Wow! What an opinion piece! Heres the money quote:
"Based on the North San Diego County Housing Affordability Index's conservative traditional definition of affordability, there are at least seven areas in North San Diego County alone where one out of three households can afford the median-priced attached home."
If you read it quickly enough, it doesnt sound so bad. So let me translate: With 20% down and housing expenses limited to 1/3 of gross income (the HAI conservative, traditional definition of affordability), there are 7 ZIP codes in San Diego (out of 32) where 1 of 3 households can afford a CONDO.
But it gets better, gang! If you actually read the report (and you can at 404 Not Found and can do 3rd grade math (that is, convert fractions into percentages as in 1/3 = 33.33%) you will see that there are only 3 areas where the median household can afford the median attached home.
Oh, and one more thing. Taking the median sale in the most affordable area (282,000) and applying the criteria of HAI, the P&I (no taxes, upkeep, or CONDO fee and this is a condo that were talking about), requires an income of $47,927. Unfortunately, the median income in SD is $45,733; in Escondido its $42,567.
Just a bit more fun with numbers (file under Dont Worry, Be Happy) in those 3 areas (all in Escondido) a total of 38 properties were sold.
Its amazing the degree to which the NAR is trying to convince people that the laws of supply and demand dont apply to real estate. Why will prices drop? Just like anything else more sellers than buyers.
Ok Smith returns the Norwegian Blue and is not about to go for the Talking Slug. [Alright, Smith never bought the story that the parrot was restin' in the first place.]
There are other customers. We can move this stinking old parrot AND the slug.
Does anyone listen to Snow? But Bernanke does have some credibility. Maybe relief credibility and we'll see what happens when this housing market 'expansion' fails to live up to its reputation.
Yes, it'll be a temporary respite and therefore a good time to buy. And then a natural miniscule contraction and an even better to time to buy. Then a return to the normal business cycle which has just bottomed and providing the best entry point to date.
I've been reading BBC reports (infomercials) on the UK housing scene and the strategy is as clear as the analysis is bad.
That's quite a litany of "Don't worry, be happy" stories. Some of them are just so simplistic and inccurate that it's hard to know what to say. Most of the "no bubble" claims rest on assumptions or arguments that have been thoroughly destroyed on numerous occassions, so it's not really worth rehashing or spending the time to take apart the same old claims again and again. Thanks for pointing these stories out though. I'm amazed at the persistent level of official pollyannish denial.
"they should let the market know they did not intend to let inflation fall that low"
I'm surprised Lacker made that statement, he might as well come out and say that Fed policies are aimed at creating inflation. What happened to price stability being the goal?
Things to remember: A bubble exists only as long as it is believed. Thus vocal "Not a bubble" defenses are not unexpected, but rather part of a bubble phenomenon.
Remember, EVERYONE buying, almost (sans those who are downsizing or moving to a cheaper area) everyone selling, and everyone in the business itself has to believe the market is rational or the market would have collapsed already.
I personally just believe a simple assumption: A 'rational landlord' should be able to buy a property at 20% down, 30 years, rent it out, and not lose money on interest, property tax, HOA, and maintinence cost, assuming interest and proprety tax are tax deductable.
That is, the landlord may have to pay MORE/month than he gets from his tenants, but that extra money gets applied to principle, and as this occurs, his real profit margin gets better. Under the 'rational landlord' assumption, the market is hugely irrational in the bay area.
GDP rises and real incomes fall. That is why we won't have a recession anytime soon. We will just borrow more. It has been four years since recession and despite the economy being none too good, we are still far from recession.
Can anyone see reasoning for a real shift in the approach to housing in regards to investment goals? I mean the SF Bay Area, for instance, is a highly desirable place to live, so could the model be moving from the "rational landlord" as Nicholas suggested to one where more people own their houses rather than renting?
Maybe I'm not asking the right question but with all the people that are desperately drawn to living in the Bay Area, or a similar hot location, doesn't that exert some pressure on the housing market that could force a shift in how housing is treated financially?
I hope not, but this "Bubble" keeps on going.
GDP rises and real incomes fall. That is why we won't have a recession anytime soon.
That brings up a point - both sides could be 'right' depending on how they define 'bubble' and how they define 'bubble bursting'... not unlike Lords 'income falls but this ain't no recession' pitch above... technically correct.
But if it walks like a duck, quacks like a duck... and we call it a chicken' will the people buy into it? Or are they getting smarter than the MSM & punditocracy assume they are.
I have no idea - I just don't hear many of my friends talking about 'moving up' into more expensive homes like I did 2-3 years ago... now folks are wondering how they can cut the cost of their commute & get payments under control.
It is a shifting environment for sure... especially in lower-to-middle middle class.
BTW - I've been hearing about sales incentives to buy new homes - not unlike automobile incentives... price downs, rebates & reduced terms if bought & financed through the builder. And lots of automobile like radio advertisements for new homes. Everything but clowns & huge gorilla balloons over the model home sites... My guess is they are having to pitch much harder to hit the same sales numbers.
in DC one of the more prominent Condo developers, PN HOFFMAN has taken to now co-op'ing with brokers where in the past they only sold to unrep'ed buyers. thats a change. and now they are offering 10k in credits etc. and they are email blasting constantly.
so yeah, thats a change.
in DC the fever has ended. however, there is still the lowest unemployment in the country here and we have the best job growth, only 10% of which is construction. mostly professional and business services have grown.
DC is the prime example of growing income disparity and i think it should help DC muddle through.
I mean the SF Bay Area, for instance, is a highly desirable place to live, so could the model be moving from the "rational landlord" as Nicholas suggested to one where more people own their houses rather than renting?
Steve - there are lots of places in the world drawing people desperately... like Mexico City... but if they can't afford the housing there, they have one of two choices... either squat or go home. No one lends them money they can't realistically repay for a home they really can't afford whether they want that that home or not.
It happens in America & some other wealthy developed countries because others from outside the country provide a large enough savings base to make it possible. The question is will they continue to do this forever or is there an end to it... and if there is an end... when?
DC is and will remain a 'different market' until deficit spending ends. I told you before my sis lived there (and her later to be hubby)... both lawyers for DOJ & IRS respectively... It was the 80s & RE was collapsing all over the mountain west, midwest, rust belt & 'oil patch'... coincidentally with SnL collapse.
But DC property continued to skyrocket.
I doubt the current increase will accelerate in DC but I doubt there will be declines as severe as the rest of the country... Plus every four years you get an opportunity to unload your holdings when the new crop of political rubes come in from the sticks.
However if the budget is every truly constrained... that will all change.
And when we get control of our budget Santa Claus will probably be running the FED by then and the Great Pumpkin will be President.
I like Nicholas' rational landlord thesis atleast as a point of departure.
So as long as houses appreciate, more will be drawn to landlording and away from renting, provided there is no barrier like putting money down or having a good credit rating.
If we ignore those real barriers, the ideal conditions would act to minimize the landlord's profits and lower the house price escalation. Renting would not be such a poke in the eye. There would be fewer interested in the work of being a landlord and more interested in selling jelly beans (financial advice, whatever).
'Doing well' might be equally ascribed to lawn maintenance, shoe repair and real estate development in these ideal conditions.
But the real world is different.
This is the spreadsheet I made up when I considered buying a home about 1.5 years ago (it was irrational then, its just gotten more irrational now). I took one look at the numbers and went "no way in heck". Its just gotten worse.
The prices in the spreadsheet now reflect the current situation where I'm at ($450-550k for a 2bd/2ba condo W/O garage, verses $1325 for rent of an equivelent unit in the same area).
When the "Tax-neutral-nonsavings" gets to be below the rent for the area I'm in, THEN I will buy.
Also: During the .com boom, prices in the south bay went way up. But both rents AND buying went up, as this was caused by a supply/demand balance. Once the .com boom went bust, rents in San Jose area went down, and purchase prices took a hit too IIRC.
The current runup in the bay area has seen rent flat since 2000, but purchase prices just keep going up, which suggests some phenomenon more than just more people wanting to live in the SF Bay Area.
California unlike Wyoming is a destination state. SF Bay is a destination region within California and there are probably further distinctions a RE agent would be familiar with in the Bay area.
Prior to 2000, one could argue that the IT/high tech boom provided the industry to warrant this attention as a destination. Now that this industry has receded, the means of supporting the high priced real estate is problematic. Can wealthy retired folks moving into the Bay area maintain the perception that SF will always be a destination or does it need more industry than merely providing services for its wealthy citizens?
Ha Ha
these people are economic Nazi's SNOW BERNAMKE LACKE
The shit is about to hit the fan, and these low lifes are scrambling like rats fleeing like a sinking ship. Ha ha
In Re: Bursting the housing bubble's bubble
Wow! What an opinion piece! Heres the money quote:
"Based on the North San Diego County Housing Affordability Index's conservative traditional definition of affordability, there are at least seven areas in North San Diego County alone where one out of three households can afford the median-priced attached home."
If you read it quickly enough, it doesnt sound so bad. So let me translate: With 20% down and housing expenses limited to 1/3 of gross income (the HAI conservative, traditional definition of affordability), there are 7 ZIP codes in San Diego (out of 32) where 1 of 3 households can afford a CONDO.
But it gets better, gang! If you actually read the report (and you can at 404 Not Found and can do 3rd grade math (that is, convert fractions into percentages as in 1/3 = 33.33%) you will see that there are only 3 areas where the median household can afford the median attached home.
Oh, and one more thing. Taking the median sale in the most affordable area (282,000) and applying the criteria of HAI, the P&I (no taxes, upkeep, or CONDO fee and this is a condo that were talking about), requires an income of $47,927. Unfortunately, the median income in SD is $45,733; in Escondido its $42,567.
Just a bit more fun with numbers (file under Dont Worry, Be Happy) in those 3 areas (all in Escondido) a total of 38 properties were sold.
Its amazing the degree to which the NAR is trying to convince people that the laws of supply and demand dont apply to real estate. Why will prices drop? Just like anything else more sellers than buyers.
Ok Smith returns the Norwegian Blue and is not about to go for the Talking Slug. [Alright, Smith never bought the story that the parrot was restin' in the first place.]
There are other customers. We can move this stinking old parrot AND the slug.
Does anyone listen to Snow? But Bernanke does have some credibility. Maybe relief credibility and we'll see what happens when this housing market 'expansion' fails to live up to its reputation.
Yes, it'll be a temporary respite and therefore a good time to buy. And then a natural miniscule contraction and an even better to time to buy. Then a return to the normal business cycle which has just bottomed and providing the best entry point to date.
I've been reading BBC reports (infomercials) on the UK housing scene and the strategy is as clear as the analysis is bad.
Sounds like Snow and Bernanke are supplementing their meager government salaries by selling homes on the side.
CR,
That's quite a litany of "Don't worry, be happy" stories. Some of them are just so simplistic and inccurate that it's hard to know what to say. Most of the "no bubble" claims rest on assumptions or arguments that have been thoroughly destroyed on numerous occassions, so it's not really worth rehashing or spending the time to take apart the same old claims again and again. Thanks for pointing these stories out though. I'm amazed at the persistent level of official pollyannish denial.
"they should let the market know they did not intend to let inflation fall that low"
I'm surprised Lacker made that statement, he might as well come out and say that Fed policies are aimed at creating inflation. What happened to price stability being the goal?
Things to remember: A bubble exists only as long as it is believed. Thus vocal "Not a bubble" defenses are not unexpected, but rather part of a bubble phenomenon.
Remember, EVERYONE buying, almost (sans those who are downsizing or moving to a cheaper area) everyone selling, and everyone in the business itself has to believe the market is rational or the market would have collapsed already.
I personally just believe a simple assumption: A 'rational landlord' should be able to buy a property at 20% down, 30 years, rent it out, and not lose money on interest, property tax, HOA, and maintinence cost, assuming interest and proprety tax are tax deductable.
That is, the landlord may have to pay MORE/month than he gets from his tenants, but that extra money gets applied to principle, and as this occurs, his real profit margin gets better. Under the 'rational landlord' assumption, the market is hugely irrational in the bay area.
GDP rises and real incomes fall. That is why we won't have a recession anytime soon. We will just borrow more. It has been four years since recession and despite the economy being none too good, we are still far from recession.
can anyone tell me why its a hard and fast rule that an investor has to be able to cash flow at 20% down?
there are plenty of fine yield opportunities if you put down more than 20%.
does that make it irrational?
Can anyone see reasoning for a real shift in the approach to housing in regards to investment goals? I mean the SF Bay Area, for instance, is a highly desirable place to live, so could the model be moving from the "rational landlord" as Nicholas suggested to one where more people own their houses rather than renting?
Maybe I'm not asking the right question but with all the people that are desperately drawn to living in the Bay Area, or a similar hot location, doesn't that exert some pressure on the housing market that could force a shift in how housing is treated financially?
I hope not, but this "Bubble" keeps on going.
GDP rises and real incomes fall. That is why we won't have a recession anytime soon.
That brings up a point - both sides could be 'right' depending on how they define 'bubble' and how they define 'bubble bursting'... not unlike Lords 'income falls but this ain't no recession' pitch above... technically correct.
But if it walks like a duck, quacks like a duck... and we call it a chicken' will the people buy into it? Or are they getting smarter than the MSM & punditocracy assume they are.
I have no idea - I just don't hear many of my friends talking about 'moving up' into more expensive homes like I did 2-3 years ago... now folks are wondering how they can cut the cost of their commute & get payments under control.
It is a shifting environment for sure... especially in lower-to-middle middle class.
BTW - I've been hearing about sales incentives to buy new homes - not unlike automobile incentives... price downs, rebates & reduced terms if bought & financed through the builder. And lots of automobile like radio advertisements for new homes. Everything but clowns & huge gorilla balloons over the model home sites... My guess is they are having to pitch much harder to hit the same sales numbers.
Anyone else hearing/seeing the same?
in DC one of the more prominent Condo developers, PN HOFFMAN has taken to now co-op'ing with brokers where in the past they only sold to unrep'ed buyers. thats a change. and now they are offering 10k in credits etc. and they are email blasting constantly.
so yeah, thats a change.
in DC the fever has ended. however, there is still the lowest unemployment in the country here and we have the best job growth, only 10% of which is construction. mostly professional and business services have grown.
DC is the prime example of growing income disparity and i think it should help DC muddle through.
I mean the SF Bay Area, for instance, is a highly desirable place to live, so could the model be moving from the "rational landlord" as Nicholas suggested to one where more people own their houses rather than renting?
Steve - there are lots of places in the world drawing people desperately... like Mexico City... but if they can't afford the housing there, they have one of two choices... either squat or go home. No one lends them money they can't realistically repay for a home they really can't afford whether they want that that home or not.
It happens in America & some other wealthy developed countries because others from outside the country provide a large enough savings base to make it possible. The question is will they continue to do this forever or is there an end to it... and if there is an end... when?
DC is and will remain a 'different market' until deficit spending ends. I told you before my sis lived there (and her later to be hubby)... both lawyers for DOJ & IRS respectively... It was the 80s & RE was collapsing all over the mountain west, midwest, rust belt & 'oil patch'... coincidentally with SnL collapse.
But DC property continued to skyrocket.
I doubt the current increase will accelerate in DC but I doubt there will be declines as severe as the rest of the country... Plus every four years you get an opportunity to unload your holdings when the new crop of political rubes come in from the sticks.
However if the budget is every truly constrained... that will all change.
And when we get control of our budget Santa Claus will probably be running the FED by then and the Great Pumpkin will be President.
I can hardly wait.
I like Nicholas' rational landlord thesis atleast as a point of departure.
So as long as houses appreciate, more will be drawn to landlording and away from renting, provided there is no barrier like putting money down or having a good credit rating.
If we ignore those real barriers, the ideal conditions would act to minimize the landlord's profits and lower the house price escalation. Renting would not be such a poke in the eye. There would be fewer interested in the work of being a landlord and more interested in selling jelly beans (financial advice, whatever).
'Doing well' might be equally ascribed to lawn maintenance, shoe repair and real estate development in these ideal conditions.
But the real world is different.
THe nice part about the "Rational Landlord" thesis is that the buyer can consider himself the rational landlord: you rent to yourself!
http://www.icsi.berkeley.edu/~nweaver/house_econ.xls
This is the spreadsheet I made up when I considered buying a home about 1.5 years ago (it was irrational then, its just gotten more irrational now). I took one look at the numbers and went "no way in heck". Its just gotten worse.
The prices in the spreadsheet now reflect the current situation where I'm at ($450-550k for a 2bd/2ba condo W/O garage, verses $1325 for rent of an equivelent unit in the same area).
When the "Tax-neutral-nonsavings" gets to be below the rent for the area I'm in, THEN I will buy.
Also: During the .com boom, prices in the south bay went way up. But both rents AND buying went up, as this was caused by a supply/demand balance. Once the .com boom went bust, rents in San Jose area went down, and purchase prices took a hit too IIRC.
The current runup in the bay area has seen rent flat since 2000, but purchase prices just keep going up, which suggests some phenomenon more than just more people wanting to live in the SF Bay Area.
California unlike Wyoming is a destination state. SF Bay is a destination region within California and there are probably further distinctions a RE agent would be familiar with in the Bay area.
Prior to 2000, one could argue that the IT/high tech boom provided the industry to warrant this attention as a destination. Now that this industry has receded, the means of supporting the high priced real estate is problematic. Can wealthy retired folks moving into the Bay area maintain the perception that SF will always be a destination or does it need more industry than merely providing services for its wealthy citizens?
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