Inventory of Active listed single-family homes, condos, and TICs in San Francisco decreased a nominal 0.6% over the past three weeks (versus an average decrease of 1.2% for the same three week period over the previous three years) and is now running 10.4% higher on a year-over-year basis (down 6.3% for single-family homes and up 22.4% for condos/TICs) and 44.5% higher than at the same point in 2006.
The standard SocketSite Listed Inventory footnote: Keep in mind that our listed inventory count does not include listings in any stage of contract (even those which are simply contingent) nor does it include listings for multi-family properties (unless the units are individually listed).
∙ SocketSite’s San Francisco Listed Housing Inventory Update: 5/11/09 [SocketSite]
Dear editor, perhaps you would combine your inventory report with the sales report to make a months of inventory graph. That might be interesting.
Is anyone else surprised that SFH inventory is down YOY, and is decreasing MOM?
Yes.
Yes, I’m also interested in others’ opinions on why SFH inventory is down. Looking at the market in recent months, supply has sure seemed thin. Reasonably priced houses go into contract quickly.
It seems like the FED’s effort of keeping the rates artifically low by purchasing long bonds and mortgage securities has failed. Should not be a good sign for any kind of recovery hope.
“Reasonably priced houses go into contract quickly.”
Those willing to drop prices materially from peak are able to sell. Those who can’t (or are unwilling/unable to eat a loss) realize they have little hope of selling, and pull it off the market. Inventory is clearly higher than in the last 3 years. But sales volumes are lower. So the pent-up supply is obviously not getting absorbed, if that’s the insinuation.
Inventory is clearly higher than in the last 3 years.
For condos, sure.
I realize that “reasonably priced” is about as vague as it gets but when I walk into a house and think, “This price is OK,” the thing goes into contract right away, and when I think, “This seller is friggin nuts,” the property sits on the market. Every SFH in a decent neighborhood and without permanent flaws seems to sell right away. I guess those buyers and sellers haven’t been reading the paper and don’t know there’s a downturn.
Well, SFR inventory is 6.3% lower than last year, but what was it in May of ’07 and ’06? Given overall inventory is 44.5% higher than ’06, I’d wager that SFR inventory is still relatively high compared to those years as well.
Is there anyway to find out how much Bank Owned Inventory is NOT on the market?
It looks like the growth rate of inventory is slowing, which is good news, but I have a hunch it is due to banks not letting go of properties they have repossessed.
At any rate, since the “peak” was 2006, I wouldn’t be surprised if the inventory continues to grow, albeit marginally less each year, until 2011, when all of the bad loans have run their course.
I wasn’t going to say this but:
I bet the green line crosses the orange line in September of this year.
Don’t know for sure, but I’d be surprised if SFR inventory wasn’t much less in both 2006 and 2007. The 2008 number — pre 9/09’s seachange as it is — is not insignificant, IMO. Seemingly so far the buyer’s market is for condos.
The green line will not cross the orange line at any point this year. Actually, I bet the green line reaches 2,000 in September.
Listed inventory of single-family homes is up 29% versus 2007 (we don’t have the breakdown for 2006).
In terms of listed sales activity for single-family homes, April activity was down 28% versus 2007 and down 23% versus 2008. We’re waiting for a preliminary May count and YOY comparison.
anon you just beat me to the post!
the green line is artificially kept low by would-be sellers (as opposed to must-be sellers) waiting on the sidelines for signs of RE recovery, hoping to ride out the downturn. Once that recovery fails to materialize, let alone the slide continues, more and more will want to unload sooner than later. If that theory is correct, the green line will DIVERGE from the orange more and more toward the end of 2009.
the green line is artificially kept low by would-be sellers (as opposed to must-be sellers) waiting on the sidelines for signs of RE recovery,
Maybe, but we heard a whole lot of that on Socketsite this time last year too.
Most of the bears are actually arguing that the SF SFR falloff is not even close to reaching its nadir. Therefore, for pre 2004 buyers, the time to sell is now.
Therefore, for pre 2004 buyers, the time to sell is now.
Truer words have never been spoken.
But, you’re forgetting just how naive SF buyers and owners are. Most were wholly broadsided by the economic events of the last year and a half – why would you expect them to wise up now?
There’s no way to know for sure, but I think the slight reduction on SFH inventory (still way above recent years, though) has a lot to do with sellers getting discouraged. As we’ve seen on SS recently, there are many listings that are being withdrawn without a sale, and I am sure that there is a good deal of inventory waiting to be unloaded at sustained signs of stabilization.
but I think the slight reduction on SFH inventory (still way above recent years, though) has a lot to do with sellers getting discouraged. As we’ve seen on SS recently, there are many listings that are being withdrawn without a sale, and I am sure that there is a good deal of inventory waiting to be unloaded at sustained signs of stabilization.
Again, maybe not you, but many who speak from a similar place as you, were saying the same thing this time last year. “Shadow inventory” “discouraged sellers” etc.
@anonn How did foot traffic look yesterday? Looky-loos or real buyers on the war path?
SF foreclosure count (NODs, NOTS, bank owned) stand at 1243 (up from 1214 last week).
The foot traffic for my open houses has been good. One handy dandy little guide is how many property statements I have left. I started with 50 and wound up with about 30. So double that, since most viewers are couples, and it’s a general indicator — around 40 or so. Of them, I’d say three or four groups were buyers in the market right now, and fairly serious candidates.
Seemingly, there are a lot of people “just beginning” their searches, thinking that the fall or late summer is going to be a good time to buy. And not to derail this thread, but the folks who I’ve spoken to at length about search parameters have lots of capital relative to income.
Maybe this is off topic but if I anticipate a period of significant inflation in the future why wouldn’t I want to go into debt as as far as I could right now. Or at least as far as I was comfortable with? Easiest wasy to get into a lot of debt? House maybe? What will the (almost) down payment I have sitting in a saving account do during a period of large inflation? Buy less later?
I don’t have enought to buy in Noe right now but if prices drop as much as you all hope, I’m going to buy and take one of those data points off the graph. For the inflation reason. The prices/inventory will never make it to me though becasue there are a lot of people like me, just richer (or with richer parents). The inventory/prices will never make it to me – nothing has changed.
So I’m frikkin screwed.
Fall or late summer of what year? Banks are not convinced the SF re is a good bet right now. Until that changes (4+years)sales will remain pretty flat, as most potential buyers will not be able to swing 15 -20% down. The only thing that will speed the time frame up is prices falling considerably more – which seems unlikely. We have a standoff between buyers and sellers. Bad news for those whose livelihood depends on a truce.
“Banks are not convinced the SF re is a good bet right now’
dogboy.. what evidence to u have for this?
“nothing has changed.
So I’m frikkin screwed.”
not to worry obro… you can rent for the rest of your life… and buy expensive cars like LMRiM
Fall or late summer of what year?
I’d think this year. Hopefully they’re not planning to go to open houses for 18 months.
as most potential buyers will not be able to swing 15 -20% down.
From where I stand this is not accurate. But Socketsite CW runs contrary.
obro – I too have been considering real estate as an inflation hedge, but here’s what I keep bumping up against (and perhaps one of our econ theorists can help us work this out)… absent WAGE inflation, how does inflation help housing? Wage inflation seems unlikely anytime soon w/ 10% unemployment looming, and as soon as the bond market gets itchy about Fed policies interest rates get goosed – huge negative for housing. Unfortunately it seems that a better hedge for savers might be commodities, but as I don’t know a darn thing about the futures markets that seems a risky place to play.
I’m all ears (or eyes, I guess) if anyone has a theory about how inflationary forces will push up housing (or even rents) without corresponding wage inflation.
Lower inventory AND sales activity on SFH tells me that there is a pent-up supply waiting for a better time to get listed. And this pent-up demand vs. pent-up supply means that buyers and sellers are still not seeing eye to eye.
Obro/rabbits- IMO inflation will always (operative word: eventually) favor real assets. Inflation is not a controlled causality, but rather a protracted result of many factors. Hence we don’t know exactly when it will start, what interest rates will be, or the effect on salaries.
But suffice to say that the gov will have motivation to increase the money supply to help control the defecit and looming $8 trillion spending. A key to successfully implementing a monetary change agent, will be what I call a controlled inflation rise, over the next several years. Of course this will not be perfect, but as commodities start their bout of inflation, consumer costs like rents will also start going up. Rising rents will put counter pressure on the rising interest rates one normally sees in conjunction with inflation. This also feeds back into salary inflation, as you can’t sustain an economy with too much income disparity via-a-via forced cost of living increases. As this process continues, housing will also go up in price. As a leveraged asset, owning a home will have a disproportionate positive benefit to owners. And owners of rental and commercial properties will benefit the most from an impending inflationary chain of events. It will probably take several tears for housing to reflect this cycle, and the ride will probably be bumpy. But 2019 is going to feel alot different than 2009. Everything is going to be alot more expensive IMO (get ready for the $15 burritos!)
^ corrections:
“rising rents put counter pressure, raising housing prices, (initially lowered by the rise in interest rates.)”
Vis-a-vis in next sentence.
45yo,
The Japanese were saying the same thing almost 20 years ago. Tokyo is still 40-50% cheaper and inflation did not bail out the over-indebted masses.
On the plus side, Japan had a very healthy export market to fund debt servicing.
Without that, the US has only 2 choices: high inflation or strong recession/debt destruction. Not many here remember the inflationary late 70s and early 80s, but all I can tell you is that they really su@ked in terms of jobs.
We cut loose a lot of inefficient industrial jobs and made huge savings along the way but this time those savings cannot be found as America is already a very productive nation with little industry left. What gives then? Everyone will pay a price.
All I am saying is trying to save a few over-leveraged half-wits is going to kill the really productive segments of the country. Let the idiots suffer the consequences of debt. After all, they were warned but got too high on granite counter tops and SS appliances to listen. Now they’re the crybabies asking for mercy. Let them eat cake.
Time to buy farms.
I agree with one thing: there will be many tears in housing.
As for the rest of 45yo’s plan, ask the people who were holding real estate in Japan when that bubble burst, and the government started their stimulus measures, how their hopes that inflation would save them worked for them.
And Japan handed that money out for public works: it wasn’t mostly given to banks and former bankers in the form of unemployment benefits. It still didn’t even move the inflation needle much past zero.
It’s a world economy: if our currency is being devalued, investors will invest elsewhere driving up interest rates to crushing levels, choking off the flow of business and employment. If wages rise, more jobs will be offshored, replaced with technology or simply abandoned as not feasible.
That theory works for 1979, I’m not sure how well it works for 2009. It might work for 2015, but for 2009, 10 or 11, I doubt it.
As I’ve said many, many times on SS: the Fed and the banksters/financial elite have set up a game in which ordinary people feel they have to enter into a complex inflation bet the parameters of which they don’t understand. A number of posts above illustrate this perfectly, and serve as the perfect proof of my oft-made statement that most people buying houses believe they are outsmarting their creditors and in effect “stealing” the value of their home because “inflation” will inflate away the cost of their debt (and by extension the value of their creditors’ loan asset). That foolish but cherished arogance is one of teh many reasons I get such a laugh out of this unwind.
A few will do just fine even in what is coming – whether by luck or skill – and most will be slaughtered. Look back honestly at your investment acumen over the past decade or two. Were you smart enough to get out of US stocks in 1999? Were you smart enough to get back in in 2002 and then get back out again in 2007? Did you buy foreign currencies in 2002 and get out of those in 2008? Have you found it tough to make money in financial markets generally over the past decade, or has it been pretty strightforward and understandable?
Housing is now just another trading asset. That’s the game that has been set up. I don’t think that many people are going to beat the banksters/USG at their own game.
For my part, I expect price inflation at some point in the future – it’s tough to nail down an exact time, but I do think it’s likely to be more than 2-3 years in the future. I think it will happen when the economy is significantly less leveraged or after much of the current private debt has been absorbed by the USG/taxpayer. At that point, inflation will be very beneficial to those with access to “first money”. Until then, much of the bankster elite is holding debt (e.g., are creditors) and what benefits them is the average person’s losing the imaginary equity that he believes he now has in leveraged assets. No gift of inflation until the average debt slave is wiped out is my bet.
As for the rest of 45yo’s plan, ask the people who were holding real estate in Japan when
How about you call up “Japan” and ask it/them for us, Tipster? Man oh man is that one tired.
45yo, your case above might seem logical if technology, globalization, and a shrinking American industrial base weren’t doing everything possible to keep a lid on wages. We’ve learned what having buyers with back-end ratios over 40% will do, and I can’t imagine many renters wanting to be coughing up more than 30% of their income either. What I feel we are more likely in for is a long, slow train to a lower standard of living. Gas, fertilizer, burritos, etc will all be 50% more expensive, but without greater discretionary income at its disposal, I don’t see where more money for shelter comes from.
My time in SF is relatively recent, and it seems that the 2 major spikes in rents recently were caused in large part by the twin bubbles. I’d be interested to know how rents behaved in the inflatinary 1970’s/early ’80’s, and how they perfomed against housing values.
Japan is definitely relevant for today’s situation. Sure the inflationist cry-babies would LOVE to brush the Japanese lost decadeS under the rug, but truth is Japan RE never came back from the abyss.
Very relevant indeed…
LMRiM – I have a substantial amount of dough I’ve saved for a down payment. If I decide not to use it right now to buy in, in what areas would you invest that money over the next 1-3 years? Just curious on your thoughts.
LRMiM – Can you explain “first money”?
So LMRiM.com LaughingMillionairerenter.com and laughingmillionaire.com is available… You have been searching for your next course in life.. perhaps a blog, advisory column? I will help you set it up.
The Japanese were saying the same thing almost 20 years ago. Tokyo is still 40-50% cheaper and inflation did not bail out the over-indebted masses
While there are many tangents on which the Japanese experience is very relevant to our current path, there are also very significant structural diffrences that one should also consider before making a conclusion — especially with respect to Labor markets, consumer behaviour, cultural differences with respect to lending/borrowing etc..
I agree we seem to be making many of the same mistakes as Japan made, but given the structural differences, I am not as confident we won’t see significant inflation a couple years out.
@ Stu – I have to run now, but I’ll post a few ideas for you later regarding whatto do with a potential downpayment that is intended to be used in 2-3 years. While classic financial planning would counsel cash and short term investments only (on the basis of the likely time horizon), I actually think one should think in terms of likely correlated future outcomes for asset classes vis a vis residential housing for at least a portion.
@ The Bunk – “First money” – often termed something like “those with first access to money” – is something I thought a quick google search would turn up, but no such luck. It’s basically just the idea that a certain group of economic actors will get access to money first in an environment where money creation is going to lead to price inflation. These “early receivers” (and the biggest scammers of them all of course are the government and the banksters who create the money) can then exchange the money for real assets in advance of the price rise. As the money circulates, the “next receivers” of the new money progressively see less benefit, and of course the majority of people see a detriment (higher prices) without the coordinate benefit of the “free” money that those with access to first money got.
You might find this essay interesting in light of the inflation discussion above (and Shostak uses the “first money idea):
http://mises.org/story/3489
@ GWTF – I can’t believe those domain names haven’t been taken, lol. But I think I’ve already decided on my next “career”: I’m so disgusted by the actions of our government, that I am going to use my legal and finance backgrounds to help people shield their assets. Seriously.
Geo, agreed there are differences. One of the biggest being that Japan is a net exporter of industrial goods which helped them go through their 20 years of deflation.
We do not have this. We sure have creative financiers and ever giddy consumers, but these are more the problem than the solution. We will not consume our way out of this one. Not before we pay the bill for all we consumed on debt these past 15 years.
Lmrim- umm, so why will “ordinary people” not be able to benefit from the pending inflation, but (presumably) geniuses like you will 🙂 no offense bro, but that’s one of your more arrogant posts (whatsamatta? bad trading last week?)
rabbits-“I’d be interested to know how rents behaved in the inflatinary 1970’s/early ’80’s, and how they perfomed against housing values.”
that is how SF got rent control: a major SF LL was raising rents too much and RC passes in ’79. i’m pretty sure SF RE prices were also increasing during that time (until the early 80’s recession.)
SanFronzi- why do you keep thinking the USA circa 2009 is anything remotely like japan circa early 1990’s? almost 20 years difference- has the world changed much? another poster also said, the cultural/behavioral differences are just too great to ignore. and, the yen is not the ruling currency. to rely on the japanese experience is myopic, and just plain wrong for the usa today.
and tipster’s reactionary gloom and doom, usa is going down scenario is old too. “if our currency is being devalued…” what a bunch of hype. did you ever stop to think that lowering the value of the dollar can benefit our economy? it all depends now doesn’t it?
you guys keep looking back instead of forwards. the US economy keeps getting more efficient. the GM chapter 11 will be good in the long run for this country. there will be new technologies in medical, energy, bio-computing; new services we haven’t even thought about yet.
and globally speaking it’s a relative situation- our economy may be suffering but it’s not as if europe is succeeding (their banks have just as bad, in some cases worse problems than ours.) and china. well i didn’t see them backing away from US treasuries in the last 6 months. oh they talked about it (read: routine public relations quote.) but i think they want to keep their aspiring middle class employed as they are more concerned about preventing mass riots in the future than making a global currency power play with the Renminbi. maybe in 20-30 years, but they’re not even close yet.
“why do you keep thinking the USA circa 2009 is anything remotely like japan circa early 1990’s? almost 20 years difference- has the world changed much?”
Ummmm … because Japan went through a credit fueled asset bubble in housing and stocks which burst in 1990 and we are going through a credit fueled asset bubble in housing and stocks which burst 2007ish.
Lest we forget, history does not tell you the probability of future events occuring.
SanFronzi- why do you keep thinking the USA circa 2009 is anything remotely like japan circa early 1990’s? almost 20 years difference- has the world changed much? another poster also said, the cultural/behavioral differences are just too great to ignore. and, the yen is not the ruling currency. to rely on the japanese experience is myopic, and just plain wrong for the usa today.
Granted, we cannot always look in the past for today’s situation. But the myopia is clearly on the side of the poor souls who didn’t learn from other people’s mistake. We keep pushing for the perpetual free lunch: borrow, spend, borrow some more to pay down the debt, spend some more praying cash rich people don’t wake up, smell the coffee and stop financing our lazy collective a$$es. In 2001 we got into a big mess and relied on the outside world to lend us AND support our currency. We are now faced with a choice: make good on the debt or default (handing out funny money). We are obviously choosing the latter but will the world let us do that?
The 10-Y treasury shot back right up today. People are tired to give out their money for free and they don’t trust us to make good on the debt, therefore asking a proof of good faith. We’ll see where this leads us…
The 10-Y treasury shot back right up today. People are tired to give out their money for free and they don’t trust us to make good on the debt, therefore asking a proof of good faith. We’ll see where this leads us…
I wouldn’t worry about this. These sorts of spikes are known to happen, and in the end, they don’t really mean much. Wake me up when the 10 YR stays above 4.2 for a year.
Also, no one is tired of giving out their good money for free, since no one has been. In the case of china, I don’t think that printing yuan to buy dollars amounts to “giving away good money for free”.
In general, foreign governments can’t get enough of treasuries, for example. Despite the finger wagging for public consumption, foreign governments are buying treasuries record numbers. Moreover, the total u.s. borrowing is about where it was in 2004, a significant decline from the 2007 peak, which of course coincided with the peak desire of the u.s. private sector to borrow. This desire has been collapsing, and government borrowing hasn’t quite been enough to offset the collapse.
i’d still like to see a more comprehensive analysis on the question of inflation. (hell, we can’t even all agree that we will have inflation, as there are those who think we’ll suffer a protracted deflationary period, a la japan in the 90’s.) But I think we can all agree that inflation is not a controlled causality, but rather a protracted result of many, often contradictory factors. so instead of linear, self contained analyses, i’d like to see more comprehensive perspectives on the subject. i’ve stated my current views in a post above, but that’s from a limited perspective. perhaps those with compelling info/data/studies can further elaborate, for this will be a significant issue to anyone contemplating real estate, or anyone with any money for that matter, over the course of the next several years.
stu,
I’ve been thinking about your question of what to do with a saved downpayment that is likely to be used in the next 1-3 years. It’s obviously a question that is going to depend greatly on your income/net worth, relationship of the house purchase price to your net worth/prospects, and your risk tolerance. So, I couldn’t give you a definitive answer, but let me try to give you some ideas.
First, 1-3 years hence seems like a reasonable time frame to be thinking. If your goal is to catch the absolute bottom of the housing market cycle, I think it will take longer than 3 years, but I’d look at the goal as to get into a nice property at a good combination of price and financing. For that, that time frame may well be ideal – I’d make sure that you really could see yourself being there at least 7 (and preferably 10+) years, which would allow you to reap some of the benefits of the financing side of the decision even if the price is likely to go down for a number of years post purchase (presumably, though, at a much slower rate than 2007-2010), as well as getting the use value out of a place that you obviously like.
Because of the short time horizon, you do have to put a portion in cash and cash equivalents. What percentage is tough to say, but I’d suggest you think about how long it takes to save the downpayment on your current income/consumption projections. If your saved downpayment represents less than 3 years’ savings, for instance, only 25% of the current amount in cash might be appropriate. If, instead, it represents more than 10 years’ prospective savings, then 75%+ in cash seems wise.
For the portion that is not in cash, I’d suggest a mix of invesment positions that are (1) likely imo to do at least ok over the horizon, and (2) as a group are likely to have low correlation with the potential housing asset. Ideally some of it would be uncorrelated, and other parts of it would have positive correlation but with higher absolute expected return.
For everything, I’d suggest low cost index funds. I don’t want to recommend specific ones, but they’re pretty easy to figure out, and manager/construction risk is much lower with those sorts of vehicles anyway (so no need to worry too much about picking the “exact right one”). For all positions, I’d recommend putting half the allocation today, and scaling into the rest on a mechanical basis (say, 5% additional each month on a fixed day over the next 10 months – that sort of thing).
For actual allocation, I’d suggest a bond component. Corporate bonds are not as cheap as they were 3 or 4 months ago, but they are not extraordinarily expensive. Perhaps a 25% allocation to good quality corporates (with medium average duration) is a good target. I’d also have a healthy (say, 10%) allocation to US junk bonds.
A smallish US equity component (10-15%) is also prudent, even at these lofty levels, because the major risk to a severe US equity dislocation remains a continued credit and profits deflation. I actually think this is fairly likely, but much has been discounted, and if I am wrong, equities will outperform the potential house you are thinking of buying.
I’d have a larger exposure to international equities, with a particular focus on general Asian indices – there are a number of Asia-specific funds as well as general internationsl index trackers. So, maybe 15-20% there.
The remainder I’d place equally in longish duration US treasuries (say, average duration 7-10 years, so you’re mostly looking at the 10-15 year maturity part of the curve) and gold, split roughly equally. Like Robert mentioned above, I am not particularly bothered by the backup in the US 10Y (fortunately, though, I got out of long duration at the end of last year/beginning of this year, as I mentioned a number of times on SS). I think yields over 4.5% (if we get there) on the 10Y would be a screaming buy in the next year or so (until the huge overhang of private debt is defaulted, paid down or absorbed by the USG, higher interest rates on the reference 10Y part of the risk free curve are going to collapse the US economy). For gold, because of the short time horizon, I’d think one of the “paper” ETFs that mimic physical gold would be ok, but long term I think there is a risk of confiscation/forced restructuring in those trusts and I’d prefer physical or offshore repository (but 1-3 years I don’t see this as a huge risk).
Anyway, sorry for the length, but I hope that helps. I want to emphasize that those allocations are suggested only, and should be reviewed with a financial advisor who knows your specific situation. Also, they only apply to the portion of the current saved downpayment that is not put into cash or cash-equivalent (short term CDs, money market, Tbills, etc.).
Thanks for the insight. Looks like you are recommending ‘cash preservation’ in lieu of more aggressive opportunities to try to grow it.
It’s good to be just as concerned about the return of your money as the return on it.
The pithy phrase for people who try to eek out a little more return without paying attention to the risks involved is “Picking up nickels in front of steam rollers.”
In a deflation, the one who loses least wins.
Why do people like to bring up Japan as an example but not other countries?
How about Hongkong? Its RE price went down 70% for some buyers around 1997, and recovered and more.
My point is that every country is different. Japan is as irrelevant as HK, and your prediction based on Japan is as inaccurate as predictions based on HK.
Regarding the inflation, it will happen.
1. That’s the cheapest way for the gov to get out of the debt.
2. The import prices from China and other parts of Asia will be significantly higher when we get out of this recession.
“Why do people like to bring up Japan as an example but not other countries?”
Because of the similarities between our situation and theirs.
If SF was about to be handed back to the Chinese and everyone was selling their houses to escape before the expected confiscation then it might be useful to compare our situation to HK in 1997. But it’s not.
Hong Kong? Nah.
1 – Hong Kong is not a country! Never has been, never will be.
2 – Hong Kong is a business/export hub for a much much bigger country, and should be viewed as such. It is not as self-contained an entity as Japan.
3 – Japan’s economy is next only to the US. The #2 economy in the world experiments with an unprecedented asset/debt bubble then brings the interest rates to 0 when the bubble pops.
Japan is darn similar to the US. Comparable size. Comparable debt-fueled bubble. Comparable reactions.
Of course we could pick Luxembourg or Lichtenstein or Macao if you like!
Like the US, Japan also has traditionally been a largely domestic-focused market, with share of exports roughly comparable to the US in the 1980s through 2000s (someone could find the exact numbers, but going from memory, exports were around 10% of GDP in the early 90s, rising to rougly 15-18% today, comparable to the US). Of course, our trade balance is negative. HK trade as a percent of GDP used to be somewhere upwards of 300% of GDP, for reference.
I was trading Japan in the early to mid-90s. The same inflationist arguments then were prevalent, particularly the ideas that the yen “would have to be devalued” and “inflation was right around the corner – it was necessary”. A lot of people lost a lot of money trying to short JGBs and buy Japanese equities throughout the 1990s.
Interestingly, and again someone better with finding stats could find the exact data, but as I recall it took about 4 years from the bursting of the Japan credit bubble in 1989-90 for Japanese CPI inflation to go below zero (from 4%+ in 1990-91 I think). We’re tracing the path even faster, as we’ve already gone negative yoy in our (highly manipulated) CPI.
I agree with John. Inflation will follow the credit deflation. It’s just that it will not happen fast enough to “save” people who overpaid for SF real estate after the late 90s. Most will regret dearly the purchase, at least from a strictly investment point of view. Just like in Japan.
Japan is like 2/5 the size of the US. You can call that comparable if you like. I wouldn’t, nor would most people. Japan is more comparable to Germany in that respect. I don’t know man. We had some Japanese friends over a couple weeks ago and got into this stuff. My buddy doesn’t see things this way, and he’s lived in Germany and the US too. But different strokes …
Japan is the closest to the US in terms of GDP. Much closer than the HK example.
Of course our current issues are unique, but they were unique to Japan as well.
The rationale is: stagnating incomes + debt bubble = great disconnect between paper wealth and actual wealth creation.
The logical conclusion is debt destruction but we are fighting the inevitable outcome just like the Japanese fought their own good fight that they finally lost. But they’re still around and that’s pretty reassuring (maybe not for people who depended on high prices).
I personally use Japan only to negate the arguments that housing can’t fall further or that a downturn can’t last for decade(s).
I also use it to show that massive govt stimulus and currency debasement and quantitative easing can fail to pull us out of this.
and I often use it to show that housing can fall 90% even in a desireable world class city.
I try not to use it to mean that the US will copy Japan.
there ARE significant differences between the US and Japan. Most of the ways are WORSE for us compared to the Japanes scenario, but not all
BETTER for us:
-we hold the reserve currency of the world, they do not
-We are the undisputed world economic powerhouse. they were #2
-we owe the world a lot of $$$, but many of them “need” us just as much as we need them. (for instance, the petrodollar world and the chinese “need” our consumer, and in some cases our military to keep in power).
-we have the most powerful military in the world (good luck collecting that debt if we inflate away).
WORSE for us:
-we are net debtors, they are net creditors (so our situation is worsening)
-they are/were a country of savers, we are not. (so they could run deficits using domestic savings, whereas we must borrow from the rest of world)
-they went through their downturn while the rest of world was going through a boom (most of the time anyway) so they could export their way “out”. we will go through a downturn with everybody in downturn so our export prospects are weaker
-we are at 2 wars while in our downturn, they are not. thus we have massive $$$ needs to feed the wars.
===
that all said, there are also striking similarities. among them (not comprehensive list):
-both countries are going through the aftermath of a major credit bubble.
-both countries are juggernauts (although the US is clearly larger)
-both countries zombified the major banks.
-both countries have taken on incredible debt in order to try to avoid deflationary forces
-both countries attempted quantitative easing.
I don’t understand why people are so opposed to the Japan comparison? Is it a perfect comparison to the current US? No. Is there ever a perfect comparison, in any situation? No. Are there valuable lessons to be taken from the Japanese situation. Yes. Are very smart and accomplished people drawing the comparison?
http://blogs.ft.com/economistsforum/2009/02/japan%E2%80%99s-lessons-for-a-world-of-balance-sheet-deflation/
LMRiM at 8:31 hits the nail on the head… hyperinflation in a form that would “save” people that over-indebted themselves in real estate just seems like nonsense in the near term. The fundamentals are all moving in the opposite direction, and it seems as though the hope of “inflation-heads” is that the US becomes some sort of Mugabe-esque banana republic inflating away its debt. If ever there was a case of “be careful what you wish for” this seems to be it.
My 2 cents on parallels:
The first major RE downturn I saw firsthand was the collapse of Paris RE in the mid-90s. It recovered and more than trippled since thanks to good fundamentals compounded to the dot-com boom followed by the Euro boom.
This is not entirely applicable to SF or CA RE, but the mechanism of the crash is pretty interesting to study.
The top of the market was 1991, trailing the US by 2 years. It was mainly fueled by REIT speculation and people chasing “safe” investment vehicles. 10+% yearly return on REIT in 83-89 was the norm, which brought even more individual investors into the game. Of course these REITs were leveraged. The real ROIs on the properties was ~3%, the remainder coming from appreciation. I used to work for a financial institution that owned such property and I even lived in one of them 😉
A small recession hit France that year and prices stopped increasing. Volumes collapsed. From 1991 to 1994 prices went down 5% a year mostly due to individual sales and REIT sales that had “guaranteed” returns to their customers and needed the cash. During that time, 2 things occurred:
– Individual homeowners put off the sales of their places, waiting for “better prices”. Shadow inventory buildup 101.
– Banks slowly burned through their cash partly because of non-performing REITs.
In 1994-95, banks ran out of cash and unloaded their assets, provoking a widespread sell-off. Paris prices went down 35% overall, 50+% locally. I know a few individuals whose finances were crushed by this.
Why does it matter to us?
1 – Banks have put only a fraction of all REOs on the market (I read 1/3 the other day).
2 – The shadow inventory from individual sellers is increasing daily.
Just my 2 cents. As relevant as Hong-Kong, but still something to consider.
No question we are in a mild deflationary period today. But if we start seeing positive GDP by end of this year/early next, I don’t see that sustaining. I think the crossover from deflation to inflation will occur in the next 1-3 years, and the net deflation will be minor. Hence, most SF RE purchasers who are patient will be fine as long as they are not highly leveraged/negative cash flow or have to sell for lifestyle purposes.
Lmrim FYI- interesting you are contemplating ‘asset protection’. I studied this, and as you know there is alot of BS in this field (offshore fund in the cayman islands, anyone?). But I did find one serious and excellent book on the subject, which I highly recommend: asset protection- concepts and strategies for protecting your wealth by adkisson and riser. It’s a scholarly/textbook hence the $55 price hardcover, but well worth it. The book does nuance between the values of LLC’s, insurance policies, etc but also applies heavy doses on the limits of asset protection. The Uniform Fraudulent Transfers Act (UFTA) brings a dose of reality to those seeking almost all ‘transfer of funds’ solution to their woes. A great read, and the only serious book I was able to find on this subject (this was about 4 years ago.)
LMRiM, you may want to consider a tax LLM for your new career. Our tax guys spend most of their time advising clients on just these sorts of issues — not only tax avoidance but protection from creditors. We have one zillionaire client who moved to the US Virgin Islands last year and pays something like 3% income tax. Right up your alley.
On that issue (nice segue, huh), to those who have taxes withheld, note that the revised CA budget increases personal income tax withholding by 10%. You get it back at refund time, but it is still a bigger, free loan to the state. You can opt out. Be on the lookout to do that when your employer implements it. The state knows that most people act on inertia and will just go along (projected $1.7B in income to the state from it this coming year).
“LMRiM at 8:31 hits the nail on the head… hyperinflation in a form that would “save” people that over-indebted themselves in real estate just seems like nonsense in the near term.”
This is certainly the “salvation” that 45yo hippie is praying for, judging from the rationalizations that pass for “economic analysis” in his posts.
“I need a mir-ah-cle e-vuh-ree day”
—————————————-
“We had some Japanese friends over a couple weeks ago and got into this stuff. My buddy doesn’t see things this way, and he’s lived in Germany and the US too.”
Doesn’t anonn, our esteemed RealtorTM friend, usually rip into people on this site who use these “friends said” anecdotes when they refer to SF real estate topics?
nice posts ex SF-er (on the highly nuanced japan/usa comparison/contast) and SanFronzi (on the details of the Paris housing market boom/bust wrt REIT’s and the banks actions further down the cycle)- definitely food for thought, and only illustrate that one cannot be too careful these days as one tries to navigate the financial and RE markets.
LMRiM, +1 on Trip’s comment.
I am involved with a lot of people in London who hold advisory licenses and they are absolute idiots. You run circles around them (and me) on this stuff
But offshore structuring as Trip has mentioned is a bit more my bag. I have a nice cache of accountants to go along with it. Just say the word. Hiding friends from Carl Levin and his gangsters is where i am the pig in sh*t.
BTW a cracking post on the inflation argument.
PS, now looking at a highly discounted Gretsch drum set. 😉
Hey nnona,
First off, you’re conflating things. “Friends said”? Or “my friends are selling this, therefore I will contradict every derisive uberbear statement I’ve ever made” ?
Don’t you think sharing an example in which a friend who thinks along the same lines as me, followed by a statement that “different strokes …” — your mileage may very, just my opinion, don’t get all bent out of shape, my two cents, whatever. Nothing definitive there. And no real stance made.
Wouldn’t you say that’s a little different than, oh, say, sharing a personal anecdote that contradicts everything I’ve said?
I would.
But what do you care. Look at your name. You’re on here to harrass me, and that’s it.
One of these days you might do a good job of one-upping me. Until that time, continue with your own particular brand of e-hate, buddy. ‘sssalllgood.
While you can compare Japan as a country to US, you cannot compare Tokyo to US.
The Japanese RE boom and bust was mainly with Tokyo and few other major cities. Most of Japan did not experience the extreme appreciations like Tokyo, nor did they experience the severe bust.
My point is, if you want to use Tokyo as an example and compare it to SF (NY might be a better comparison though), then of cause you can bring other cities into the picture like HK.
Yes, HK going back to China in 1997 was a big factor, but also the 1997 Asian Financial Crisis (which to Asia, was very similar to the current financial meltdown).
And Japanese economy is not (and was not) comparable to US. It was export oriented, like China today. There is no country like US (for good or bad).
Major differences:
1. US is domestic economy, Japan was export-oriented (even 10% in 80’s was huge)
2. US has a healthy population growth. Japan had very low population growth, and with aging population, the # of available workers actually stayed flat.
3. Japan’s land area is much smaller than US.
I am not saying we won’t see worse days. I am just saying if it goes worse, it has nothing to do with what happened in Japan. It may be better, it may be worse, just don’t compare those two.
Disasters can come in different ways. Don’t try to link two completely different disasters together.
I checked in to asset protection when I finally had enough assets to protect. Went to the best guy in Northern CA.
I was told that 1) CA real estate could always be seized. 2) Florida real estate cannot be seized but that fortress would probably crumble during my lifetime. 3) You have to move cash offshore to be protected. 4) That wouldn’t insulate you from being thrown in jail for contempt, so you’d also have to consider at least the possibility of leaving the country if a lawsuit was coming. 5) An offshore trustee probably wouldn’t take the money if there was any hint that a lawsuit was coming – you have to set up an offshore trust well in advance. 6)The management fees for an offshore trust are so high that insurance is cheaper until you have around $50M in assets.
So I got a ginormous umbrella policy.
“How about Hongkong? Its RE price went down 70% for some buyers around 1997, and recovered and more.”
Gosh, that is remarkable that Hong Kong performed so well in that period when the rest of Asia had a serious financial flu. It is almost as if a one time never to be repeated event occurred in 1997.
@ tipster – just budget enough cash in the money you transferred offshore to bribe the outgoing Obama administration to get you back in when it comes to pardon time. Just ask Marc Rich (well known from my early days at a macro hedge fund that got its start primarily as a commodities trader).
@ 45YOH – Thanks for the book recommendation, I’ll have to look into that. I should have said, though, that my focus is going to be a bit multidisciplinary, not simply “shielding” assets, where of course there is a lot of learning and experience already. It should really be “preserving” assets, which would combine a legal (shielding) strategy in the context of a more macro investment focused long term risk/reward approach.
@ Renter in Piedmont – OT – what do you think a fair price to try to get an OM-45Dlx Roy Rogers in Brazilian would be? (Two shops seem to have one of the 14 or so in existence – and after loking a bit I found your guitar on Christies!) BTW, I’m thinking about commissioning a high$$ Petros in the near future – my bank account is getting waxy buildup and I think guitars will be untraceable assets 😉
$ Trip – maybe an LLM would be fun. I like tax issues – sort of Talmudic in that the answers are all teased out of a self-contained universe that takes up a few linear feet on a shelf. When I was a summer associate at a law firm a lifetime ago, the firm had just moved to fancy new digs where the lights were activated by motion. After 10 minutes of no movement, they turned off. You guessed it, they would always go off in tax lawyers’ offices as they stared perfectly motionless at the same page for 10 minutes, lost in thought 😉
LMRiM-
Nice Sherlock Holmes detective work on my purchase. Here is a more complete set of photos–no different than the one you want save the lowly (but at least quartersawn) Indian rosewood:
http://theunofficialmartinguitarforum.yuku.com/topic/79961/t/My-First-Martin-OM-45-Roy-Rogers-EIR.html
As far as what the braz version goes for, hard to say because it is the epitomy of an “illiquid market”.
But I can say this: The reserve price of the Martins at the auction in October 08 was the low end of the guide price. I stuck with the auction from beginning to end and gleaned that pretty early on.
The guide price on the RR prototype braz (lot 37) was $15,000. That means add 25% buyers extortionate premium and you get $18,750 USD as the absolute cheapest you could have taken that guitar home with.
You don’t see the one you want LMRiM on the Christies site (lot 37) because it didn’t hit the reserve, and so they pulled the page off the internet.
I do recall reading one or two folk saying the best two sounding guitars at the whole auction were the braz RR prototype and the Hank Williams D-28 braz (which also didn’t sell). I suppose it’s not unlike houses where (in SF) the below $1m stuff moves at some price but the other higher end stuff needs that certain buyer–and that certain buyer wasn’t at the Christies auction in Oct 2008 after the market bloodbath, lol. Hence, the best deals at the auction in October were on the higher end stuff.
FYI: There was also another OM-45 RR in Indian rosewood from the production run of 84 or something with–get this–a cat bite that I saw for sale a month or two ago at like $7850 asking (it’s also discussed on the Martin forum). It sold shortly thereafter, but obviously I have no idea how much for.
So I reckon if you go to these dealers with the braz you want and point to the Christies auction noting you could have had a PROTOTYPE in a Christies Catalog (ie., pedigree) for $18,750 that might give you some leverage. Not a bad price for the same guitar from Rogers himself “Number 15” that just went for around $500K in April at Christies.
BTW, you are correct about untraceable assets. My flat was broken into in London in like 05 and they took a 28 EUR magnum of champagne but left the all original black 71 strat just sitting there. Goverments are not much different than those thieves when it comes to knowing value from dross.
Tipster- that’s funny, my research into that area a few years ago yielded the exact same conclusion: get a good umbrella/liability policy on top of other policies. (see, we can agree on something 🙂 It’s a good approach for my circumstances, as I’m not doing anything with too much risk visibility (ie slumlording).
So do you currently own rental property (and if so where and what type)? (cause I thought you hated RE!)
Thanks for the info, Renter in Piedmont. That is a beautiful guitar (only small thing I’d wish were different is the inlaid signature). I’d pay $18K (60% of list) in a minute for the brazilian – I guess I’ll have to put in a call to Dusty Strings in Seattle tomorrow….
Here’s what I’m thinking lately (perhaps in Brazilian) – lots of bling for me – but I played a Petros a few years ago and they’re truly amazing:
http://web.mac.com/petrosguitars/Site/Models/Pages/Tunnel_13.html
Reading the UMGF thread, I’m surprised that’s your only/first acoustic! Way to go, might as well start at the top – reminded me (for some reason – ah, the irony) of the Jerry Hannan “society” song that I was strumming the other day:
“There’s those thinkin’ more or less, less is more,
but if less is more, how you keepin’ score?
It means for every point you make, your level drops.
Kinda like you’re startin’ from the top…
and you can’t do that.”
http://www.youtube.com/watch?v=WsVM4FblMEA
(quoted lyrics at about 3:00 in)
LMRiM, you would probably not be surprised to find that distaste for the inlaid sig was the subject of a discussion on UMGF I had when that cat bite model came up.
The guy there had the same view as you and said “for $10K more I can have this from the custom shop” to which I responded “for $10K more I could have had the braz model”.
I am no fan of the sig either, but happy to suffer it given how small it is.
Instrument pricing has changed since my time, it used to be that the dealer paid 50%-60% of retail. These days places like Martin have that MAP (min advertised price) policy and I haven’t quite figured out the sweet spot for deals on this as I have only bought new for the first time in my life with this RR guitar (this also explains why it’s my first acoustic. It’s not; it’s my first Martin).
Re MAP, I am trying to take advantage of favorable forex and pick up a 125th Anniversary Gretsch Progressive Jazz kit. Great color and gold bling!. That one has a MAP of $4K and I was offered just above $3K. I low-balled $2600 and was told to PFO.
So if that means 25% is the most they will go off of MAP, if $30K is MAP on that braz OM-45 then $20K would be a good price. You should try to track down Dick Boak at Martin or Kerry Keane at Christies and see if maybe you can do an after auction deal on the prototype (if they still want to sell/not sold already).
Like your Walker, I had never heard of Petros until you raised it. I have a very set aesthetic and don’t like much designed after 1962 in terms of guitars (and even then prefer 50s). I can see that the guitars are well made but just can’t get over the fact that it was designed by people who didn’t grow up wearing a suit and tie, like they did in the golden age.
I stick with Martin, Gretsch, Fender. But like you pointed out on here, you got an offer for your Walker. So WTF do I know.
Nice song you sent. I don’t really get the lyrics but I am trying!
There is a lot more to discuss. It’s very difficult on SS given format, the fact that I am 9 hours ahead of you on the clock, and not wanting to go off topic. Maybe you should join the UMGF and private message me. I can still access that! You know my stage name there.
I’ll do that on UMGF, Renter in Piedmont. Do you ever get over to collingsforum.com? That’s a nice little community (I’ve been on it for 7 years, but – imagine this – I never post, lol) – you should set up a login there, especially if you like traditional guitars. (I do, too – the Petros is very new agey for me, but Kim Walker is very traditional).
I haven’t been on the Collings one. If I can just login there maybe that’s a better place for us to take this up, since the Martin one you have to write them and then they accept you.
Let me know which is best.
Another apt description from you for Petros BTW…new age. That really is it.
I don’t know a lot about Collings et al because I grew up listening pretty much only to 60s music and so they were electric first, acoustic second (as I am now–Gretsch electrics are my specialty) and back then there was really only Gibson and Martin for acoustics that were worth a damn. I have a cool 50s Gretsch acoustic that was believed to be one of a kind in its finish so it’s in the Jay Scott Gretsch book. (Turns out there is at least one other but this was pre internet).
Desirability: Wow, rare!!!
Look: Super cool -triangular sound hole
Sound: Sh*tt
But who really knows where guitars are headed? It seems like most people on the Martin forum are over 60. I constantly wonder what massive changes are in store when the baby boomers have kicked off.
^ I dunno, my impression of ‘collectable’ instruments was always that it’s temporal wrt sustaining high market values. Maybe you two are pretty smart and well rounded, but I get the impression there are alot of one dimensional people out there collecting this stuff, ie semisuccessful but passe rockers with ‘designer houses’ who like to hang slick guitars on their walls.
Personally I prefer contemporary art. But I don’t care about the value aspect- it’s pretty much consumption if you want to be honest about it. Nevertheless, I have over 300 works, most collected overseas at attractive prices. I rarely follow the market, but some of my contrmpoary Vietnamese artists are making repeated appearances at Christies in Singapore. So I probably have a few outliers (mostly Southeast Asian, some African) which will subsidize the rest of the collection. Yet even if a few pieces get really valuable, why would I want to sell artworks that have personal meaning to me, and represent a memorable phase in my life?
45 YOH,
Although I am only a 42YOH, I think we are both right.
Unlike with art, where there is more wiggle room for people to vary wildly on, there is some method to the madness for guitars. Certain woods, like Brazilian rosewood that we’ve been talking about, have a market price.
Also, you talk about contemporary art. In guitars we talk about the “old masters”. A 50s stratocaster would be anything Picasso and so forth.
So when LMRiM shucks out $20K for a OM-45 Martin, there is no question he could sell it tomorrow for $15K assuming he is in fire sale mode. With contemporary artists, you really need to find someone who shares your appreciation. You don’t have that problem so much with known names like Martin, Gibson and so forth.
FWIW, I only buy contemporary artists. Got a lovely painting in Michigan a few months ago for $300 at a coffee house. Not even sure why the guy bothers to paint at that price.
Also have collected a lot of stuff in the UK. I have a couple of pieces from this Becky Blair that I quite like–in fact looking up her stuff for you on google, I like her even more!
http://www.pvuk.com/artist/becky_blair-image95_19_2.html
As far as Asia where you collect from, when I was with my company I was able to get us the first ever derivatives license from the Thai SEC. I went to our launch party and it was really a great experience. I love Italy first and foremost but my wife and I agree that if ever we can get over there for couple of years we are there. I will be sure to pick up a lot of stuff, they are great craftsman, so hopefully the art is great as well.
Bottom line is that like you, I have never ever even considered what my art collection is worth. I don’t care, I like having it around. I don’t value my children in monetary terms either!
I definitely don’t look at guitars as investments. They’re just beautiful, and acoustic guitars are one of the few areas that the US has always done better than any other country, and that’s probably even more true today then at any point in the past. (Another area in which the US excels and has grabbed the mantlepiece from Europe is hand made bicycle frames, another “hobby” obsession of mine – Japan does give the US a bit of a run, but just a bit.)
That being said, Renter in Piedmont, I did give Dream Guitars a call about consigning my Walker (just exploring). I paid $5.5K in 2006, and they are assuring me that they could sell it for $15K “in a week”, and maybe as high as $17K if I were to take my time. Here’s one that 30 guitars lower on the serial number fom mine that seems to be languishing a bit (but a little less desirable most would say), so maybe they’re just blowing smoke like the realtors do to get a listing – how’s that for bringing this back on topic and baiting our realtor “friends” 🙂
http://www.dreamguitars.com/preowned/walker/walker_000_147/walker_000_147.php
That’s an important point about an area where made in USA still really means something.
That Walker on consignment is much more my style. Lovely. The Martin influence is palpable. I’d have to get used to that brace on the top although I understand why it’s there. PS – I have a D sized Yamaha copy of a D-18 and you really feel the comfort of an OM size when you are a little guy like me.
I don’t look at guitars as investments but a legacy in hopes that my children will take it up. If they dont then I suppose they will become investments. My brother and I were known back in Michigan as the guitar vultures so there isn’t a one we paid retail for, even in the late 80s at the height of our collecting (e.g., 59 Esquire for $170, etc). The Martin OM is the first time I’ve paide retail. It’s because in part I am sick of owning a million things that need repair.
I’ve changed my pseudonym in honor of my usual forum name–banned in some cases. Renter in Piedmont sounds awkward and RiP, as you have no doubt twigged onto–worse!
One more thing in common I see: The Tour de France came through my town last year and it had a profound effect on me. I took up biking and now ride about 10 miles a day. I have a Scott S30 as I wasn’t sure I was going to get into it. There are guys here who are hardcore and seriously good.
I assumed virtually all frames were made in Asia now (even Bianchi which says “Made in Italy” the frames are Asian (Giant right?) because EU rules allow you to do like 60% of the work in one place and still say “made in ___”.
Looking forward to this conversation thread as well!
If real wages skyrocket, taxes drop, interest rates stay historically low, the dollar maintains its value, employment improves, latent supply dries up, then by all means, buy a house due to hedge inflation.
Personally, I see a different scenario for our inflationary period
Real wages flat, taxes increased, interest rates extremely high, the dollar and employment in the toilet, historically high supply, along with 5-8% inflation.
That being said, SF has bottomed for now, and will stay here for a long time. The Fed can’t be in emergency mode forever. At some point, normalcy must return and housing will suffer. Housing rebounded because we favored long term stagnation over short term pain. No more no less.
Real wages flat with 5-8% inflation would imply nominal wage growth of 5-8%, which wouldn’t be bad for someone holding real assets.
I am expecting something like this too, once things settle out, in a year or three.
Renter in piedmont- thanks for the link. I find the last piece, sparse beach scene, the most intriguing. There is alot of fresh and new talent coming put of SE Asia for contemporary art. For a real visual treat I highly recommend Hanoi, where there are loads of quaint galleries among the picturesque streets. If you get serious about it I’d definitely do some research to identify the legit galleries (the city is notorious for knock offs). Otherwise spend a few hundred dollars and just have fun.
NVJ (and back to the subject at hand). I agree with you prognosis. You can’t really have 5-8% inflation for a sustained period without compensatimg wage inflation, lest you seek a revolution (well we’re fighting on the streets, with our children at our feet…wonder how much pete townsend’s strat is worth?)
“You can’t really have 5-8% inflation for a sustained period without compensatimg wage inflation”
Yes you can, it’s called “getting poorer”.
Meanwhile,
….while NVJ and 45YOH are indulging sugar-plum fantasies of 5-8% wage and price inflation (without for a moment apparently considering what happens when interest rates in the private markets – which dwarfs the government markets of course – turn “nasty” in an inflationary economy that’s still levered up 350%+ relative to GDP),
….in Tiburon, in one of the better areas, they’re partying like it’s 1999:
http://www.redfin.com/CA/Tiburon/11-Turtle-Rock-Ct-94920/home/1345019
Sold for $2.45M in 2001, and $2.25M in 2002 (in that tiny dip following 9/11 and the “mini” recession), 11 Turtle Rock Ct. just closed for $1.9M two weeks ago. A $350K cut in price (and accompanying $500Kish capital loss after transaction costs) on a 7 year hold in one of the best, most glamorous parts of the SF Bay Area. Amazing. How about that “inflation hedge”?
I can’t imagine what’s going to happen over the next seven years with no intervening worldwide credit bubble.
Just a few more stats to drive the point home on that large (4300 sf) Tiburon house. 11 Turtle Ct.
The May 2009 price was 22% under its 2001 price.
It exhibited a CAGR of 2.77% nominal over twenty years, well below inflation, returns of the stock market, bonds and even cash money market rates over the period. (What about that 6%+ “average appreciation post WWII that we so often hear about, and where oh where is paco regarding how “primo Cali” always outperformed the stock market over long periods?) Actual returns would have been much worse of course, due to maintenance and remodeling costs.
The people who just sold paid an average of $28K+ per year in taxes every year for 7 years, only to lose about $500K “when they sold it” (in quotes because of course the loss is absorbed as it is accrued, but most people seem to misunderstand “paper losses” versus actual).
I haven’t looked at the loans, and don’t plan to, but I imagine the banksters fed well and greedily on the interest payments siphoned out that’s for sure. The gooberment certainly greedily lapped up the taxes. What a system – you’d almost think it was designed to result in this outcome!
That is a pretty big smack on that Tiburon home — $439/sf does sound a lot like 1998 when we bought our place. As I’ve pointed out here about a thousand times, the SF proper market is intertwined with the neighboring counties. There is no way that big price declines like this in an area that many (probably most) in the Bay Area would find to be more desirable than 99% of SF will not discipline prices in SF. Personally, I prefer SF. But more of my partners in our SF office live in Marin than live in SF.
This also illustrates the broader weakness in the market requiring jumbo loans. Sales in that segment continue to be in the dumps. This seller is pretty lucky to sell at the price he got imho. Bankrate reports that its latest survey shows jumbo rates now at around 6.7% (conforming 30-yr loans at 5.65%). With 30% down required for a jumbo and rates ticking up, there simply are not many qualified buyers — hence few sales. We may or may not be seeing some slowing in the price declines at the low end (and nowhere near the “bottom”). But declines at the high-end are going to continue to accelerate for some time.
http://www.bankrate.com/finance/mortgages/rate-roundup.aspx
great comp LMRiM – much appreciated
the fall for the mid and high end will begin in earnest in the next 12 months
Again, constantly trying to treat real estate as stock portfolio. Why?
“Tiburon seller sold into a bad market” — period. End of story.
“The next seven years” — seven, huh?
She’s a comin’. She’s a comin’. And when she gets here?
She’s already here, anonn. And she’s staying for a while. Nobody ever predicted every piece of real estate in the bay area would fall 20%+ overnight. We always said it be a slow process, with different parts losing value at various clips.
We always said it be a slow process, with different parts losing value at various clip
Do you agree that this — different parts losing value at various clips — has been happening for two years already?
I had a listing out in Hunter’s Point around this time two years ago. The market had already shifted.
11 Turtle Rock Ct – I took a bike ride around this place this morning to nose around, and it looks like a very nice place. It’s a little below grade (south side of the street), so I couldn’t get the whole feel, but it looks like it has terrific full on unobstructed views of SF and all of Richardson Bay out to the Marin headlands and (possibly) Golden Gate Bridge (tough to tell from the orientation). I heard a rumor that it might have been a short sale, but I can’t find any info about that. I couldn’t resist looking at Propety shark, which shows only $1.575M in loans, meaning $500K put down in the first loss position (very foolish) in 2002. I hope for the sellers’ sake they cash out refi’d!
On a different house, at an open house recently, a realtor actually admitted to me that prices in Tiburon were “back to 2003”, so I took that to mean back to 2000-01 prices. She was nice (and chatty – no one else was there), and was showing a house that had been reduced from $1.25Mish to $1M (it was a light fixer – smallish ranch pretty typical of much of Tiburon). She told me that they had only received 1 offer in 3 months of trying: $730K. Good luck, anonn, thinking the next seven years are going to be “happy” ones. (Well, they’ll be very happy for those who wisely waited to buy a place, I suspect.)
Good luck, anonn, thinking the next seven years are going to be “happy” ones.
“Happy” ? LOL.
“Seven years” LOL.
What am I going to want for lunch 6/04/12, LMRIM?
Some times the arch fullness of self that informs every single thing you say seems to leech over this entire website. I guess this is one of those times.
What am I going to want for lunch 6/04/12, LMRIM?
Humble pie. You should be acquiring a taste for it by now, but some resist vehemently the wisdom markets so generously bestow.
One does not “want” humble pie. One gets served humble pie regardless of desire.
You on the other hand, continually want for humble pie.
but some resist vehemently the wisdom markets so generously bestow.
And by the way, I, and others like me, have been building in big market shifts for quite some time now. It does not mean that there aren’t good deals to be had. There are.
I never once said on here that buying property and chilling out doing nothing is a good financial play. No. I leave it to the likes of you to equate “apples” to stocks. I don’t.
Ah, you are learning I see, flujanonn, and it seems that you are accepting that you will be served up the blessed dish.
Here, let me help you digest a bit by quoting from one of your posts regarding SF real estate trends:
“It’s over. Sorry. Scare tactics are dead. San Francisco never really took a price hit and it won’t, either.”
– Posted by: fluj at June 23, 2008 9:57 AM
There, didn’t that taste good now?
(LOL, 3 months before all hell broke loose, and you clearly didn’t even have an inkling of what was coming, just as now.)
Let’s pretend that there’s no such thing as context, that the world is black and white, and that 2.4M Potrero Hill listings have nothing to do with a changed San Francisco. Because it is all going to hell in a handbasket.
Here’s another Tiburon comp I came across to add to the 11 Turtle Rock Ct. listing (see my post at June 3, 2009 8:04 PM above), 7 Acela Drive:
http://www.redfin.com/CA/Tiburon/7-Acela-Dr-94920/home/1324564
Sold in 2004 for $2.4M, and just sold again in July 2009 for $1.9M. And all the bathrooms and kitchen were remodeled (with a $425K construction loan) post the 2004 sale – I’ve been in the property and spoken with the sellers (and confirmed the $425K loan on property shark). The 5/4 property is in nice shape and has unbelievable views. This is one of the nicest spots in all of Tiburon. At $1.9M I’d almost be willing to say it’s reasonable (if we were going to stay in CA long term, we’d have certainly given it a hard look). Regardless, all told, a $1M+ capital loss for the recent sellers on an almost 5 year hold.
For some reference, the house right next door (identical views and approximately the same lot size) is for sale for $6.4M (down from $6.9M):
http://www.redfin.com/CA/Tiburon/9-Acela-Dr-94920/home/784791
If you look at the price history on that one, you’ll see that the specuvestors who developed 9 Acela paid $2.9M for the lot/teardown (if you look at the overhead view in the redfin listing for 7 Acela, you’ll see the empty lot). BTW, the $6.4M price is delusional, but when you make the huge mistake of paying $2.9M for the lot and then the perfectly nice house right next door to you sells for $1.9M….
BTW, even at 20% below its unrenovated 2004 price, 7 Acela couldn’t attract a real family – it’s up for rent already by the new housegamblers, and the $8750/mo rental price is also delusional imo:
http://sfbay.craigslist.org/nby/apa/1323903226.html