Saturday, January 28, 2006


Someone commented on another blog that all of the young couples he knows have given up hoping that they will ever be able to purchase a "starter home". Then there are the stories of all of the young couples who leave their communities and families, move out of state, just so that they can buy an affordable house so that they can raise a family. And then there are all the folks who "cash out" and move out of state. I have met such folks and you probably have too.

Apologists argue that house prices are justified, "they aren't making any more land", "the economy is strong", "people are earning more". Bah!

The fact of the matter is that affordability has dropped so much that only people who currently own a house can now afford to "buy" another one; the "buy-up" chain is broken. This appears to be true in Marin.

Personally, I don't need to buy a house but I deeply sympathise with all those folks who want to because at one time, not terribly long ago, I was standing in their shoes. I don't pretend to be a journalist. I speak my mind and express what's in my heart. And I sometimes make (admittedly) politically incorrect comments here on this blog because I think them to be at the very least closer to the truth than what you will get in the mainstream media. And what do I get in return? What is my reward? Abuse. Abuse from the Marin IJ, abuse from readers with vested interests, and abuse from a society that punishes those who think for themselves and who refuse to both unquestioningly tow the line and become one with the herd. And I'm sick of it.

The fact of the matter is that something is wrong here; something is broken. The American Dream is fading fast; it might have already died. Shame on all of you who callously claim 'if you can't afford to live here then move somewhere where it is cheaper; if you don't make the kind of money you need to buy here then you are just a loser'. We (young and old, rich and poor, working class and trust babies, etc.) ARE the community and we all have the right to live near our families and in the communities that we consider to be home. The fact that this is increasingly difficult for most and impossible for some implies to me that something is terribly wrong and needs to be fixed.

Like I said before in a previous post, I don't give a rat's ass about speculative bubbles in the stock market, etc. because people don't live in stocks and people typically won't take on life-altering amounts of debt to buy stocks. Ah, but houses are another matter altogether. People need homes. Families need homes. Society needs healthy communities; healthy communities need extended families, a working class, affordable housing. Communities today are fragmenting and families are being driven apart. This cannot be good.

I'm done arguing that there is a housing bubble here in Marin and elsewhere; it is a fact IMO and the mainstream media is finally coming to terms with it which means the public will soon be coming to terms with it. At this point, claims to the contrary are nothing more than denial and cognitive dissonance. Either the bubble will burst and prices will return to healthy levels or it won't. If it doesn't, if our collective greed prevents it, if our spineless Fed and owned elected officials fail to deal with it in real terms, then this country is screwed on many levels.

When the "dust settles", when the housing bubble bursts as I and others believe it must, I hope we finally learn our lesson this time. And I hope We the People wake up and take action.

Am I full of it? Then please, set me straight.

* * *
PS - For the heck of it I put together a list of the non-quantitative things that indicate to me that there is a housing bubble (as opposed to what I was doing, compiling statistics and making charts). It's an on-going project of course. In order that this post have some value (this IS a web log after all) I thought I'd share it. Maybe you have items you want to add:
  • People buying property sight-unseen.
  • Flippers greedily snapping up multiple condos at a time.
  • Real estate is referred to as a "can't lose" investment.
  • Young couples who are so frightened that they will be left behind.
  • People with no savings and/or no income are considered some of the best candidates to get mortgage loans.
  • Where essentially all first-time buyers are forced to get an interest-only, no money down loan ("toxic" loan) because affordability is at an all-time low.
  • There is a complete disconnect between house prices and rents.
  • Agents and builders alike making their outrageous proclamations about an ever-rising market.
  • The over use of platitudes like "it's different this time", "they aren't making any more land", "real estate only goes up", etc.
  • Fear mongering -- "buy now before you are priced out."
  • "New Era" thinking -- "it's different this time".
  • When houses are doubling and tripling in price in three short years and yet there has been no corresponding change in fundamentals. Salaries and wages have not increased significantly. The population has not increased sufficiently. There is no increased demand other than the speculative demand itself (a classic speculative mania feedback loop).
  • When the people who jumped on the bandwagon during the .com era and became web designers thinking they'd get rich quick, who then jumped on and became day-traders thinking they'd get rich quick, and who have recently jumped on and become realtors thinking they'd get rich quick. (If you want to know what the next bubble will be I think all you have to do is figure out what the recent wannabe realtors are jumping into next.)
  • The rise of real estate investing/flipping clubs, web sites, TV shows, akin to the stock day-trading clubs and investing programs.
  • Frenzy. Bidding wars, multiple rounds of bidding, and properties selling within just hours. People camping at properties so as to be the first to bid. Housing lotteries.
  • People using ARMs (actually, forced to use) when interest rates could only go up in the future.
  • Talk about how in the future the only way anyone would be able to buy a house is if they already own a house.
  • When the median income needed to buy the median priced CA house is in the neighborhood of $250,000/year (depending on locale; assuming 20% down, 30 year fixed) and yet the actual median income is far less than half that amount.
  • When three years ago you could buy a "starter home" with your salary at that time but today, when you are making more, you can no longer afford to buy that same "starter home".
  • Buyers had to write letters to the seller, include photos of their kids, etc., make promises to feed the local wild life.
  • Buyers who do not occupy their recent purchase and are willing to rent it at a loss.
  • When my idiot relative boasted about being an RE genius when if fact he just lucked into buying at a good time and couldn't afford to move anywhere else.


Anonymous Anonymous said...

Geez. Quit whining. Have a little self confidence. I'm holding onto my cash and or investments because I'm pretty sure prices are going to crash and I'll be able to buy two, at a bargain even. Houses in West LA lost 30% of their value in the 1990s crash and that was only a tiny bubble. Being right means you understand the world, means you can predict. Trust your own judgement that prices will come tumbling down and if they don't, move out of California. Those are my options. Any "family" you want to stay near, who are stupid enough to not sell out to some sucker who will pay twice what the house is worth, doesn't deserve your attention anyway. Move somewhere sane. What's really so great about California anyway?

It seems to me that people are so desparate to own a home that house builders can charge any amount and people will pay it even if they have to be in debt their entire lives, and the lives of their children. Your desire to must have a house opens you up to being manipulated. Examine your needs truthfully and if you must own, move out of state, at least temporarily.

The prices being charged are far in excess of the cost to build, so builders are going to keep building as long as it's profitable. Even after the prices fall 50% they'll keep building more and more because it will still be profitable and everyone needs to eat. That's what house builders do, and they'll do it as long as they can earn a living at it.

Jan 28, 2006, 4:09:00 PM  
Blogger marine_explorer said...

Society needs healthy communities; healthy communities need extended families, a working class, affordable housing. Communities today are fragmenting and families are being driven apart. This cannot be good.

I also find this one of the most troubling aspects of the current housing situation. Contrary to other forms of speculation, this problem upsets our socioeconomic foundations. While it might feel good to be on the receiving end of the bubble, the ensuing economic instability will send ripples all the way to the top. It's hard to be smug with a macro-outlook. Let's say: your company's employees cannot afford to live here in reasonable compensation to their skills, leading to stress, demoralization, and reduced productivity--and perhaps an eventual exodus from the Bay Area? Good fortune for the few means misfortune to all: fate's wheel always makes a complete turn (imo)

Any one who is prosperous may by the turn of fortune's wheel become most wretched before evening -- Ammianus

Jan 28, 2006, 5:38:00 PM  
Blogger Marinite said...

I give up. Where we see trouble, the first commentor just sees a new opportunity to make money.

Jan 28, 2006, 8:54:00 PM  
Anonymous Anonymous said...

Marinite, you have a great blog and you have done a ton of well researched and presented evidence to support your (and the bearish) point of view.

Don't worry that you have people that don't agree with your position- who cares if they are critical?

Is affordable housing needed to maintain a healthy community? I doubt it. Is a rainbow ethnicity or diverse population needed for a healthy community? I doubt it. What do you need? Beats me, but it isn't either of the above. I am not sure I would recognize a healthy community if I saw one.

The most affordable communities in Marin are, in my opinion, the most depressing (novato, northern sr). Just a guess, but homogenity in a community, either wealthy or poor, seems more likely to be a catalyst toward a healthy community since that community would all tend to have the same shared values. In that sense, Belevedere and to a lesser extent Tiburon and Ross seem healthy in as much a people are civil to each other on the street, the places are clean, there are children's playgrounds, the schools are good, etc. MV is homogenious in the sense that its residents are all in search of a certain upper middle class, yuppie life style. Healthy community? Doesn't look like it to me.

I am not sure that affordable housing is something that a community should aspire to have. What evidence is there that it matters? Quantitatively measure "healthy community"?

One last comment - in all likelihood, this whole process of proving that you are right, and this is a massive bubble of unique proportions, will take longer than we all think for this to sort itself out. Patience.

I need to put some long pants on. Wearing shorts today was a bad sartorial choice. But then again....this is marin in January.

Jan 28, 2006, 9:59:00 PM  
Anonymous Anonymous said...

Mairinite said: "We (young and old, rich and poor, working class and trust babies, etc.) ARE the community and we all have the right to live near our families and in the communities that we consider to be home. The fact that this is no longer so or at the very least is vanishing implies to me that something is terribly wrong and needs to be fixed."

I contest your assertion that this is a "right". How would you ensure that right? Through what regulations? Won't they have harmful side effects?

Do you give preference to those who have family there already and thus lock out new comers? Do you restrict lending options and practices? Do you restrict the Feds ability to set interest rates? Do you take over open-space using eminent domain and put in high-rise condos? Would existing owners of property realistically pass this to help their unfortunate neighbors? By the time these regulations get through, will the market have self-corrected?

I feel bad for people who may be hurt by an unwise financial decision. But how do you "fix" it without transfering the hurt to someone else who didn't make the bad decision. Don't they bear some responsibiliy?

I also feel bad for people in industries related to housing who may lose their jobs. But do we falsely prop up the sector? That won't give people incentive to move on to more economically productive work.

I feel bad for people who can't live near their family due to appreciation in home prices. But this is life and they will have to adapt until prices return to the trend.

Jan 28, 2006, 10:26:00 PM  
Blogger Out at the peak said...

Yes, there is lots of trouble. I only hope that people can live normally during and after the crash. Civil unrest caused by bubble bursts and military events is a nightmare of mine.

Jan 29, 2006, 12:49:00 AM  
Blogger peterbob said...

Great blog marinite. Keep it coming!

There are so many important issues regarding the currnet housing market: affordability, people's values, government policy toward homeowners, and whether or not a bubble exists. Just a quick comment on the last.

I'm an academic economist who rents and who is moving to California. There is no way that I would consider buying for a few years. I've looked at the data and compared housing to income and rent, and there are three possibilities. Most likely, prices will remain flat for about a decade. I'll continue to rent and accumulate a down payment until it doesn't make sense to rent anymore. Another possibility is that there will be a large drop in housing prices (30%). This is a real possibility, given the fact that it only takes a few people with second homes to sell, or a few foreclosures on people whose ARM has just ratcheted up, for prices to fall a lot. Least likely is that prices keep rising somewhat. This is only possible if something very fundamental has changed in the economy, such as a mass migration toward the coast.

My advice for renters is to hold tight for a few years and to let go of a "Leave it to Beaver" American Dream. Don't shackle yourself with a hideous mortgage.
As another option, seriously consider moving out of the state. You can grow so much as a person if you move for opportunities elsewhere!

New buyers, the idea is to buy low and sell high. How foolish will you feel when you have significant negative equity in your home in a year or two?

My advice for homeowners who are near retirement, own for investment purposes, have an ARM that will soon adjust, or are stuck in a dead end job is to sell as soon as possible. There are plenty of other great places to live!

Jan 29, 2006, 10:00:00 AM  
Anonymous Anonymous said...

Well, my son, Marinite, is moving to Redwood City from Boston with a good job, and knows there is a bubble and will not buy even though he makes a great wage. So, these blogs have helped educate. BTW if Bernanke tries to inflate when the housing market starts crashing, I believe that the long term bond will go through the roof and the housing market will be ruined anyway. The long bond determines the fixed mortgage rate. So, I believe that he cannot start cutting rates again or the dollar will be toast.

Jan 29, 2006, 10:22:00 AM  
Blogger Marinite said...

Hey, anon, I'm not out to prove myself right about anything. I'm not a glory seeker (I realize some bloggers are). And unlike what others have claimed, I am not the President wanting to retire in Marin and I'm not out to make money on a book selling deal. I'm a concerned citizen who feels the urge to self-expression. I'm a concerned citizen who feels that there are some issues surrounding this housing market that should be aired, that have up to now received little coverage, and that most certainly won't be reported on until after the damage has been done if we rely on the mainstream media.

Jan 29, 2006, 11:49:00 AM  
Anonymous Anonymous said...

I wholeheartedly agree with you. I've talked about this with many around me and most either smirk or look at me in astonishment, wondering from what cave I've just crawled out of.

Basically, it's like hitting your head against a brick wall.

It's kind of sad to see how materialistic and one-track minded society has become. You're no one unless you spend, spend, spend.

I am convinced that there will be a shake-out. When it hits, values will be forced to change. Boomers are still young and overoptimistic but most are 5 years away from arthritis. As people age they mellow out and they create community.

I'm an optimist in a pessimitic way. I want to believe that community will emerge as the population continues to age. Already I see it in my parents.

Maybe I'm wrong and intergenerational conflicts will emerge as boomers retire without enough money and grab their kids' money but I want to believe that we'll work things out.


Jan 29, 2006, 3:01:00 PM  
Blogger Dukes said...

For what it is worth Marinite, I loved your piece!

I live in Seattle where there is some lunacy but not up to par with NorCal. I too think it is sad what has become of communities and the mindset of those who live in them.

I grew up in NJ where there are a million scams, I lived in San Diego for years and when I left I think the mindset there had caught up with the mindset in NJ - it was all about making a quick buck, and screwing everyone over that might be in the way.

You are right, there are major structural problems that abound, I am very pessimistic and I feel this is deservedly so. I also feel we could see prices cut in half at least, I see no reason why we won't see ALL of the recent appreciation wiped out.

Jan 29, 2006, 6:40:00 PM  
Blogger drwende said...

Marinite, you're doing a great job... Absolutely, the bubble is bad for communities. You have suburban neighborhoods that were middle-class and owner-occupied in 2002 and are now over-run with "investors" who get in whatever tenants they can, going Section 8 to narrow the gap between mortgage and rent. It's interesting to watch who decided to cash out and move after their block went 50% rental. They weren't necessarily intending to use their equity to "move up" to bigger debt somewhere else -- but their neighborhood went downhill as it became more expensive!

Then comes the crash. And it will. Owners will petition to have their property tax assessments reduced to the new value of their homes. One-third of California's property tax base will vanish. The state's already in a financial mess. By 2009, we'll be a Third World nation. Some "new towns" that were getting rich on new construction and flipping of two-year-old houses will find themselves bankrupt.

This disaster will make California affordable for small businesses and normal families again. But it'll be ugly first.

Jan 29, 2006, 7:20:00 PM  
Anonymous Anonymous said...

Marinite, I agree about the effects of the
bubble on communities and families, the
question is: what can we do about it?
I can think of a couple possibilities:

- tighter regulation of lending. If banking
regulators decided that interest-only loans
were predatory and not going to be allowed,
a lot of the run-up we've seen probably
wouldn't have happened. But, at least in the short run, this could make it even harder for young people to buy.

- looser regulation of land use. If zoning were changed to allow more apts/condos, more housing would be available and prices would come back to earth. But this would also change the nature of Marin, just in a different way...

I'd be curious to know your thoughts...

Jan 30, 2006, 6:24:00 AM  
Blogger peterbob said...

Anonymous said...
- looser regulation of land use. If zoning were changed to allow more apts/condos, more housing would be available and prices would come back to earth. But this would also change the nature of Marin, just in a different way...

I agree anonymous that we need to reduce restrictions so that more homes can be built. I can't understand why people who are concerned about affordability are often so "anti-growth" and support zoning nightmares that make it so much more expensive to build homes. The fact is, California is desireable, and people want to live here. It just strikes me as irresponsible NOT to encourage more homes to be built. In fact, it seems like a major reason why housing on the coasts is so expensive is due to land use restrictions. Here's an excellent piece:

Jan 30, 2006, 8:03:00 AM  
Blogger Marinite said...

I'd be curious to know your thoughts...

Yeah, what to do. That IS the question.

Certainly, tightening lending standards would go a very long way of reigning in the housing bubble. But the regulations are already in place, they just aren't enforced. As lenders compete more and more with each other during a boom time they feel pressure to lessen and lessen lending standards to stay competitive. The analogous thing happened with stock brokers etc during the stock bubble. The answer I think is to make lending standards not just a good idea but the law and, more importantly, to enforce the law.

I think we also need a public acknowledgement by "the officials" that bubbles do happen, and that when they do, a public committment to restrain them as the develop instead of waiting for them to correct themselves.

One of the reasons why Marin is attractive to some is the fact that building restrictions are so tight. It is true that California's environmental laws and building restrictions (and taxes) are what make California homes so much more expensive than that of many other states. But it is not these things in and of themeselves IMO that caused the bubble...they were already in place before the bubble appeared. The effects of the bubble were just on top of (additive to) the already present primium in Marin and California. So allowing more building in Marin and CA now or during a bubble is a short-sighted "solution" to a more encompassing problem.

I don't know what should be done to offset a bubble. There are many smarter and more knowledgeable people than me whose job it is to create policy and law. These folks need to put their heads together and come up with something effectinve and not something that just sounds good. I think legalizing strick lending standards and then enforcing them would go a very large way towards minimizimg a future bubble. I think a "bubble watch dog", a group whose responsibilities include keeping an eye on the early development of a speculative bubble and then ringing the alarm bells when one is detected would be a good idea too.

Maybe I should make a post where I solicit readers ideas.

Jan 30, 2006, 10:08:00 AM  
Blogger Marinite said...

Oh, and we should support an open MLS ( and at the very least require realtors to share all of their data (I know how difficult it is to get one's hands on good housing data):

Jan 30, 2006, 10:18:00 AM  
Blogger fredtobik said...

"There are many smarter and more knowledgeable people than me whose job it is to create policy and law."

We elect those people. I think it is common knowledge that politicians are motivated by re-election and money.

The problem I have with this blog and others like it is that they become places for people to get together and SEEM to be whiners with motives other than what is best for the “community” or a place where they can stroke each others ego’s on how smart they are, that they got out at the peak or renting and waiting to make their quick buck. The real problem IMHO is that the majority of Americans are focused on making money by any means necessary, bigger is better, name brand clothes, Monday night football, etc… these are the same people that create the “communities”, this is bigger than just a housing or stock cycle.

Marinite mentioned that this is just the next get rich quick industry, what is next? Ten years from now will people learn from this, when the NASDAQ explodes again, or another housing bubble? Some will, but the majority will make the same mistakes.

If you want to make a difference write a book and go on Oprah. That is the only way to reach the simple minded majority, otherwise you just sound like a whiner and that is how those that oppose you will paint you (media).

Jan 31, 2006, 11:38:00 AM  
Anonymous Anonymous said...


You know I am a fan, even if I am more bullish on real estate than most here BUT, I gotta call you on a math issue. You said:

When the median income needed to buy the median priced CA house is in the neighborhood of $250,000/year (depending on locale; assuming 20% down, 30 year fixed) and yet the actual median income is far less than half that amount.

The median in CA is $458,000 for all houses and condos in December ( 20% down leaves a mortgage of $366,400 which at 6% for a 30 year fixed conforming loan (from gives you a $2197 payment. Using conservative lending rules where your payment should not exceed 28% of income, means the annual income requirement is $94,157, not $250k. Even Marin's median "only" requires a $185k annual income.

Also, one of your other points:

Buyers who do not occupy their recent purchase and are willing to rent it at a loss.

That pretty much describes every investor that has bought since 1999, including Yours Truly. Negative cash flow is not ideal but almost inevitable in Marin. Even when my parents were buying condos in the 1970s, they were expecting negative cash flow for the first 5 years. That is a fact of life with Marin real estate.

As much as investors are being villified, renters gotta live somewhere. Think of it this way, the supposed excess of rental inventory caused by the johnny-come-latelies is increasing supply in the face of weak demand. This is keeping rents at relative bargain levels. So it is not ALL bad.

Jan 31, 2006, 9:12:00 PM  
Blogger Marinite said...

rejunkie -

I gotta call you on a math issue

You are quite right. I was careless. I didn't want to bother figuring it out again as it was not central to what I was trying to say (although I do seem to recall a $250K figure for Marin for some reason). I should hold myself to a higher standard so thanks for calling me on it; I've been getting sloppy. What I really need is a vacation.

Feb 1, 2006, 11:56:00 AM  
Anonymous Anonymous said...

This is a great blog, very informative, and I appreciate you calling it as you see it.
I don't doubt that there is a real estate bubble if you look at things strictly by the numbers.
But, I strongly disagree that anybody has a "right" to live anywhere whether close to family and friends or not.
This may be a good thing, but it is definitely not a "right". Again, great blog, but please don't confuse what you
(and I don't disagree that this is a good thing) consider desireable for a vibrant community with the concept of an
individual "right". Words do mean something.

Feb 1, 2006, 2:05:00 PM  
Blogger Marinite said...

Point taken. There is no law nor Constitutional Right to live near your family. I used the term "right" more loosely, the way people casually use it; something that society considers to be sufficiently important and right (as in correct). People don't have a "right" to a driver's license either but that doesn't stop people from talking as if they have one. People don't have a right to have children,... but you get the idea.

Feb 1, 2006, 5:49:00 PM  
Anonymous Anonymous said...

If you want to fix the housing market,force the investor/speculator out of the game. Quadruple property taxes on any "non owner occupied SFH"
Have the tax collector collect at the front door only. Go after everyone in volved in fraudulant lier loans, including those who claim ouner occupied to get a lower rate.

Feb 2, 2006, 3:21:00 PM  
Anonymous Anonymous said...


While I agree investors get too many tax breaks (such as the ability to depreciate an asset that, in fact, appreciates), you don't want to force investors out of the game completely. Not everyone has the desire (or the means) to own property, hence the rental market.

Also, this is a capitalist country and if you are going to discourage investment in real estate, you might as well go after stocks, gold, bonds, savings, stamps, old cars, etc. Plenty of investors see real estate as part of their retirement plan, just like their 401(k).

I think repealing prop 13 on non-owner occupied property and commercial property is entirely reasonable, however.

Feb 2, 2006, 9:22:00 PM  
Anonymous Anonymous said...

Great post...yes the real estate decline is really well underway.

I just read another very insighful article by a San Diego real estate broker, it too is MUST READ. It is located at:

Feb 3, 2006, 9:06:00 AM  
Anonymous Anonymous said...

For some reason I thought that Prop 13 only applied to owner occupied properties used as a primary residence. Is that not true? I'm obviously not a real estate investor.

Feb 3, 2006, 9:36:00 AM  
Anonymous Anonymous said...

Anon 9:59 just about sums up the problemm in a nutshell.

He claims to not know what community is, cannot recognize or define it and therefore, thinks it may not be important after all.

Only in the good ol' US of A!

Where we have spent the better part of the past 50 years decimating communities and the housing bubble is but the latest development in a long list of things that is sealing the fate of now non-existent community life.

So much that there are many Americans (not just Anon) who DON"T EVEN KNOW WHAT COMMUNITY MEANS and hence what it's value might be.

Feb 4, 2006, 2:21:00 PM  

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