patrick.net

Interesting point. If the “bubble” has started bursting won’t we see folks jumping in and buying these reduce price houses first? Thus artificially inflating the median house price, and giving ammo for the bulls to show prices just keep on going up

I'm not sure, the speculators seem to buy en masse and then sell en masse. I don't know if enough buyers will jump in if the market seems too shaky.

Jack, I thought you imply that not having vertical neighbors is a "kinky" idea.

This is where Peter P usually says “but once the psychology changes, people will wait for the price to come down even further” …

That's actually what I think is going to happen. And if the stock market happens to rally at the same time, you'll start hearing people say "I wouldn't put my money in RE, stocks are a way better investment." Just as the reverse is true now.

Mr. Right

Many 'bears' on this site have said if you plan to stay and can afford the home, then by all means buy. But most of us think that if you have to take out a NAAVLP to stretch your way into a home, then it's not a good bet. We're often accused of being doom and gloom around here, but I think most of us are pretty reasonable. A lot of us just think the market's totally nuts right now.

In the US, financing 80% of the median priced house takes up only 15% of the median household income, up modestly from a year ago but lower than at any time in the previous two decades.

Mr.Right, it is comforting to know that most people will be unharmed by the real estate downturn. However, the "percentages" themselves are insufficient to show the health of the real estate market.

Price discovery always takes place at the margins.

It takes a few over-extended people to bring down the market on low volume.

you may as well just say “this market will crash, so there!”.

Hence Bay Area Housing Crash Continues... ;)

Interesting point. If the “bubble” has started bursting won’t we see folks jumping in and buying these reduce price houses first?

'Going by my gut', that could be a possibility, especially in the early stages of a correction. At the twilight of the dot-bomb, I recall how chaotic NASDAQ became, followed by the death spiral, when the herd stampeded from the market.

Couldn't this happen in housing? Say, a few people start thinking "hey, this is a downturn, I could get ahead by buying now, then the prices decrease further. Meanwhile, the rest of the herd notices how these people got burned, and they run away faster. Inventories rise, a few more stubborn investors finally give up and try to sell, increasing inventory. Somewhere along the line, overleveraged homeowners began to default on their loans. The dot-bomb was a more cataclysmic effect, like an avalanche. Perhaps RE will be more like a snowball, growing in size and gaining speed?

(not "investment" advice)

So, if doomers and gloomers can realize the fallacy of this argument, then they’ll realize the market isn’t in a bubble. At every level, we have dreams.. and if we are priced out of our dream places, then we are essentially shit out of luck.

But I like to pay a certain multiple of rent for a condo... if rent is high enough, I would gladly buy.

This is probalby less relevant... assuming it is available for rent (HAHAHAHA), can you reasonably afford to rent this dream house indefinitely?

MarinaPrime, the observer you agreed with is the Jedi Knight who tried to kill you will a light sabre.

So, if doomers and gloomers can realize the fallacy of this argument, then they’ll realize the market isn’t in a bubble.

Hmm...first off, if I were to ever take you seriously, I'd need to be convinced you even understand the bubble concept, with a knowledge of historical trends, current conditions, proving your argument with clear and concise data. How exactly have you proven "the market isn’t in a bubble"?

Instead, you predict endless gains, drop big numbers and "prime" locations as if we should otherwise think "we are essentially shit out of luck." Hmm...why do I have a problem with this approach?
Not trying to goad you MP; I'm just at a loss...

Another fallacy. These ‘dream homes’ are places to LIVE THE DREAM! These homes are not for rent!

1bedrooms and 2bedrooms are for rent. Anything bigger, makes less and less sense.

I know, I know...

But living the dream has little to do with the housing bubble though... we just need to find a way to get there. :)

Jack, it seems that Fake P is in stealth mode again...

What name this time?

No name. Completely invisible.

You can make more, or want less. Frankly, wanting less is the key to happiness.

This is very true. There is a limit of how much one can make... but want is boundless.

Jack, are you upset that I am try to reconcile with MarinaPrime? I really want to replace confrontation with positive engagement.

I apologize for pointing out that Marina Prime’s posts were deleted because they were rude rather than because they were optimistic. I was trying to defend the actions of the threadmaster, since MP was stating an untruth as to why his posts were deleted.

I was somewhat responsible with that. I kinda regret that after MP toned down in "On a personal note". He did show a nicer side of him. If he is capable of being nice, perhaps we can come to reconcile our differences and do some real discussions.

Jack, do not apologize to me. It was not your fault anyway.

1bedrooms and 2bedrooms are for rent. Anything bigger, makes less and less sense.

Maybe they don't make sense when you don't have a family but otherwise they do. I only pay $975 mo. for a 3b/2b in a very desireable area. And you wouldn't believe how many 4-5bed houses you can get out here. $1600mo will get you at least a nice 3b and in some locations 4. When mortgages are through the roof, it makes a lot of sense for a family to rent until a more reasonable time to buy.

I don’t know, the blog is getting criticized (by MP) for being a “support group”, but it seems like MP is the only one who is getting any therapy!

Jack, his comments will not make this blog a support group if it was not one in the first place, correct? By collective rejecting his criticism we do "risk" making our discussions "look" like therapy, no?

Oh no, I am becoming the resident optimist...

Heaven forbid housing bears on a housing crash website have a rent not buy attitude. I mean, prices are sooooooooo reasonable right now, and just look at the loan products you can get. What a fool I've been! I only have to commit 50% of my income to get a house? Why I think I'll call my realtor tomorrow!

When mortgages are through the roof, it makes a lot of sense for a family to rent until a more reasonable time to buy.

When rent is less than the interest portion of the payment... there goes the "renting is throwing money away" argument, especially when near-term appreciation is expected to be low or negative.

Heaven forbid housing bears on a housing crash website have a rent not buy attitude. I mean, prices are sooooooooo reasonable right now, and just look at the loan products you can get. What a fool I’ve been! I only have to commit 50% of my income to get a house? Why I think I’ll call my realtor tomorrow!

Of course I'll need the full backing and support of my fellow bears on this website, you all know I can't make a move or form an opinion without you! ;)

Heaven forbid housing bears on a housing crash website have a rent not buy attitude.

Huh... evil twin game? Fake S?

I think I sort of made this argument before, but I think I can still make a pretty strong argument for housing.

Let's take Mr. Prime's house, the 3/2 in the Marina. Let's say I buy it for $2 at 6%. My monthly costs:

$12k mortgage
$2k taxes
$200 insurance
------
12.2 k/mo

But you can rent that place for $5k/mo, how can it be worth it!?!

http://www.craigslist.org/sfc/apa/89935773.html

$12k of that payment is tax deductable. If you are in the 31% tax bracket, plus 9% state, that is $7.2 out of pocket, plus $200 for insurance:

$7.4k - $5k = $2.4k/mo savings.

$2.4k invested at 5% for 30 years is $2M. Which means you could just buy the house outright!

But not really, unless you think that house will not appreciate one bit over the next 30 years. Which is pretty silly, even if it overvalued by 50%. Let's say it drops 50% over the next 6 years, then appreciates at the California long term average of 6%/yr for the next 24. It will then be worth $4M in 30 years.

So which would you rather have: $2M in the bank or a home worth $4M?

Sure this is a bank of the envelope kind of calculation, but even if you plug the numbers into excel, you get similar results. A more rigours analysis would include miantanence costs and the fact that your tax deduction goes down as you pay down your mortgage, but the fact that your rent would go up as well.

What would change this analysis? Suprisingly small moves in interest rates can have major changes on results. If the interest rates go up 2%, meaning you pay 8% to borrow money and get 7% in bonds the costs go up $2.8k/mo and the returns triple, to $6M.

So at this point, the bonds make more sense in the long term.

So in a very fundamental way, home prices and their expected yield vs. other investments are dependent on the 30 year bond.

It is fun to run the numbers with different values, what happens for example, if you buy that house at 6% (locked in) then the savings returns go up to 8%? Then it is pretty much a wash.

Your best bet is to rent and invest in stocks and get 10% but that is a lot riskier.

A house is a great hedge against inflation, too.

Is it possible for me to construct a scenario where interest rates stay low long term? Yes, but I admit it is not too likely. I guess I am going to have to think some more about what home prices would do if inflation takes off and interest rates go up.

Anyone know what happened to home prices in the 70s? I mean inflation adjusted prices, primarily.

Huh… evil twin game? Fake S?

More like sarcastic Qt.

I would rather talk about Corian.

Even an entire house made of Corian-like Voodoo material molded in the shape of a rubber duck?

Jimbo, I think passive investment is dead. The world is changing so much, so fast that we must be agile, even if we are branded as "short-sellers", "sector-rotators" or "market-timers".

Is it possible for me to construct a scenario where interest rates stay low long term? Yes, but I admit it is not too likely. I guess I am going to have to think some more about what home prices would do if inflation takes off and interest rates go up.

My husband has colleagues in the mortgage industry, and even the most bullish agree that if interest rates go up, housing prices go down.

Yesterday, I tried for the first time Walu Sashimi… Butterfish Sashimi at Sushi Groove in Russian Hill…. AWESOME!

MP, do you know where I can get blowfish in the Bay Area? I heard that it is available in NY.

MP

Please look at the context of the post and the language. I said if.

New thread: Sustainability of lifestyle

The chronicle article (that MP couldnt handle) had substantial facts to back up the RAMEN anectdote.

It is amazing that people are willing to go so far. Mania is all about misguided expectations.

Gabby, I’m sorry your friend had such a bad experience in moving to Kentucky. I have this theory that Californians (and I do love CA and the people here--don’t get me wrong) get spoiled by living here. The nice weather, the diversity, the landscape--everything is a little easier. And so when uprooted from here and presented with unfamiliar difficulties--some errant raccoons, slack-jawed yokel “religious fanatics”--it becomes an excuse for high-tailing it right back to CA. :-)

A year or two is hardly a fair amount of time to decide if one can truly be happy in a place or not. My husband and I have to move every 1-3 years, and I’ve noticed over time that it takes at least a year or two to start making *real* friends and finding the local rhythm of each place. I think it takes quite a bit longer to form deep and lasting relationships--the kind that make you never want to leave a place.

And it takes an open mind to learn to appreciate people who are different from what you’ve grown up with. I really don’t believe people are “less stimulating” in any part of the world. People are people, simple as that. It’s all a matter of the preconceived notions we have, and how open we are to accepting that our way isn’t necessarily the right way or the only way to be.

All that said, when we're not tied to a place by either stimulating work or family/friends, there's really no point in being there if you're not enjoying it. It's too bad there was a financial loss for your friend in the process.

MP
No. I’m shit out of luck. Instead of complaining, I am just happy with what i have.. a modest home, in a great location.

Well, I'm glad you have a home you enjoy. And, it wouldn't be "negative" at all to suggest our money might go farther on housing in the future...

Anecdotal evidence is fine…. but until you get knee deep in the evidence, the whole pictures will never be revealed the way it is revealed to me (oh the arrogance!).

Well, I seem to recall posting a LOT of hard data on this site, besides anecdotes. I'm not sure what the "knee deep evidence" is you speak of, unless you're referring to MLS listings/sales in your selected area. There's also the issue of rising inventory; I think data's been posted on that too. It's easy to find, in any respect.
But--if I can perceive a fundamental difference here: if you're looking at current sales figures, and projecting from that, while others are seeing flattening sales (or slacking sales in Marin for instance), while at the same time--rising inventory...we're bound to come to a different conclusion. So we're looking at different data sets--and coming to different conclusions. If "bears" can back their cautionary opinions on data, "bulls" should as well. Those with the most compelling data should have the best argument for their case. After all, it's the bulls who are currently investing and putting themselves at greater fiscal risk. For that reason, I actually expect more proof from the Bulls.

peter… never had blowfish! good?

Never had blowfish either. Wanted to try. Chef must be licensed though.

MP, have you looked into another market segments (i.e. sub-prime properties)? You may not care too much about living in them but they do affect the overall market.

Presidio Heights is AWESOME.. but i won’t be able to afford a house there any time soon!

If you continue to pull in great revenue for your employer and if market conditions allow, I am sure you can afford a house there reasonably soon. :)

You will have big name neighbors then. (How much is a house there? 30M?)

I can risk sub-prime, and rent to sub-prime tenants.. but i prefer not too.

I remember seeing 5-unit apartment buildings in Marina for under 2M recently, would you look at those? But they may be rent-controlled though.

Just curious, how do you know your tenants income?

When I rent, I had to present W2 and pay stubs.

really? i think thats illegal in NY.

I don't know. I always volunteer as much information as possible. If I were the landlord, I would wish for a bit of assurance anyway.

Rick - It’s a thorough process. I required the last 6 months of pay stubs, a letter from their previous tenant, and a chat with their company HR!

Well, I would rather have no tenants than bad tenants. Have you watched the movie Pacific Heights? :)