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    reggiebushlateralKen Layne
    5/28/13 4:54pm

    When you think about it, it is absurd what we actually end up paying for our house in terms of the mortgage payments and interest.

    Can someone explain to me the ridiculous housing market in San Francisco and New York?

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      Ken Laynereggiebushlateral
      5/28/13 4:59pm

      Supply and demand, unfortunately. A lot of supply has been tied up in short sales and underwater mortgages. The small supply and reasonable prices (until this year) created demand. Now that 2007 prices have been surpassed, everyone who was underwater can get out now, and everyone who wasn't really committed to selling or moving now has a seven-figure reason to put it on the market.

      But this only lasts for as long as there are well-off people with $200K for a down, good credit and high enough incomes to get into an $800K package of mortgages. It will be the beginning of July before we can see if May was really the peak, but anecdotally it sure feels like the peak.

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      Langostareggiebushlateral
      5/28/13 5:04pm

      I'll try. In most American cities (places like Atlanta, Charlotte, Dallas, etc.) you can drive around and see big patches of undeveloped land. What this means, is that housing prices will never get too far out of reach, because there is land to build more supply.

      SF is a small peninsula, and NYC is Manhattan island and the boroughs. There is no more space to build, combined with a seemingly endless supply of ambitious people trying to move there.

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    araucaniadKen Layne
    5/28/13 5:41pm

    Let's suppose: The 401(k) and owning the home you live in are both forms of saving for retirement.

    Why does borrowing from the 401(k) not make sense? If it brings down your mortgage interest... you're borrowing from Peter to pay Paul. But they're both you.

    I do see a risk in concentrating X retirement dollars in your real estate, where you're exposed to natural disasters, neighborhood appreciation/depreciation, natural gas explosions, what have you. But if you're planning on staying in the same region for long enough, at the end of the period you've basically lived rent-free, because you get money back when you sell out of the house. As long as you can afford the earthquake insurance...

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      Heather Simonaraucaniad
      5/28/13 6:14pm

      Partially it's the knowledge that we're not saving enough for retirement. Also, the money in my 401(k) will not be foreclosed upon should the worst happen.

      Personal opinion.

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      EasttoMidwestaraucaniad
      5/28/13 8:00pm

      The penalties associated with borrowing against your 401(k) far exceed the current interest rates. It's expensive money.

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    AngelesKen Layne
    5/28/13 5:13pm

    As somebody who is currently looking to buy in Los Angeles, it is very hard to purchase a starter home (a modest two bedroom home) at market value because investors are sweeping in and purchasing these homes and paying in CASH, often above the asking price. That's right, even if you have the down payment, you can't afford a modest home here because cash usually wins. Also, a lot of sellers are still holding onto their properties until housing prices grow even higher. So, you have an issue in which demand (from a lot of investors and people like me) is high and supply (from people holding onto their properties until prices grow higher) is low. It's frustrating but admittedly a champagne problem. I guess I could move to the 'burbs, but I'd rather rent and wait.

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      blue11speedAngeles
      5/28/13 5:23pm

      I'm a Realtor based in L.A., and I can attest to your statement that the flip market is alive and well, and I've had a few clients miss out on opportunities. I have, however, also gotten homes for my clients that would have otherwise gone to flippers that were not on the market. You need to make sure that your Realtor, if you have one, is looking for alternative methods to find you a house, because just looking on the MLS isn't going to cut it.

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      JohninLAAngeles
      5/28/13 5:57pm

      Fellow Angeleno. Count me in too as someone who'd rather find an underpriced rental in a nice, centrally located 'hood than buy in the suburbs.

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    blue11speedKen Layne
    5/28/13 5:18pm

    Excellent post. I am a Realtor in Beverly Hills, CA (and no, I am not one of the much-ballyhoo'd 1%), and I've been preaching this to my clients and colleagues for the past 3-4 months or so. Prices are out of control — for example, I'm currently listing a 2 Bed + 1 Bath single-family house which is 1,024 square feet on a 2,500 foot lot in a prime location — for $849,000 (and its not in Beverly Hills). We received multiple offers the first week on the market. Things are nutty, but there are an unbelievable amount of buyers with all cash, (flippers and non-flippers), and many people who sustain enough income to warrant paying a huge amount of money for a small amount of house.

    No one has a crystal ball, but the rapid price increase HAS to even out eventually. One thing your article didn't touch on enough though was the (mostly) elimination of sub-prime lending. The people who are buying today have the credit, and the down payment funds available, and from what I can see, there is no shortage of these people and their zeal to purchase a home at any price.

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      Ken Layneblue11speed
      5/28/13 5:30pm

      Thanks for that. I did touch on the "good credit / 20% / high income" part, which is a result of the end of subprime. But there's a lot of mortgage office tomfoolery with the 20%. They basically tell you exactly what's necessary to come up with 20% that's not really your savings. For example, if you have a parent who wants to hand you part or all of your down as a gift, the mortgage brokers tell you to have the parent do the escrow transfer (I forget how this evades the look of a "gift," but two brokers told me this last month.)

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      sfmikeeblue11speed
      5/28/13 5:52pm

      Seems to me the situation you describe is facilitated by the fact that income disparity has grown more and more in the past few decades. These people with seemingly limitless resources are able to gobble up all of the property at any price while those with income considered decently above average can't even dream of getting in.

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    queenbeezKen Layne
    5/28/13 4:56pm

    This reminds me of the house hunters episode in Mountain View I saw last night. They had a 2mil budget for a house twice as small as my $160k home in the south. Its a privilege to have that kind of income, but its very true that it just wont go very far.

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      Heather Simonqueenbeez
      5/28/13 6:16pm

      The best way to get by in Mountain View is to rent from a nice little old lady who never raises the rent.

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      victorHeather Simon
      5/28/13 7:14pm

      are there other mountain View peeps here?

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    ArkKen Layne
    5/28/13 5:49pm

    Woohoo! I was scared that the housing recovery would price me out of ever owning a house for at least the next ten years, but it looks like prices are going to massively crash much sooner than that. People have the memories of mayflies, and the flippers and speculators really don't give a shit about the overall economy as long as they get theirs before the inevitable collapse.

    This works out nicely, by the time I'm out of college and looking to buy a house, people will be peddling their underwater McMansions for next to nothing.

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      aeagagsgshKen Layne
      5/28/13 5:15pm

      Arrested Development Seasons 1-3 aired from 2003-2006. Stock Market and Housing Market: Record Highs. 2006, Arrested Development cancelled, bad signs start showing up the next year, with a full collapse a year later.

      2011-2012 word of new Arrested Development leaks then becomes reality, Stock/Housing markets make record rebounds.

      May 2013: Arrested Development Season 4 hits the interwebs, Stock/Housing Markets at all time high/pre recession level.

      How did the Bluth's make money? Real Estate and Housing developments. Coincidence that every time Arrested Development is on the air the markets are booming? Clearly Kitty is cooking the shit out of the books again.

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        TheGizmofromPizmoaeagagsgsh
        5/28/13 8:08pm

        I've never watched the show but I keep hearing something about a banana stand?

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        saucissonTheGizmofromPizmo
        5/28/13 8:53pm

        There's always money in the banana stand.

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      blahblahsuckaKen Layne
      5/29/13 11:33am

      So, as a renter in Mountain View, should I be excited about the prospect of a bubble bursting so that I might finally be able to afford to buy a house? Or will this cause me to get fucked over in some other way?

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        Ken Layneblahblahsucka
        5/29/13 12:04pm

        Our housing markets are such speculative cesspools that it's impossible for things to get good for some people (renters today) without getting terrible for others (people who bought in the last few months in an overheated market). But it is probably not a bad time to sock away cash while renting and then jump in when things calm down or deflate. If nothing else, the end of the year is usually more sane than spring/early summer (always the busiest selling season because of people wanting to be in place for their kids' next school year). And while it is sad to not buy when you felt ready to buy, there is some comfort in being able to rent and not have every penny of cash flow tied up in a house that will probably lose value before it gains value.

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      conentrKen Layne
      5/29/13 8:43am

      All 3 broadcast networks did stories last night about how great the housing market is, how you can't get a house because there are 30 buyers ahead of you, how you have to put 30% or 40% down because there is so much competition for each house, and how most transactions are now all-cash deals with 10-day closings instead of traditional mortgages because the economy is so great and everyone has more cash now than they know what to do with. They then went on to do a similar story about new car sales, with one guy saying, “I couldn't get a car before now because I didn't t had a job. Now I have a job I'm not going to lose and plenty of extra money so I'm buying new cars." My husband and I looked at each other and said 'huh?'

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        Ken Layneconentr
        5/29/13 11:00am

        I get that it's good news for people holding mortgages who couldn't get out until prices recovered, but the cheerleading for actual insanity—multiple bids $100,000 over asking price, etc.—strikes me as almost evil.

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      sizor_sisterKen Layne
      5/28/13 5:19pm

      It should also be added that houses/condos in SF and a few other Bay Area cities are now routinely going well over asking price, sometimes $100,000+ over asking.

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