patrick.net

I am probably on the extreme low end of what I'm willing to pay for rent. I have never paid more than $600 a month to rent, and have managed to do this simply by always choosing to rent an entire house with 1 maybe 2 other housmates.
I also manage this by living in less "sexy" areas that are off the radar of the chic-metrosexual crowds. Thus I live in Alameda. Close to Oakland, SF, and Berkeley, but always about half the price of living in SF. Takes us 15 minutes or less to get downtown.
I would be willing to pay as much as $800 a month, but the whole idea behind paying cheap rent is that I'm able to save over 50% of my take home pay and save up for that mini ranch in TX or large log home in NC. If rent were to go up past that amount, then the fundemental exonomics of the region wouldn't make sense to me anymore and I'd have to cut my losses and ditch the area entirely, which I wouldn't exactly be that upset about anyhow.

George,
All I can say is that I hope something on the level of Florida's reductions come our way over here in Cali. The big problem here is that everyone makes too much money. I skimmed over a lot of the posts here, and the fact that many people were comfortable paying as much as $2,000 a month on rent tells me that the affordable level in Cali is signifigantly higher than FL.

Funny thing happened this weekend. There's this sort of drab,boring 3 bedroom house in my hood has been for sale since October. There's this kind of older Asian guy that owns it and sits outside next to the for sale sign on weekends. So far, there's been balloons, signs set on top of cars, signs alongside the for sale sign that says:" I'm beautiful inside!" and a few changes in Realtor companies. I figured the guy must be asking too much for the place. Anyhow, I saw a ad for it in the paper that said: "Price reduced!"
The reduced price is... drum roll..... 1.2 MILLION DOLLARS! No, I didn't misquote this. I wish I could find the ad online because if you saw this place, you'd absolutely piss your pants. I think the guy who's selling it just assumes that eventually, some idiot's going to buy it and he can move back to Vietnam and be a bazillionaire over there or something. NOBODY in their right mind would pay even 600k for this place.

George,

I have to agree. One of the most important market dynamic that needs to be in place to "entice" bottom fishers is the expectation of a fairly swift recovery or a "reflex rally". When the first round of bottom feeders comes in and DO NOT convert into near immediate profitablility it scares off the other BF's. (Not to be confused with a FB). BF's are not by any means long term investors. Typically these people are graduates of the "School of Hard Knocks" and have little patience to cover the carrying cost of an under-performing asset.

George,
I took a trip this weekend. The trip took us through Sacremento. As I see it, Sac might as well be Palookaville USA compared to the Bay Area. It seriously looks like a big cornfield with a ballion new ticky-tacky stucco homes. There are literally entire chunks of the city that are crammed packed full of these houses that all look the same. What's odd too is that all of these developments have cheesy flags that surround their perimeters, as if you're really sailing past used car lots, or perhaps a trailer park. I can see why Sacremento's housing market will and is crashing: They did the uttermost to make the area look almost unattractive. Go about 45 minutes down the road and the story in the BA is really diffrent. For one, the only new homes being built are the ugly condos and lofts in SF. Lofts were never meant to be upscale, expensive, or chic places to live. They were and should be for starving artists. Yet in SF, a loft is a status symbol, which to me seems ludicrous. I wouldn't want to live in one of those even if they were free.
The fact that people are willing to pay 700k for a loft in a crummy part of SF is proof that SF and the BA is still very diffrent than Sac. I just had the misfortune of choosing to live here years ago without realizing it was the most insanely priced city in the country.
I think I make pretty good money. According to the BLS, I make almost double the state average. But listening to some of the folks I know, they must make double that, and they too are priced out.
I'm with you on whether California will have an economic fallout. The obvious seems to be there: Wages are double or more for a job that people can do in an increasing number of other cheaper cities, More people are moving out than in, and that the economy here is more heavily tied to RE than anyone dares to admit. This isn't the biggest thorn in the paw. The biggest folly is that most Californians assume that regardless of whatever warning signs exist, the state will whip out some newfangled technology, find more smart immigrants, or find another cash cow to save them once again. There is a feeling that high wages, high tech, and high prices are here to stay, and that just because it's California, then that makes this state alone safe from any economic faults the "rest" of the country might experience. Once this thing comes unravveled, I expect a lot of dropped jaws and looks of disbelief.

Any notion of "salvation" from the bustling throngs of BF's should be quickly disbursed b/c by their very nature if they do not see a "quick turnaround" they will only cut their losses and put it right back onto the market and I do mean post haste! Bottom feeding is all about "living to fight another day". Cutting off a finger to save the hand (if you prefer).

Mike,

LOL! I believe those "Iranians" still prefer to call themselves Persians. I agree that whenever a government starts calculate for fines in its budget, there's a big moral hazard that the fine is not for keeping peace but to get money improperly.

WWII,

I totally agree. Although California has been lucky to maintain an extremely high wage in the LA and BA, there's no guarantee of that continuing. To plan for continued future wage levels to support 4X the national avg RE prices is just a bad planning. While BA does have some incredible advantages for the rich, there just aren't enough rich people, and most people will care much more about jobs, school, and having a decent life -- they'll leave once that's no longer the case. Prop 13 and people who bought in at 1/3 the current price can delay that, but that day of reckoning will come unless California pulls up another amazing save, and that's not statistically likely.

burbed,

That's pretty unbelievable. 500K for a circa 1980 trailer? Does the trailer come with the entire rest of the trailer park?

I was thinking of living in an actual RV. It's a little tricky, since I need to find a safe and quiet parking place and also a place to dump and pick up water. However, there are some advantages to RV living, I could do a lot more roadtrips without packing.

Astrid,
I recall someone else mentioning trailers the other day and I did some research. Apparently, Prefab and manufactored home sales have been rapidly increasing. The reason is that in the case of prefab houses, the quality in some cases is just as good as something built on site. You may also find it interesting that of the majority of the homes built after the 06' quake in SF, most of those homes are prefab. Many came on a flatbed kit from Sears which could be had from 5-700 dollars.
The reason prefabs were chosen after the quake was because they were cheaper. Most families didn't have insurance, so the safest return to a home was a prefab. SF is proof that prefabs work, and what's more, they are still way cheaper than paying someone to build a home on site.
A home such as this one: http://tinyurl.com/npklt
costs around 85-95k. Not bad considering the same home would cost over 3 times this amount to build. Of course the land would be the pricey part, but if you ould find a rental lot, the costs would still be signifigantly less than buying, plus you would own the house.
On the other hand, manufactored homes are more like cars. They are more difficult to update and lose value almost immediatly. But... they can be had NEW for as little as 30k.
I think that under the economic circumstances we now face, mobile and prefab homes could be a good bet.

SQT,
The houses actually look fairly decent. Way better than the Mcmansions that you see back east. But with the degree of anonymity they all have, the prices are bound to come down hard. The only thing that might prevent this from happening is the fact they there are plans to build a high-speed rail system that connects sacremento and SF. If that's the case, then people in SF will move to Sac in masse because it will offer the ability to get to SF in less than an hour at home prices that are as much as 50% less than those in SF.

WWII,

I would like to build pre-fab when I have the money and find a place I'd be happy at for at least 10 years. I'm a glass and concrete freak. Right now pre-fab is at the forefront of the the modernist houses and as you said, they're actually better put together than site-built, especially anything site-built during the rainy season.

I would lose some customization options, but in return, I get a much cheaper product built on a predictable time frame.

I got to hark back to OO's comments on Toyko RE. I think if the prices there could crash, and by as much as they did, a large magnitude BA RE price crash is not only possible but extremely likely.

It's sort of sad that the US will likely partially inflate itself out of this hole. I like the idea of a crash so severe that nobody will ever look at a house as an investment anymore.

Btw, someone on Ben's blog just posted on this very topic! The article shows quite clearly that a rally in the stocks of "pre-fab" mfrs. runs counter-cyclical to "stick built" on site homes and has done so since the 1970's. Another indication of a market past it's peak (like we need one!)

I've had friends over the years that bought raw acreage in Central and Eastern Oregon and started by plunking down a "single wide" that was basically given to them if they would haul it off. Typically used for hunting cabins (and card playing) they upgraded over the years. A better double wide "repo"? Well, yes. Some are now nice enough that the wives will actually spend the night there and the older single wide is still used for hunting, card playing (and drinking) or is hauled off or burned on site by the FD. These folks bought the land for a song (and in many cases would still sell for a song) if not for the almost new double wide situated on the lot today.

http://tinyurl.com/msdup

NY Times story about HS dropouts attending college. Unbelievable!

DinOR,

I really think much of Oregon is suited for pre-fab and trailer type constructions. Parts are really rainy and shouldn't have stick-built. Other parts are really sparsely populated and it doesn't make sense to get a crew to build one in the middle of nowhere.

astrid,

Most Oregonians do treat mobile homes like a disposable item. All up and down the coast you'll see RE adds like, "The value is in the LAND!" Meaning that there's either an aging mobile on the property or there's a house that looks like it was used to make meth. Anyway you slice it mfr. homes make sense for a lot of us. Oh, btw we looked at a 50/50 time share at Otter Crest (on the coast) and it was very reasonably priced. 80K for a 1/2 share BUT the monthly HOA's were $450! Since we'd be lucky to spend 4 nights a month there this would be more expensive than most hotel rooms!

George,
As soon as I saw that the report about rising rents was from the NAR, I had the same exact thought: If they can't get people to buy houses, then the next best thing is to scare em'. There is really no reason to raise rent in my area. There are hundreds of houses, many that have been empty and for rent since the fall. How the expect to rent them for more money when they can't even fill them at market rate is a mystery to me.

burbed,

Perhaps. But rent has barely budged in the BA and barely kept up with inflation in many other places. A one time move is no biggie. Rent can only go up so much unless it is accompanied by wage inflation.

>Apartment rents expected to rise 5%
>Apartment rents are expected to increase 5.3% this year — about double last year’s increase — the National Association of Realtors says.

Yes, the NAR/Liar-reah cartel. Always your #1 source for unbiased, spin-free market information. Let's try using the ol' Patrick.net B.S. filter to parse these rosy assumptions, shall we...

(1) Large numbers of marginal “homeowners” who used to be renters pre-bubble and who might revert to being renters in the near future. Prognosis: possible increased future demand for rentals.

(2) Increasing rental supply from overbuilding (includes new apartment buildings as well as recently "converted" condos that will revert right back to being apartments) and large numbers of SFRs rented out by f@cked flippers who find they cannot sell for the required price.
Prognosis: greatly increasing rental supply in near future.

(3) Forclosed FBs that move away to less expensive region or move in (double & triple up) with current homeowner(s) to share expenses. If unemployment/layoffs really take off in a big way, this is sure to be a significant factor.
Prognosis: decreased rental demand.

So, our rental Supply/Demand equation works out something like this:

Rental DEMAND = those currently renting + those foreclosed on in near future - former FBs who move away or double/triple up with other FBs.

Rental SUPPLY = current rental stock + recently converted "condos" that convert back to apartments + flipper-held vacant unsold property.

Based upon the above, I see rental demand barely budging (if at all), while rental supply is sure to skyrocket. I fail to see where significant premiums can be demanded from a shrunken and not-growing pool of gainfully employed renters.

More fantasy. There are a lot of things that I worry about. Uncontrolled and spiraling rents aren't one of them. My lease ran out in March and I now rent month to month. When the lease expired I didn't hear so much as a peep from our management company! Not a peep. The local paper is flooded with brand new units just like mine (some arguably nicer) renting for $850 a month and they're sitting. Frantic and over leveraged will make flailing efforts to make rent hikes stick but when it boils down to getting some, or getting none they'll suck it up. Sorry NAR, not happening.

HARM,

So true, so true. Good points and perspectives as always! The only thing we may not have covered is the state laws that pertain to former FB's. I don't know how long it takes to evict a soon to be former FB but I'm sure they will live "rent free" as long as they possibly can. Once the lender is done bending over backwards to not take the house back and it goes into FC the bank (and the property) may not be in the best place to "re-enter" the market as a rental if it can not be sold at auction. Well I have faith that rental agencies will be standing by to alleviate the lenders pain by sprucing them up, getting a "For Rent" sign up post haste and begin screening possible tenants ASAP! There's the "growth end" of the industry for ya! Probably won't even need a realtors license.

HARM,

Your rental equation doesn't take into consideration wage inflation. Since wage inflation tends to (and increasingly more so) lags general price inflation, the equilibrium price point in a microeconomic analysis will tend to move upwards for the same supply/demand.

I am also not convinced that the rental market is a price-takers market. I think significant price power lies with landlords, some of it legitimate and some of it collusionary. Even ignoring collusion, the structure of the market is anything but a perfectly-competitive commodity market. That means, loose up, sticky down, as the suppliers capture benefit away from consumers.

I think all this is why real-estate, whether housing or rental markets, escape many common economic analyses methods. It gets complicated fast, and we're even ignoring locality differences.

the National Association of Realtors says.

I typically get all my housing related data from these guys, as they are the choice for unbiased news on housing. I then flip through National Enquirer to catch up on Elvis, Jim Morrison and Bigfoot, as they off the best source of unbiased information on their whereabouts.

$3750/mo - Lower than market rate? see this Craigslist ad:

http://tinyurl.com/pfkce

And they want to reserve half the garage for themselves? Any takers?

Surfer X,

I meant to include in my comments above just how desperate NAR must be to dredge this up. If the National Real Estate Inquirer ran a headline like: RENTS SET TO QUADRUPLE! Better Buy Now (while you still can get in) well then yeah, I could get on board with that.

Randy H,

I can't speak to the BA but what may be "different this time" is that there are so many new and untested landlords out there. Most of these guys wanted to be flippers not landlords. Right now specuvestors are under extreme pressure (IMO) in most markets. By the time they figure out they can't get a renter to cover their "monthly nut" many will be in real peril. I'll go so far as to say that given what I've seen on C/L these folks do not have a clue as to what they are about to get into. Since so many of these units are in "weak hands" I find myself more concerned with how the lenders will deal with vacancies, not specuvestors.

$3750 for that place in PA is not out of line with that segment of the rental market. Similar places in Mill Valley are going for over $4k/mo, and often with no "discount" for long-term leases. (In fact, I'm seeing discounts given to mo-to-mo renters, which might indicate a bias by landlords towards believing rents and demand are rising).

DinOR,

My cold, rational answer (which may not be entirely realistic) is that such weak "landlords" will be driven from the market in short order. I expect that many who can sell, maybe at a loss, but avoid foreclosure et. al. will be selling to shrewd investment income property landlords. These are the kind of guys who have scale and/or sophistication to manage a portfolio of homes. The remainder of the specuvestor homes should be recycled into inventory after foreclosure/short-sale/etc. I don't see many of them sitting around mismanaging a loss property for long. The real risk there is that some borderline neighborhoods (the kinds that used to be run-down, but cleaned up alot due to boom gentrification) start declining as marginal specuvestors learn how to be slumlords.

$3750/mo - Lower than market rate?

What they really mean is that its lower than their Monthly PITI.

Higher Rents -> higher CPI -> Fed must increases rates to hit their inflation target -> ARM crowd slammed -> Housing prices slammed. NAR should be careful what they wish for. "Official" 5%/year inflation would force the Fed's hand much further than they've already gone.

30 Yr fixed crowd would love this scenario too, provided they stay put.

Randy H,

I guess I really hadn't thought about it past the "point of impact" where the avg. specuvestor had/will/eventually lost his shirt. You're right, there will be unintended consequences. The neighborhoods on the "cusp" may take it on the chin. Of course Mr. Specuvestor will be on to the next big thing.

Of course Mr. Specuvestor will be on to the next big thing.

Gold anyone? I've got a great inside strategy on copper too. (lol if it weren't so true)

To all whom attended the Housing Crash Bash 2006!

Sorry I wasn't able to be there! Sounds like it was gas.

To all whom attended the Housing Crash Bash 2006!

Sorry I wasn’t able to be there! Sounds like it was gas.

DinOR, there's always next time! Everyone had a good time, evidently there was a fair amount of adult beverages consumed.

Randy, you said...

I expect that many who can sell, maybe at a loss, but avoid foreclosure et. al. will be selling to shrewd investment income property landlords.

I beg to differ, shrewd investors will not do this until:

a) rents cver costs and provide for a return on investment, or
b) the same shrewd investors figure they can hold to flip for a profit...

I don't see either of these situations happening anytime soon.

Repo'd properties will be sold to owner occupiers who think they are getting deals, all the way to the bottom, as Mike outlined so well above.

Don't try to catch the falling knife!

That being said, if it becomes affordable, some will buy and not care if it's not the bottom.

That's my own particular plan, I have no vested interest in walking around saying I outsmarted everyone and bought at the bottom.

But those shrewd investors are likely to be conspicuous in their absence - that's why the market must go down!

tsusiat,

That's pretty much my take on it. I don't visualize anyone "swooping in" to throw money at it! It may not make sense for some time. Because these guys operate on a local basis for the most part I can't see anyone stepping in (firstly) to "float" or support a falling/failing market. Even if they could support prices (to protect their existing portfolio's value) would they be able to rent them out at a level that would be anywhere near solvency, let alone profitability?

tsusiat,

I agree with all your points. I only add that a falling market means a return to "location, location, location". Shrewd investors will be buying at points "all the way down", because the ride down will be marked by different neighborhoods/localities/regions hitting support at different times. RE isn't one market so much as it's a million micro markets all influenced by some common macro variables.

As for "catching a falling knife": I'm with you. My utility break-even will be realized with merely a minor correction. I may try to exploit some timing, but I don't view my home as an investment so much as a long-term savings vehicle with significant lifestyle implications. If investments are knives, then homes (as we've defined them) are corkscrews. It still might hurt a bit to catch a falling one, but if you plan on drinking wine ... (please spare the wine-in-a-box tangent)

Randy,

corkscrew analogy is probably apt, but for wine in a box, how do you catch that plastic spout? If it's falling with the box still attached, that might hurt!

Randy H,

A return to anything resembling sanity would be welcome! Once this has pared down to location, location, location we will be able to work on price, price, price! Pricing will cure all, and when we get to a point where we've ejected the specuvestors the attractiveness of the overly generous tax preferred status of RE will begin to lose it's lustre as well. If at the end of the 2 year period (just for example) the property is still pretty much valued at what the investor paid but he can show $50 a month in positive cash flow then it makes more sense to keep it vice flip it. We need to get back to that place.

It was a warm and friendly group of people…not nearly what you’d expect of bad @ss X He is definately 37% less offensive in person.

I would say even less offensive than that, though his fiance (nice catch, btw, Mr. X) hinted he was on his good behavior ;-). Based on his online personna, I was expecting a 40ft tall fire-breathing Boomer-killing machine, but X was a surprisingly gracious and mild mannered host. The wife and I had a great time. Our only small disappointment was we never got around to crashing an open house and witnessing X perform his patented "upper-tanker".

Linda, Joe & Mr. X:
What do you think about me posting just one group photo? Would this provide too much temptation for our resident trolls?