226 Caselli Avenue
It’s a plugged-in reader that alerts us to the sale of 226 Caselli Avenue, a renovated single-family home in Eureka Valley that closed escrow last week for $1,420,200. And it’s the same reader that notes that the home had previously sold for $1,515,000 two years ago (on 8/16/05).
But quite honestly, it’s not this home’s drop in value over the past couple of years which grabbed our attention (okay, so perhaps a bit). No, it was our plugged-in reader’s side note that did the trick:

Ironically, as new homeowners on the block (yes, we bought within the past year), you would think that we would be dismayed, or at the very least experiencing extreme denial, about these listings. After all, there seems to be such a strong demarcation between the renting “bears” and the homeowning “bulls” in the comments’ section of the blog. But before we were homeowners, we were well aware that the SF market might be headed for trouble, and gaining a mortgage and a property tax bill did not suddenly make us grow blinders as well!

We bought a house this year…not because we were trying to ‘time the market,’ and not because we believed our house’s appreciation would beat out our stock market investments, but because it was the right time for *us* (recent job promotion, new baby on the way…all the reasons that normal pre-bubble citizens used to buy houses). We didn’t buy our house as an investment…and if the market declines by 10-20% (and I think this is a possibility)…well, we bought for the long-term and intend to stay here at least 5, if not 15, years. Yes, we may lose money…but cheerleading real estate from the top of our nearest real estate blog will not change that, and declaring that our house is appreciating 10% this year will not make it so.

So I do believe that one can be a homeowner AND a rational observer as well, and I bet there are many like-minded readers of [SocketSite].

In betting terms, that’s what we’d call a sure thing. Thank you for reminding us that the average SocketSite reader is anything but (average). And as always, thank you for plugging in.
The Average SocketSite Reader (Is Anything But) [SocketSite]

102 thoughts on “Single-Family Apples To Apples (And A Reader’s Perspective)”
  1. Hmmm…
    6% of 1,420,200 is 85,212
    1,515K – 1420K is 94,800
    85,212 + 94800 / 28 months =6429 / month (no tax deductions)
    Somehow my simple back of the envelope calculation suggests to me this homeower would have been better off renting.

  2. Diemos, you’re only figuring the capital loss per month. Factor in the after tax interest cost/opportunity cost of the original 1.5MM and you’re talking about an additional roughly $5-6K per month. So, these guys “rented” their home in Eureka Valley for about $11-12K per month.
    No to be too much of a dark cloud, but the thinking of the current buyers is really illustrative as well of where we are. 10-20% depreciation? But we’re “long-term” (at least 5 years!) investors. Hmmmm. I wonder how they will feel if it turns out to be 30 or 40% and they are locked in to that place for 20 years. Think it can’t happen here – just walk around Tokyo and ask the people who bought there in 1990 how they feel…..
    Well, you don’t really have to go that far. In the mid-1960s, the most expensive housing (on average) in the country was centered around Detroit and its suburbs. Take a drive around there today. Around the time of Detroit’s heyday, Silicon Valley was just a bunch of orchards and relatively inexpensive bedroom communities, and there were a lot of Pacific Heights mansions that were cut up and being used as boarding houses (and worse!). I shudder to think what Hayes Valley was like! But nah, it could never happen again…… And at these cheap valuations relative to rent or median income or any other metric that you care to use, current buyers have plenty of downside protection!!

  3. Yup, I just wanted to point out that it’s getting to the point where you don’t need to do a full analysis including tax effects to see that this was a bad choice.
    And this was only a 6% drop over 28 months.

  4. But…it was listed around July 1 this year for $1,395,000 and I think it was withdrawn and then reappeared at a higher listing price.

  5. “Hmmmm. I wonder how they will feel if it turns out to be 30 or 40% and they are locked in to that place for 20 years. Think it can’t happen here – just walk around Tokyo and ask the people who bought there in 1990 how they feel…..”
    You are so right, those Tokyo homeowners were fools. While their homes have struggled for the past 20 years they have had to watch as their renter neighbors lived the life of luxury and had no economic worries in the world in the booming Japanese economy.
    Same thing in Detroit, the homeowners got screwed while all the renters laughed their way to the bank to pick up wads of cash to jet off on European vacations.
    Same thing will happen here, the housing market will decline by 40% and only the homeowners will suffer, the renters will be fine since they have 200k+ in the stock market which will continue to rise since all the other renters will be pooring more money into it since they are pocketing an extra $5k a month by not buying a house.

  6. God point, Rillion. I do think that the renters will feel pretty bad in such a bad economy. I just think they’ll feel a whole hell of a lot better than those buyers!
    If your point is that none of us can control our financial destiny, and so we shouldn’t bother trying, well, after witnessing the criminals running our banking system and Fed Res, I almost have to agree with you! Stay liquid, that’s my only advice….

  7. The renters can just move at the end of the lease to a new area that is either cheaper or isn’t going through the same down cycle and they aren’t really out any money, besides rent and possible the security deposit.
    As great as a home is it can also be an anchor.

  8. Sounds to me like they got it right. Owning a home in San Francisco is a pure luxury. It’s going to be a money losing proposition no matter how you slice it (with rentals the way they are).
    If you realize that it’s a luxury good and you accept it as that and you have the money, by all means buy away! Aston Martin DB9’s don’t make any sense financially but they sure are fun to own. In both cases, I wouldn’t run around telling everyone that unless they bought a house/AM, they are just throwing money away on renting/driving a Toyota.

  9. If you believe that the future of San Francisco will be like Detroit (which lost 1/2 its population with the decline of the American auto industry), then you should neither invest in a home here nor a career here (except maybe as a firefighter to put out all the homes being burned to collect insurance).
    Life is looking up in Canada and in the E.U.– maybe you can get residency abroad before hoards of desperate, hungry Americans start sneaking across the border into Mexico.
    You know, there is a new director’s cut of Blade Runner just out in theaters, if you’d like to indulge your pessimism.
    Meanwhile, I won’t take the fact that a house on Caselli Ave. sold for *only* $1100/SF as evidence that the sky is falling.

  10. SS’s highlighting of this and similar properties that have sold for less than just a couple years ago is certainly thought-provoking.
    First, nobody can deny the sea change in the market over the last 8 months or so. Only that recently, the majority on this board were convinced that prices would continue to rise 10-20% a year in SF, and anyone who even suggested otherwise was roundly dismissed or shouted down.
    Second, don’t forget about inflation — that has added another 5-6% on to this seller’s real losses.
    Third, realtors love to talk up the wonders of leverage, but it can really bite you in a declining market. Assuming this seller had put 10% down in ’05, he basically lost 100% of his investment after all costs are figured.
    Last, despite all that, this seller is still very smart and/or lucky to get out now at this price. I have no idea if he had to sell or simply saw the writing on the wall, but with current trends this place likely will be down at least another $100,000 – $200,000 within the next few years. Cutting losses is a very important part of a sound financial strategy.

  11. Dan – this is a single family home in a solid San Francisco neighborhood and it just sold for $95k less than in 2005. I don’t think the sky is falling but I doubt the sellers are taking much comfort in the fact that it sold for $1100/SF when they paid $1200/SF.

  12. Ingredients for Bear shake: Detroit. Japan. Internet boom. Tulip craze. If Diemos shows up to the party, insert Great Depression. Mix. Repeat ad infinitum.
    Jeez.
    Congratulations on your purchase. If you’re planning to stay longterm, you’ll likely do fine. I’ve seen dozens of charts on here that illustrate longterm San Francisco holds, minus a few cherry picking years, are smart plays.

  13. THANK YOU, FLUG! Maybe you can give the seller a pat on the head and say gently “there there, don’t worry about that $100k loss you took today– things will work out in the end. Real estate always goes up eventually …”

  14. No. I think they’ll be OK. Longterm holds generally work out. We’ve all seen the charts.
    Did anyone see the jobs data this morning? It was encouraging. You guys constantly analogize what is happening now with trends surrounded by complete economic collapse. Other than diemos (and I don’t mean to pick on you diemos, I just know this is what you actually think) is that what you really see happening?

  15. Satchel, my point was really that if the market does fall 40% and stays there for a couple decades, it would not just be homeowners that are hurting.
    To some of the other comments on this thread and other threads, I’ve only been reading SS for a few months so I never saw all the SF RE bulls comments, but in the last few months I have seen them mocked over and over again to the point that it feels like the bears are dancing on the bulls graves. I am sure you are glad that you are now being proved right but don’t forget that there are not two separate economies (one for renters and one for owners) and I believe that the troubles in the housing and credit markets are going to spill over to create broader problems in the US economy (and according to an article I read on the Bloomberg today, it is likely to slow down the global economy).
    Disclosure: I bought a condo in SF in February of this year. Regardless of the rent/own financial equation, I am happy with the decision since I have been in SF for 12 years and already I have been forced out of two rental units (OMI & a fire). Each time I was forced to move I ended up paying a lot more money for a lot less space. So owning gives me a piece of mind that cannot be calculated by any spreadsheet. Also my current plans are to still be living there when I retire in 30 years and will likely let my heirs decide if I got an acceptable rate of appreciation or not.

  16. Dan, I’m really not a pessimist. To tell you the truth, SF’s future prospects seem pretty good to me. My point is (badly made, I’ll admit) is that we really don’t know the future.
    Those people in Detroit in 1965 could never have imagined that the city would be hollowed out as the auto industry went on a long decline. Go take a walk around Butte, Montana. It’s literally unbelievable. They were building skyscrapers similar to anything you’d see in Chicago at the time (this was back in the 1920s). They’re all empty now. I bet when they sunk all that cash into those skyscrapers (and attendant mansions for the mining barons) they thought their future was pretty bright. Walk around the small towns in Kansas, and look at the stone mansions from the turn of the century built by the agriculture kings. Same thing about what they must have been thinking.
    The wonderful thing about real estate is that it presents the temporal ebb and flow in the immediately obsevable spatial dimension, if that makes any sense.
    Today, people in SF can’t imagine how things couldn’t continue swimmingly into the future. That’s what psychology looks like at tops.
    Will the future be bleak here? Probably not in our lifetimes, but who really knows? One thing I do know, people buying here are not being comepnsated for the risk. The person buying this $1.4+MM property is effectively paying anywhere from $8K-11K per month, as missionite’s great spreadsheet demonstrates. You could rent a nice family home in Pacific Heights for that. I suspect that any buyer secretly believes, as you obviously do, that the house will be a good “investment”. Time will tell.

  17. Bloody hell, no doubt you will delete this because you seem to delete all my posts but so it goes….
    Stop linking to the lame (meaningless) Socketsite survey, do you honestly believe those numbers to be true? Please. News flash, people lie on the interworlds.
    Rant off, back to the apples.

  18. Fluj, I don’t expect a total economic collapse but I do think we are likely to have a recession next year. I think it will be a lot worse if nothing is done to help prevent the worse case scenerio of a housing meltdown due to loan resets. Which is why even though it won’t directly help me personally (I’m not planning on selling and it won’t effect my loan) I am supportive the idea of the loan rate freezes.

  19. Are the bears being proven right, though? The jury is a long way from in. The anecdote that spurred this thread suggests otherwise, certainly. Also, look at what most of these bears posit as the most important fundamental, rental units. Rent continues to increase citywide. Try to find a 2br with parking in any nice neighborhood for under 3K. I did yesterday. There aren’t many. And remember, you need to subtract the amount you would otherwise be paying in rent every month from the monthly mortgage bill in order to truly look at extra cost. How much does a nice house on Caselli rent for? Probably 5-6K? Does 25% of the 7.5K a month nearly make up the difference because of deductions? It would seem so.

  20. Never change fluj, you’re half the fun of SS.
    Rillion, I have a vivid memory of watching one of the early real world reality shows. The kids were painting a mural and, as is inevitable when you mix paint and 20 year olds, there was a paint fight. As the kid’s were having a great time squealing with laughter I remember thinking, “Only a 20 year old can enjoy a paint fight. By the time you’re 30 or 40 all you can see is just what a pain it’s going to be to clean that mess up.” Living through this bubble has been exquisite torment for those of us who have studied history and understand the mechanisms of debt-fueled asset bubbles. While everyone else was squealing with laughter as the good times rolled all we could see was the devastation that was being stored up for the future. You’re right, there is going to be pain, and the bears will not be spared just because they sat out the market. But after having endured the last 5 years and the endless condescension of the bulls at least give us a moment of schadenfreude.

  21. Actually, I (as a business owner) think that the economy will weather this just fine. The only difference between 2010 and 2005 will be that people have to qualify for mortgages based on 20% down and PITI of no more than 28%-32% of their gross monthly income for a 30-year self-amortizing loan. Incomes will most likely rise at or slightly below the rate of inflation and house prices will return to a level at which the mortgage payments are supported by incomes in the usual manner. Investment properties will be priced according to how much rental return they can generate.
    Regular people will not aspire to be real estate investors. No one will be able to borrow a million dollars without a big income (think $250k+) to support the payments or a ton of equity to securitize the loan. Etc. etc.
    That, and “Flip This House” will no longer be aired on HGTV.
    In short, things will return to normal.

  22. “Dan – this is a single family home in a solid San Francisco neighborhood and it just sold for $95k less than in 2005. I don’t think the sky is falling but I doubt the sellers are taking much comfort in the fact that it sold for $1100/SF when they paid $1200/SF.”
    I was responding to the Satchel’s post comparing San Francisco now with Detroit in the mid-1960’s–as the city of Detroit was about to start 40 years of falling off a cliff. I don’t believe that San Francisco will be burned and abandoned like Detroit was, and I don’t think that the sale of an Upper Market home for $1100/SF is evidence that San Francisco will become another Detroit.

  23. Excellent point about asset bubbles, diemos. I’ve spent my career watching and understanding them, and trading them (or at least around them). As you know, we’ve seen rolling bubbles on a continual basis at least since the initial ramping of US debt from about the mid-1980s. The bubbles have come on fast and furious since Japan imploded. I read somewhere once the best single line about what has happened since Japan – “Too much money was forced onto a world that had no productive use for the money”. The housing bubble is just the latest iteration of this debt-induced orgy. Things never change. Lather. Rinse. Repeat.
    Somewhat OT – I also remember a discussion somewhere about inequality of wealth. Say currently wealth in the world is divided such that 1% of the population owns 90% of the wealth (these figures aren’t exact but they’re probably not that far off). The question posed was if by some magic, wealth was miraculously redistributed instantly, how long would it take for the wealth to become concentrated again in the old proportions. Most people say 20 or 30 years, or about two generations. Watching the psychology of bubbles and the people in them, I’ll take the under on that estimate! Especially in SF. To fall hard for two bubbles (dotcoms and now real estate) in such quick succession is stunning. Got to hand it to the smart ones, though, they really made out like bandits in both of these! Now, on to the inevitable cleanup, and the search for the next asset-bubble ramp…..

  24. Jimmy (Bitter Renter), LIBOR spreads are showing that this little downturn could turn into a huge freaking mess. It’s 1990 all over again unless the Fed starts cutting hard and quickly. Even then, that will be inflationary and then we could really be in a pickle.

  25. My family has been in SF since the early 1900’s – I can recall fights between family members that went like this –
    “Are you crazy; $14,000.00 for that Bernal Heights home – thats too expensive.”
    The family memebers went on to buy multpile places – in fact tore down homes to expan their lot size – nothing like a backyard in a metro area.
    Rememebr when homes on the Marina were in the 100K range?
    Wasn’t all that long ago….

  26. I love it. It’s not “look out for spring of ’08,” nor is even a foregone conclusion anymore. No. Now it has already happened! SF’s bubble is in full correction mode!

  27. fluj – this place lost $6,500 a month in equity. Take the top of your range for rents in the area and the sellers lost $500 a month before contributing one cent to their mortgage, taxes or transaction costs. The jury isn’t out on this one, this was a terrible investment.

  28. $6500 a month was lost by whom? 95K/27 = 3500 a month.
    You simply cannot sit there and say that this buyer is definitely going to lose money in 5 to 15 years. I’m sorry. You cannot say that.
    If all you cats are wrong, will you come back here and eat crow in a year and a half? Somehow I doubt it.

  29. Oh wait. Commissions and transfer tax. Yeah, the last buyer took a loss.
    But to sit there and say that the new buyer is unequivocally doomed? Sorry. Not credible. You can just as easily say they made a smart buy because they bought after the correction happened.

  30. Their brokers did. After the brokers took their respective cuts, depending upon what their commission structures were, the agents likely got 60-80 percent of $35.5K.

  31. Fluj, Case-Shiller futures prices on the Chicago Merc have SF MSA prices declining by about 15% over the next two years. If you truly think the market will hold up better than that, place a bet and you can make a pile of money. Heck, you’ll come out way ahead if it only declines by 10%, which is a huge drop (and if the market drops by 10%, less than those willing to put money down are predicting, the new buyer of this place on Caselli will only see a $140,000 drop in equity in the next two years, possibly his entire down payment).

  32. So what? What were gold futures doing five years ago? Not that great. Gold took a big hit in December 2002. Futures are called “futures” for a reason.

  33. I agree with Fluj.
    Nobody can forecast the future. nobody.
    I’m as big a RE bear as many out there… but nobody knows the future. it’s all just educated guesses.
    Fundamental economic analysis would project serious pain ahead for most of California. However, markets can stay “irrational” for eons… Who would have thought that there would be Million dollar condos in Sacramento!
    I’m happy for the couple who recently purchased. they made a decision, and went for it. They seem cognizant that a loss is possible, and still feel it is worth it to them. Bravo.
    And if their hearts are as true as their words, then they will be happy in that house regardless of price movements! (because the rationale for buying wasn’t economic!)
    One thing the big bears keep missing though: the losses in RE will come mostly from INFLATION in my opinion. Thus the average homeowner will never learn that they LOST on the deal.
    HYPOTHETICAL example:
    RE goes sideways over 6 years, with annual inflation at 3.5% In this case the nominal house price stays even, but the homeowner “lost” 21% in real terms… never knowing

  34. Huh? Lost me there. I’ll spell it out for you — if SF prices do not decline by as much as the futures traders are predicting by the strike date in 2009 (about 15%), you can make a lot of money by betting against them. You assert here that you do not think prices will fall at all (or not much), so go ahead and put some money on that position and get rich. I wouldn’t take that bet, but you certainly should if you’re confident in your reading of the trends.

  35. fluj – I didn’t say this IS a terrible investment I said this WAS a terrible investment. This is a single family home. This is a good neighborhood. This sold for $100k less than two years ago. I would be willing to bet that this is not what the sellers were told to expect when they bought in 2005.

  36. I hear you, Trip. You want me to invest in R.E. futures. Maybe I will! I have said numerous times that I think we’ll probably take some sort of a hit. Maybe that $1.515 to $1.42 5% is the very 5% we’ll see? Who knows? I only remember the gold thing because the last time I thought about gold was around this time of year in 2002 and a trader friend in New York talked me out of it.

  37. John, the Merc futures are betting on about a 30% decline by 2011. Current position is about a 15% decline by 2009.
    Would I take a bet on either side of those numbers? No. More than 10% decline over the next 2 years? I’d take that. But the market is already predicting a steeper drop and won’t give me 10% anymore . . .

  38. How exactly does it work?
    At the end of 2009, who’s to decide how much increase or decrease there is? What if I say it is 4% drop and you say it is 35%?

  39. Fluj, I don’t mean to sound like a smartass. My point is that the market is looking at all the data and trends and predicting pretty big price declines for this area. I work with hedge funds and private equity groups all the time and these guys have made ridiculous money betting against the markets because they have superior knowledge or analytical skills (not me — I’m far too conservative/stupid/lazy). Anyone who really thinks they have insight into the local market and disagrees with the positions in the futures market has the opportunity to make a ton of money.

  40. The bet would be that the SF MSA single family homes, which are primarily in the East Bay suburbs of SF, would go down by 15% or 30% by the C/S index. What has been happening to single family homes in the East Bay suburbs so far has been different that in SF proper. And it is much more likely that there will be a substantial decline in those areas hardest hit by foreclosures and subprime loans than that there will be a declince of the same degree in SF.

  41. Dan, please show me anything that reveals that “what has been happening to single family homes in the East Bay suburbs so far has been different than in SF proper.” Note that this comment was made in a thread about an SFR in SF proper that lost about 7.5% in two years.

  42. Am I allowed to post properties that are up over the past year? Or, will i get deleted? I have a list of 25 that show 5-15% price appreciation this past year alone.
    I’m cool with SS continuing to post flat prices, but it’s good to get a balanced viewpoint, b/c buyers will be bitterly disappointed if they actually go and try and buy the majority of properties. Competition is tough.

  43. HYPOTHETICAL example:
    RE goes sideways over 6 years, with annual inflation at 3.5% In this case the nominal house price stays even, but the homeowner “lost” 21% in real terms… never knowing
    unless you are investing in something non-dollar denominated, inflation hits evenly across all investments. it’s a wash.

  44. can someone post a few other examples in San Francisco or Marin of places that have recently sold versus their original prices.
    Perhaps include a few districts and have a time limit on the sale (from purchase to sale)?
    To help show this is or is not an outlier?

  45. How does rent get affected by inflation? Curently, it seems like inflation is running at 3-4X the current inflation rate. Does that continue? And for how long?
    I guess one can say the real beneficiary is the landlord who doesn’t care to sell, and has a rental property generating ever increasing rental yield?

  46. Ready, I for one would LOVE to see that info. I am most interested in properties that you yourself know well, not just culled off an MLS or Zillow printout. The problem is what has been done to the house cannot be gleaned from the printout. I have already given examples of houses that I personally know in my neighborhood that have not had any substantial renovations done, and which have gone nowhere since 2004 or so. I’ve seen many flips that flopped and have been pulled off the market. I keep coming back to 1495 monterey and 135 fernwood, because both have been featured on SS, and both of which have flopped (135 fernwood in a BIG way).

  47. A –
    Can’t speak to all rentals, but the 4/4 house I currently rent on west side of SF rented for $4K/mo 1997-2002. For the last 5 years, I’ve paid $3.1K/mo. Rents go down in recessions, and they stay down for a while. (Of course, rent controlled units will only go up because typically they are being held at lower than equilibrium rental rates to begin with.)

  48. Ready, during the winter you look for the first buds on the trees, marvel over them, and then three weeks later they’re everywhere and boring. In the summer you look for the first leaf to turn red, marvel over it, and then three weeks later they’re everywhere and a pain to rake up.
    As recently as a year ago most people on this board would flat out tell you that it was impossible for an SF property to sell for less than it was purchased for. Today we’re marveling over the first signs of winter, even if most of the leaves are still green.

  49. More like many of you on here are proclaiming that winter has already begun, and you have been since Indian Summer.

  50. Diemos – I’ve been around for 20 years, and you can ALWAYS find a property that sells for under previous purchase price, even in the most bullish of markets. The main thing that ha changed is the dissemination of information i.e. much easier and quicker.
    But, I think we do a disservice to the many renters reading here who are looking to buy. If you read this blog regularly, you’ll think SF is really collapsing. My simplest suggestion is to just go out and try place. I would say at least 7 out of 10 times you will get out bid, or be sorely disappointed.

  51. I noticed that 4227- 24th St. recently came on the market for 1.595 and is currently in contract. According to Property Shark it last sold in 02 for 1.150. What is that about 5% annual growth?

  52. “More like many of you on here are proclaiming that winter has already begun, and you have been since Indian Summer.”
    I’ve given my prediction before, winter will start in earnest in 2009 when the Alt-A and option arms start resetting. And don’t worry, I’ll be here to eat crow and turn in my official nostradamus decoder ring if it turns out I’m wrong.

  53. I agree with Ready that it would be good to see a balanced view of properties that gained as well as lost over the short period (sort if a mini-focused Case-Schiller) No doubt some properties will continue to appreciate. The big question is “what is the trend ?” If we go from 2006 where every short duration resale appreciated to 2007 where 90% appreciated and 10% depreciated to 2008 where ??? then we can make some conclusions.
    In this particular case, I suspect that there were two or more buyers smitten with Caselli Ave. who got into an irrational bidding war. Looks like the “winner” lost.

  54. I could also point out that my neighbor’s home sold recently for 60% more than they paid for it in 05, but that’s a really isolated example and doesn’t really reflect the current market.

  55. Diemos, you are off the hook vis a vis humble pie if the Fed bailout comes in and prevents your prediction from truly playing out!

  56. “In this particular case, I suspect that there were two or more buyers smitten with Caselli Ave. who got into an irrational bidding war. Looks like the “winner” lost.”
    Pardon me if I’m mistaken, but weren’t most homes purchased over the past five years in San Francisco the result of multiple offers and irrational bidding wars?

  57. “Dan, please show me anything that reveals that “what has been happening to single family homes in the East Bay suburbs so far has been different than in SF proper.” Note that this comment was made in a thread about an SFR in SF proper that lost about 7.5% in two years.”
    I’d like to second that request and the irony.

  58. The boom-bust history of California and northern CA in particular is well established, and colorful to boot. Everything that makes CA the most dynamic and versatile region of the US also makes it vulnerable to incredibly strong versions of the boom-bust cycle.
    S.V. has survived the dot.com cycle pretty well. SF will survive the housing bust. However, SF can’t go around it. SF must go through it, and it’s gonna be a doozy of a bust.
    As the credit spigot gets turned off over the next 2-4 years, here’s what I see: lots and lots of young people moving back home to live with their parents. But that’s just a sidebar. What’s really coming to an end, nationally, is a 25+ year consumption binge. It’s time to stop thinking in terms of what one can consume, and what one can produce. Consuming homes at the equivalent rent of 10K-12K per month is of no economic value to anyone. Economic energy is about to migrate elsewhere.
    –The Kid

  59. Not at all. If I had money to burn I’d buy a place and enjoy it today. If I could buy using a 30 year fixed mortgage and 20% down for 3 x income then we wouldn’t be in a bubble and I’d already be a homeowner.
    If all the people in SF were truly buying houses that they could afford then I would wish them well, shrug my shoulders and move on. Instead I’ve been bid out of the market by people using suicide loans and now I have to wait for them to go belly up and be foreclosed before prices return to sane levels. And that’s if I have any money left over after it’s all taxed away to pay for the bailouts of their suicide loans.
    I challenge our new homeowners to tell us how they paid for their new home. Specifically, how much did they put down of their own money? How much skin do they have in the game? If they’re using a teaser rate loan will they be able to make the payment after the first reset?

  60. Personally, I like to own. There are many advantages to owning that go beyond economics.
    1) You don’t have to asnwer to a landlord. Some are nice but some really make life difficult.
    2) You don’t gave to complain to get things fixed–eventually.
    3) You know your payment. You do not have to worry about a rent increase.
    4) You don’t have to worry about being kicked out when the owner sells your building or house.
    5) You don’t have deal with other renters who usually care less about the place since they don’t own it. (at least true in my building)
    6) You don’t have to worry about being evicted for having too many parties.
    7) I can decorate, paint, and renovate the place as I see fit.
    8) You don’t have to deal with new neighbors all fo the time.
    Most renters I know would love to be able to buy. I only know one or two people that have the diligence to actually save money while renting. Most renters I know are in a much less stable financial situation than the people I know that own houses. Just my observation.

  61. “I challenge our new homeowners to tell us how they paid for their new home. Specifically, how much did they put down of their own money?”
    I recently bought a unit in one of the new highrises. I put 45% down on a 30 year fixed with a rate of 6.125%.

  62. anon,
    So, if I’ve got this right (from the interest rate, which looks like a conforming), you’re paying $760K or so, putting down about $340K in cold hard cash down?
    Ding, ding, ding, I think we’ve got a future bagholder here! First rule of a bubble, use 100% someone else’s money. That’s what the hedge funds have taught us. The law lets you walk away from your debt without any penalty. Well, without any real penalty, other than your credit rating. My guess is that under Hillary, there will be so much busted credit that a law will be passed literally resetting every one’s credit rating. Bank on it.

  63. Personally, I love to rent. Having flipped three properties during the boom and having made good money on each property, I got out before the current decline, and I’m enjoying living hassle free in my rent controlled apt, while I watch my diversified portfolio of savings outpace the current SF housing market.
    I bask in the knowledge that any little moldy spots on my wall are the landlord’s problem should he decide to sell. When my h2o heater broke, he fixed it free of charge. Cracked out plumber coes to fix the tub and screws it up–landlord has to scramble to find the replacement.
    Living in “newer” condos, I blew my budget often because of necessary upkeep on my investment property. AND the HOA maintanence payments in my last building just kept going up and up–with nothing I could really do to control them. Many of these newer buildings are a twofold investment for the companies. First they make a profit selling the buildings, and then several years down the road, they begin to rake it in by collecting outrageos maint. fees–and being the sole providers of overpriced maintanence to the building. Anyway–renting–not owning–is more carefree–even if you do have the money to easily buy.

  64. oh and did I mention how much more free time I have as a renter because I don’t have to worry about taking care of a property?

  65. “Ding, ding, ding, I think we’ve got a future bagholder here! First rule of a bubble, use 100% someone else’s money. That’s what the hedge funds have taught us. The law lets you walk away from your debt without any penalty. Well, without any real penalty, other than your credit rating.”
    Use 100% of someone elses money? Those are the people who are getting in trouble right now. My credit rating does hold value to me. I plan on living in the place for at least five years if not more. My payments are very comfortable and when I eventually move, I will most likely keep the unit as pied-à-terre.
    “My guess is that under Hillary, there will be so much busted credit that a law will be passed literally resetting every one’s credit rating. Bank on it.”
    You surely have a plan. Buy with 100% someone elses money, get forclosed, declare bankruptcy and then wait for Hillary to reset your credit. Good luck!

  66. Ah, come on, anon. It’s all in good humor. I really do wish you well, and if you can afford it, more power to you.
    I’m a little kidding about the plan, but not too much. I’m actually sitting out this bubble, and (whether you believe me or not) I can actually afford to pay cash for a nice SFH in most parts of SF. I am kicking myself a little though that I didn’t buy something with 103% financing in 2003, with a teaser rate 3/27, HELOC it out a few times with some fraudulent appraisals, all the while taking the HELOCed cash and converting it to gold bars and burying them. (Of course also bleeding the rest of my assets into bankruptcy-remote trusts.) Then, for the final calumny against the insane lending system that has now burdened the entire US with a HUGE problem, just stop making the payments, scream for a bailout, and live rent-free for the 12 months or so it would take them to foreclose and get me out of my house. Think that hasn’t been going on all over the US (well, maybe not the gold bars)? Think again.
    We’ve really “screwed the pooch” in this bubble.

  67. Why does it feel like the renters on socketsite always seem to enjoy taking stabs at buyers (sometimes insulting) while the buyers seem much less concerned about the renters.
    Why so bitter renters?

  68. “Why does it feel like the renters on socketsite always seem to enjoy taking stabs at buyers ”
    Are you sure it is not the real estate industry they are taking jabs at and not buyers. And what if people want to discuss the least expensive way to live in a property? Is that a crime? If some want to spell out how renting a certain home is less expensive than payments on a loan, so be it.

  69. Satchel…I guess my morals and ethics are stronger than yours since I would not think of taking advantage of the system in the way you speak.
    Who holds your bag at the end of the day–the taxpayers.
    Does it make you feel good to out smart the system only to screw your less financially sophisticated neighbor?

  70. “Are you sure it is not the real estate industry they are taking jabs at and not buyers. And what if people want to discuss the least expensive way to live in a property? Is that a crime? If some want to spell out how renting a certain home is less expensive than payments on a loan, so be it.”
    Not so sure. If you read through some of these posts its as if the renters would take great pleasure from seeing the family who bought this house go down in financial ruin.

  71. Can someone enlighten me? Where does CME say it predicts the SF RE market to drop 15% in two years? I cannot find any numbers on their site and their site is not the clearest one to navigate.

  72. It’s the nature of bubbles that for everyone who got a big payday on the way up there will be a corresponding loser on the way down. Bubbles transfer wealth from late market participants to early market participants through the borrowing mechanism. All those crazy loans are going to get paid off by somebody. First loss position is the buyer’s downpayment. (So for all those 100% loans the buyer is off scot-free) Second loss position is the bank/security investor if they can’t sell for enough to cover the loan. Third is the government when the banks get a bailout since “we can’t allow the financial system to collapse / pension funds to be wiped out / etc”.
    So all of that free money that showered down onto the early market participants will ultimately be paid for by you and me through taxes or inflation. This is baked into the cake and nothing can stop it now.

  73. I find it amazing that people that try and do the right thing, play by the rules, etc., really do get it in the end. The mess that this nation is in, San Francisco being a part of it, with regards to housing is a shame. Many good people will hurt because of the wreckless abandon done by the financial institutions down to the brokers and real estate agents and the foolish consumer. Greed was everywhere, and many niave people played along in order to grasp the American dream. And it was sold as a dream which we willingly fell into.
    There is a saying that the innocent pay for the crimes of others and I believe that to be the case with real estate. Many people that bought during the last few years are good people who just followed the crowd. Not all of us are leaders. Speculators never intended to be home-owners but they drove the prices up and with cheap money available, the only way is higher. Yet, many that bought have done all the right things and they too will suffer in this mess. And many like the woman that started the posting, bought for other than financial reasons. I wish the bears were a little more compassionate, these are real people, and lots of innocent ones, like kids that are facing a very troublesome future. Rooting for disaster is not going to make things better, really!

  74. “Rooting for disaster is not going to make things better, really!”
    Walking away from a house you could never afford in the first place and renting is not a disaster. Although for those who put down real money it will sting quite a bit. In the end, when the market has cleared, homes will be affordable again.
    Don’t blame the bears for pointing out reality. Blame the business leaders and government regulators that let this happen in the first place. When they get up in front of the cameras to do their “Who could have forseen this?” routine don’t believe it for a second.

  75. Diemos, true everything that you say about bubbles. But, if I may, let me add that you are leaving out the most important thing about bubbles: the price signal effect.
    In a well functioning economy, prices are signals that in effect tell people where to allocate capital. When price signals get short-circuited through the massive stuffing of liquidity (through the credit/debt cycle), scarce capital becomes misallocated.
    To viewlover’s point, you’re right, good people (who really can’t be expected to grasp all the macroeconomic variables and implications of their actions) get swept along with the tide of rising prices. In this credit bubble, these false price signals have had huge implications. If you drive in Phoenix, Las Vegas, Inland Empire, Florida, etc., what you will see are thousands and thousands of vacant, surplus housing. This has all been a collossal waste. That’s part of the cost.
    We don’t see that in San Francisco because of land contraints and building constraints. What we see are lots and lots of empty and underutilized houses, as the combination of fixed tax rates (Prop 13) and appreciation incent owners to continue to hold property that they no longer need. Ever wonder why it costs 1/4 to 1/3 as much to rent as to buy?
    Another thing we see in SF is overinvestment in structures to the exclusion of better uses of the money. My wife and I know a few couples in our neighborhood who have spent so much remodeling their houses that they can’t afford to send their young kids to private or parochial school, and are subject to the SF public school lottery. Stupid. But the price signals (and greed, and desire for comfort, of course) cause them to make poor choices.
    A third order cost will be how the government responds to this crisis (and if you don’t think it’s a crisis because we haven’t seen too much pain in SF yet, I suggest again go look at Florida and Southern California). Early indications are not good, and are in fact very worrying for anyone who understands economics (not that any of us can really hope to have a perfect grasp).
    In similar credit busts, government actions seeking to mitigate pain led to huge depressions (e.g., the US in the 1930s, which paid a very high price for the foolishness of FDR’s policies) or long, lingering recessions, as in Japan in the going on 18 years since the bursting of its bubble.
    To the point of whether we are rooting for “financial ruin” of the people who bought this property, well, I confess that we bears do relish the tiny bit of schadenfreude that has been served up so far…. But in all seriousness, I do not think any of us will really want to live in a world in which these SF property purchases wind up being good investments over the next 10 years or so. The level of inflation that would be required to have these investments pencil out (considering how overvalued they are in real terms now) would make for a very nasty brew.

  76. Well I remember back ten years and people were complaining then that homes were out of reach for most people. Guess what, they still will be in San Francisco, people are dreaming if they think that if prices crash they will then be affordable again, they never have been. Only the few that could always afford to buy in San Francisco will continue to do so. Regardless, I’m not convinced that all of us have bought property in the last few years will be walking away from our homes when the “bottom” hits.
    I don’t like to blame others, Diemos, that’s way too easy. There were alot of moving parts that got us where we are, you speak as if the business leaders or politicians are an individual that behaves in ways to benefit itself. Granted, it may appear that way, but the population feeds the machine, haven’t you heard of competition and the free market not to mention ecnonic cycles? Some people benefited from the current credit crunch, point being that there are far too many competing interest, consumers amongst them. Only greed to blame here folks, and we all have a little of that.
    Also, please don’t blame the homeowners for you not being one.

  77. viewlover, with regard to affordability of homes in SF, if you mean by “never” only the last 10 years, well then I agree with you.
    I don’t know. I live in an area in which no house is less than about $1.3MM, and many are up to $2.5MM, with a few over $4.0MM. I walk around and talk to a lot of my neighbors, many of whom bought here 15-20 years ago (I’m sort of retired and have a lot of time to walk around and think). One is a nurse. There’s a carpenter (wife is a teacher in SF public schools) who raised 5 doughters here. I know an accountant. A few lawyers. Nothing exceptional. Seems like it was pretty affordable for average middle class people as recently as 1987 (the nurse), 1994 (the accountant) and various 90s dates (the lawyers). I think the carpenter bought in the early 80s.
    Again, as I mentioned above, price signals really do a number on people’s consciousness. Really think through the implications of a city in which only the rich can buy anything. It’s silly, and it’s not an equilibrium condition. But because of the length of this bubble, all sorts of crazy ideas are taken as plausible…..
    Real values will fall dramatically here, or you will quite literally cease to have a functioning city. Some areas (the enclaves of the wealthy) will only fall a little, some a moderate amount, some areas will see extreme declines (think Excelsior, Vistacion Valley, Ingleside). The only question is whether there will be large nominal price declines, or whether large increases in general inflation will do the trick. Stay tuned….

  78. “you speak as if the business leaders or politicians are an individual that behaves in ways to benefit itself.”
    No. They’re a group that behaves in ways to benefit itself.
    “haven’t you heard of competition and the free market”
    When my hard earned savings are forced to compete with funny money printed up by the Federal reserve and handed out to anyone with a pulse it is not a free market or fair competition.
    “Also, please don’t blame the homeowners for you not being one.”
    I only blame homeowners who put nothing down, had no skin in the game, and shouldn’t have been homeowners to begin with. Any homeowner who put down 20% of their own money is my hero. I kiss you!!! I beam with pride and joy as you scamper off to enjoy your home and I wish you long years of happiness and contentment.

  79. “Real values will fall dramatically here, or you will quite literally cease to have a functioning city.”
    Rents, not home prices, have the most influence on who is able to live in SF. Two-thirds of the city rents. The skyrocketing of rents in the late ’90’s had much more an effect on who could live in SF than the home price run-up of the last decade.

  80. Dan,
    You seem like a good guy, so let me try one more time without sounding too condescending.
    It appears that you accept the idea that you can’t literally price out 90% of the city’s population and still have a functioning city. But you’re proposing the idea that it’s really the rental rates (and not the asset values) that determine affordability. So, condo prices and SFHs can continue to accelerate into the stratosphere, as long as rents stay grounded.
    Let me just suggest that you really think through the implications of rental rates 1/4-1/2 the carrying costs of purchasing the asset. Imagine you buy the condo we’ve been talking about. It costs you about $7-10K per month as we’ve shown. Try to rent it at anywhere near that and you slowly bleed cash. After a while you are squealing like a stuck pig, and real arterial blood is spurting all over your finances! You need to raise the rent. But you can’t, because the market won’t allow it. You’ve just run headsquare into the law of supply and demand.
    Now think about the entire housing stock, and generalize the above idea, and you’ll see what happens and why your idea about rents being disconnected from the asset values makes no sense as an equilibrium condition, although sometimes the adjustment can take a very long time. As the famous economist once said, “Markets can stay irrational for far longer than you can remain solvent”. Galbraith was right, but eventually economics wins EVERY time. When that happens, some people are the bagholders. In SF, I posit that they will be just about anyone who bought after about 2001 (there will be exceptions, especially those who bought in neighborhoods that passed that critical point of gentrification – Bernal Heights comes to mind – that will actually retain a large portion of the real value increase since the late 1990s). Time will tell if I am right.
    There are a lot of wrinkles. Often, the government comes in and tries to stop rents from going up (rent control). Or it tries to stop equilibrium social costs from being imposed on rising asset values (Prop 13). The result of misguided policies like this are inevitable: decreased investment in the rental stock, and a giant subsidy conferred on existing homeowners (who pay low taxes) by people who have recently bought.
    New York City tried holding rents below reasonable capitalization rates. In the downturn of the 1970s, this quite literally led to landlords burning down their properties as worthless because of the price controls.
    SF is a premier city, and there will always be relatively low implied rent returns from asset prices here, but the extreme divergence over the last decade will be narrowed, and i propose that this will ocur largely through falls in the real value of the properties.
    Again, time will tell!
    PS – Dan, I’m not sure you saw my snarky comment anout renting in the Excelsior at the end of that last post. Once again, I’ll reiterate, econ wins every time. Rents can only be raised to the level that people are willing to pay. Don’t believe it, go into your boss’s office (if you’re a W2 guy) and impose a higher salary (for yourself) on him. See how far you get!

  81. Since the CME was brought up, and it seems nobody really studied how it REALLY works, I want to comment on that.
    I could be wrong, but from my reading, you put down TODAY’S money for the index number for a future date.
    Guess what, in that case, the neutral bet (betting the future index won’t be too much different) is offering about 7%/year discount.
    I can get 4% with treasury, 5%+ with money market. With investment with some risks, add a couple of points premium. Let’s assume today’s index is 100, and if my guess is that the index is still 100 in two years, I would buy that future for about 88, so I can get 7%+ annual returns.
    So, the future may trade at 14% discount for a two-year contract. It doesn’t mean it is predicting a 14% drop in two years. Actually, that looks pretty market neutral to me.
    Of course, a index at the same level in four years is not a bull market. However, that’s not “14% drop in two years” or “28% in four years”. Far from it.

  82. In response to diemos’s challenge:
    I bought a condo earlier this year. Used an 80% first mortgage with a 5 year rate of 6.25% (i/o first 10 years), used a HELOC for 15%, it’s rate has varied from 7% to 8.5%. Put 5% down. If I had waited until the summer or fall I doubt I would have been able to qualify for this financing.
    Can I afford my 1st when it resets in 5 years? If it reset today, I probably couldn’t but I’ve got 4 1/2 years to change the inputs in the equation (pay down the loans, refinance, or make more money). I do know that I have already paid down my HELOC (equivalent of reducing it from 15% of purchase price to 14%). My goal is to have the HELOC paid off completely by the time the 1st mortgage resets. If I make that goal I should be able to afford the new rate even if my salary doesn’t go up (it has risen a minimum of 3% every year for the past decade so I’m confident that I will be making more in 5 years then I do now).
    Of course since I entered the housing market in the last couple years I am by one person’s definition automatically fiscally irresponsible, so I will likely squander my money and lose thousands of dollars somewhere, maybe buying bridges or something.
    As for the rent vs own debate. My rough calculation is that I’m paying about $1,100 a month more to own but that doesn’t include any adjustment for gaining a parking space or 30% more space. Maybe a spreadsheet can tell me if it made financial sense for me to own or rent depending on a bunch of different real estate rates of appreciation but I do know that for me, it is worth the extra money each month to have more control of my living space. I don’t have to worry about an Ellis Act or OMI (been OMI’d once already), I don’t have to ask permission to paint my walls, etc.

  83. If one has a direct access brokerage account, like Interactive Brokers, you can see the daily live quotes for the entire SF Futures chain, which has contracts now going all the way out to November of 2012. (The chain has about 12 contracts).
    All one needs to know is that the latest Case Schiller Index pegged the SF statistical area at “206.00”. If we now look to the futures, traded on Globex under the symbol “SFR” we see that May 2008 contract last traded at 198.00. That “price” is a bet on how the Case Schiller Index will report the index level, when we get to that month next year.
    November 2008 SFR futures last closed at 190.00
    And May 2009 SFR Futures last closed at 180.00
    So you see, if you think the index number put out by Case Schiller in early 2009 will, say, recover to current levels of 206.00 (for example) one should buy those May 2009 SFR Futures near 180.00. You’ll make money. And, it would be a way to “buy” SF real estate now, to catch the next move higher.
    I’ll wager many of those who think SF real estate prices are not headed much lower, however, would suddenly find they’re not so sure after all when faced with the idea of putting down real money, on that view.
    –The Kid

  84. Rillion:
    one thing that may help you: the Fed looks to be dropping rates, perhaps to near-historic lows again.
    Hopefully your HELOC is tied to the fed funds rate. if it is, your HELOC rate will drop too! you might want to check to see if its benchmark is the Fed Funds Rate, or LIBOR. If it’s LIBOR, that may be more difficult for you (LIBOR has been challenging of late)
    Regardless, consider paying off that HELOC as soon as possible… this way if you ever need to refinance/sell you’ll be in the best position possible… plus it’s a GUARANTEED return of 7-8% at this point, with no risk!
    you may consider also shoring away extra cash as well… nobody knows what lending criteria will be used 5 years hence when it’s time for you to refinance (if you need to). if things continue as they are, it may not be possible to get a piggyback in the medium term future (0-10 years).
    (as example, a lot of people in 2005-present also assumed wage increases and refinancing options, and now don’t qualify… hence we have a mortgage rate freeze brought by the President… don’t let it happen to you)
    good luck.
    that said, it speaks to Satchel’s point, San Franciscans are stretched very thin when it comes to their house arrangements. I am very conservative financially, and could not handle the stress of possibly not being able to afford the reset.

  85. Rillion:
    I echo everything that ex-Sfer says, except with regard to the HELOC. Do NOT pay it down, keep it dangling. It’s deductible, and interest rates are going to collapse.
    Consider that after 10 years, you only have enough for a 5% downpayment on what is likely a modest property by SF standards, a property that literally would have cost 1/2 much as recently as 6 or 7 years ago. The financing that you got is no longer available. My guess is that it will not be available again for a generation at least.
    Shore up cash. Put as much into retirement funds as possible – you need diversification. Fund additionally into IRAs (whether deductible or not). These assets are bankruptcy remote if the worst comes to pass. And if I’m wrong, well, what have you lost? The money that you save from not paying down the HELOC only “costs” 5-6% in after tax funding cost, while you should be able to earn 4% after tax relatively easily and without great risk. Seems like a cheap option to me.
    If things seem tight at any point in the future (I don’t want to be presumptious, but 10 years of solid earnings, and only 5% for a downpayment – that speaks volumes about the risks that SF is running as a city) consider gifting assets to trusted family members. You can give up to $12K per year to each individual without estate tax or gift tax implications,
    The US has not had a real recession since the early 1980s. 1990-91 was a little dicey but nothing major. 2001 was a blip. I’ve spent a lot of time in financial markets, I think a real recession is coming. If I’m wrong, what have you lost taking my simple advice?

  86. “I don’t know. I live in an area in which no house is less than about $1.3MM, and many are up to $2.5MM, with a few over $4.0MM. I walk around and talk to a lot of my neighbors, many of whom bought here 15-20 years ago (I’m sort of retired and have a lot of time to walk around and think). “One is a nurse. There’s a carpenter (wife is a teacher in SF public schools) who raised 5 doughters here. I know an accountant. A few lawyers. Nothing exceptional. Seems like it was pretty affordable for average middle class people as recently as 1987 (the nurse), 1994 (the accountant) and various 90s dates (the lawyers). I think the carpenter bought in the early 80s. ”
    Satchel, I just wanted to say as a fellow owner, I see a similar mix on my street in the Marina. There is retired plumber, a former college music teacher, the house next door which probably is worth over 2.7m is owned by a widow of a S.F. Muni driver! This is two blocks from the water in the Marina. When my neighbors all moved here this was a “working class” hood, and I like that everyone on my block does not drive an Audi A8 or a Lexus. What kind of place will this become if there are only wealthy retired trustafarians here in the future?

  87. ex-SF-er,
    I am still socking away cash in a savings account every week and an IRA every month (automatic transfers). I have more savings now then when I closed escrow, have not reduced my 401k contributions, and during my open enrollment for next year even increased the amount of pre-tax dollars I am putting into my Health Savings Account. I’ve even paid off the 401k loan I took to pay off the car loan so it wouldn’t appear in my debt to income ratio when qualifying for the loans.
    On the plus side I have ZERO credit card debt even after going on a cruise this year. Am I stretched thinner then when I was renting? Yes, but I am confident that I will have the HELOC paid off before the first resets through a combination of paying extra each month plus using portions of my annual bonus.
    If I had ANY doubt that I couldn’t do this, I wouldn’t be paying down the HELOC. I’d be putting all my extra money into assets creditors couldn’t seize.

  88. “What kind of place will this become if there are only wealthy retired trustafarians [in the marina] in the future?”

    For one thing, the St Francis YC will need a bigger parking lot and slip area 😉

    Bubble aside, isn’t it nice that “normal people” benefitted from the housing runup? You may never be able to live in the marina cheaply again, but there are other neighborhoods (many of which are mocked regularly here) which could be the next marina. Who knows?

  89. Rillion:
    cool. thanks for going “out on a limb”. it’s scary putting one’s finances up like that!
    sounds like you have a good action plan to me.
    Satchel: c’mon man (gal)… obviously it stings when the responsible are being set up to be the patsies, bailing out the foolish/greedy… but it doesn’t mean that everybody needs to just abandon all hope and ethics and morals and join the “me too” gang…
    I personally feel that a moral person isn’t one who does the right thing when they’re congratulated about it… it’s someone who does the right thing when everyone else is jeering because of it. (or in this case profiting by doing wrong).

  90. “Markets can stay irrational for far longer than you can remain solvent”
    Actually, this was John Maynard Keynes and not Galbraith. Keynes had several other famous quotes which aptly describe the situation we’re in today.
    Keynes on lowering rates to inflate away debt:
    “The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”
    Real estate always goes up in the long run, right?
    “Long run is a misleading guide to current affairs. In the long run we are all dead.”
    Ironically, Keynes was a leading proponent of government intervention in the free markets.

  91. Dude, you’re absolutely right of course. And I’m not a big fan of Keynes’ ideas (as you can tell from my musings I’m sure). Maybe subconsciously I’ve steered myself away from giving him credit for this great quote 🙂

Leave a Reply

Your email address will not be published. Required fields are marked *