February 3, 2013

Take My Money!

Readers suggested these weekend topics. “How about a blog topic called ‘Take My Money!’ wherein we tell stories about the crazy behavior we’ve seen at open houses?”

Another, “How about the widespread misrepresentation of housing demand? Demand is at 16 year lows while the excess empty inventory is still… well… empty. And there are millions upon millions of them.”

And finally, “Does anyone else (besides me) have documentary evidence that high-end home prices are falling in your area? Here is an example of a high-end La Jolla home that Zillow claims dropped in value by over $1,000,000 over the last month. Check out the price history at the bottom of this post. There is something mighty strange about the way La Jolla properties are priced!”

The State. “The housing market in South Carolina ended 2012 in surefire recovery mode. Buyers, drawn in by a year of historically low interest rates and an improving economy, snapped up homes in the Columbia area at the fastest pace since 2009, when sales were artificially inflated by an $8,000 federal home buyer’s tax credit. ‘Barring any weird stuff coming out of Washington, it looks like we’ve created (a good environment for a real estate recovery),’ said Nick Kremydas, executive director of the S.C. Realtors trade group.”

“With the steady growth in the housing market in 2012, Kremydas upgraded the recovery from ‘weak’ to ‘fragile.’”

The Norwich Bulletin. “Local foreclosures continued to rise last year amid a statewide surge in home sales that one agency called the biggest turnaround in New England. Statewide foreclosure filings were up 48.44 percent last year to 16,747. Filings in New London County and Windham County last year were 1,323 and 721, respectively, RealtyTrac said. Local foreclosure problems are not expected to subside for another year, Eastern Connecticut Association of Realtors CEO John Bolduc said. But that isn’t preventing the sales surge, he noted.”

“Real estate investors and property ‘flippers’ are active in Connecticut, which helped explain the increase in multi-family prices, said Lou Mira, broker/owner of RE/MAX Premier in West Hartford.”

Oregon Public Broadcasting. “New numbers show that Bend’s housing market just had its best year since the collapse of the housing bubble. It’s not just sales that have gone up. Prices, too, are increasing. Michael Warren, president of Central Oregon Association of Realtors, says right now inventory is tight, meaning buyers don’t have a lot to choose from. ‘It wasn’t that long ago where buyers would see a house and it would be on the market for six months, so they’re not too worried about it,’ says Warren. ‘And now, if it was in their price range you’re telling them, ‘Look, you need to make an offer,’ and by the time they do it they’re either in a multiple offer or they’re already pending.’”

From WQOW TV. “Wisconsin’s housing market is mounting a comeback with encouraging signs from 2012’s Annual Realtors Report. Take Eau Claire County for example, the median price of a home was up more than $2,000. Good news for sellers, but buyers might need to get a move on to move in on a good deal. ‘If they’re going to get in with these low interest rates, now is the time to do it before the prices suddenly go back up again,’ says Economics Lecturer at UW-Stout Richard Postlewaite.”

The Mercury News. “According to a recent survey, California sellers are certainly not as optimistic about future home prices as are the state’s home buyers. Findings from the California Association of Realtors’ 2012 California Home Seller Survey show only one in five sellers believe that home prices will rise in 10 years, while 12 percent say home prices will rise in five years, and only 9 percent believe prices will rise in a year.”

“The home seller survey is quite a contrast to the state group’s survey of home buyers that found nearly three-fourths of buyers think home prices will rise in 10 years. In that survey, findings showed 73 percent of buyers believe prices will rise in 10 years; 41 percent say prices will increase in five years; and 25 percent believe prices will rise in a year.”

“‘Momentum on the seller’s side is not as high as on the buyer’s side,’ says Carolyn Miller, president of the Silicon Valley Association of Realtors. ‘Sellers are not yet motivated enough to put their homes on the market.’”

“‘In contrast to record high housing affordability and record low financing rates experienced by home buyers in 2012, the real estate market looked quite different from sellers’ perspectives,’ says Don Faught, the state group president. ‘The last few years have been extremely difficult for many homeowners, which may indicate why more than twice as many sellers (74 percent) considered strategic default in 2012 than last year, reflecting homeowners’ hardships in a difficult economic environment.’”

“Consistent with recent U.S. Census data, sellers moved out of California in record numbers in 2012. Forty-four percent of sellers moved out of state, the highest in the survey’s history. Leading destination states include Florida, Texas and North Carolina. Only 30 percent of transactions closed escrow on time, down from 40 percent in 2011 and the lowest level since 2004, with buyer financing issues as the main reasons for the delay. Homes fell out of escrow an average of nearly three times (2.9) before closing, with 61 percent of sellers reporting their home fell out of escrow at least three times.”

The Miami Herald. “‘Among all US metropolitan areas, Florida had seven areas that were in the top 10 in the country,’ for foreclosures, said Amy Baker, chief economist for the Legislature.”

“The number of foreclosure filings rose by more than 53 percent in Florida last year, giving the Sunshine State the highest foreclosure rate in the nation. On average, it takes about 850 days for a foreclosure to run its course in Florida, according to a report released by Baker’s office A high rate of long-term unemployment, a tight credit market and off-peak home values are contributing to state’s mortgage delinquency problem, Baker said.”

“A ‘faster foreclosures’ bill filed earlier this month aims to speed up the state’s sluggish home-repossession process. Currently, there are more than 300,000 homes in foreclosure and at least 285,000 foreclosure filings are expected in fiscal year 2013-2014, according to the Office of Economic and Demographic Research.”

Go Local Worchester. “Over 17,000 foreclosure petitions, the first step in the foreclosure process in Massachusetts, were filed in 2012, an increase of more than 35 percent from the 12,634 filed in 2011, according to a new report from real estate publisher The Warren Group. Despite the sizable increase in foreclosure starts, however, the number of completed foreclosures decreased by nearly 13 percent last year to 7,424, compared to 8,531 in 2011. The Warren Group said that petition levels were decreased dramatically for much of 2011 as banks slowed down foreclosure processes.”

“‘As the amount of available inventory continues to shrink, watch for a gradual appreciation in median home prices in the second half of 2013 as the market begins to shift from a buyer’s market to a balanced market which favors both the buyer and the seller,’ said Dan Breault, Executive VP of RE/MAX of New England.”

The Vancouver Sun. “There is no real estate bubble in Vancouver and markets will remain stable in 2013 — as long as interest rates remain low, immigration targets are met and Europe’s economy doesn’t melt down, a panel of real estate developers told more than 1,100 real estate professionals, business leaders and B.C. politicians. Colin Bosa, CEO of Bosa Properties, said he believes people — and their money — from China will continue to flow into B.C. because they want to invest outside China and they want their children to grow up in North America.”

“Two things that could stop the flow of people from China in to British Columbia would be a recession or a change to Canadian immigration policy, Bosa said. ‘If you buy good real estate at fair prices, you can’t go wrong,’ Bosa said.”

“‘I think this is the year that the fear factor goes away,’ said Eric Carlson, CEO of Anthem Properties. ‘U.S. unemployment will go down to 6.5 per cent this year, while U.S. gross domestic product will be trending towards three per cent by the end of the year,’ Carlson said, adding that he thinks 2013 is a good time to buy real estate. ‘I don’t think there is a bubble at all.’”

The Standard. “China Vanke chairman Wang Shi said mainland home prices are high and he sees bubbles forming. ‘The bubble must be controlled, or both the real estate market and domestic economy will be jeopardized,’ the boss of the world’s largest developer by turnover warned.”

“He stressed that prices now are a ‘bit extraordinary and high,’ likely due to speculative activities. Vanke set a global record last year, selling new homes worth 141.2 billion yuan (HK$175.9 billion). Mainland new home prices rose for the seventh month in a row in December, according to Soufun. Wang blamed limited investment channels for increased speculative activities in the mainland property market. On whether continued urbanization would prove lucrative for the property sector, a cautious Wang said: ‘There won’t be another investment boom in real estate.’”




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113 Comments »

Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-02 08:43:52

Did I mention who owns that home?

 
Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-02 08:50:52

“The home seller survey is quite a contrast to the state group’s survey of home buyers that found nearly three-fourths of buyers think home prices will rise in 10 years. In that survey, findings showed 73 percent of buyers believe prices will rise in 10 years; 41 percent say prices will increase in five years; and 25 percent believe prices will rise in a year.”

What take-home lesson are we supposed to draw from the biased survey responses of a self-selected group of greater fools?

Comment by Pimp Watch
2013-02-02 08:54:03

I’m thinking they surveyed a few of our very own fools.

Comment by In Colorado
2013-02-02 12:11:36

The mindset is pervasive. As I’ve mentioned before, I’ve stopped talking about the bubble and future price declines at lunch with my colleagues, who simply refuse to listen to me and more than a few even roll their eyes when I speak of this.

And the reason is simple: Those who want to buy are finding themselves in bidding wars and those who have friends who are selling see that their friends are getting their asking price or more in just a few days. This observation is in the Broomfield/Westminster/Louisville section of Denver. They aren’t interested in getting a bargain in Aurora.

So who are they gonna believe? Me or their eyes? And they simply aren’t interested in explanations of why the current fake boom won’t last. They aren’t interested in why and how inventory is kept artificially low. It doesn’t strike them as odd that builders aren’t flooding the market with new houses. All they know and care about is what is happening right now, which is that houses are selling very quickly in the above mentioned area.

Comment by GrizzlyBear
2013-02-02 12:22:31

It is hard to get somebody to believe in price declines when prices have been soaring since the late 90’s/early 00’s with only a brief foray into affordability, which was largely limited to low end properties. There is a veritable sea of houses in this country in the $350k+ range which are grotesquely overpriced given incomes. However, a two decade long distortion in prices to the upside will wear even the most patient buyers out, and many will enter into debt servitude rather than resign themselves to renting for the foreseeable future.

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Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-02 12:36:31

“It is hard to get somebody to believe in price declines when prices have been soaring since the late 90’s/early 00’s with only a brief foray into affordability, which was largely limited to low end properties.”

That’s why I appreciate Zillow posting evidence that beach front property in La Jolla is dropping at a rate of $1,000,000 a month. I don’t claim to have a perfect crystal ball, but I see some serious potential for recent buyers in the California coastal luxury market to enjoy some near-term schooling in Benjamin Franklin’s dear school for fools.

 
Comment by In Colorado
2013-02-02 12:50:01

For the Larry Ellison types (Larry likes to collect mansions and Hawaiian islands) such a loss is next to nothing. He probably loses a few orders of magnitude more on the stock market when Oracle has a bad day. And I suspect that most of those beachfront La Jolla homes are mortgage free, unlike houses in the nearby La Jolla Village area.

 
Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-02 14:37:43

“And I suspect that most of those beachfront La Jolla homes are mortgage free, unlike houses in the nearby La Jolla Village area.”

Yes — in particular, the one I posted.

 
 
Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-02 12:32:49

“All they know and care about is what is happening right now, which is that houses are selling very quickly in the above mentioned area.”

The fact that the majority of Americans, both the ignorami as well as those who are supposedly financially savvy, have the inability to think beyond superficial kneejerk interpretation of current data releases, opens up great potential investing opportunities who don’t suffer from this shortcoming of insight.

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Comment by Neuromance
2013-02-03 16:35:18

But one always has to understand what the Central Planner’s* interests are as well, and what actions He will take.

* The Fed Chairman Bernank.

 
 
 
 
Comment by Ben Jones
2013-02-02 09:16:58

It was also a survey of FBs:

‘The last few years have been extremely difficult for many homeowners, which may indicate why more than twice as many sellers (74 percent) considered strategic default in 2012 than last year’

‘Consistent with recent U.S. Census data, sellers moved out of California in record numbers in 2012. Forty-four percent of sellers moved out of state, the highest in the survey’s history’

‘Only 30 percent of transactions closed escrow on time, down from 40 percent in 2011 and the lowest level since 2004, with buyer financing issues as the main reasons for the delay. Homes fell out of escrow an average of nearly three times (2.9) before closing, with 61 percent of sellers reporting their home fell out of escrow at least three times’

Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-02 10:10:51

One has to admire the MSM’s persistent and prodigious efforts to paint lipstick on this pig. It is pretty easy to see how the average Joe Sixpack can get fooled into taking one of FedGov’s easy money ‘affordable housing’ loans, only to find himself on the hook for a debt burden which neither he nor his children will ever be able to repay.

Comment by AmazingRuss
2013-02-02 12:30:02

As long as it keeps him desperate to stay employed, and believing he has the American Dream, the government likes it just fine.

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Comment by rms
2013-02-02 19:23:19

“As long as it keeps him desperate to stay employed, and believing he has the American Dream, the government likes it just fine.”

+1 Orwellian isn’t it?

 
 
 
 
Comment by Overtaxed
2013-02-02 10:34:54

“survey of home buyers that found nearly three-fourths of buyers think home prices will rise in 10 years.”

They are almost certainly correct, in nominal terms, across most of the country, prices will be up 10 years from now. I think that’s a prediction that you can pretty much take without much qualification.

However, the bigger question, will that rise in prices keep pace with inflation/stock market? I’d hazard a guess that “No” it will not, in real terms, houses will be cheaper 10 years from now than they are today. However, in absolute terms, I expect a house selling for 100K today would be selling for more than 100K in 10 years.

A decade is a long time. In a “normal” market, you’d expect prices to rise quite a bit over the course of a decade, even with 3% YOY growth (mirroring inflation).

The thing that nobody seems to discuss in the MSM is that, yes, compared to 2006, house prices are down in absolute terms by 25-50%. But what about when you take into account the erosion of the buying power of the dollar? That’s got to be another 10-20%. It’s been close to 6 years, even at a very modest 2% a year without any compounding, an investment that stays flat for that long has actually lost 12% of value. It’s kind of a hidden little gift for those who bought in those couple of years.

Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-02 10:57:53

“They are almost certainly correct, in nominal terms, across most of the country, prices will be up 10 years from now. I think that’s a prediction that you can pretty much take without much qualification.”

Are you suggesting it is obviously different here and now in the U.S. than it was in Japan, circa 1990?

Kindly elaborate.

Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-02 11:02:59

P.S. There is a real estate appraiser in our inner circle whom I see at social occasions every few months. His dad was also an appraiser. He is one of the few people making their living in SoCal real estate whose opinion I trust as an unvarnished assessment. I always try to get him to opine where he thinks SoCal housing prices are headed over the next few years.

The last time we had one of these conversations, last fall, his opinion was that there is another leg down ahead before we are done with the housing bubble. Not sure how this relates to your ‘higher prices in ten years with certainty’ assumption, as we were discussing the next five-or-so years.

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Comment by Overtaxed
2013-02-02 11:51:49

First off, look at an inflation calculator. Using the last 10 years as a guide, if RE prices remain totally flat, that’s a 26% drop in real prices from today. That would put the inflation adjusted drop from the peak in 2006 at around 37% (26% for the next 10 years and another 11-12% drop from the peak to today). So, to speak more clearly, if prices were just flat from 2006 to 2023, that would be a 35-40% fall in real prices.

But prices haven’t been flat, they’ve fallen off a cliff, in my area (S. FL) about 40% from the 2006 peak. So, now, we need to do a little math..

2006 price - 100K
2013 price - 60K (40% nominal drop, ~50% inflation adjusted from 2006)
2023 price - 60K (40% nominal drop from the peak, ~65% inflation adjusted from 2006)

Just holding the prices flat, in my area, over the next 10 years results in a 65% drop from the peak prices.

A decade is a very long time folks, especially when we’re already more than 1/2 way through a decade since the collapse.

There are areas that will continue to fall, of course. And, I think we’d all agree, there are areas that have already seen significant appreciation since the collapse. But, in aggregate (US median home price), I’d be surprised if it’s lower in 10 years than it is today.

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Comment by Ol'Bubba
2013-02-02 18:25:57

Just to clarify your post, are you assuming approximately a 2.5% inflation rate on a go forward basis? If not, what forward inflation rate are you using?

 
 
Comment by Acadiana
2013-02-03 11:24:48

Yeah, it’s very different here than in Japan circa 1990, although there are similarities.

Yes, we had a bubble - that’s the main similarity. But the *magnitude* of our bubble was considerably less than that of Japan. Specifically, the ratio of (stock market + total property market)-to-GDP in Japan in 1990 was 745%. At the peak of the bubble in the US (in 2007) it was 278%. So, our bubble at its peak, while enormous, wasn’t anything close to Japan’s bubble. Recall that at the peak of Japan’s bubble the land around the Imperial Palace in Tokyo was valued at more than all of the real estate in the state of California. My point is that comparing Japan’s bubble circa 1990 and the US bubble circa 2007 isn’t a particularly good one as the former’s was almost 3x the magnitude of the latter’s. Consequently, any conclusions drawn from such a simplistic comparison will almost assuredly be widely off the mark.

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Comment by Carl Morris
2013-02-03 13:11:01

That’s is a big difference, but I’d expect the relative importance to be logarithmic. So not quite as big a difference as the numbers would suggest to our linear brains.

 
Comment by Ben Jones
2013-02-03 14:23:52

‘comparing Japan’s bubble circa 1990 and the US bubble circa 2007 isn’t a particularly good one’

There haven’t been very many real estate or stock bubbles in history. And there are even fewer instances where there was a stock and real estate bubble around the same time. There are no two identical manias. IMO, the reason to compare Japanese/US bubbles is the similar policy responses of the governments and central banks. The outcomes may be similar, but who can say?

Another thing missing in Japan’s experience is the fact that we now have bubbles all over the world in various stages of growth or decline. It could be said that the Japanese bubble was tiny compared to what we have today. And the ultimate consequences of that bubble compared to what may happen in the future are also likely miniscule.

 
Comment by Carl Morris
2013-02-03 16:24:25

Another thing missing in Japan’s experience is the fact that we now have bubbles all over the world in various stages of growth or decline.

Sounds like the pot is coming to a boil.

 
 
 
Comment by Pimp Watch
2013-02-02 11:09:52

“They are almost certainly correct, in nominal terms, across most of the country, prices will be up 10 years from now. I think that’s a prediction that you can pretty much take without much qualification.”

Hey AssHat….. do you really think you’re going to slide that shitball under the door and get away with it?

I have a bulletin for you….. housing prices are still at 2004 levels. And prices were already up by 250% by then.

 
Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-02 11:10:29

“I think that’s a prediction that you can pretty much take without much qualification.”

Here are a few questions to frame my skepticism:

1. What will happen when the Fed takes away its housing market punchbowl spiking in the form of $40 bn in MBS purchases? Or do you assume that is now a permanent feature of the U.S. housing landscape?

2. What will happen when the all-cash Canadian and Chinese foreign investors try to lock in gains on their speculative purchases?

3. What if it eventually becomes patently obvious that the bottom has fallen out of end-user U.S. household demand for single-family homes, thanks to a generationally bad crash in fertility rates, coupled with a cohort of debt-strapped, jobless twenty-somethings who don’t have the financial means to form households?

4. What if the sequester drops Washington DC household paychecks by 20% from April-September 2013?

Answer these questions or we will know your statement has no basis in economic reality.

Comment by rms
2013-02-02 19:38:17

“…form of $40 bn in MBS purchases?”

…form of $40 bn per month…

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Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-02 11:12:19

“A decade is a long time.”

Your optimism that extend-and-pretend policies to prop up the U.S. housing market will continue for another decade is quite heroic.

Comment by In Colorado
2013-02-02 12:13:47

A decade is a long time, plenty of time for things to get much, much worse.

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Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-02 12:21:32

Also plenty of time for U.S. housing prices to drop another 30%, giving the all-cash foreign investors the financial bath of their lifetimes…

 
Comment by In Colorado
2013-02-02 12:52:09

To paraphrase Battlestar Galactica, it has happened before (Japanese buyers) and it will happen again (Chinese buyers)

 
 
Comment by AmazingRuss
2013-02-02 12:31:50

I suspect they’ll continue to well past the point where they stop having any effect.

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Comment by rms
2013-02-02 19:35:34

“A decade is a long time.”

+1 This is my 15th frozen winter in fly-over country awaiting the return of sober housing/income ratios in California.

 
 
 
Comment by Ol'Bubba
2013-02-02 09:59:35

“With the steady growth in the housing market in 2012, Kremydas upgraded the recovery from ‘weak’ to ‘fragile.’”

huh?

Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-02 10:12:27

I’ve downgraded my rating of MSM-annointed housing experts from ‘moronic’ to ‘feeble-minded.

 
 
Comment by scdave
2013-02-02 10:00:50

which may indicate why more than twice as many sellers (74 percent) considered strategic default in 2012 than last year ??

Just spent a few days in Vegas…On the I-15 right near downtown…Huge bill-Board sign says;

“Strategic Default Done Right”
1-800-Phone Number

 
Comment by Bill in Los Angeles
2013-02-02 10:19:22

Interesting that 44% of the sellers are moving out of California to lower tax states. I wonder how many of these are retiring and taking their 401ks and IRAs with them? And non-tax deferred stock investments too. Automatically when they become residents in those other states and change their addresses / contact info on their accounts, California’s FTB thugs get cut off from the income taxes on those accounts.

Once in the new places, they can live cheap. They would only have federal taxes. This is why Roth IRAs and stock funds outside retirement, invested over a thirty year period, are a better deal than traditional IRAs and 401ks. As long as federal capital gain taxes are lower than ordinary I come taxes.

Californians are voting with their feet in record numbers, particularly due to proposition 30.

Comment by Overtaxed
2013-02-02 10:40:56

My parents, for one, have done exactly that. Bought a house for <100K in FL, and, of course, became residents to avoid NJ income tax. When you’re talking a max tax rate of around 10% (CA), the house can drop to 0 and you’ll still come out ahead over the term of a normal retirement (assuming, of course, that you actually draw enough from 401Ks to hit the max, pretty unlikely unless you’re still working, as my parents are).

It’s kind of no-brainer for mid/upper income folks to figure out some way to change their residence to a 0% income tax state after they retire (or at the sunset of their career, if possible).

Even for those of us who are much younger and in our prime earning years, the numbers are pretty shocking. I save enough each year, by living in FL (instead of NJ, where I grew up) to pay about 4 months of my total mortgage payment. Or, looking at it another way, my way-too-expensive car is “free”, the payment on it over 12 months is about what I would pay for the privilege of living in NJ.

Don’t underestimate the power of taxation to drive behavior!

Comment by scdave
2013-02-02 10:52:00

When you’re talking a max tax rate of around 10% (CA) ??

I believe its now 13.5%….Add in the Fed’s and you get a 53% hit…Now add in all your sales tax & fee’s…

Comment by Ben Jones
2013-02-02 11:24:59

‘a 53% hit…Now add in all your sales tax & fee’s’

Yeah, I don’t see how anyone can think we are ‘under taxed’. I’m really disappointed that people are falling for this idea that the governments financial problems are because ‘the rich’ aren’t paying enough taxes. I’m certainly not rich. But I used to prepare taxes for upper income people and they pay, a lot! And then what do they do with this money?

Here in AZ we pay 10% sales tax, a state income tax and property tax, even on a personal car. Right now there are potholes on almost every road/highway that could take off an axle. They close high schools that are almost new because they flubbed growth estimates.

There are a lot of people I know who pay 40% of their take home for rent. They can’t deduct that. Think of how little is left. And what do we have? Lots of empty land.

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Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-02 11:36:06

I still remain openly doubtful about the notion the Fed’s $40 bn / month in MBS purchases has no redistribution consequences. Somebody pays for that, and somebody else benefits from it.

I would like to see where it says in the Fed’s charter that they are authorized to engineer massive wealth redistribution programs. I thought that was the Congress’s job.

 
Comment by scdave
2013-02-02 11:57:04

who pay 40% of their take home for rent. They can’t deduct that. Think of how little is left ??

Exactly….The hollowing out of the middle class…Its starting to be not “how do I get ahead” but more like how can I prevent from falling farther behind…I saddened by it honestly…The wars…The waste…The corruption…

Pbear posted a book in the bits about declining birth rates…Who can blame them…When they look around and see how our government is ran from DC to the local municipalities they have a right to be cynical…Bring a child into this world ??

Somebody pays for that, and somebody else benefits from it ??

The masses will pay for it….The majority of the benefits will flow to the few as a percentage but the size of the flow is “massive”…

 
Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-02 12:06:05

‘…not “how do I get ahead” but more like how can I prevent from falling farther behind…’

An illustrious HBB poster from days of yore who called himself Hoz had great words of wisdom to offer on this point. To paraphrase, he suggested that instead of an objective of making as much money as possible, the key goal during a bear market is loss avoidance.

Try not to catch yourself any falling knives.

 
Comment by Overtaxed
2013-02-02 12:11:00

“Pbear posted a book in the bits about declining birth rates…Who can blame them…When they look around and see how our government is ran from DC to the local municipalities they have a right to be cynical…Bring a child into this world ?? ”

Children are becoming, more and more, the prerogative of the rich and the poor. The rich can afford it and the poor are subsidized.

Our household would be close to 300K just getting the child to kindergarten as my wife has stated she would never have a child if she couldn’t stay home until kindergarten. And that’s not counting the loss of potential earnings she would suffer leaving the workforce for that long.

Add in the other costs, getting a child from 0 to 25 (through college) comes in between 600-1M for us. And that’s assuming a state college. Private college, 18 years from now, you’re likely looking at 350-400K just in college costs. The numbers are so big it boggles the mind.

 
Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-02 12:16:38

“The numbers are so big it boggles the mind.”

Welcome to our world!

 
Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-02 12:19:42

Silver lining to having kids: There are tax breaks (but not enough to cover the costs!)

 
Comment by Overtaxed
2013-02-02 13:27:38

Cantankerous,

Do you lose those breaks if you hit the AMT though? I’m not saying you do, I really don’t know, but the AMT seems pretty much just like a flat tax, it pulls back most of my deductions and gives me a standard rate that pretty much applies evenly. Honestly, the AMT system seems a lot more “fair” and reasonable than the current system. Of course, I’d argue the rate should be lower, but pulling out all the “preferred stuff” deductions (housing, etc) seems more fair and equitable than the standard system.

 
Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-02 14:42:32

“Do you lose those breaks if you hit the AMT though?”

My guess is that the AMT applies to income (AGI) after dependent child deductions, but I’m not an accountant, and honestly don’t know for sure.

I’d also guess any tax credits due to, say, paying your child’s tuition bill get subtracted off dollar-for-dollar from your total tax due, whether or not you were subject to the AMT.

 
Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-03 06:50:55

Tax Policy
At Long Last, a Permanent Patch for a Dreaded Tax
By Dan Kadlec
Jan. 03, 2013

A tax meant only for the wealthy but that paralyzed much of the middle class for decades has been permanently defanged. Score one, at least, for the 11th-hour fiscal-cliff deal.

The dreaded Alternative Minimum Tax hasn’t gone away. But this law, which has been modified 19 times since 1969, will need no more patches. Like Social Security benefits, the AMT is now indexed to inflation. That means the income threshold for being subject to the AMT will rise automatically each year. If you don’t pay it this year, you won’t pay it next year or any year thereafter — at least not without an income boost that outstrips inflation.

Among those who will benefit the most are the self-employed, who must pay estimated taxes four times a year and are subject to penalties for underpayment. It’s also great news for households on the AMT bubble: the permanent patch makes it simpler to shift income and deductions in a way that may let them avoid the AMT every other year.

The AMT has always been targeted at the wealthy who through deductions ended up paying little or no tax. It is a parallel tax calculation that disallows certain exemptions and then assesses a lower marginal income tax rate. Taxpayers in the gray zone must figure their bill the traditional way and the AMT way and pay the higher amount.

To keep the tax trained on the wealthy, taxpayers are allowed an AMT exemption, which decades ago was set at $45,000 — high enough to miss the middle class. But this level was not indexed to inflation, so as median incomes grew in the ensuing years, the threshold hit more and more ordinary households and was threatening to hit more each year. Only through congressional action — virtually every year in recent years — has the exemption been lifted to spare the middle class.

For 2012, the patch lifted the exemption to $78,750 for households and $50,600 for individuals. For the first time, the patch was also indexed to inflation, meaning taxpayers will never again face the uncertainty of a Congress that may or may not take action and possibly subject them to this higher tax.

“Far from perfect, this legislation does include a permanent fix to the ever-growing AMT, giving millions of hard-working, middle-class families certainty that the nightmare of this tax has finally come to an end,” Republican Senator Orrin Hatch of Utah told ABC News.

According to one GOP estimate, 28 million families would have had to pay an average of $3,400 in extra taxes this year without the AMT fix. About 4 million taxpayers owed the AMT in 2011, up from about 1.3 million in 2001, according to the Tax Policy Center.

 
Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-03 06:55:55

Tax Policy
At Long Last, a Permanent Patch for a Dreaded Tax
By Dan Kadlec
Jan. 03, 2013

A tax meant only for the wealthy but that paralyzed much of the middle class for decades has been permanently defanged. Score one, at least, for the 11th-hour fiscal-cliff deal.

The dreaded Alternative Minimum Tax hasn’t gone away. But this law, which has been modified 19 times since 1969, will need no more patches. Like Social Security benefits, the AMT is now indexed to inflation. That means the income threshold for being subject to the AMT will rise automatically each year. If you don’t pay it this year, you won’t pay it next year or any year thereafter — at least not without an income boost that outstrips inflation.

Among those who will benefit the most are the self-employed, who must pay estimated taxes four times a year and are subject to penalties for underpayment. It’s also great news for households on the AMT bubble: the permanent patch makes it simpler to shift income and deductions in a way that may let them avoid the AMT every other year.

The AMT has always been targeted at the wealthy who through deductions ended up paying little or no tax. It is a parallel tax calculation that disallows certain exemptions and then assesses a lower marginal income tax rate. Taxpayers in the gray zone must figure their bill the traditional way and the AMT way and pay the higher amount.

To keep the tax trained on the wealthy, taxpayers are allowed an AMT exemption, which decades ago was set at $45,000 — high enough to miss the middle class. But this level was not indexed to inflation, so as median incomes grew in the ensuing years, the threshold hit more and more ordinary households and was threatening to hit more each year. Only through congressional action — virtually every year in recent years — has the exemption been lifted to spare the middle class.

For 2012, the patch lifted the exemption to $78,750 for households and $50,600 for individuals. For the first time, the patch was also indexed to inflation, meaning taxpayers will never again face the uncertainty of a Congress that may or may not take action and possibly subject them to this higher tax.

According to one GOP estimate, 28 million families would have had to pay an average of $3,400 in extra taxes this year without the AMT fix. About 4 million taxpayers owed the AMT in 2011, up from about 1.3 million in 2001, according to the Tax Policy Center.

 
Comment by oxide
2013-02-03 07:14:32

Overtaxed, if the only thing the word “child” conjures up to you is how many adult toys that you won’t be able to buy and show off because the stupid child won’t let the mom work for her sheckels, then I’m GLAD you don’t have children. And hope you never do.

 
Comment by Carl Morris
2013-02-03 13:12:42

If you don’t pay it this year, you won’t pay it next year or any year thereafter — at least not without an income boost that outstrips inflation.

Assuming official inflation equals real inflation.

 
Comment by Overtaxed
2013-02-03 14:14:23

“Overtaxed, if the only thing the word “child” conjures up to you is how many adult toys that you won’t be able to buy and show off because the stupid child won’t let the mom work for her sheckels, then I’m GLAD you don’t have children. And hope you never do”

Don’t worry, I doubt it’s anytime in our future absent some really incredible raises in one of our salaries.

It has much less to do with the “toys” and much more to do with the idea of retiring early. But, if I’m honest, even with an infinite income, I’d be more willing to consider it, but I’m not sure I’d be excited to do it. With a high enough income, you can just take the good parts and “outsource” the bad, but, IMHO, it’s really not fair to the child.

BTW, I would say that this line of thinking is probably 50/50 across those (almost all men) that I work with. All have 6 figure incomes, and very few are eager to have children, mostly because of the assumed/expected cost.

Couple that with a family history of addiction and the fact that I really don’t like small children, I think the world is probably better off we remain DINKs. :)

 
Comment by Happy2bHeard
2013-02-03 18:20:44

“I really don’t like small children”

This is the key reason not to have children.

 
Comment by Bill in Los Angeles
2013-02-03 18:24:32

Overtaxed, you probably don’t work with many first and second generation Asian-Americans. I do. They have a thing about reproducing. It’s as if they are living the 1950s era. I third (and more) generation Americans have no interest, want to retire early, are not wanting to have any kid brought up in the nanny state America, etc.

My best buddy just retired in his mid-50s and still looks young. He and his wife chose not to have kids. They’ve been married more than 25 years.

 
Comment by Overtaxed
2013-02-04 04:27:48

“Overtaxed, you probably don’t work with many first and second generation Asian-Americans. ”

I actually do work with quite a few immigrants (from all areas, Asia as well as the former Soviet Union, some 2nd generation Cubans, and quite a few from India). And yes, I totally agree, in general, they are have far more children than the 3rd+ generation Americans are having. Most of the many generation Americans I work with have 1 child or none. Most of the recent immigrants have 2 or more. Yes, it’s terribly unscientific, but, my experience does mirror yours; the longer you’re family has been here, the less likely you are to have a big (or any) family.

I have a lot of reasons, some as I’ve stated above. But you bring up another good one. If I had a child today, IMHO, his/her life is likely to be significantly worse than mine. I’ve been very lucky, I have a deep interest in the “right” fields for today’s economy, and, probably more important, was born at just about the perfect time to capitalize on a shift in the economy. Born a few years later, I wouldn’t have been on the executive fast track. A few years earlier, and I probably wouldn’t have been able to explore my interests and start from such a young age.

It’s extremely unlikely that my child would be so lucky. It’s also a fact of life that a child today is going to be working much longer and for less money than those of us who are working today.

Call me negative, but, IMHO, the world becomes a less good place to live every year that passes by. Mom and Dad work more and more hours to try to keep up, the children are neglected and suffer. The 50’s era certainly had their share of problems, but the single earner being able to provide for his/her family was, IMHO, a better model than this “outsource childcare” and Mom and Dad both go for 12 hours a day to high stress/high power jobs. I travel 100+ days a year. My wife travels around 50. We both work very very long hours (I’ve been up since 5 answering e-mails, probably won’t get off the phone until 6 or so tonight, then another round of e-mail, more travel coordination, some performance reviews, then off from FL to CA on Wed morning until Friday; my wife and I will be lucky if we have more than 3-4 hours awake with each other before the weekend through the rest of the week). There was something to be said for having a 3 martini lunch, coming home at 5 and having dinner ready for you on the table. And, because so many people are doing what my wife and I are, incomes are adjusted downwards for everyone; very few people make enough to have their wives stay home full time today where, up until the 60s, it was the norm for the wife to stay home, even for blue collar workers.

 
 
Comment by Overtaxed
2013-02-02 12:03:10

“I believe its now 13.5%….Add in the Fed’s and you get a 53% hit…Now add in all your sales tax & fee’s…”

I’ve been crucified here for saying it, but, at the max income rates for someone living in a high cost, high tax area (which most people who make that kind of income do), the total hit from taxes is shocking.

I’m not in the 400K+ crowd (that gets you to the 40% bracket), and, adding it all up, I’m paying more than 1/2 my income in taxes. Yes, 1/2. And no, most of the “tax on tax” isn’t deductible for me because of AMT.

Put another way… If I add up all my big monthly bills (house and vehicles) it’s still less than I pay in tax. Tax is, by far, the biggest expense in my household (nothing else even comes to 1/2 the amount we pay in taxes).

And, I live in FL! A historically “low tax” state. Those who demand higher tax rates on high income earners need to see tax returns like mine; do you really think that “more” is what I should be paying?

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Comment by In Colorado
2013-02-02 12:40:25

do you really think that “more” is what I should be paying?

No, we think people like Mittens should pay more than 14% of their income in taxes. But they are untouchable, and they will pass the tax bill to cloutless high income earners like you.

Also, just for kicks I used my 2011 tax software (haven’t started 2012 yet) to create a fictitious tax return with no deductions other than the standard deduction for a single person (I used a 1099 to define income so the amounts below include owed FICA.)

200K income -> 50K tax bill
300K income -> 83K tax bill
400K income -> 117 k tax bill

Even with 400K income the federal income tax bill was only 29%. You live in Florida (no state income tax), so would you care to explain the discrepancy in your alleged tax burden (29% vs 50%). I’m sure that you have MID, property taxes and other deductions and contribute to a 401K as well. Why are you paying 50% of your income in income taxes? Even with 1,000,000 in income the tax bill was only 33%.

 
Comment by In Colorado
2013-02-02 12:44:48

I think you complainers are playing fast and loose, using marginal rates as if they were a flat tax.

 
Comment by Overtaxed
2013-02-02 13:44:32

That’s just income tax, your not counting all the rest of it:

Sales tax - 7%
SS tax - 7.5%

With just those 2, you’re now from 29% to about 45% or so (actually, a bit less because, in that bracket you limit out on SS tax, but, you’ve got to do it twice, so a lot of your income will be captured with the 7.5% taken out).

Add some RE tax, government fees (special assessments, vehicle taxes, travel taxes, etc) and, very quickly, you’ll find you’re right around 50% of income spent in taxes with a 400K income. And those are just the taxes you see; there are lots that you don’t. Tolls, gasoline, liquor, import, etc. Those are invisible taxes, but, yes, the impact the cost of things that you buy and, as the consumer, you are in fact being taxed.

Could it be 45%? Sure, it could be, depending on what you buy. Could it be 60%? Yes, it probably could; if you live in CA and hit the upper limit tax, you certainly could be looking at 60% tax rates; for sure on a marginal basis (every dollar you earn over 1M you keep 40 cents, something like that).

Point is, it’s a huge number. Those who want it to get bigger, IMHO, don’t understand how big the number already is today. Take Mr. 400K from above, he’s paying ~10K/mo in federal income tax. If he was reasonable and purchased a house at ~3X income; he’s paying close to double the cost of his home (principal + interest) in tax each month. Buying his house and 2 more just like it.

 
Comment by Prime_Is_Contained
2013-02-02 14:30:39

With just those 2, you’re now from 29% to about 45% or so (actually, a bit less because, in that bracket you limit out on SS tax, but, you’ve got to do it twice, so a lot of your income will be captured with the 7.5% taken out).

That’s total BS math, Overtaxed.

You only pay Sales Tax on a _small_ fraction of your income. Really—feel free to refute that by showing me your figures, if you disagree.

Easy example: do you pay Sales Tax on your largest monthly expense, your mortgage payment? Of course not.

You also only pay SS on a small fraction, if you are in the income bracket that you suggest.

 
Comment by Overtaxed
2013-02-02 18:43:53

“Easy example: do you pay Sales Tax on your largest monthly expense, your mortgage payment? Of course not.”

My largest monthly expense is taxes, so, no, I don’t pay tax on the tax. And, no, I don’t pay it on my mortgage either, but, honestly, the “house” part of my mortgage isn’t that big a monthly expense compared to the other spending we have on a monthly basis. My cars are as much as my principal + interest, and yes, I do pay taxes on that. The rest of my mortgage payment is tax (my hazard/flood is separate).

“You also only pay SS on a small fraction, if you are in the income bracket that you suggest.”

If you make 400K with 2 earners, you’re pay a little more than 1/2 of it with SS tax included.

Here’s a good breakdown showing where all the taxes come out for a normal family:

http://www.nowandfutures.com/taxes.html

The more important question, in my mind, is 50% reasonable? 60? 70? What’s the number where people just throw up their hands and give up?

 
Comment by In Colorado
2013-02-02 20:57:38

BTW, the numbers I posted above include social security tax, and at the self employed level too, which you are not.

Your numbers simply don’t add up, Mr. Overtaxed. “Hidden Taxes” do not eat up 25+% of your ample income.

 
Comment by In Colorado
2013-02-02 21:05:25

And Prime is correct, you only pay sales tax on a small fraction of your income, you don’t pay 7% sales tax on your entire income.

So what exactly is consuming tens of thousands of dollars in taxes? Cell phone taxes? Gasoline taxes?

The high wage earner doth protest too much, methinks.

 
Comment by In Colorado
2013-02-02 23:09:45

“Here’s a good breakdown showing where all the taxes come out for a normal family:”

The numbers at that link are BS. The average household pays 17% federal income tax? Where did they pull that number out of? We have a HH income in the low 100’s and we didn’t pay that much, not even close. Same BS with state income tax. The average Californian doesn’t pay that much.

And then there’s the BS with sales tax. Only a fraction of income is subject to sales tax. And 9.7% on average? Baloney. It isn’t even that high in California.

Federal income tax share. Now they’re grasping at straws. Why not include foreign income taxes paid by our suppliers of imported goods. Again, a load of BS.

Other? Too numerous to mention? Probably because they only affect a small minority of the population. When was the last time you paid estate tax? That’s at best a once in a lifetime event. Inflation losses. Since when is that a tax?

 
Comment by In Colorado
2013-02-02 23:25:17

People claiming that they pay half their income in taxes reminds me of people who claim that their take home pay shrunk after they got a raise.

If the average Joe paid half of his income in taxes (as claimed in the link above) there wouldn’t be a deficit.

According to this link:

http://www.usgovernmentspending.com/

Total government spending at all levels is 6 trillion. GDP is about 16T (per wikipedia). And that 6 trillion isn’t covered 100% by taxes, so knock 1T off for the deficit and we have about $5T collected in all sorts of taxes nationwide. That’s 31%, not 50% of our aggregate national income.

And to be clear, I’m not advocating raising taxes to solve our budget problems. But cutting spending alone won’t be enough.

 
Comment by mathguy
2013-02-03 03:19:09

BS to this. I do see his 50% rates. On 100k income you pay about 22k in federal income tax with blended rates. you pay another 6.5k in social security… Your employer pays another 7.5K. This IS equivalent to you paying it, as it is *your compensation package* that the employer is calculating costs on. So we are now at 36k on 107.5 in *real gross income*. Now add 10% on money about 48k for california income tax.. That’s 5.2k. Plus the lower amount on money under 48k… I think about another 2000
So 36 + 5.2 + 2 = 43.2k . Now add a couple thousand more for SDI and unemployment. I think about 2k.. You are now at 45k in taxes. Note: I AM approximating 22k Federal taxes including the 5.5k deduction.

Now lets say you bought a car for 30k and amortize the sales tax on it over a 5 year period. so 10% on 30k = 3k/5 = $600/yr. Average car goes 12k miles per year @25mpg = 480 gallons of gas @3.50/ gal avg = 1680 in gas. 18c/gal fed + 36c gal state + 10% sales tax = 86 + 172 + 168 = 422 in state and local tax. So there is 1k in car tax per year.

I have a car and a motorcycle. Registration is 90 on the bike and 180 on the car.. another 270 dollars.

I think I got mos of the big ones, but clearly there are more.

Right now I’m calculating $46,250/ yr in taxes on a 100k income. Since Obamacare is technically a tax, you could theoretically throw another $600/ year on there too. The remaining portion you are left with to pay for your needs. By FAR taxes are the largest expense in a 100k household in California…

I honestly think there should be a constitutional amendment that no person may be forced to pay more than a combined 25% tax (and /or fee) rate between all state, federal, and local taxes on earned income.

 
Comment by Overtaxed
2013-02-03 05:47:55

Mathguy,

And, you didn’t include another biggie; property tax is a big number in FL (and I assume CA as well). If you own a reasonable home for a 100K earner (call it 250K value), you’re looking at another 3-4K in property tax.

For those who doubt the number, let’s say it’s 45% of my income in tax instead of 50-55%. Does that make it any better? Does that seem like a reasonable tax burden? My house, PITI, is somewhere between 15-20% of gross. So, somewhere between 2-3X my mortgage payment to my aggregate tax bill. Sure, you could say that I’m “under-housed” and should buy something more expensive to more accurately match income. But, we bought this house with the thought that one of us could lose our job and we’d be able to carry it solo for period of time.

Those who cry for “higher taxes on the rich” always talk about Bill Gates and Warren, but, when the rubber meets the road and the tax codes are revised, it’s people in the 100-500K bracket that really feel the bite, not those in the 10M+ bracket that were initially the “target” of the taxation.

Here’s a wake up call for those who honestly want to “tax the rich” more; it’s a fools game, even if you could figure out a way to target these folks very precisely and put a huge tax burden on them, you’d very quickly find that revenue dry up and approach 0. They’d leave the country. They’d move all their investments offshore. And, even if they didn’t, there’s not that much money there (because there are so few households in that income range).

“Tax the rich” is code for “tax everyone who makes more than I do”, not for “tax Bill Gates”. We, I assure you, are not rich. We live a nice lifestyle, primarily because we don’t have children. People we know in our tax bracket who have children are driving beaters and sweating over the next mortgage payment. We are taxed at a huge rate already, call it 40-60% depending on individual circumstances. Most people in our income bracket are paying 2 or 3 mortgages for a very nice house; 1 for the house we live in, and the other 1 or 2 in taxes!

The solution to this countries spending problem is not more income, it’s less spending.

 
Comment by Pimp Watch
2013-02-03 06:38:52

“I honestly think there should be a constitutional amendment that no person may be forced to pay more than a combined 25% tax (and /or fee) rate between all state, federal, and local taxes on earned income.”

I like it. I like it alot. And if one of the duopoly were serious about their rhetoric, they’d be elected into perpetuity if they pulled this off. And I’d vote for them.

It’s one thing to pay 50% of a few million dollars. Most of us pay 50% of $100,000 at best. And $50k isn’t nearly enough to live on.

 
Comment by GrizzlyBear
2013-02-03 10:04:58

“It’s one thing to pay 50% of a few million dollars. Most of us pay 50% of $100,000 at best. And $50k isn’t nearly enough to live on.”

This is where I disagree. I can live very well on much less than $50k.

 
Comment by Bill in Los Angeles
2013-02-03 11:54:39

Car rental tax, airport tax, utilities tax, hotel tax, hunting license, and more. Add those to the list.

 
Comment by rms
2013-02-03 12:06:05

I can live very well on much less than $50k.

But you couldn’t provide sole support for a gorgeous wife and her two children on $50k in metro America.

 
Comment by josemanolo
2013-02-03 14:17:25

hmm, these are what most people refers to as fuzzy math.

 
Comment by MightyMike
2013-02-03 14:23:13

“Tax the rich” is code for “tax everyone who makes more than I do”, not for “tax Bill Gates”. We, I assure you, are not rich.

It sounds as if you’re just like the people you criticize. Ask a guy making $40k per year whether $300k makes someone rich and they’d say, “Of course”. Ask you and your wife, with your $300k income, and your answer is no. It probably works that way up to folks who make tens of millions. Maybe you would say that a million a year is rich and a guy at that level of income say it’s 10 million. It gets to be nonsense at some point. Are there a few thousand rich people in the whole country?

 
Comment by Ben Jones
2013-02-03 14:40:03

‘It gets to be nonsense at some point’

This is what I object to. A politician says, ‘look at the gap in wealth between rich and poor. Let’s tax the rich.’ That doesn’t do a damn thing to close the gap, because, and this is important - the government isn’t giving anything to the poorer people! Well maybe a cell phone here or there, but not as much as they take.

All this crap about class warfare is just turning us against each other. And while we think there is some big political struggle, these elitists actually play golf with each other, make all the important decisions behind closed doors, and generally screw everybody.

Look at this past election. I watched every presidential debate. I never heard World Trade Organization/NAFTA mentioned. Not once. Yet that’s the reason incomes are going nowhere. These two parties completely agree on globalism.

Here’s another thing; they don’t even need our tax money, and probably never have. Remember the ‘deficits don’t matter’ talk. Now we have the Federal Reserve buying most of the govt debt. Deficits don’t matter, at least today. They just like to have us squabble over stuff like taxing each other so we stay distracted while they run this country into the ground.

 
Comment by rms
2013-02-03 14:52:35

“I’ve been crucified here for saying it, but, at the max income rates for someone living in a high cost, high tax area (which most people who make that kind of income do), the total hit from taxes is shocking.”

Our German friends once showed us their income and deductions receipt; they’re dual income with two kids. Their hit was over 50%! And then there are the highly taxed utility bills. Modern life isn’t cheap.

 
Comment by Pimp Watch
2013-02-03 15:06:37

“They just like to have us squabble over stuff like taxing each other so we stay distracted while they run this country into the ground.”

YEAAAAAAAAAAAAUP!

 
Comment by Overtaxed
2013-02-03 15:37:32

“Total government spending at all levels is 6 trillion. GDP is about 16T (per wikipedia). And that 6 trillion isn’t covered 100% by taxes, so knock 1T off for the deficit and we have about $5T collected in all sorts of taxes nationwide. That’s 31%, not 50% of our aggregate national income.

And to be clear, I’m not advocating raising taxes to solve our budget problems. But cutting spending alone won’t be enough.”

Couple that with the fact that about 50% (as Romney famously quipped) don’t pay any federal income tax at all. Viewing it through those eyes, 31% when paid by 50% of the populace is a lot closer to 50% than the 30’s that others here think they are paying.

“It sounds as if you’re just like the people you criticize. Ask a guy making $40k per year whether $300k makes someone rich and they’d say, “Of course”.”

Rich is pretty simple to describe, IMHO. If you could be fired/quit tomorrow and never work again without any appreciable change in your lifestyle, you’re rich. Yes, that means different things to different people (some people can do it with 100K in the bank, others would need 100M), but the fundamental similarity is that “I no longer need to work”.

Now, that’s not at all useful for the purposes of taxation, but, IMHO, it’s really what separates the rich from everyone else.

The other thing I’ll add. You know “rich” when you see it. I live across from Jupiter Island, one of the richest communities in the entire country. Let me tell you something, it’s not at all unclear when someone is rich or just “upper middle” when your at parties with these folks. The first giveaway is the chauffeur driven Rolls/Bentley. But there are others; the talk of taking “the jet to Aspen” and the “popping over to the Alps for a few days to go skiing”. And, of course, the fact that all these people seem to have endless idle time. If you’ve really seen “rich” and been exposed to it, it’s quite obvious within 10 minutes of conversation who is/isn’t. How that relates to tax code, and what kind of income these people really have (1M/yr or 10M/yr, I really can’t even begin to quantify it), I can’t help with. :)

 
Comment by MightyMike
2013-02-03 16:17:26

That’s not much of a rebuttal to my point that you’re just like the people that you criticize. Your definition of rich happens to be people who have a lot more than you have. If you had the kind of income that support a chauffeur-driven Rolls Royce and a private jet, it’s quite possible that you’d occasionally find yourself rubbing shoulders with people who had ten times as much as you. Maybe then you would deicde that those people were the ones who are really rich, not you.

 
Comment by Overtaxed
2013-02-03 17:58:47

“Your definition of rich happens to be people who have a lot more than you have. ”

My definition is rich is “no longer needs any income to support their lifestyle”; that number is different for different people. But that, IMHO, it really rich; if you know you can never work a day in your life again and buy and do what you want to do, you’re rich. Money is certainly part of it, but so are your tastes; takes a lot more to do it with a Rolls in the driveway of your 10M dollar house than it does with a Camry in front of your 100K house. But, in either case, if both people are unconstrained by their income forever, both would be rich.

Just out of curiosity, how would you define rich? A guy making 250 living in a broom closet in NYC? Or guy making 100K living in a 5000 sq/ft house in Detroit? It’s not as easy as it seems to define, IMHO, income is part of it, but probably not the most important part, lifestyle, living costs, etc play a much bigger role.

 
Comment by Bill in Los Angeles
2013-02-03 20:25:15

Car rental tax in Arizona is 11%. Robbery. It’s a state tax.

Smash government. They are all thugs. It’s a big crime syndicate.

 
 
 
 
Comment by In Colorado
2013-02-02 12:20:10

Interesting that 44% of the sellers are moving out of California to lower tax states

Are they moving for the lower taxes or are they equity locusts who can pay cash for a much, much nicer house in flyover? And as far as property taxes go, they might be in for a big shock in places like Texas or Florida. And insurance might be another WTF in those places, especially Florida.

Comment by AmazingRuss
2013-02-02 12:36:13

I left for lower taxes and lower cost of living. I bank another 2k a month now. I was kind of surprised it was that much.

Comment by In Colorado
2013-02-02 12:43:05

What is the breakdown on your savings? Is 80% from lower housing payments (or perhaps no housing payment?)

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Comment by AmazingRuss
2013-02-02 13:24:58

Rent is 850 instead of 1150 (for a better place with more land)
No state tax (was paying about 12k/year)
Gas and groceries are cheaper
Electricity is 1/3 the price it was there
Trash is 10/month instead of 60

I don’t know exactly how it all breaks out, but at the end of the month when I put the leftovers in savings, I always have another 2k.

 
Comment by In Colorado
2013-02-02 21:01:31

You were paying $12000 a year in California state income tax? You must have has some bodacious income to pay that much.

So you were able to move to flyover and keep that income? If you did, I’m impressed.

 
Comment by nickpapageorgio
2013-02-03 07:09:23

Those of you making a case for high taxation are welcome to voluntarily pay more. The rest of us out here in the real world are busy applying band-aids to avoid death by a thousand cuts.

 
Comment by AmazingRuss
2013-02-03 10:41:08

I do pretty good selling the games I make, and yes, that income came with me.

 
Comment by GrizzlyBear
2013-02-03 15:02:16

“Those of you making a case for high taxation are welcome to voluntarily pay more. The rest of us out here in the real world are busy applying band-aids to avoid death by a thousand cuts.”

Why would they offer to pay more when their argument is that they’re tired of paying a larger percentage of their income than the fat cats? Did you grow up in a house with lead paint?

 
Comment by nickpapageorgio
2013-02-03 15:56:20

“Why would they offer to pay more when their argument is that they’re tired of paying a larger percentage of their income than the fat cats? Did you grow up in a house with lead paint?”

The money is not with the fat cats, there are not enough of them, the money is in the middle class…I have the W2 to prove it. Were your parents sister and brother?

 
Comment by rms
2013-02-03 18:05:48

Did you grow up in a house with lead paint?

Were your parents sister and brother?

LOLz!

 
 
 
Comment by scdave
2013-02-02 12:44:19

or are they equity locusts ??

Many are…And they do not necessarily leave California…Don’t know the people but a friend of my son’s parents just sold here for 1.4 mil…Banked the money including the $500,000. tax free…Went to Rocklin California and bought a really nice house in a very nice area for $450,000…

Comment by In Colorado
2013-02-02 12:53:43

FWIW, this has been the “California Retirement Plan” as far back as the 80’s (if not before).

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Comment by Rental Watch
2013-02-02 13:05:39

My parents did the same thing. Sold closer to the coast, moved inland, paid cash, now have no mortgage, and still have the benefit of Prop 13.

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Comment by cactus
2013-02-02 20:10:05

California’s FTB thugs get cut off from the income taxes on those accounts.”

yea and after taking the 401K , IRA off CA income tax for all the years hahahahaha

Comment by Bill in Los Angeles
2013-02-03 07:37:23

IIRC there was a court case maybe ten years back when California was ruled that it cannot access people IRAs or 401ks after they move out of California.

Comment by Bill in Los Angeles
2013-02-03 07:39:54

Enough to make a government-fanatic school marm weep.

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Comment by m2p
2013-02-03 13:39:04

IIRC there was a court case maybe ten years back when California was ruled that it cannot access people IRAs or 401ks after they move out of California.

The law was actually passed by Congress, Public Law 104-95, affecting all states. Applies to amounts received after December 31, 1995.

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Comment by Bill in Los Angeles
2013-02-03 13:56:51

Thank you m2p! Very Interesting!

 
 
 
 
 
Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-02 12:24:48

Sell now, or stay priced-in forever!

Robert Powell’s Retirement Portfolio
Jan. 31, 2013, 7:30 a.m. EST
Retirees and stocks: Sell now or hold on?
By Robert Powell, MarketWatch

If you haven’t asked this question, you will. Is it time to take your chips off the table? With the major stock market indexes close to all-time highs, now seems as good a time as any to walk away from the table, especially if you are back to where you were in 2008.

Comment by Carl Morris
2013-02-02 14:25:05

now seems as good a time as any to walk away from the table, especially if you are back to where you were in 2008.

Way ahead of you. I’m also back to where I was in 2008. I just did it the low risk way instead of the high risk way.

 
Comment by cactus
2013-02-02 20:24:23

For Johnson, the bottom is this: “I would not dramatically change my asset allocation due to short term moves in the market. An investor should have a target allocation and that allocation shouldn’t change from the target unless life circumstances change. Trying to outguess the market in the short-run is, I believe, a losing proposition for individual investors. In fact, I think it is a losing proposition for most professional investors.”

article ends like this which is good advice IMO

Comment by Bill in Los Angeles
2013-02-03 07:56:57

Exactly Cactus. I kept my equities allocation between 56 and 60% for many years. Used to be 100% in the 90s. I changed my allocation to more conservative due to much higher income. Note this works especially for index funds. For individual stocks it would work for DRIPs as long as they are low cost. I avoid stocks paying high dividends and look for yields under 2%. So I try to either buy individual growth stocks in diverse industries that I would hold for over five years or more. It is a warm fuzzy feeling to have a low cost basis in low cost index funds due to investing in the 2003 and 2009 dips.

 
 
 
Comment by cactus
2013-02-02 20:40:58

According to my account calculator I’m up over 10% last year

Not bad I think it will run way up for the next couple months then I’ll ignore my own advice and sell some before May ;-)

House prices are way up around here makes me want to sell my less than one year old house but I can wait.

if it spikes back to 600K with rents staying put I’m out though

but that was the last bubble they won’t let that happen again will they ?

Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-03 00:24:11

They are trying their damnedest to make that happen again.

 
Comment by Bill in Los Angeles
2013-02-03 08:00:57

My company stock I purchase through the ESPP is priced nearly 400% above my average cost, even after selling 30% of my shares in 2012. I sold enough. Don’t want to sanction California socialism more than I have to (at gunpoint).

 
 
Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-03 07:00:30

“A helpful government policy would be, for a small premium, to make loans assumable, thus allowing a future seller to pass on low rates, and thus maybe avoid a collapse.”

Leave it to a real estate investor to suggest an expensive solution without mentioning what will be used to pay for it (OPM).

Letters
Of Interest Rates and Housing Bubbles
Published: February 2, 2013

To the Editor:

In “A New Housing Boom? Don’t Count on It” (Economic View, Jan. 27), Robert J. Shiller said it was hard to know whether home prices might be surging anytime soon, contrary to recent noises in the market.

I agree that the market’s uncertainties are considerable. Say a homebuyer takes out a $300,000, 30-year mortgage at 3.5 percent interest, resulting in a monthly payment of $1,347. Then suppose that this same homebuyer wants to sell seven years from now, and that rates have climbed to 7 percent. A new buyer with a $300,000 mortgage would have a payment of $1,996 a month, or 48 percent higher. Unless incomes increase commensurately, that new buyer will be able to afford much less.

Artificially low mortgage rates are inflating a housing bubble with potentially difficult consequences. A helpful government policy would be, for a small premium, to make loans assumable, thus allowing a future seller to pass on low rates, and thus maybe avoid a collapse.

TOM WILLOUGHBY
Columbus, Ohio, Jan. 27

The writer is president of the Erie-Fairchild Company, a real estate investment firm.

 
Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-03 07:05:20

Is Robert Shiller trying to prove his qualifications for a spot on the FOMC? I ask this due to my amazement at a lengthy New York Times article on the reasons for recent home price increases, which somehow omits any reference to the Fed’s policy of $40 bn / month in MBS purchases.

Could an expert make such a glaring omission by accident?

Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-03 07:08:14

Can fluffing from on high explain recent home price gains?

Economic View
A New Housing Boom? Don’t Count on It
By ROBERT J. SHILLER
Published: January 26, 2013

WE’RE beginning to hear noises that we’ve reached a major turning point in the housing market — and that, with interest rates so low, this is a rare opportunity to buy. But are such observations on target?

It would be comforting if they were. Yet the unfortunate truth is that the tea leaves don’t clearly suggest any particular path for prices, either up or down.

On the one hand, there were sharp price increases in 2012, with the S.&P./Case-Shiller 20-City Index, which I helped devise, up a total of 9 percent over the six months from March to September. That comes after what was generally a decline in prices for five consecutive years. And while prices dropped very slightly in October, the trend was quite encouraging for the market. (Our November data come out on Tuesday.)

But some of these changes were seasonal. Home prices have tended to rise every midyear and to fall slightly every fall and winter. And for some unknown reason, seasonal effects have become more pronounced since the financial crisis.

After screening out these effects, a number of indicators are up, including data for housing starts and permits as well as the National Association of Home Builders/Wells Fargo Index of traffic of prospective homebuyers, which has made a spectacular rebound since last spring.

What might explain this picture? It’s hard to pin down, because nothing drastically different occurred in the economy from March to September. Yes, there was economic improvement: the unemployment rate, for example, dropped to 7.8 percent from 8.2 percent. But that extended a trend in place since 2009. There was also a decline in foreclosure activity, but for the most part that is also a continuing trend, as reported by RealtyTrac.

And, last spring, along with Karl Case of Wellesley College and Anne Thompson of McGraw-Hill Construction, I conducted a detailed survey of the attitudes of recent home buyers in four American cities, as I discussed here in October. We did not see any evidence of increased optimism.

In short, it is hard to find an exact cause for the rebound in home prices. But that isn’t unusual — we hardly ever know the real causes of major changes in speculative prices. Yet we do know that any short-run increase in inflation-adjusted home prices has been virtually worthless as an indicator of where home prices will be going over the next five or more years.

 
 
Comment by polly
2013-02-03 10:27:52

Do any of you guys actually have stories about open houses?

I’ve never been to one, so I’m curious.

Comment by inchbyinch
2013-02-03 15:20:41

Open Houses are great to nudge and irritate the UHS. I love it when I asked real questions about the roof’s age, plumbing and electrical code updates, the HVAC units, to name a few. When other buyers are all ears (and the excuse of disclosure for the actual offer), I see the look of “oh shoot” in the UHS eyes. Then I get questioned from other buyers outside upon leaving, I would tell them they need to read the Ca Homebuyer’s Guide by NoLo press, and I would get much gratitude.

I can’t believe they tell realturds to bake chocolate chip cookies and light scented candles still. Poop still smells and looks like poop. Oh brother.

Truly, open houses for generating leads. It’s called a “field office” for a reason in the business.

 
Comment by nickpapageorgio
2013-02-03 15:58:30

“I’ve never been to one, so I’m curious.”

Don’t they have virtual open houses for Gbots?

 
 
Comment by rms
2013-02-03 15:24:14

Last evening I decided to read through John William’s 75-page piece titled “Hyperinflation 2012.” Naturally he reviews the Weimar experience.

I liked this historical snippet: Foster closes his book‘s preface with a particularly poignant quote from a 1993 interview of Friedrich Kessler (1901-1998), a law professor whose university affiliations included, among others, Yale and the University of California Berkeley. From firsthand experience, Kessler described the Weimar Republic hyperinflation: “It was horrible. Horrible! Like lightning it struck. No one was prepared. You cannot imagine the rapidity with which the whole thing happened. The shelves in the grocery stores were empty. You could buy nothing with your paper money.”

Imagine how fast things could fall apart today in our digital age if the folks at FedGov drop the ball?

Go to “shadowstats.com” for the PDF.

Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-03 22:03:49

“Hyperinflation 2012.”

Another failed prediction, along with The Great Depression of 1990

 
 
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