the point of this discussion board was that Bay Area RE is in a bubble right NOW and that it doesn't make sense to buy vs. rent right NOW. So what is your point aside from how happy you are with yourself about your pimpin' condo and your RX-8? The only thing you seem to be doing is giving us an example of extreme Bay Area Real Estate inflation, so thanks for that.

Oh and regarding the San Jose/Milpitas/Fremont, the only thing intangible there is why someone would choose to live there.

If California were a body, San Jose would clearly be the armpit.

So what is your point aside from how happy you are with yourself about your pimpin’ condo and your RX-8? The only thing you seem to be doing is giving us an example of extreme Bay Area Real Estate inflation, so thanks for that.

That is the point, he's doing fucking great, so what the fuck is your problem? Everything is great, and if I keep telling myself that, real estate will never crash and I will be always great.

Besides, clearly those who bought RE in say 2000 are well on their way to a Nobel Prize for their brilliance in economics. Those who bought in the 90's 80's 70's already received their Nobel’s. That is what makes this areas so gosh darn special, we losers live with thousands and thousands of Nobel laureates.

ptiemann, kindly do your calculation again, this time assuming zero or now growth and possibly a 20-40% decline, use the selling price of your condo as the beginning cost. Then please tell us all how the typical $anta Cruz resident could afford a 650K condo? You clearly are in possession of knowledge that could benefit us all, do share.

No way. Pretty fucked up and sad.

Yup, time to wake up and smell the astroglide.

it’s also a shame that you can’t buy a place in the place you grew up. now thats fucked up

No thats ok, what's not ok is the swagger boomer-McDebtors who brought their carpetbagging asses here. I can deal with the asspounding in housing because rentals are still ok affordable, what I can really do without is the attitude of the non-native species.

@ SoCal Renter

Exactly, I make about 100K, my wife doesn't work, because if she did, Uncle Sam would eat us for fucking lunch, and I'm sorry, but no matter how you slice it, 100K is a lot of money, and I don't think I am willing to live in a trailer park, fuck it, might as well hang out by the beach, trip out and drink beer.

Theres a monster W. Swell right now, if you live by the coast, go check out the surf, it's impressive.

living in nebraska and having a family or living in the bay area and not having a family.

ah the classic Faustian bargain

Don't get me wrong, I like Jack. But if he or ptiemann were an investment counselor, their advice would be something like this:

Investor: What should I do with my money?

JPT: You should buy yahoo 6 years ago.

Investor: Well it's 2005.

JPT: You should buy coastal RE 4 years ago.

Investor: It's 2005

JPT: Intangible

Investor: Is that a stock?

JPT: Yahoo, 1996

Investor: Again, it's 2005

JPT: We're sitting on an assload of equity, you should buy property in 1999.

Shit, if you look at the data, what it indicates is that Nobel Laureate RE "owners" are also in possession of time traveler apparati. Dang, another thing they have that I'll never have.