patrick.net

Those that understand interest, earn it. THose that don’t, pay it.

This says it all.

Those that understand interest, earn it. Those that don’t, pay it. That sums up our homedebtor sheeple.

Well said. This should be tattooed on the forehead of every sub-prime homedebtor who ends up turning in the keys to the bank (or REIT, Mutual fund, Chinese bank, whatever).

What??? You must be kidding. The housing market here was absolutely nuts at the height of the tech bubble. You had to bake a cake and grovel on the ground for a seller to even spit in your direction. People were bidding up prices like crazy. Yes, prices are even higher now, but they were very high back then as well.

Not really. Condos that could be rented for $2000 a month were usually under $450k. That translates to a P/E of less than 20. Not cheap. But acceptable.

Not really. Condos that could be rented for $2000 a month were usually under $450k. That translates to a P/E of less than 20. Not cheap. But acceptable.

Condos that can be rented for $2000 a month nowadays are usually above $750k.

Yes, prices are even higher now, but they were very high back then as well.

Not even close, Face. The median CA home price back in 1999 was $217,510, or roughly 4-5X median household incomes. In October 2005 (latest figures) it's $538,770, or more than 11X median incomes.

CAR historic stats 1968-2004:
http://www.realestateabc.com/graphs/calmedian.htm

CAR stats today:
http://www.car.org/index.php?id=MzE3ODY=

Look at the hospital situation and you will really see where this is a big problem on people that are not here legally. They all go to the emergency room for a routine cold. Many hospitals have closed emergency rooms because of this.

The society has become too tolerant on illegal immigration. For instance, anyone who knowingly hires illegal aliens should face jail time.

Interest is your companion every moment of every day. It never goes on vacation. It never gets sick. It works 24 hrs a day, 7 days a week, year in and year out. It will choke out those can can not get out from under its indebtedness.

Make sure you look at real interest (net interest after inflation) though.

Wow can't keep up w/this blog especially working 14 hrs/day so I can get it all back in one lump sum known as holiday shutdown...LOL working all this overtime is like a forced savings of vacation time...sort of like traditional POV of home mortgage payment. LOL how's that for housing tie in.

Anyways I glimpsed, w/out reading much at all, that HARM's pregnant...CONGRATULATIONS on the expectation of your mini-bubblehead!

I don't mind discussing race as long as there's a point with evidence to back it up, but I really don't want this thread to go off on yet another racial tangent. Look back on how unhelpful/unwelcome the Hun/Nazi thing was.

Let's just say that California (and the rest of the country) has a piss-poor immigration system. This system isn't likely to change soon for a variety of reasons (mostly entrenched economic interests) and that this is contributing to many of this state's ills and school/hospital overcrowding. Aside from that, who cares what race you are if you're willing to assimilate, respect this country's laws and become an American citizen?

Illegal immigrants are literally everywhere you go. they are out in the open doing gardening. they work at major fast food chains.

They are building Walmarts....

Oh, and BTW, "respect this country’s laws" automatically excludes illegal aliens.

Thanks, SJ Jim --I'll pass that along to Mrs. HARM :-)

I certainly thought prices were going to go down much more when the gold rush ended.

Ask Greenspam.

I don’t think this should affect your calculation of the affordability of buying a home.

I thought we were talking about housing as an asset. ;)

BA RE was somewhat expensive at height of dotcom, yes, due to stock options, etc....
And on top of it, interest rates were higher, decreasing affordability.
Rents were also nasty...which skewed the rent/buy ratio a bit.

All in all, it's difficult to compare. But it is certainly fact that 2000-2002/3 saw phenomenal RE appreciation...and 2003-05 saw insane RE appreciation. However the (primarily) falling interest rate environment served to cushion the affordability drop...and falling rents helped exagerate the buy/rent ratio. Glad that's all cleared up now. ;)

Sorry, Face, but I don't have 1999 BA housing stats on tap at the moment. (Anyone, anyone...?)

Nonetheless, the $62/71K median household/family incomes (http://www.bayareacensus.ca.gov/bayarea.htm) from 1999 lead me to guess that the BA price:incomes ratio in the BA was roughly in line with the rest of the state: 4-5X.

The 12% is what the stock market has returned going back about 70 to 100 years. That is compounded, including the times that it has gone up and down. That is why it is for long term investments.

The fallacy: there are not many 70-100 year old stocks. Hence one would have had to actively manage their portfolio to obtain such a return...which means market timing plays a role in that return.

Not knocking the stock market...just puting some perspective (from someone who got a bit dot.bombed way back when :) )

OH MY GOD:

Average NY salary: $45K.
Average NY transit worker bus driver salary: $61K.

On the count of three now:
1...2...3: "WTF!"

You know I don’t believe you can apply the P/E ratio of stocks to homes (in particular, primary residences). We discussed this many times in the past…

Says who?

The P/E ratio for housing can be easily estimated simply by comparing the total cost of owning vs. renting (easily done with one of the many excellent Rent v.s Buy calculators online). Furthermore, the government itself (BLS) bases its "cost of housing" component almost entirely on "imputed rents".

not so fast… Average NY State salary or Average NY city salary?

$61K is pretty mediocre for a long term job in the city.

Good question...I've no idea. It was just a blurb I caught on the tube.
But if they're both for NY city (let's assume)...I can't imagine there are so many jobs requiring less skill that would cause such a discrepancy...hence 61K vs. a 45K average would appear to be artificially propped up (based on pure $$$ for skill basis).

And sure 61K in NYC isn't much...but they don't have to live in NYC. (They could take the bus in...err unless there's a strike ;) )

Actually, now that I think about, it was on fuxnews, so perhaps it was compared to state average salary (assuming the probable skew direction based on the source of the data). 45K seems really too low for NYC salary.

Renting isn’t a realistic substitute to buying for many people... I wouldn’t be able to rent the house that I bought, or a similar house in the same neighborhood for a prolonged period of time. I would have to keep moving all the time, and may not be able to find a comparable place to rent.

Again, simply not true. In the most exclusive suburban neighborhoods, yes, finding a comparable rental could be difficult, depending on market conditions. With so many overstretched homedebtors "owning" multiple (empty) homes, I doubt that it's difficult to rent a nice SFR ANYWHERE in California right now.

I have rented the same apartment now for 11 years --far from being "forced to move all the time". By contrast, I've seen stats that show the average homedebtor moves every 5-6 years on average.

Found it: WSJ.com
"Why Renting a Home Makes Financial Sense"

http://www.realestatejournal.com/buysell/mortgages/20010205-nieland.html

"And most experts say the average homeowner moves every five to seven years."

so you are in favor of the city then?

You mean, in terms of the strike?

My general opinion is that unions are not very necessary anymore. NOT that they should be eliminated...just that the primary raison d'etre for them is long-gone. However, people will always try to hang on to their livelihoods so it's not surprising that they've adjusted to fight MUCH less noble causes....

Also, I have seen one particular union give a certain group of SF bay area professionals multiple 10-20% raises (more than once per year) throughout the local recession (i.e. from ~2001-present). This to me is absurd.

Regarding the TWU strike...I do not know all the details. I have heard that the union wanted 8% raises for several years vs. 3-4% offered by the city.
I feel pay should be more skill based than need based (i.e. we need garbage haulers, but....). I have also heard that they currently can receive 1/2 pension pay at age 55 and want to lower it to age 50. The flip side, I think the city is maybe low-balling a little bit...but that's how these things go...grind away until somebody gives. Also, the fact that the strike is illegal...carries some--but not absolute--weight in my mind.

Happy christmas and happy holidays.

By the way, $100K isn’t “a ton of money” these days even if your house is paid off. How much is it after taxes? $65K? That is depleted very quickly between retirement savings, kid-related expenses (such as tuition), car-related expenses, food, medical-related expenses, occasional vacations, etc. I’m not talking luxuries here. It’s certainly pretty tight for a family, and chances are you won’t be able to retire early

No 100 K is a lot of money. It took me several night calls and 5 years of practise to save that kind of money. you can say that iam not good at money management. well thats the reason iam a doc.
I am originally from india and am a an anesthesiologist here in california. thanks to this website i have not participated in the housing ponzi scheme. My parents instilled in all of us never to take debt. If i cant pay cash downright, i cannot afford it, so even 300-400k is unaffordable. so mr richard schmend, phd. I am buying what i can afford and thats called a house in india. check this website out "www.modiproperties.com".
BTW peter and others i think its not the bay area real estate that is crashing its the gold market thats going to crash. In fact the problem is in japan where you can leverage 80 times over your deposit in gold commodity market and thats where all the speculation came from in the gold market.
I also see that the fed, the anti gold cartel etal might tame the price rise of gold so that the average jane doesnt panic. it might be good in the long run to dollar cost average.
Full disclosure. Indians love gold and they have 20,000 tonnes of the physical metal and i want to believe that figure. there a re acouple of web site that "abc"" can look up, www.gata.com
www.safehaven.com.
gold confiscation by michael kosares.

Sad story about whales beaching themselves in New Zealand:
http://news.yahoo.com/s/ap/20051220/ap_on_sc/new_zealand_whale_stranding

Quote:
New Zealand has several mass whale strandings each summer. Whale experts have been unable to explain why the whales apparently swim into dangerously shallow waters.

Real estate analogy: Economists have been unable to figure out why the masses continue to purchase real estate with Arm/IO/NegAm financing.
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Yes, I do in fact need a vacation.

Hessesfan welcome to the blog. I have a buddy down in Irvine in your line...but also pediatric (poor guy closed on a "detached condominum" in the summer).
Good for you with the savings mentality. Current econ environment does not favor such sentiment...but hopefully it will change.

Congrats on your plan to purchase. I heard real estate only goes up in India ;) .

dear jim,
i think that the real estate will only go up even in india is a myth. its a cruel joke. only because i work and earn in dollars am i able to buy. However i think that the credit bubble that is happening right now here is not happening in india. although i could be wrong. there was a private bank that was called global trust bank that went bust not long ago.
the number of listings of houses in hyderabad, city in south india is ever increasing. it is not easy to sell property in india. my idea was just to diversify and put small sums in different places for the rainy day.
what profession are you in

hessesfan,
Well, my comment about RE only going up in India was a bad joke...alluding to the common myth that's prevalent here. I had not truly heard that about India. (Are there RE bubble areas in India, to your knowledge? ...it does seem to be a somewhat global phenomena...i.e. the global credit bubble you mention)
One thing I have heard, however, is that as India's economy grows and "matures" so to speak -- offering increasing numbers of software, for e.g., type positions -- more Indians will remain in India...and in fact many will leave America to return to India.
What do you think of this?
I'll be going to sleep any minute now...I'll check for comment in the morning...thanks!
Oh, I work in tech related field (laser applications R&D/eng.)

g'nite, hessesfan.

what you, Allah sited from the article:

“what makes anyone think that they were ever publishing the right figures anyway.”

...again, he's not saying the published data is incorrect......just that they could be fudging the numbers and noone would ever know!

2) the money supply and the inflation rate do not correlate to m3( not true )

They control the data so they could for all intensive purposes just put in any figure and print several hundred billion more dollars.

You lost me on this one........The money supply IS M3, and yes inflation is growing just like it always has, just like the author said, no?

Dear jim
yes definitely there is a real estate bubble in hyderabad, india. I was in hyderabad, in october-nov2005. i went to the hospitals there talked with various doctors, realsestate agents,chartered accountants,jewellers etc.
the problem is that the incomes are low when compared to the price of real estate. however a lot of indians work in middlee ast and they are not allowed to settle in middle east. they come back and start buying all the prime land in the big cities.
they then parcel it and sell it in smaller lots and are flipping properties around.
The politicians in india are very powerful and crooked bunch just like any where else in the world. The chief ministers of each state enter into agreements with MNC and they allot free land to the mNc. ex( Vokswagen got a sweet deal to set up a car manufacturing plant in andhrapradesh}. Once the deal is finalised the political party in power buys all the land surrounding the manufacturing plant and bids the prices up.
Now the population of hyderabad is exploding, so they are going to build an airport in shamshabad,outskirts of the city. guess what the prices around that area is skyrocketing. the politicians register the land in benami transactions and also a lot of corrupt money changes hand in these transactions.
blue collar workers stand no chance. except of course microsoft,wipro,infosys employees.
The problems with this kind of rampant speculation is that the whole society is affected. because u create the very wealthy
vs the very poor and of course the wealthy in collution with politicians pillage the working class. ex Doctors earn 20,000-40,000 rupees (500-1000$)at the most. the real estate for a condo 2br is approx 50,000us dollars. So it is so hard to own anything in u'r own country. This is indian democracy.
well re indians going back to india, we are 5 siblings. my eldest sister is a guru in political philosophy went to carleton university,ottawa taught there and is now in hyderabad, india. she is very intelligent, highy independent and teaches at the central university. But since she has lived in the west she finds it sometimes hard to get used to the old ways of india.
my 2 brothers are transporatation engineers, both trained in the us. the first brother went to school in MBA ,darden bussiness school. he is in new delhi now. He comes every year to the us to renew the green card and thats a pain. I think he is not thrilled with his decision to go back. But when things start getting uglier here i am sure i will have no problem going back. so i think. in th emean time i have seen brazil and it is a beautiful country. however people tell me that its just an illussion to think any one country is going to be a paradise. the longer u live in one country the more u know about the problems that abound.
ok bye for now

can we start a new troll about palladium?
any thoughts about it
thanks

Just a few quick notes:

A friend of mine from the "old neighborhood" got in touch with me recently and said he and his wife have been living quite well of late. They pay a stipend to live in mansions as a "staging" couple. They make sure the lawn and home stay presentable and bring their own furniture. Seldom a showing to disrupt their privacy. Now that's what I call bubblesitting!

SQT, just a general financial planning observation: For many years the general rule of thumb was that if you had 40K in your ret. acct. at age 40 you'd be fine. Mortality tables and inflation have shifted those numbers but I hate when I see people frantically trying to play catch up, be it in the stock or RE market. Your husband knows what he's doing and you're right to not fund someone elses retirement one mortgage payment at a time.

Joe, I too am an RIA and I see people with ridiculous mort. payments relative to their income. Talking sense to them is like holding an AA meeting in a tavern! Much luck. What people that went IO fail to realize is that no matter where they live if they are going IO in order to not be "priced out" it's over.

Lastly, for the few remaining bulls: It may be possible, even preferable to continue to rent up until the very day you decide to retire provided you've made appropriate plans. I am buying a rental with my IRA (yes my IRA) where I intend to retire. It can be quite legally done. My wife and I can continue to rent during the nicer months of the year in Oregon and have our permanent residence in Vegas. If it appreciates, great! If not, it won't disrupt our long term plans a bit.

Hi there. Long time lurker. First post. RE: stock market returns, google John Mauldin and buy his book. He does an excellent job of dispelling the myth that stocks return 12% over any given planning horizon that a 30-50 year old is using. In a nutshell, there was this economist in the 60's that got a nobel prize for something called MPT (Modern portfolio theory). He showed that over a 75 YEAR PLANNING HORIZON, an INSTITUTION can get superior returns through a well diversified equity portfolio vis a vis a bond/debt portfolio. It was the mutual fund industry SALES FORCE that latched onto this concept and applied to individuals over very short time frames (15-20) years. The stock market today is at extremely high historical valuations (PE:20, depending on GAAP/Non-GAAP measures, ie. stock option expense, restructuring charges, etc.) As a point of reference, the great bull market of '82-2000 started with an average PE of 8. In fact, I was reading "Beating the Street" by Peter Lynch, and he was buying stocks in the '80s with PE in the range of 5-8. The reason that we have hedge funds is to bet against the baby boomers who buy into this 12% notion in their 401ks with their index funds and "closet" index funds (i.e. value and growth funds that mirror the indexes for SALES reasons). This behavior of VERY unsophisticated investors (like my mom) has resulted in MASSIVE stock market inefficiency and mis-pricing based on risk/return considerations. In fact, The RE Market, Bond Market, and Stock market are SIGNIFICANTLY overvalued at the same time due to the global liquidity glut and unsophisticated investors who think that they can game the credit bubble. Where should you put your money? Check out John Hussman, who runs a Long/short portfolio and check out commodities, especially Gold, energy (I think Uramium mining companies are way over valued--still researching). Also, peak oil is real. Believe it. I have a buddy who is a CEO of a driller in Calgary and he is very well connected. he tells me that it is 3-5 times more expensive to discover and recover a barrel of oil as it was in the '80s (in real terms!)

--Cheers!

Oops, TYPO. I meant to say that I am looking into Uranium miners because I think that they are UNDER VALUED. Also, I left out an important point in my prior rant. Most people are motivated by greed and focus on MAKING money. When they panic, the desire to not LOSE Money overwhelms greed as everyone heads for the exit at the same time. It is wiser to think about a portfolio in terms of hedged risks from the start. For example, we all use energy. If you buy energy and it goes up, you are happy when others are bitching. If it goes down, your investment goes down, but so do your costs (gas, heating, etc.), so you will still have nothing to complain about as the savings are real money in your pocket that flows to your bottom line (a penny saved is 2 pennies earned at the CA tax rate). If prices stay the same, we will have good economic growth, so you will like have a job and steady income. In addition, you want to hedge against monetary debasement (how else will the feds deal with social security), currency devaluation (you probably are holding a lot of dollars and should worry about trade/fiscal deficits), and finally, you should worry about your marriage. Yep, that's right, loses from poor financial planning/investing are very stressful on both you and your spouse, and divorces are exteremly expensive. Keep that in my mind when you are running your spreadsheets.

--Off soap box

Deo Vindice!

Speaking of reckless and over-leveraged, I was closing on a $600,000 shack by the beach when my $2.5 Million in mostly unvested stock options crashed and went under water. I was an idiot and thought that I was rich. I lived the home renovation/ home debtor nightmare ahead of the pack beginning in 2000. The only reason that I did not go bankrupt is because the housing market went up, and I reluctantly sold, at a profit. Best move I ever made, next to marrying my wife. I feel for these homedebtors. I know what that fear is like, and I know that the pain will harm many familes and their children one way or another.

But then again, sometimes people just need to take the beating that they deserve. Sorry for their kids, thoughs.

There! Fully disclosed.

The society has become too tolerant on illegal immigration. For instance, anyone who knowingly hires illegal aliens should face jail time.

Shit, I'll take cheap produce any day of the week. As I drive through King City, I slow down and yell out to the illegals "you sons o'bitchs, how dare you take yobs from da Amerikans". Really show's them who's boss, fuckers, stay south of the rio grande.

Wait a minute, didn't this used to be Mexico? Wouldn't that make all the McDebtors the actual illegals?

Wait a minute, didn’t this used to be Mexico? Wouldn’t that make all the McDebtors the actual illegals?

LOL :lol:

the problem is that many employers don’t match

You must extremely interesting experiences, your data set is very odd, every single job I've ever worked has matched 401k contributions. Regarding early retirement, yes, the hi-tech sweat shops of the sillycon valley, ie Intel etal. will chew you up and spit you out, so, go earn a hard science Ph.D. and teach when they show you the door. Or better yet take your Ph.D. and find the American dream in Central or South America.