The Housing Boom and Bust

This is a plain-English explanation of how we got into the current economic disaster that developed out of the economics and politics of the housing boom and bust. The “creative” financing of home mortgages and the even more “creative” marketing of financial securities based on American mortgages to countries around the world, are part of the story of how a financial house of cards was built up—and then suddenly collapsed.

The politics behind all this is another story full of strange twists. No punches are pulled when discussing politicians of either party, the financial dangers they created, or the distractions they created later to escape their own responsibility for what happened when the financial house of cards in the financial markets collapsed.

What to do, now that we are in the midst of an economic disaster, is yet another story—one whose ending we do not yet know, but one whose outlines and implications are explored to reveal some surprising and sobering lessons.

It’s Saturday and that means it is time for Burbed’s book of the week.

Thanks to Burbed reader Butzi’s for this recommendation. It’s clear why this book was suggested – we in the Real Bay Area really need to do more to learn about the areas in the rest of America. The less fortunate areas, full of blissfully ignorant people, who don’t know what sushi is, or have never been able to experience the majesty of Fry’s.

Ideally we could invite Thomas Sowell over to the Bay Area so he could write about this amazing phenomenon. Perhaps it could be a sequel to his first book (“Basic Economics”) – he could call it “Paradign shifted economics.” Let’s face it, we have an economy here that defies all expectations. Whether it be $3 cupcakes, $500k condos in Mountain View, or Teslas, the economy here is rocketing forwards. It is the classic example of a perpetually New model of economics.

Finally, speaking of economics, if you’re looking to help this site out, click this link to learn more!

Palo Alto Online: Flood ’98

Burbed reader steve posted this a while back. I just wanted to make sure everyone saw it.

Always be prepared.

Real Estate Empire for PC

* Work yourself up through the market by buying houses in the low end of the market, fixing them up and then selling them on. Shop for bargains, build a balanced portfolio or simply concentrate on a specific area of the market – its all up to you as you build your real estate empire.
* Five different professions to play as a Handyman, General Contractor, Realtor, MBA and Interior Decorator â” all of whom have different skill sets that will determine how the player has to approach the game.
* Realistic economic cycles will affect the value of property and the cost of materials and goods as will the time of the year.
* Players will have to balance the books or face losing their properties if they cant keep up the mortgage repayments. Being a bad debtor to suppliers will also have a negative effect upon the players credit rating.
* High scores can be posted online to see who is the worlds ultimate Real Estate King!

This is a slight change from from the usual Burbed Book club, but I thought it’d be fun to feature a game instead.

Hey this sounds like tons of fun. But… it doesn’t sound very realistic. Huh? You have to balance the books? Huh? You have to be one of those 5 professions? What about strawberry picker or NINJA debtor?

If you were to update this game for 2009, what changes would you make?

Finally, if you’re looking to help this site out, click this link to learn more!

This came in my inbox from Winston:

Hello,

How much should i charge my kids for rent?

I am not sure what criteria are important.Can you please guide me.Any info much appreciated.

Thankyou.yours truly,

Frank

Any good suggestions?

‘Youth Magnet’ Cities Hit Midlife Crisis – WSJ.com
‘Youth Magnet’ Cities Hit Midlife Crisis
Few Jobs in Places Like Portland and Austin, but the Hipsters Just Keep on Coming

The Wall Street Journal is part of the MSM, so it’s not surprising that they make mistakes from time to time.

But this is very surprising. I mean, is it really possible that fact checkers did not notice they forgot the Bay Area on this list?

And what’s up with the fact that Seattle is at #2 on this list. (Thank goodness doomed NY isn’t.)

Heck, according to this, King County has 68,390 millionaires whereas Santa Clara has 74,842 millionaires (though with San Mateo, San Francisco, and the North Bay it’s probably closer to 200,000 millionaires.)

You know what? I think there’s been a mistake. We’ve always been at war with Seattle.

Emerging Real Estate Markets: How to Find and Profit from Up-and-Coming Areas

How a Dirt-Poor Landscaper Crackedthe Code to Emerging Market Real Estate Investing—and Built a Financial Empire

While many real estate markets have cooled off, there are major hot spots throughout the country that are booming due to population growth and urban expansion. These emerging markets are where the next wave of big-time real estate profits will be found. In Emerging Real Estate Markets, David Lindahl shows you how to find these markets, get started investing with little of your own cash, and maximize your profits.

The key lies in knowing how real estate markets cycle through ups and downs. If you know what to look for, you can tell when a market is about to heat up. Invest at the right time in the right place, and your profits will be dramatic. Does that sound too good to be true? It’s not. The tactics you’ll read here helped Lindahl, a landscaper when he started investing in real estate, to build a real estate empire!

Even if your market isn’t currently heating up, Lindahl will show you long-distance “hands-off” strategies for finding and investing in other markets that are. He also provides practical strategies for investing in markets in any stage of the cycle so you can invest no matter where you are or where your market is.

It’s Saturday and that means it’s time for Burbed’s book club (or, “Click this link and buy stuff from Amazon” Day).

Let’s face it, with the current credit crisis it may be hard for landscaper to invest in real estate in the emerging market known as the Bay Area.

That’s right… the Bay Area. Obviously, not the Real Bay Area – that’s emerged, and is very proud. But let’s look at the hidden gems like Gilroy, Morgan Hill, and East San Jose. I think there’s a lot of opportunities there and maybe you can use the techniques from this book to prove that they are.

Lindahl was a landscaper when he started. And now he’s awesome. You can be too!

370 Beech Street, Highland Park, IL, 60035 – MLS ID#07218797 – Single Family Home real estate – REALTOR.com®

370 Beech Street  Highland Park, IL 60035
$2,300,000
$11,666 per month | Personalize this estimate | Check local mortgage rates
4 Bed, 4 Bath | 5,300 Sq Ft on 0.75 Acres (32,670 Sq Ft Lot) |
MLS ID #07218797

THE BEN ROSE HOME-site of the famous movie “Ferris Bueller’s Day Off”, cantilevered over the ravine, these two steel and glass buildings, which can never be duplicated, have incredible vistas of the surrounding woods. This is a unique property designed by A. James Speyer and David Haid, both notable architects of the 20th Century. Estate Sale Sold -No disclosures! This is an amazing architectural treasure.

I know this is Bay Area, but I simply had to share this. Thanks to Burbed reader Brendan for this find.

Wow. It’s the Ferris Bueller Day Off house. How super cool! And yours for just $2.3 million! (You know that if it were in some place truly amazing like Sunnyvale, near Cupertino, this would be $4 million because of the more amazing views.)

Hey, have there been any movies shot in Real Bay Area homes? There’s gotta to be something. I mean, we have all these stunning examples of amazing architecture scattered about… there must be something!

San Mateo back in the Real Bay Area? | SF Bay Area Home Price and Mortgage Insanity Blog – Burbed.com
AmusedLurker Says:
May 21st, 2009 at 8:33 pm

I’m sure the question was asked in jest but…Hayward Park was named after the guy who used to own that section of what became San Mateo – Alvinza Hayward who was known as California’s first millionaire. After he died in 1904 his huge mansion was turned into the Peninsula Hotel which burned to the ground in 1920 – the rest of the estate was subdivided. At that time (1905) rather than building the homes prior to sale, the realtors sold the bare lots after the streets were laid out – this explains the many different styles of homes in the neighborhood. Personally I like the older homes but they are definitely asking WAY too much for this one!

I know this posted a while back, but I finally a calm time to post this nugget of information. Thanks AmusedLurker. We are now all informed!

Is Your Home A Good Investment? – WSJ.com
Yet look at the numbers. Since 1987, when the Case-Shiller index of 10 major cities begins, it’s risen from an index value of 63 to 151. Annual return: Just 4.1% a year. During that period, according to the Bureau of Labor Statistics, consumer prices rose by 3% a year. Net result: Home prices produced a real return of just 1.15% a year over inflation over that time.

Critics may point out that the analysis is unfair — after all, it starts counting near the peak of the 1980s housing boom. Fair enough. Look at the performance since, say, early 1994, when home prices were near a historic trough. Surely someone who bought then has made a bundle.

Not necessarily. Since then the ten-city index has risen from a value of 76 to 151. Annual return: 4.7%. Inflation over that period: 2.5%. That’s still only a real return of 2.2% a year above inflation.

You can often do better on long-term inflation protected government bonds.

And real estate often costs 2% or more a year in property taxes, condo fees, maintenance, insurance and the like.

Conventional wisdom long held that home ownership was a route to wealth, and the imputed rent — in other words, the right to live in your home — was just part of the value you got from it. Under that widespread view, the recent housing bust was simply a temporary, though deep, pothole.

Yet for very many people, even over the past 15 or 20 years, the imputed rent may have been all, or nearly all, the real value they actually got from their home.

So. What do you think? Is your personal home a good investment?

Is anyone in TIPS?

Where are all the financial geniuses? Let’s see some NPV and IRR calculations please!

And more importantly, let’s make sure those calculations are Real Bay Area specific!

Busted: Life Inside the Great Mortgage Meltdown

The fiasco that sank millions of Americans, including one journalist, who thought he knew better. A veteran New York Times economics reporter, Edmund L. Andrews was intimately aware of the dangers posed by easy mortgages from fast-buck lenders. But, eager to buy a home and start a new life, he gave in to temptation and began a surreal adventure into the mortgage mayhem that nearly wrecked our economy. Busted weaves together the author’s own ride to the edge of bankruptcy with the tragicomic stories of his lenders, the Wall Street pros behind them, and the policymakers in Washington who were oblivious until it was too late. The story takes Andrews to the offices of Alan Greenspan, the mansions of subprime-mortgage millionaires in southern California, a despondent deal makers’ convention in Las Vegas, and Wall Street. Rich with on-the-ground reporting, Busted is a darkly humorous exploration of the cynicism and self-destructive judgment that led to America’s biggest economic calamity in generations.

It’s Saturday and that means it is time for Burbed’s book of the week. This week I selected this book because I think it is a must read. The reviews that is. You must read the reviews. And buy the book.

The reviews slam this book for being incomplete.

The fact is that this book highlights the pitfalls of buying real estate… in places that are not the Real Bay Area.

It serves this elitest, New York Times (which is no match for our SF Chronicle, San Jose Mercury News, or Mountain View Voice btw) writer to end up being financially wrecked by not buying in a place where real estate values double every 10 years on average.

Tough luck dude. Better start reading start reading this blog instead!