Archive for case-shiller

Economic Racism is Alive and Well at the New York Times

Posted in Just the Facts, Stories with tags , , , , , , , , , , , , , , on April 3, 2010 by marcitz

My love-hate relationship with the New York Times continues.  Recently an article deal entitled Help Paying Mortgages Elicits Anger (by Tara Siegel Bernard who can be emailed at tsbernard@nytimes.com)  tried to make the point that fairness isn’t important what needs to be done should just be about the greater good over the long term.  Unfortunately, because of the prevailing and irrational home ownership bias in this country all assumptions were based on just that, preserving home ownership even if its bad for the owners themselves.   In pulling apart the arguments in the piece I found a new way to look at this homeownership bias.  It is actually a form of “economic racism” that, in a post Civil Rights world, fills the racism void.

For me the AHA! moment was when I read this quote that was designed to defend government bailouts of homeowners –   “It (the fall in house prices) shouldn’t be something people should be punished for,” said Robert Shilller.

AHA! Having some one leave a house they couldn’t afford and instead live in some other, presumably more affordable rental property is PUNISHMENT!  There it is – that subtle nasty  undercurrent (“economic racism”) that “renting is bad” that fuels even Robert “Da Man” Shiller’s argument.  Ms Bernard even says  ”a government should consider the greater good over the long-term” in which she is implying that home ownership is the “greater good”.  Categorically it is NOT true as per these sources:

Don’t get me wrong.  I think home ownership is a fine tool for many people (those with enough means to support all the ancillary costs of home ownership in both money and time, those for whom mobility is not an issue) but renting is a fine tool for many others (those with less means, who need mobility, don’t have time/money for all the home ownership maintenance issues).  Neither one is categorically better all the time and their mix of appropriateness changes as prices in both markets ebb and flow.

Recently (in the New York Times) there was a great piece (the “love” in my “love/hate” relationship) that pointed out that Tea Party arguments against health care reform are really about racism and having to embrace a new world of Blacks, Latinos and Women .  I would like to argue that Ms. Bernard’s (and Dr. Shiller’s and most other “pro-housing”  arguments) are about fear of embracing a world of renting as opposed to owning.  Like white majority, homeownership has been the goal and desire of those in power over the past 80 – 100 years at least.   It may be time for a change that no one wants to embrace.   Not surprising it was our current President who was the first one  to try and  find a way to phase out the mortgage income tax deduction.

Unfortunately the “greater good over the long-term” is that everyone gets over their social security blanket (or economic racism)  that home-ownership is the only valid and right way of living (it’s the “white makes right” equivalent of modern US economics).  Unfortunately the only way to do that is to encourage people to try other forms of living to see that in many (but not all) cases those other ways are actually better but that is not what is happening.  If you have easy access to a mortgage hammer then everything becomes a home ownership nail and we’ll never know.  I HAVE A (different view of the American) DREAM!!!…

(Follow Me on Twitter at watchingmarcitz) 

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Why Case-Shiller Is A Bit Fucked

Posted in Just the Facts with tags , , , , , , , on October 4, 2009 by marcitz

As the old Real Estate aphorism goes “Only 3 things matter – location, location, location”.  So the issue with relying on Case-Shiller (which has been “growing” for three months – yippity f-ing doodah!)  is that the “city” used for valuation is usually a multi-county location with each location being at a different stage in the price cycle.  The “San Francisco” area ranges from Pacific Heights to the Brentwood suburbs over 55 miles away.  Brentwood may have bottomed but it will take some time for the Silicon Valley and the “City by the Bay” to follow it into the abyss.  Oh and by-the-way Silicon Valley, typically considered Santa Clara county, is not actually in the index.

The recovery that Case-Shiller has been talking about is allowing the far out suburbs to mask further falls in the inner-core. The net result is, as Case-Shiller recovers, people closer to the namesake city buy too soon under the false pretense that their little pocket of the world has improved with the broader index.  Ironically those in the exurbs will now do better than those closer to the city named in the index.

How will prices in the inner core eventually fall into the abyss?  Simple migration.  The cheapest areas will draw from their neighbors (Brentwood from Dublin) lowering the prices for the neighbors as well (as Brentwood represents a “substitute” in classic economic parlance).  Those now lower price neighbors will then draw from their neighbors one step closer to the inner core (Dublin from Castro Valley) drawing down the prices there.  This will then continue  as such – Castro Valley from Fremont, Fremont from Mountain View and finally Mountain View from Palo Alto.  In the end nature abhors a pricing vacuum and one currently exits in the exurbs.  It will take some time before it really sucks here in Palo Alto.  But it will suck!

The net-net is the worst place to buy right now is anywhere near the city named in the index.   Oh and if your not actually in the index then purchase at your own risk.  You say you live in the “San Francisco” area but remember that it is a spiritual and not a statistical distinction according to Messrs. Case and Shiller.

To add to the scary (and highly varied picture) take a look at this chart which shows how wildly different the valuation story is WITHIN  the “San Francisco” area:

http://www.housingbubblebust.com/OFHEO/Major/NorCal.html

Also look at this analysis as why Palo Alto is in for a fall (albeit 2 years later) like Brentwood: http://invisiblerenters.com/2009/06/23/why-palo-alto-housing-will-fall-30-or-more/

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A New Measurement for House Price Declines

Posted in Just the Facts with tags , , , , on August 3, 2009 by marcitz

Given the severity of house price declines it only seems like it merits its own measurement as neither the English system (inches, feet, pounds, etc…) nor the Metric system (meters, kilometers, grams, etc…) can properly convey the magnitude of the fall.  For this I propose a new measurement called the Greenspan which measures the distance between the value of your house at the peak of the market and what it will measure at the bottom of the market (whenever that occurs).

Why call it the Greenspan?  Here are three very sound reasons:

  • “Green” is, of course, the symbol (in the US) of money and wealth.  For example “after the latest economic collapse I have a lot LESS green.”
  • “Span” measures distances and often LARGE ones (like bridges and the distance from one side of the Grand Canyon to the other).
  • “Greenspan” as in Alan Greenspan the person who is significantly responsible for this mess.  It it is time he is honored for his role in this.

As a baseline, a single Greenspan is a 25% fall in value from peak.  Given that the average US market will probably fall by as much as 2 Greenspans in total.  Certain markets (like Vallejo, California) could see a drop of 3 Greenspans.

Remember real estate is local so your Greenspans may vary. 

See how Palo Alto, California is due for AT LEAST a 1.2 Greenspan drop.

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Why Palo Alto Housing Will Fall 30% or More

Posted in Just the Facts with tags , , , , , , , , , , , , , on June 23, 2009 by marcitz

Green shoots, the recovery is here, houses are bottoming!

Not so fast!  Yes many areas may be reaching a bottom but that does not mean that all places have hit bottom.

For example it is believed that housing bubble ground zero locations like Vallejo, California have come close to a bottom.  Therefore, hot areas like Palo Alto, must also be similarly close to that bottom eventhough prices there have not fallen (on a percentage basis) nearly as much.

The typical explanation for the differential treatment is that Palo Alto is desireable and therefore immune to a large price decline. I would like to suggest that its not about “absolute” price but “relative” value.

Yes, a house in Palo Alto will ALWAYS be worth more than a house in Vallejo but I argue that the RATIO of house prices should remain close to constant. If Vallejo rises in value then Palo Alto will rise in value but if you divide the value of a house in Palo Alto by the value of a house in Vallejo the resulting number should, over the long term, be relatively the same. So that is what I did.

Using data from Zillow I took the sales price per square foot of houses in Palo Alto over the past 10 years (2000-present) and divided it by the same metric from Vallejo to plot the ratio. For extra credit I also calculated the ratio of Palo Alto to both Hayward and Mountain View.

Why Hayward and Mountain View? Simply put Hayward is a little closer in and a more rational commute (not many people would think you were NUTS to commute to the Silicon Valley/San Francisco job centers from there). I chose Mountain View because that is the, only slighly less desireable, southern neighbor to Palo Alto.

So here is a picture of what I found:

Price Per Sq Ft Ratios

What does this all mean?  Well let me state one other assumption and that is let’s assume the year 2000 was a ratonal year and that that ratio represents a normal premium of Palo Alto over the other cities.  (older data was not available from Zillow)

Lets divide the chart into 3 segments:

  • 2000-2001 – The “normal” period in which the ratios represent the typical balance.
  • 2002-2006 – The “bubble” in which all hell broke loose.
  • 2007-2009 – The “deflation” of the bubble. (NOTE most people agree that the bubble started deflating in 2006-2007 across the US.)

So in the “normal” period we see the ratios between Palo Alto and its neighbors staying relatively confined (maybe a 5-10% swing at most).  This is what you would expect.

Now if we look at the “bubble” period we see a relatively dramatic drop in the ratio which means that Vallejo and Hayward were gaining on Palo Alto.  Did they actually become more desirable?  Well traffic would go up (more people were moving there driving up those prices) so I would say “no”.  What it really means is that the bubble valuations hit Vallejo first.

Now if we look at the “deflation” period we see the ratio turning DRAMATICALLY in the other direction and well above the historical norm.  This means that either (or both) that deflation hit Vallejo first and the bubble hit Palo Alto second.

One might argue that this means Palo Alto is safe EXCEPT for the fact that the ratio has so dramatically outpaced where it was in the “normal” period in 2000-2001.   If it had returned to the levels of the normal period in 2000 then there would be nothing noteworthy here.  In fact Vallejo returned to almost the exact same price per square foot in 2009 that it was in 2000 where as Palo Alto was still almost double where it was in 2000 as shown here.

price comparison

So what would it take for this ratio to fall back into line (and deflation to hit Palo Alto second)?  Simply put, compared to Vallejo, Palo Alto prices would have to fall 39%.  Compared to Hayward they would have to fall 26%.  This of course assumes that Vallejo and Hayward have truly bottomed out which is probably not the case.  Assuming they have even the most conservative estimate pegs Palo Alto at a 26% fall.

Heck even compared to it’s neighbor Mountain View it would have to fall 11% to come into line with the historical ratio.

In short Palo Alto has some falling to do.  It just was late to both parties.

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Killing the Myths of Homeownership

Posted in Just the Facts with tags , , , , , , , , , , , , , , , , , , , , , on April 16, 2009 by marcitz

Recently I read an article in The Economist that had many incorrect assumptions that shows just how far the myth of homeownership has permeated society.  Here are some of the common myths and corrections along with actual articles from other sources to back up the key points.

Myth #1  - Home ownership encourages “forced savings” because home owners have to pay off their mortgage.

ABSOLUTELY NOT! That is exactly what home equity lines and continuous refinancings were all about. Spending your savings as opposed to accumulating it and making yourself a “renter with an option to eventually own”.  A person very close to me has just refinanced a 30 year mortgage after 21 years effectively turning it into a 51 year mortgage and unless the almighty intervenes they won’t be paying it off in this life.

Myth #2 – The mortgage income tax deduction is good for homeowners.

ABSOLUTELEY NOT!  It just encourages people to raise the price of the house to eventually eliminate the advantage of the benefit (NOTE: Any increase in income chasing a, somewhat constrained, good means that prices get bid up and income tax deductions raise effective income). Its a zero sum game that only raises your interest payments in the end (because the principal needed is more due to larger home prices) which means the bank actually makes more money (remember they are the bad guys nowadays).

Eliminate the deduction and new home buyers (current homeowners would, truthfully, be screwed) would see lower prices commensurate with the decline in the kickback from the government. That means lower interest costs and more money, net, in their pocket (again current homeowners would see their housing values fall)

Myth #3 – Homeowners benefit from many social advantages.

Sorry but  there are NONE and actually some social disadvantages, including worse sex.  Study after study done as recently as last January show that there is practically NO social benefit of homeowning vs. renting.  In fact home-owners had been those leading the charge AGAINST racial integration in their neighborhoods. Turns our renters are actually more relaxed, less racist, more social and, yup, have better sex. Additionally these housing bailouts are a tad racist/classist and are bad for current homeowners in the long run. Don’t believe me check out these links:

Recently published study by Wharton  (Its a long academic study but just read the first paragraph)

The American McDream from the San Francisco Chronicle (renters have better sex, too)

Understanding how Obama’s Plan Hurts 100 MILLION US Citizens from watchingmarcitz.com (this shows how home bailout programs have a dark underbelly)

How the Crash Will Reshape America from The Atlantic (why renting is actually the answer to the problem we now face)

The Advantages of Renting from National Public Radio

Myth #4 – The market is finally finding a bottom

Take a lesson from the movie Titanic. The ship has just temporarily stabilized before its violent rush to the bottom as shown here.

Myth #5 – Once you pay off your mortgage your house is free (rent goes on forever)

Not exactly:

  • Property tax is forever so you pay that every year even after the mortgage is done. It may also be variable depending on the property tax laws where you live. So it behaves like rent (including changing from time-to-time)
  • Maintenance. That also goes on forever and that is variable (roof = $15,000) and unpredictable. So it also behaves like rent but much more violent in its swings. Sure renters implicitly pay maintenance but it is more smoothed out through the rent and periodic rent increases.
  • Your mortgage may go up depending on how you financed it. A very large percentage of mortgages done in the past 8 years were adjustable-rate. That could swing way above rent or way below depending on the interest rate environment.

See more myths in this follow-up post.

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Homeownership – So Many Chores, So Little Time

Posted in Stories with tags , , , , , , , , , , , , on April 15, 2009 by marcitz

See one of the problems with homelownership is that not only do you have to cover the mortgage but you also have to clean the roof, flush the pipes, paint the walls and, of course, you have to “Mow the Lawn”

Well at least that last part isn’t so bad…

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RENTER ALERT – Stop the New York Times from Hurting You

Posted in Stories with tags , , , , , , , , , , , , , , , , , , , , , , , , on March 6, 2009 by marcitz

Dear Invisible Renters,

The New York Times today published an editorial in which it supports a law winding its way though congress to force banks to cram-down (AKA reduce) the principle balances on home mortgages and we must stop it.  This is ridiculous for many reasons stated in a letter below you can send to key departments and people at the Times.  Addresses and a draft letter are below:

Dear New York Times,

Why are you making homes less affordable to 68% of your New York readers and neighbors, who are renters, by encouraging the cram-downs of mortgage principle?  This is bad for everyone in the long run:

  • For Renters this will hold housing at unrealistic and high levels longer making it impossible for us to become responsible homeowners if we so choose (feel free to continue renting anyway its a valid lifestyle choice no matter what society says)
  • For the New York Times - 68% of your New York City readership are renters and this action is an attack on the majority of your readers.
  • For the Economy  by keeping people in homes they can’t afford we’ll only prolong the agony as we have a continuous stream of higher than normal foreclosures over years as opposed to in one big (and yes painful) lump.  By getting it over quickly you will see buyers come back into the market because they know we’ve reached the real (not a weak unsustainable subsidized) bottom AND homes will be much more affordable.

Here are some other things you need to know:

  • Housing prices will continue to fall at least another 10-15 points (ask any economist).  So what does that mean if a house is reset to a lower level only to find its not the LOWEST level.  Will there be another cram down?  Won’t those people only default later (after having received the first, now unsuccessful cram-down) for the same reasons you are stating now?
  • Housing prices will get another kick in the pants in two years when interest rates have to start going up again (to combat inflation from all this money being printed and flushed down the economy) so this will only get worse and require more cram-downs. Remember people tell you to buy when interest rates are low so the flip side is…

Why trash contract law in this country to delay the inevitable. 

Thank you for listening

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Renters of the World UNITE!

Posted in Stories with tags , , , , , , , , , , , , , , , , , , , , , on March 1, 2009 by marcitz

Tell us a story about a Really Fucked Homeowner (RFHO)  (deadbeat neighbor, relative or something you read) who got in over their head and share it with others  so we can get rid of the pro homeowner bias in the United States.  Also please post this on other blogs and comments to articles. Read on to see why…

Homeownership is the “American Dream” – or is it YET another bubble?  I’m an invisible renter (politically, financially and socially all renters are) who decided it wasn’t part of my “American Dream” yet society continues to lionize the homeowner at the expense of the renter. 

How invisible are we?  When politicians says “lower house prices hurt us all” they forget the 100 million renters that they help.  Its time to wake up and realize that while homeownership is good for some its not good for all (same goes for high house prices) and public policy and perception needs to adapt to that harsh reality.   Oh and if homeownership is so great why not give renters a chance to try it out by letting prices fall to their natural level?

Why am I doing this?  Well to paraphrase Dean Vernon Wormer of Faber College – its time for someone to prick this bubble and that prick is ME! 

Welcome to ReallyFuckedHomeowner.com where we see the dark side of homeownership and the bright side to renting as an alternative lifestyle.    Please share your stories of a really fucked homeowner (RFHO) or feel free to rant about anti-renter government policies so we can get past anti-renter bias. 

Please NO names or specific addresses of the RFHOs.  Oh and don’t forget to let the government know how you feel.  Also please tell your renter friends (or even rational homeowner friends) about this site.

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