patrick.net

"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.

This is pretty good:

http://www.npr.org/templates/story/story.php?storyId=5046551

It's David Gardner interviewing Charlie Wheelan on Motley Fool radio--he summarizes the current macroeconomic situation problems, housing bubble, high debt, possibility of sustained high energy prices. Good stuff.

@Seattledude

My wife is bugging the hell out of me for a baby, I bought her a Boston Terrier instead. Worked wonders.

SoCalRenter.

Count Surfer-X in the zero debt club. Bought the Hyundai cash, remember hyundai's slogan "you can drive the shit out of this bitch".

What continues to amuse me is those out there that think this party is never going to end. And yes, I realize for you boomers the party has yet to end. But come on, there are profound structural problems in the US. Take a look at the stuff you buy, how much of it is made here? I'd wager 99% programmers who make >190K. But come the fuck on now.

The business with old timers owning houses that they wouldn’t be able to afford if they had to do it now is standard stuff. It happens all the time as locations develop and mature.

Actually it doesn't happen all the time. Do you have any examples you'ld like to share?

Sure, luck helps, but it doesn’t tend to favor people who aren’t in the game.

And RE only goes up, correct?

Just sitting there collecting even a $100K salary doesn’t cut it here anymore. That’s reality, and you have to face it.

Actually it does, and once the McDebtors run out of financing options life may just be good again.

just doesn’t seem like the grown-up way to deal with it

And your fucking tired diatribe is part of the grown-up way? Here's a quote from someone who has got to be related to you.

I think people who have work-force jobs are going to have to resign themselves to living in a place that doesn't meet the standards we have," San Luis Obispo Mayor Dave Romero

I think what you and Dave mean is, Let them Eat Mother Fucking Cake.

Shit I keep forgetting that this is the "SF Bay Area Housing Crash Continues" blog. I'm sorry, RE does indeed only go up, and those of you, this counts you losers who are natives, just need to shut the fuck up and suck massas wang, there are so many people out there that are just plain smarter and better than you are, of course they would choose to move here. Simple economics. This area attracts the best and the brightest and there is a critical housing shortage, this combined with the outstanding salaries your superiors earn, equals ever rising housing costs, nothing out of the norm here. What you say, you went to college and did everything correct only to be sidelined by the fact you aren’t willing to take fucking stupid financial risks? Quit being a whiner and wake up, face reality, and realize that it is evolution in progress; lower life forms like you should just face reality and move to fucking Nebraska. Losers.

3) I have firmly believed since 2003 that prices will come down (sharply)

Dude, I apologize, I must have misread something, sorry for all the tyranical hun references. For some reason I misread you as a full on housing bull. Seems you are not. I am glad you were able to buy when you did.

@SoCalRenter

Your friend should hook-up with my ex girlfriend in San Diego, she has a real estate empire that stretches from Del Mar to the border. All on her 58K a year Cal Trans salary.

Sorry, but I'm not quite ready for the defeatist attitude quite yet.

You mention areas which have had a significant run up due to the easy money fed policy, easy credit, crazy loose lending standards and out right fraud by the agents and appraisers. Show me some hard data, historical data, that indicates that the RE markets in those areas won't return to their respective historical norms and I might just be willing to put the knee pads on. That is, only if the McDebtors put on the elbow pads first.

California has always been expensive; think 4-5X income when the rest of the US is ~3X income. I'm more than able and willing to pay this. But housing is now upwards of 20X income in some parts and 12X income for the majority of the state. Me I'd rather hope for the crash to continue, make no mistake it is crashing right now, than to just accept the dick in my ass.

no ex-surfers among my neighbors” and suggestions like “buying trailers and renting them to ex-surfers”…

No dude, it's not ex-surfer, I surf all the time, it's Surfer-X

I immediately questioned this math and I looked over his numbers a few times, knowing there had to be mistake - conceptual or in the size of assumed numbers..

I could not figure out what it was, that’s why I showed the math based on my own example.

Yes, that's why I took the time on those (loose) calculations too. I wanted to see how their specific real estate transactions figured into a "break even," considering all the costs I could scrape together. Granted, my commision estimates may be off (low?), or the fact I did not offset those costs to that inevitable alternative (renting), or declined to include the tax benefits too--or perhaps some other oversight. Just looking at the expense side to real estate.

Not to dismiss PTiemann's calculations, because he's obviously made this work in his situation. But, whether we're in a bubble or not, I was simply beginning to wonder about the talk I hear where people own a home for just a few years, then sell and casually claim all those gains (without mentioning the hidden costs). I suspected it was more complicated than that, hence that itemized (and rough) analysis.

To be truthful, I have a great life, so fucking what I rent, I live about 2 blocks from the Ocean and buying the house I live in would be 5X times the rent, fuck it. I make scads of cash, and I'll get a house eventually. What gives me so much fury is seeing my amigos get screwed, so what if they didn't have the drive to go to graduate school, they shouldn't have to. There should be room for all, not just the elevated few who make 100K plus. Makes me sick. What raises my ire even more is the swaggering McDebtors who think debt equals wealth and who think having all this debt makes them somehow above everyone else. This is a new behavior here that I started to notice during the bling bling dot.bomb era. That whole shitbomb dovetailed into the housing crap and 10 years later it finally looks like the US consumer might just run out of people to borrow money from.

Now we're going to get into the M3 paranoia again? Read this link

The only reason why the fed would stop publishing this data( on what grounds? ) is because they don’t want people to know something. Why else would they cease to publish a report that they have the facilities for?

Read the article I sent:

In actuality the FED has been printing money like hell for decades and Gold hardly reacted; it only started moving recently. So the fact that they are not going to publish this data in a way is redundant since everyone with a brain knows there is no way in hell the Fed is ever going to stop printing money; in fact they will continue to do this till the very. So what’s going on here? It comes down to fear the masses are letting fear run wild. It’s funny when the Feds were busy debasing the currency at the speed of light and publishing this data no one cared but now that they won’t tell you how fast they are destroying it everyone starts to worry. What a bunch of fools is all that we have to say to those who fall under this category. Here is something else to consider what makes anyone think that they were ever publishing the right figures anyway. They control the data so they could for all intensive purposes just put in any figure and print several hundred billion more dollars. In fact we think this is what has been happening all along. Jim Rogers shares this way as he basically states all government data is manipulated and he is one very astute investor. Its human nature to want what one cannot see or what one can longer have anymore. If a glass contains poison no one asks the question is the poison in there enough to kill me or not? The moment poison is mentioned everyone flees. Hence worry not about the speed of currency debasement but the fact that they were ever allowed to debase our currency in the first place.

I thought the Saudi's threatened to denominate oil in Euros and that's when we invaded Iraq. Whoops I meant, that's when we free'd Iraq

"my post was a reply to something KurtS had posted a few posts higher up." - Ptiemann

Oh. Ooops, sorry. :)

"Someone posted above may house prices fall hard so that us bubble sitters can own one day..
My comment is.. be careful what you wish for."

My comment is that one should simply look at our current situation in a cold and logical manner. An emotional response to the situation is not called for, rather a rational one is called for. What this means is if you don't own now, you don't buy right now because you'd be buying in at a market peak so betting on future appreciation is stupid, and it would be stupid to buy regardless since renting actually SAVES money in the current environment. So what you do is you simply take all the steps you need to take so you are less likely to get fucked: you don't leverage yourself with revolving credit, you pay down any debt you might have at an interest over 6% or so, you save up a good sized cash cushion, and you invest the rest of your income in a prudent and sensible manner (i.e. value/income stocks & short duration fixed income). Getting emotional about an economic disequilibrium solves nothing. Preparing yourself to not get fucked by the correction is what the wise man/woman will do.

"Here is a little story. I just talked with a client who wants to stop contributing to her 401k plan. The company gives her 2400 for just putting in 5%. She makes 60k a year. SHe says i need all the money she can get. She owns a home worth roughly 800k and owes 600k she is paying 4k a month in IO. So i did the math she makes 60k a year and pays 48k a year in IO…" - Joe

Damn, this is the kind of stuff that really frustrates me. $60k is decent money, well over the National median income, and yet this lady is likely to go bankrupt if she doesn't sell that albatross (I mean house) ASAP. She should be renting, funding that 401k, and saving plenty of cash otherwise instead of burning it all on mortgage interest. Are you an RIA Joe? If so, how many people do you see who are way over-leveraged on housing like this?

"you can extrapolate how much foreign dollar holdings there are through m3. this guy seems like he has something to prove/sell." --Schmend

It seems this is his only point:
"It’s funny when the Feds were busy debasing the currency at the speed of light and publishing this data no one cared but now that they won’t tell you how fast they are destroying it everyone starts to worry."

Yeah, that IS kinda funny, but it doesn't tell me anything I didn't already know. Sounds like he is just another gold bug, but if so, he might have made more sense by just saying "here's another reason to buy gold."

1) M3 is BS so who the hell cares if they stop publishing it

He's not saying it's BS, he's just stating that they have always published it and they have always been printing money...and if people are suddenly worried because they are going to stop publishing it, they shouldn't be. If the fed was to stop publishing M3 just to hide the fact they they are printing, they could do it alot easier by not publishing the correct numbers.....this would cause alot less paranoia, don't you think?

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

Where in the article did you got this from?

I saw Saddam on 60 minutes and he was dumbfounded that the US wanted to invade he said "Iraq has threatened America". Yeah you're correct, personally i could give a rats ass about the rest of the world, as I am sure the rest of the world could give a rats ass about the USA. What pisses me off is that the Shrub lied and when he got caught in a lie, he did a "look over there". I could respect, "look you fat ass SUV driving fucks, you want $2/gal gas, this is what it takes to get it". But going in under the pretense of WMD and then finding none? Come the fuck on again, at least have the good sense to plant some for fuck sakes.

picked up by the american left. see Syriana.

I typically get most of my "news" from Hollywood, makes life easier and much more entertaining. Plus Matt D is just plain hunky.