patrick.net

control point says

You guys are such douches..

http://research.stlouisfed.org/fred2/graph/?g=tqP&dbeta=1

Interest carry cost of median home compared to median income. 20% down.

Historical numbers, not NAR numbers. I just used math.

Well, you're the one who used NAR data, not me.

I don't know if medians are fully accurate for housing prices, but it'll do. I would include principal + interest + tax + insurance, although ideally it'd include maintenance too.

Even if principal comes back to you, you will eventually have to pay it. That's why I'd much rather pay 8% on a $300K loan vs. 3% on an $800K loan. The interest cost in the first year is roughly the same, but I can pay off the former much quicker and if the interest rate drops, I'm golden.

tatupu70 says

I disagree. If owning is subsidized, causing more people to own, it will necessarily cause less people to rent and drive rental costs down. Renters don't care what your house payment is. It's supply and demand.

That assumes that all of the housing being purchased are being newly occupied and not part of existing occupied housing stock, right? The reality is that assumption is false -- if renting is no longer a viable enterprise, landlords will sell houses to these new owners, so in the long-run. What you're saying shouldn't happen or else there would be a lot of vacants.

If you are a proper investor, if you're not getting the right percentage return on your rental, you should sell and deploy your money elsewhere. Why take the risk if the return sucks?

Someone on PatNet recently suggested that 3% would be an appropriate return on a house in Palo Alto, but that only works if you're speculating. When you're getting 2.7% on 10-year government bonds, 5% in intermediate bond funds, and some crazy number in the stock market, it's stupid to risk your money for 3% on speculation.

hrhjuliet says

Why can't we go back to housing prices being about twice the median income?
Normal markets price adjust all the time. What would happen if Freddie and
Fannie were eliminated? What if at the same time we tightened regulations for
foreign investors, or better yet, made it a law that only tax paying citizens
can purchase property? We could tax the 1% their share and force everyone the
government bailed out to pay back the government at 14% interest. How about more
afforadable housing? How about a tax on anyone owning more than one home? How
about eliminating prop 13 while on this roll? If all that happened, and it could
(and we the people could push for all of the above) then where would housing
prices be?

Politics in a nutshell. 50% wants something and the other 50% doesn't. It is a waste of time. The reason you are for somemthing is also something many are against for the same reasons.

In a capitalistic society, resources are scarce and things people like are coveted and competed for. Things will always get more competitive, not less competitive in the future.

corntrollio says

That assumes that all of the housing being purchased are being newly occupied and not part of existing occupied housing stock, right?

Nope--just that people have to have a place to live. So, they either buy or rent. Those are your two options. corntrollio says

If you are a proper investor, if you're not getting the right percentage return on your rental, you should sell and deploy your money elsewhere. Why take the risk if the return sucks?

Yes--I agree.

tatupu70 says

Nope--just that people have to have a place to live. So, they either buy or rent.

Right, but what you're saying can't really happen easily in the long-term.

tatupu70 says

I disagree. If owning is subsidized, causing more people to own, it will necessarily cause less people to rent and drive rental costs down. Renters don't care what your house payment is. It's supply and demand.

Let's go back to the quote above -- you can't say it's supply and demand and then say that the rental market will act completely independently of the purchase market. Those markets are intertwined, as you apparently agree now. If there are fewer renters, then fewer people will be landlords because it won't be as lucrative, so rents can't go down independently in the long term.

hrhjuliet says

Why can't we go back to housing prices being about twice the median income? Normal markets price adjust all the time. What would happen if Freddie and Fannie were eliminated? What if at the same time we tightened regulations for foreign investors, or better yet, made it a law that only tax paying citizens can purchase property? We could tax the 1% their share and force everyone the government bailed out to pay back the government at 14% interest. How about more afforadable housing? How about a tax on anyone owning more than one home? How about eliminating prop 13 while on this roll? If all that happened, and it could (and we the people could push for all of the above) then where would housing prices be?

Name one thing from above we shouldn't push for, and if we shouldn't, why?

corntrollio says

Except that in certain parts of CA, it costs significantly more to build due to fees and permitting and other government requirements.

That's exactly the point: subsidize demand, penalize supply.

That's the game they play to raise prices, and this is plain evil.

corntrollio says

Let's go back to the quote above -- you can't say it's supply and demand and then say that the rental market will act completely independently of the purchase market. Those markets are intertwined, as you apparently agree now. If there are fewer renters, then fewer people will be landlords because it won't be as lucrative, so rents can't go down independently in the long term.

I've always agreed that they are intertwined. In the long run, the only thing that can lower house prices is more supply. Freddie and Fannie have no effect. But they do allow people who would be renters for life the opportunity to buy. Which takes money from the landlord's pockets and puts it in the back in the pockets of the new homeowner. IMO, that is a good thing.

hrhjuliet says

Name one thing from above we shouldn't push for, and if we shouldn't, why?

Eliminating Freddie and Fannie won't lower housing prices and will make lifelong renters out of people that would like to own. Which would make inequality even worse.

tatupu70 says

hrhjuliet says

Name one thing from above we shouldn't push for, and if we shouldn't, why?

Eliminating Freddie and Fannie won't lower housing prices and will make lifelong renters out of people that would like to own. Which would make inequality even worse.

Bullshit - plenty of countries with far lower house-ownership and less inequality. If there is a correlation, than it's the opposite: the more debt-serfs a country produces, the bigger the inequality. Debt is slavery.

mell says

the more debt-serfs a country produces, the bigger the inequality.

. . .

Gini vs. private DTI levels in the nordic states runs counter to that assertion.

http://runningofthebulls.typepad.com/.a/6a00d83451986b69e20134828024c4970c-450wi

Switzerland has 200% debt to income, LOL.

Furthermore, Mexico has negligible consumer debt and very high Gini, which rather destroys that assertion outright.

hrhjuliet says

and if we shouldn't, why?

mainly

http://research.stlouisfed.org/fred2/series/HHMSDODNS

there's still $9.4T of TBTF assets tied to mortgages. Lowering the asset value by half or whatever would destroy the financial system we have.

It'd be a replay of 2008-2009 all over again.

Plus homeowners aka voters don't want to see their property values decline like that and will always vote to defend their property valuations.

corntrollio says

it's stupid to risk your money for 3% on speculation

the only speculation on 3% in PA is on continued wage and income growth in PA.

http://research.stlouisfed.org/fred2/graph/?g=ttK&dbeta=1

SF to SJ employment

Nominal wages for the top 10% have tripled in 20 years, maybe quadrupled -- average high-level salary has gone from $30,000 ~ $40,000 to $120,000 ~ $150,000.

And this is aside from the fortress nature of PA itself, with all the non worker-bee residents.

Plus a lot of successful worker-bees become ex-worker bees and retire in-place, too. Most of my Gen X peers who beat me to the SV gold rush, sigh.

Plus that's just tech, and not health care and other high-end professional residential demand.

Name one thing from above we shouldn't push for, and if we shouldn't, why?

"Why can't we go back to housing prices being about twice the median income? "

That presumes much lower prices which will benefit some but will devastate others. I don't think 2009 was all that great.

"What would happen if Freddie and Fannie were eliminated?"

Nothing really, private market will pick up the void. The US financial system is too dynamic to not pick up an extremely profitable segment.

"What if at the same time we tightened regulations for foreign investors, or better yet, made it a law that only tax paying citizens can purchase property?"

That implies that low price is a good thing. Good for some, not good for some. Almost everyone was a foreignor at one time anyway so not sure why natives are all that special. We want to attract bright foreignors not alienate them. nothings wrong with recruiting elites, that makes the country stronger.

"We could tax the 1% their share and force everyone the government bailed out to pay back the government at 14% interest. "

Taxing “everyone” but yourself is popular. Unless it effects you, it must be good. I support all taxes I don't have to pay as well and get government subsidized affordable housing.

"How about more afforadable housing? "
Who will pay for it and who will get it? Let's use the 1% money.

"How about a tax on anyone owning more than one home?"

Where in American law that says one home for all? Taxing “everyone” but yourself is popular. Unless it effects you, it must be good.

"How about eliminating prop 13 while on this roll?"

Taxing “everyone” but yourself is popular. Unless it effects you, it must be good.

All the questions amount to is socalism. I get that. but the US is competing against the world in a capitalistic driven society in a smaller planet. Better to compete than to give up.

mell says

Bullshit - plenty of countries with far lower house-ownership and less inequality

Of course. Your logic is flawed. There are many, many factors leading to inequality--home ownership is only one small one. That doesn't mean I'm not right.

mell says

If there is a correlation, than it's the opposite: the more debt-serfs a country produces, the bigger the inequality. Debt is slavery.

Now that is BS. Again I'll ask. What is the difference between paying $2000/mo. in rent and $2000/mo. in a mortgage? Why is one "debt slavery" and the other not??

tatupu70 says

Now that is BS. Again I'll ask. What is the difference between paying $2000/mo. in rent and $2000/mo. in a mortgage? Why is one "debt slavery" and the other not??

The difference is that you can downsize any point in time according to your wallet. You cannot do this in the mortgage case without losing a lot of equity by abandoning or short selling it. Of course it works better if house prices only go up which apparently they do! ;)

Bellingham Bill says

the only speculation on 3% in PA is on continued wage and income growth in PA.

You quoted me without context:

Someone on PatNet recently suggested that 3% would be an appropriate return on a house in Palo Alto, but that only works if you're speculating. When you're getting 2.7% on 10-year government bonds, 5% in intermediate bond funds, and some crazy number in the stock market, it's stupid to risk your money for 3% on speculation.

There's a difference between investment and speculation in my book. Investors try to get returns based on fundamentals. Warren Buffett has talked about this, when he says that the income something is throwing off is much more important to him than the actual share price, assuming the latter is within reason. Thinking too much about the share price is really more about speculation:

http://www.usatoday.com/story/money/markets/2014/03/10/must-read-quotes-from-buffett/6259941/

On investing in stocks as you would in a farm:

"If 'investors' frenetically bought and sold farmland to each other, neither the yields nor prices of their crops would be increased. The only consequence of such behavior would be decreases in the overall earnings realized by the farm-owning population because of the substantial costs it would incur as it sought advice and switched properties. Nevertheless, both individuals and institutions will constantly be urged to be active by those who profit from giving advice or effecting transactions. The resulting frictional costs can be huge and, for investors in aggregate, devoid of benefit. So ignore the chatter, keep your costs minimal, and invest in stocks as you would in a farm."

Bellingham Bill says

And this is aside from the fortress nature of PA itself

Any time someone starts thinking things can never change...

Bellingham Bill says

Nominal wages for the top 10% have tripled in 20 years, maybe quadrupled -- average high-level salary has gone from $30,000 ~ $40,000 to $120,000 ~ $150,000.

You're saying that the top 10% got paid $30-40K in San Jose/Palo Alto in 1994? I call bullshit.

That number seems extremely low, even for 1984. Here's a cite -- AGI *nationally* in 1984 was more than $40K for the top 10%, so income was even higher:

http://taxfoundation.org/article/summary-latest-federal-individual-income-tax-data-0

The real data says that in 1994, the *national* number for top 20% was around $60K and the top 5% was around $110K, and the link above says that AGI in 1994 for top 10% was $68K:

http://www2.census.gov/prod2/popscan/p60-191.pdf

In addition, I suspect top 10% in SJ is actually higher than you're saying currently too. According to this, 16% of people in the SJ metro area (separate from SF) during 2007-2011 are in the top 5% nationally:

https://www.census.gov/prod/2013pubs/acsbr11-23.pdf

Top 5% is about $180K during the period in that study -- probably around $170K or so in 2007 and something north of $185K in 2011. If 16% are at that mark or higher, logically the top 10% in SJ is higher than that mark.

Nationally the top 10% number for 2012 was about $146K, and the top 5% number was about $191K:

http://www.usatoday.com/story/money/business/2013/09/17/census-median-household-income/2825129/

Your figures are highly suspect, and inflation accounts for a lot too. $40K in 1984 would be $90K today.

corntrollio says

You're saying that the top 10% got paid $30-40K in San Jose/Palo Alto in 1994? I call bullshit.

I was thinking about starting salaries in 1990 (what I am familiar with) around $30,000 or so for worker-bee jobs in SV. I guess the outer range for experienced worker-bees was 2X that in 1990, but certainly $60,000 was very low for anyone once the dotcom boom got going in the late 90s.

http://research.stlouisfed.org/fred2/series/SANJ906INFO

shows the employment trend in part of SV.

Bellingham Bill says

t'd be a replay of 2008-2009 all over again.

Really? What was so bad about those years? Prices going down certainly will not hurt any working family under 45 that I know of.

SFace says

That implies that low price is a good thing. Good for some, not good for some. Almost everyone was a foreignor at one time anyway so not sure why natives are all that special. We want to attract bright foreignors not alienate them. nothings wrong with recruiting elites, that makes the country stronger.

Who is it good for besides banks, real estate professionals and people who already own and plan to make a huge profit? That's a pretty small group.

As far as all of us being foreigners at some time, that's all great and dandy, but the truth is that the system can't properly work if you allow people who are not citizens to own land within a democratic republic; it undermines the very principles of a republic. If they want to own, great, become a citizen through the same route that everyone else goes through here. If it's worth it to them they will go through the process properly and become a citizen.

hrhjuliet says

What was so bad about those years? Prices going down certainly will not hurt any working family under 45 that I know of.

Money Fund, Hurt by Debt Tied to Lehman, Breaks the Buck**

http://online.wsj.com/news/articles/SB122160102128644897

Some people think banks just lend out money out of nothing, so when loans go bad nobody gets hurt.

That's not how it really works. Loans are funded from other people's savings, just like "It's A Good Life".

You want to cut home prices in half, you're going to have a $6T overhang between banks asset values (their loans) and what they can liquidate the collateral for. Probably worse, because the more recent the loan the crappier it was in 2008.

If the system had been allowed to evolve its own work-outs without massive Fed intervention 2008-2010, Wall Street would have looked like the end of Fight Club, every pension fund in the US would be twice as broke as it is now, and we'd have had many riots on the scale of LA 1992 due to the massive commercial instability having TBTF actually fail would produce.

TBTF was and is the financial cardio-pulmonary system of the economy. If it dies, our economy dies with it.

Oh look, housing for San Jose City Employees! http://www.businessinsider.com/the-jungle-largest-homeless-camp-in-us-2013-8?op=1

Teachers, librarians, engineering techs and all the rest of the clearly uneducated and lazy city employees can be found at this new low income housing development. Prices don't need to come down. For example, teachers make below the poverty line in San Jose, if teachers would suck it up and live in a homeless encampment they would be able to save for their retirement. Living below the poverty line builds character. We must keep prices high to save the banks and boomers! Real estate agents, boomers and bankers deserve to be protected.

We must keep things inflated, or we may have to live without our toys. No toys? No vacations? No new stuff? So some people can have shelter and food? Never!

Oh golly, I need to go to bed....I am rambling like the crazed sister of AF. Call me River.

hrhjuliet says

Teachers, librarians, engineering techs and all the rest of the clearly uneducated and lazy city employees can be found at this new low income housing development. Prices don't need to come down. For example, teachers make below the poverty line in San Jose, if teachers would suck it up and live in a homeless encampment they would be able to save for their retirement. Living below the poverty line builds character. We must keep prices high to save the banks and boomers! Real estate agents, boomers and bankers deserve to be protected.

We must keep things inflated, or we may have to live without our toys. No toys? No vacations? No new stuff? So some people can have shelter and food? Never!

Oh golly, I need to go to bed....I am rambling like the crazed sister of AF. Call me River.

That was a pretty good first effort composite of the generally demented posters on Patnet. Thank goodness you chose not to channel Robber Baron.

hrhjuliet says

Bellingham Bill says

t'd be a replay of 2008-2009 all over again.

Really? What was so bad about those years? Prices going down certainly will not hurt any working family under 45 that I know of.

Besides the mass unemployment?

The problem is that when you don't have a job you can't afford a house, no matter what the price.

Mass unemployment would not change if home prices were low or high, except maybe in some specialized fields dealing in real estate. If prices were not so high for shelter people would have a higher sense of security when in between jobs.

Now if a person looses their job they lose their home. This is why our parents, grandparents, and great-grandparents thought so low of the idea of buying a home more than twice your income. It was considered risky and downright stupid by every generation before this one all the way back to the American revolution. I know, it's different now, and there is an unbreakable vow with the banks and feds and we can never go back to sane and normal again because its the first indestructible institution in all of history, blah, blah blah. Or maybe we are simply not willing to make the sacrifices needed to renew a healthy real estate market. Maybe that's the problem with the government too: us.

As a society we are selfish and we are cowards, and we will get a selfish and cowardly republic as a result.

Maybe I am a populist, or a fool who has watched too many Capra movies, but I don't feel necessities should follow the rules of other investments. In my opinion, they shouldn't be monetary investments at all. Water, food and shelter should not be something a healthy or postive government or society uses as speculation, or some form of investment. It would be a sign of sickness in a civilized republic. I do think gluttony of any necessity is a sign of mental illness in the individual also. We practically praise gluttony in this society. It's wrong, and it will be part of our undoing

Gluttony, derived from the Latin gluttire meaning to gulp down or swallow, means over-indulgence and over-consumption of food, drink, or wealth items to the point of extravagance or waste. In some Christian denominations, it is considered one of the seven deadly sins—a misplaced desire of food or its withholding from the needy.

hrhjuliet says

Now if a person looses their job they lose their home.

because they bid up the price in the first place!

HAMP and other bailouts to people who bit off more than they could chew in the previous decade really get my goat!

Here I was being responsible, paying $75,000 on rent instead of buying 2006-2010, and what bailout do I get? Nothingk!

Houses are priced above replacement value due to lack of alternatives (try living without *any* housing services for a couple of days) and the profits available from renting the places out instead of living in them.

his is why our parents, grandparents, and great-grandparents thought so low of the idea of buying a home more than twice your income

Those days are long, long gone. There was still buildable land in or near urban cores. NIMBY was less operative and density could be increased too. Banks only gave out 10 year balloon-payment loans, requiring refinancing every 10 years, and required 20% or whatever down, and also only looked at the man's income in setting credit capacity qualifications.

I was going to say interest rates were higher:

http://research.stlouisfed.org/fred2/series/MORTG

but in the 1940s and 50s they were what they are now, 4-5%.

of course, the current price level was set with 3-4% lending, and I think we're going to have a bit of adjustment -- some of the YOY 20% gain is going to be given back -- if rates keep going up.

The key element is the RENT LEVEL.

If my rent is $1500 now and going to be $2000 by 2020 (5% pa rise), it makes perfect sense to buy a $500,000 place RIGHT NOW.

$500,000 with 20% down @ 4.5% fixed for 30 years is:

$1840/mo PITI less the P
$2400/mo all-in outgo which includes ~$600/mo in principal pay down

Over the 30 year life of the loan the average monthly cost is ~$1200, and in 2044 and beyond the monthly cost will be $700/mo.

What will rents be in 2044?

hrhjuliet says

Mass unemployment would not change if home prices were low or high

No, but it does occur when housing prices FALL. Witness 2008/2009.

If you could magically reduce all housing prices without affecting anyone's equity, then you'd be correct. Unfortunately, that's not possible.

To heck with my equity, the prices need to come down. I'm willing to make such a simple sacrifice for returning the market to a sustainable price for working families.

hrhjuliet says

To heck with my equity, the prices need to come down. I'm willing to make such a simple sacrifice for returning the market to a sustainable price for working families.

That's very noble of you, but unfortunately it will still lead to layoffs and high unemployment as the economy will go into recession.

Call it Crazy says

tatupu70 says

hrhjuliet says

To heck with my equity, the prices need to come down. I'm willing to make such a simple sacrifice for returning the market to a sustainable price for working families.

That's very noble of you, but unfortunately it will still lead to layoffs and high unemployment as the economy will go into recession.

Proof??

2008 crash.

tatupu70 says

hrhjuliet says

To heck with my equity, the prices need to come down. I'm willing to make such a simple sacrifice for returning the market to a sustainable price for working families.

That's very noble of you, but unfortunately it will still lead to layoffs and high unemployment as the economy will go into recession.

To create jobs We need more real estate construction, more sales, more confidence, more willingness of banks to loan.
That is why we need higher real estate prices, and that is why the government will make sure higher prices will come.

It is not about being noble, it is about making sacrifices and taking responsibility so the next generation has a better life. The inflated prices are not a fact of life forever set in stone. The prices are creating a fuedalist like market. What future do my students have if they don't inherit in this market? So only the rich and the children of current homeowners get a chance? That's so incredibly wrong.

Yes, I am willing to risk my equity, and we all should be willing.

Bellingham Bill says

If the system had been allowed to evolve its own work-outs without massive Fed intervention 2008-2010, Wall Street would have looked like the end of Fight Club, every pension fund in the US would be twice as broke as it is now, and we'd have had many riots on the scale of LA 1992 due to the massive commercial instability having TBTF actually fail would produce.

TBTF was and is the financial cardio-pulmonary system of the economy. If it dies, our economy dies with it.

Nonsense. Pension funds are/were insured by government. So are/were depositors up to a very large amount (via combinations). You are out of your mind if you think people having more than $100k cash savings in each bank across several banks would be rioting like the hooligans in LA 1992. What? Drive their S500 or Land Rover through the grocery store door? or to steal from the store a TV that is half the size of the one already sitting in the living room?

A bailout, if any, should have involved the government deposit insurance agencies (i.e the depositors), not the TBTF banks that ran the financial system to the ground.

hrhjuliet says

It is not about being noble, it is about making sacrifices and taking responsibility so the next generation has a better life. The inflated prices are not a fact of life forever set in stone. The prices are creating a fuedalist like market. What future do my students have if they don't inherit in this market? So only the rich and the children of current homeowners get a chance? That's so incredibly wrong.

Yes, I am willing to risk my equity, and we all should be willing.

What makes you say the prices are inflated?
If a buyer and a seller agree on a price, that's the market. You can't butt in and tell others what to buy and sell for.
It's a free country.

If it's still a free country, than I also have a right to my opinion and my vote. It is an inflated market and it needs to come down, and it will. I can choose to vote and protest against the bailouts and every other scheme that created this inflated disaster.

The seller and buyer of water can agree that $100 dollars a gallon is a fair price for drinking water, and the rich will buy it, and the rest of the population will become serfs trying to survive and pay for water. But it is still wrong, and not something that a positive civilization should engage in.

Shelter is a need, and should not be primarily an investment. Beyond that, we have a society that hopefully still believes in the principles this country was founded on and hopefully still want to see a thriving middle-class and life worth living for the next generation.

hrhjuliet says

Shelter is a need, and should not be primarily an investment. Beyond that, we have a society that hopefully still believes in the principles this country was founded on and hopefully still want to see a thriving middle-class and life worth living for the next generation.

I agree shelter is a necessity. Do you know our country is the most housed nation in the world?
Why do you think that is? We must be doing something right.

Call it Crazy says

Strategist says

What makes you say the prices are inflated?

Here's the current situation:

http://patrick.net/?p=1239961

Does not indicate prices are inflated.

House is both a shelter and an investment. Without being an investment, durable houses wouldn't be built or maintained.

The issue is the interest rate and easy credit availability. With interest rate artificially low and over-abundance of easy credit money, capital assets can be over-priced thru forward discounting on too-low of an interest rate therefore resulting in bad investment.

Call it Crazy says

Strategist says

Call it Crazy says

Strategist says

What makes you say the prices are inflated?

Here's the current situation:

http://patrick.net/?p=1239961

Does not indicate prices are inflated.

Then why are sales DOWN by double digits YoY when inventory is UP by double digits YoY??

Sales are down, not prices.
Sales are down because of unnecessary tight loan requirements. If they loosen up as they should prices would go even higher.
Higher home prices are good for the economy, not lower.

Reality says

House is both a shelter and an investment. Without being an investment, durable houses wouldn't be built or maintained.

Believe it or not, some people maintain their home so it's a safe and enjoyable place to live. Some of the most durable homes I have ever been in were built by the owners with no intention of selling it or renting it. Durable, aesthetic and well-made homes decreased when prices began to rise. I think bulls and bears would agree on that.