You dress me up, I’m your puppet

You buy me things, I love it

You bring me food, I need it

You give me love, I feed it

And look at the two of us in sympathy

With everything we see

I never want anything, it’s easy

You buy whatever I need

But look at my hopes, look at my dreams

The currency we’ve spent

I love you, you pay my rent

I love you, you pay my rent

Rent — Pet Shop Boys



Why rent when you can own for twice the cost?

That is the question today’s seller needs to answer. Today’s featured property is being offered at $1,120,000. If you divide by 160, you arrive at the monthly cost of ownership of $7,000 a month. There is a house in the same neighborhood that is a very similar comparable for rent at $4,500 a month — which I suspect is negotiable. So why would I spend $2,500 a month extra for today’s featured property? I can’t think of a good reason, but then again, I could not understand why people were willing to pay a 100% premium for ownership during the bubble either.

18 Arizona Front 18 Arizona Kitchen

Asking Price: $1,120,000IrvineRenter

Income Requirement: $280,000

Downpayment Needed: $224,000

Monthly Equity Burn: $9,333

Purchase Price: $451,000

Purchase Date: 1/15/1999

Address: 18 Arizona, Irvine, CA 92606

Beds: 5
Baths: 3
Sq. Ft.: 3,337
$/Sq. Ft.: $336
Lot Size: 6,700 Sq. Ft.
Type: Single Family Residence
Style: Other
Year Built: 1999
Stories: Two Levels
Area: Walnut
County: Orange
MLS#: S518715
Status: Active
On Redfin: 36 days

This Great Home Located in Prestigious Gated Harvard Square Is The End Unit and Has a Great Lot Size. Spacious Living W/ 5 Beds Plus Open Bonus Room and 3 Full Baths w/ New Travertine Floors. Main Floor Bedroom and Full Bathroom. Large Family Room and Breakfast Nook, Light and Bright. Open Kitchen w/ Granite Countertop/Backsplash, Oversize Pantry. Hardwood & New Polished Travertine Floors Thru Downstairs. Designer New Paint and New Berber Carpet. New Baseboard Thru the House. Jacuzzi-Like Bathtub in Master Room. Large Size Backyard w/ Covered Patio, Fruit Trees, Vegetables and Stone Water Falls. 3 1/2 Acre Community Park In The Center of The Community w/ Pool, Children’s Play Area & Much More. Enjoy This Community’s Amenities.

Why Is This Written In Title Case?



Here is a seller betting on the high-end-is-immune theory. As I look at listings around town, I am noticing a great deal of this. The people who own the largest homes in the neighborhood are clinging to their $1,000,000+ asking prices while properties all around them are dropping like bombs. Good luck with that asking price.

Our comparable rental is 10 Indiana:

10 Indiana Front10 Indiana Yard

Rental$4500 / 6br – 6 bedroom Home with Incredible Pool

If we assume the above comparable is market rent, then the featured property is worth $720,000. Given that they paid $451,000 back in 1999, $720,000 seems about right.

$1,120,000 well, if you have enough kool aid…

123 thoughts on “Rent

  1. ross

    One issue on the survey: what one would pay in premium to own a home is a function of the current purchase to rent ratio. So right now paying a premium would be nuts but when this bottoms out sometime after 2011 there may be room to pay above rental cost.

  2. FairEconomist

    If prices are likely to appreciate it makes sense to pay over rental because of the forced saving and inflationary loan depreciation, so I voted for “somewhat over”. Of course right now buying even at rental is like making a charitable contribution to the bank.

  3. Stephen Winters

    Valid point. I can see this happening in most of the major cities in Canada as well. Vancouver’s housing prices have sky rocketed.
    While I am bias on home ownership I am not close minded to see the need to rent vs owning at a premium.

  4. Carl

    Wonderful song, IR. PSB was a big part of my life in junior high/high school/ and college. I got their latest album for christmas last year and it is amazing how they have grown as artists.

  5. George8

    $720k today with CPI at 5% for next few years will work out to be $793.8k in 2010, and $1.01m in 2015.

    I do believe that the featured property will be selling just below $800k in 2010 where bottom will be close enough for me.

  6. IrvineRenter

    The only problem with your reasoning is that paying somewhat over in an appreciating environment is the same mentality that inflated the bubble: buy because prices are increasing. It does make sense if the premium is very small, but people used this same line of thought to justify paying double the cost of rental in the bubble rally, and if prices had continued to rise, they would have been justified in their beliefs. Also, there is the element of “making sure” you get a house. It is like bidding for stocks. You may put your bid in the market, and the price may drop close to your bid, but not close enough to fill your order. The fear of not getting filled causes people to increase their bids and move support levels up. Of course, fear of not getting a house is also one of the beliefs that caused the bubble rally.

  7. Mr Vincent

    If I was a renter, the main reason I would keep renting is that I know that prices will continue to come down over the next couple of years.

    Todays featured house will eventually be worth about 600k or less. Even the fed dumping money on people is not helping housing. Its just causing inflation in other areas.

    If I was currently renting, I would stay that way and keep saving cash. You might even be able to pick up todays featured prop for 500k or so if you wait long enough.

    This place was bought for 451k during the height of the tech/internet bubble. Dont assume that this was some low baseline price that will never be seen again.

    BTW, that odd looking rock formation in the backyard is stupid.

  8. Hmmmm

    Are you able to tell if there are any 2nd’s on this property? I mean in this market the price is totally WTF. They could ask $900 and double their money and probably even generate some interest.

    GREED is showing here.

    Also, You have had a lot of $1 mill + homes on the site. Even though the prices may be high, at least they are staged like a million dollar home. This one…staged like a $100k home….

    The backyard, not a feature folks. The pile of rocks is just not going to cut it.

  9. ipoplaya

    The back story to this listing is there is a nice asian family, with older kids, that live in/own this home. The husband/father passed away a year or two ago and the wife has been told she has to get the place at least listed to receive some type of tax benefit re: his passing. I don’t think she is particularly motivated to leave this home as yet…

    I toured this place shortly after it got listed and told the listing agent, Frany Bao, that it was horribly overpriced and that I’d write her offer if it was listed in the low $900K range where it probably should have come on. When I asked how she ever thought she could get $1.1M considering you can acquire 3000sf in Northpark or Northwoode Pointe for that sum, she pointed out the new travertine they had installed… The last comp in this tract anywhere near this same size range was $985K last summer. That was on a 3100sf house that backs to this one or is maybe one over. I put today’s value of this place at $900-925K with bottom around $700-750.

    Personally, I’d be ecstatic to pick up this house in the high $800s. There is a smaller and much less worth place on Rhode Island in the same tract that is in escrow now, I suspect at a price around $925-940K.

  10. mino2126


    I don’t know why you would be ecstatic to pick this house up in the high $800s. The rooms are boring and lack any type of decor…ie vaulted ceilings, pillars, crown molding…etc. The room that you walk into is just to big and to boring. On top of that the “pile of rocks, aka fountain” is terribly misplaced and for 1.1MM you don’t get much of a back yard. You could spend your $800K in probably the same neighborhood, less a few hundred sqft, and get a home that has much better appeal and upside.

  11. ipoplaya

    Last summer mino, I made multiple runs at a 2700sf house in the same tract that was equally as boring looking. Did have a great lot though. Couldn’t get them down below $960K even after six counter offers…

    If I got this at my price, I’d jack-hammer out the rock formation, slap up some crown and 6″ baseboard myself, and rip out the travertine in favor of some hardwood or laminate. If I got the place for $875K, I could have it pretty nice looking for $900-925K.

    If you can find me a 6500+ sf lot on newer construction in Irvine for less than $900K, I’ll give you a finders fee and write an offer tomorrow…

  12. Surfing in Newport

    If they had a family trust. They shouldn’t have to list the house to receive the tax benefits. My understanding, is that you need to get the property appraised. The appraisal becomes the new basis for the house. When she decides to sell, then she would report income/loss based on the new appraisal. Except for the whole losing a significant other thing, it’s a really big tax loop hole.

  13. Mr Vincent

    “Personally, I’d be ecstatic to pick up this house in the high $800s.”

    A fool and his money….

  14. ipoplaya

    I believe in community property states like CA, the new basis at the time of a spouse’s death would incorporate 50% of the FMV at the time of death, i.e. his half would get re-valued to market but hers would not. That itself should wipe out any taxable gain on the property…

  15. awgee

    Ipop – This lady needs to get better tax advice. I am not being flippant. I am absolutely serious. A step up in basis does not require the home to be listed. An appraisal or a list of comps at the time of passing is adequate and normal.
    As regards the listing: Harvard Square is prestigious?

  16. ipoplaya

    You’re in fantasy land Mr Vincent. At the low-end, this place is going to rent out at $4K per month…

    $500K. Funny. This 3400sf house on a 6700sf lot is going to fall to below the current market value of my 1600sf condo huh? What you are calling is a median at bottom of below $275K.

  17. ipoplaya

    I agree awgee. When I heard about this, I urged my friend, who is neighbor to this house, to suggest to the owner to research better the tax implications re: her husband’s death. The owner doesn’t speak very good English unfortunately. Could be some fraudulent advice from her realtor to get the listing… Who knows…

    LOL, HS is in no way prestigious. It is a nice neighborhood though with a very cool and big circular park that anchors the development.

  18. jhill

    I was struck by the fact that the front door opens right into the living room. How can there be a million-dollar house that doesn’t even have a foyer?? What were the builders thinking??

  19. NanoWest


    I am with Mr. Vincent on this one…….just my gut telling me that the Orange County economy is in for a serious slide. I would not be surprised if the median home price in OC dropped below 1998 values even without adjusting for inflation. I know this is hard to believe, but it may happen.

    There are a limited number of people like you and I that can afford these homes, we will find out in the few years who they are and what they can afford.

    Remember, the key here is what is required for a down payment for entry level buyers. If it ends up at 20% then the price slide will go until we reach pre 1998 values. If it is 10% we could see 2001 prices. Of course if we go back to 100% financing for anyone that can breath, prices will stabilize and then escalate.

    Money talks…..bullshit walks.

  20. Delia Fernandez

    Actually, in a community property (CP) state, any property held as CP will get a double step up at the date of death of either spouse, so no need to worry about capital gains taxes — both owner’s shares will get a new cost basis. If not CP, then only the decedent’s share will be stepped up.

    Obviously, if she’s listing this for tax reasons she’s doing so because they did not hold it as CP, but only as Joint owners or Tenants in Common.

    delmar, CFP

  21. ice weasel

    I think Mr.V is low on his estimate but I don’t think he is far off in some ways. Ipop, time will tell but I think you’re far too optimistic about prices holding. The rules that applied ten years ago don’t apply and even the current rules are changing making predictions of any kind rather perilous.

    Will the median reset to nineties pricing? Maybe. I don’t see it as impossible by any means.

    And that one opinion well worth the electrons it takes to post it.

  22. ice weasel

    While I wouldn’t call you a fool Ipop I do wonder if you’re really saying that you could flip this house, given what you said you do to it, at the price you said and make money? Really?

    You may not be the fool in the equation Ipop, if you could pull that off, but the buyer you sold to would undoubtedly be a great fool.

    Once again, over and over, however you want to say it, there are extremely few properties you can buy right now and expect not to lose money on as the bubble continues to deflate. This home, at that $800K price, seems to fit that picture perfectly.

    Oh, and that treasure island pool surround is dreadful.

  23. ipoplaya

    Not as a flip ice. I’d buy it to live in it for the next 20 years… At a price of $875K, it’s cheaper to buy it vs. paying $4500 to rent a comparable property. That house has mostly everything I am looking for – 3 car garage, downstairs office, a big loft, decent lot size, etc.

  24. ET

    Been reading the blog for a while and while real estate talk make my head spin – this blog has been really informative – keep it up. This is my first comment here and most seems to be by people a lot more information so my comment below may seem a bit off, but I couldn’t resist, I just had to respond.

    They are asking over a mil for that first house. WTF? I hope the rest of the house is better than the pictures – cause there are not enough drugs on the planet for me or any sane person to buy that house at that price. Whoever is pushing that price needs to get a strong whack over the head. Seriously.

  25. ipoplaya

    Very common construction in Irvine jhill. The combo living/dining with front door opening to living… This house wasn’t intended to be a million dollar house, nor is it now. It was at peak though.

  26. 7

    I would pay $100,000 more than a comparable house due to the house number. “18” is a good number, you know. 😉

  27. ipoplaya

    I think the notion is foolish that the median in a few years will equate to 1998 pricing in nominal terms.

    Even if you take the ’95 median, at the bottom of the last correction, of $209K and inflate it by only 3% per year to 2010 you have a price of $326K.

    If you go back all the way to ’82 and do the same, the 2010 median is still almost $300K.

  28. lucy

    I am assuming you are buying the property wish cash, no financing…otherwise did you forget to calculate the amount of interest you will be paying on top? It will cost you WAY more to own this house than to rent it (also $4500 is totally negotiable)

  29. tenmagnet

    I agree with your assessment. Although everyone’s criteria is different, imo there are much better properties/homes on the market at the same price point. The only thing that appeals to me is the square footage. If this home fell into the low $800K, I would pass on it. The appeal is just not there for me.

  30. Formerbanker

    I agree with you, IPO…I’m all for falling prices so I can some day move to my dream house, but $500M equates to $147/psf on this house – I paid that for a condo I bought in 1994 (granted, it was a little closer to the beach, but still!)- that condo went down to a value of less than $110/psf btwn 94 and 97, and was about $150/psf when i sold it in 1998. That doesn’t include the mello roos, HOA, etc. in monthly outlay. Personally, I don’t think 20% down will become the norm. There was plenty of 5 – 10% down financing available during the last RE recession, for people with good credit…emphasis on good credit (we carried no credit card debt, just student loans at the time). It’s how I bought my first home.

  31. ipoplaya

    That’s not correct Lucy.

    Finance $700K at 7.5% interest only and you have a payment of $4375. $900/month of property tax, $100 HOA, $100 insurance and you get pre-tax monthly of $5475. Tax benefit is approximately $1600/month so net out of pocket is $3900. As I figure one could rent this for $4200 or so, buying at $875K with 20% down at today’s rates should put you about break-even with renting.

    Check the math. How is it WAY more to own vs. rent at $4200/month?

  32. Adam

    I, too, voted “somewhat over” because even though it doesn’t make sense in terms of the best use of money, I recognize there is a psychological benefit to owning over renting (under non-historic bubble deflating conditions). However, what I say and what I do will be different here because with regard to the current market conditions and economic outlook, I will absolutely not pay a premium to own as there should be plenty of housing stock to find my “perfect home”.

  33. IrvineRenter


    I still don’t get your urgency to buy. If you wait 2 years, the house you plan to buy to live in for the next 20 years will either be 20% nicer or 20% cheaper. Plus when you attempt a move up during a decline, the high end declines slower than the low end (at least at first,) so you will be losing on your trade up, plus you will experience % depreciation on a more expensive asset.

  34. IrvineRenter

    The bubble rally did strange things to people’s minds. During 2004, you could ask an obscene WTF price and someone would actually pay it. The lead to an even more obscene round of WTF pricing you see today. People have become do desensitized to these prices, they almost don’t appear WTF anymore.

  35. Surfing in Newport


    You’ve neglected the maintenance, the closing costs, the cash flow from investing the down payment and the present value of selling (even if you are selling 20 years from now, 6% of the inflation adjusted price still represents a significant amount). I assume the 7.5% is interest + property tax.

  36. Alan

    I’m not familiar with the adage “An arse and his comments” is that from some new Irvine children’s tale.

  37. lucy

    ditto. I guess I am using realistic math in my calculations, not “fantasy arithmetic” (which was very popular during the bubble).

  38. NanoWest


    I hear what you are saying and my statements are only conjecture…………when I purchased my first home in 1985 I paid 13.5% interest rate on the mortgage. At that time if you said that interest rates would be sub 6% people would just laugh and say that was not possible.

    My views are based on the belief that people respond in mass to market forces and trends. As wave after wave of bad news about buying houses is presented to the public, they will become afraid of housing. That fear may cause people to stay away from owning no matter what the price.

    There is a possibility that by the time all of the bad news is out and we look at the damage to the economy from this housing bubble, the words “real estate” and “home ownership” will cause people to puke in public places…….time will tell.

    Overall I am bullish on the US economy……we are the envy of the world and I believe that we are just entering the golden age. Trust me the entire world watches our elections and our economy. We are the land of opportunity…………

  39. tony

    With this house you wouldn’t need to MOVE UP… that’ the point.

    The house is large enough, has a big lot ( for Irvine ) in a good location, a three car garage, five bedrooms, three baths and a nice sized backyard.

    The only thing it might need is an additional “powder room”, a larger kitchen and perhaps a “bump out” to build a nice entry foyer.

    Other than that, I see ipo’s sense on this.

    RE should always be looked at long term. This house might drop another 100K or so, but there’s a lot of crap homes and this one has a lot of things going for it.

    Of course, if it were in TR, then it’d be perfect.

    BTW… I’m thinking of refinancing and taking some cash to add an additional 600 sq feet: Sixth bedroom/office, second den/kick back room, one bathroom upstairs, one powder room downstairs. I figure that will take me to 3200 sq feet, 6 b/ 4.5 ba, two dens.. and this will free us from turning the back three bedrooms (10×12, 10×12, 10×10) into two nice large ones (12×15).

    I wonder what the rates will look like with the “psedo jumbos”. I’ll need to pull out 100K for the construction. Costs are coming down fast and my downstairs rebuid added the foundation and structures to support the addtional second story rooms… ;-D

  40. skek

    Isn’t saying “the rules don’t apply anymore” in support of unprecedented price drops the same as saying “the rules don’t apply anymore” in support of unprecedented price increases? Fundamentals will pop a bubble, but they are also going to support an eventual floor.

    I tend to agree with Ipop and Formerbanker. As low as this thing is going to get, I don’t think we are going down to unadjusted ’98 prices.

  41. Lucy

    Oh, and did we forget to mention the OPPORTUNITY COST? I think one of the postings here had a very good discussion on this. Calculate how much money you would lose in unearned interest from money market accounts (or other investments), then we’ll talk about “breaking even.”

  42. ipoplaya

    Put your numbers up here Lucy… I’d love to be convinced that is the materially more expensive to buy and finance this particular house for $875K vs. renting it for $4K+.

    I assume there are number keys on your keyboard just like the rest of us have?

    “You are ignoring a number of costs, and utilizing risky financing to get to this number. The true breakeven is closer to $720,000 than $875,000.”

    True, IR, that $175K down could earn me $350 per month after-tax. How is a 30-year fixed loan product risky? The payment amount will be the same, measurable, forecastable, etc. for the next 30 years. Heck, I’ll probably be dead before that rate expires…

    Your 25% tax savings may work for others, but it doesn’t for me. I took my 2007 returns and worked the numbers for this hypothetical Arizona purchase. For the spend, the tax savings in my personal situation is almost 34%, not 25%. Even if we rented, we are likely itemizing due to state taxes. I wouldn’t lose any benefit of standard deduction.

    Check out the figures. Are they really that far off?

  43. tenmagnet

    I disagree; this house is not a move up it’s a big move down.
    A big move up would be similar priced home in either Northpark, Northwood Pointe, or Woodbury. There’s no reason to compromise or lower your standards in this market.

  44. buster

    As a CPA, I can tell you it all depends. I am assuming the widow is trying to get the full $500,000 gain exclusion, and to do so you need to sell your primary residence within a certain time of your spouse’s passing.

    But, if it’s owned as community property, she should get the basis step-up. And if she gets the basis step-up, then foregoing the $250,000 of the $500,000 income exclusion is a mute point because the new tax basis is the fair market value at time of death.

    Finally, it can be complicated if the survivor is NOT a US citizen. The deferral of estate taxes by passing estate tax free to a spouse is predicated on the assumption that, upon the passing of the surviving spouse, the estate tax will then be paid. It’s basically deferred into the surviving spouse, not eliminated entirely.

    But if the surviving spouse is NOT a US citizen the concern is that he/she may bid a fond farewell to the USA before paying the estate tax. My advice as a CPA for over 20 years — get some good advice from a CPA.

  45. Surfing in Newport

    You shouldn’t calculate the opportunity cost of the down payment using a money market rate. That down payment has significantly more risk as an investment than a money market account. Previously you could estimate that risk by comparing the rates for a 80% LTV to a 100% LTV financing. The difference in the payments would represent the return required for that 20% to compensate for the risk.

    I guess it would be a little more complicated than that. As you experience inflation, your original down payment is not as risky as an investment so the required ROR would decrease over time, but it would never be less than the interest rate on the loan itself.

  46. buster

    Why is everybody so focused solely on the economics? If you like the place and you want to make sure you can stay there long-term, go ahead and buy if it’s a fair price. Pay a little more if there is something about the property that appeals to your personal sense of what is important. Like the morning sun through the breakfast area window, pay a little more. Like that there’s room for a tomato garden, pay a little more. If you hate yard work, you’ll want to pay less.

    I guess my point is: Start with a fair price and add a premium for stuff you really like about the house, or deduct a discount for drawbacks that you don’t like but with which you can live. And since most of us bought a place we like and had some attributes we really appreciated, we usually paid a premium over what somebody else (who didn’t really have the same tastes as us) might have paid. It’s all good….

  47. ipoplaya

    surf, dude, I wouldn’t buy this as an investment. I’d buy it as a house for my kid’s to grow up in… I really don’t care much at all about the equity risk associated with the down payment. I care about my monthly spend and long-term affordability. If I put $175K and it went to zero in three years, no big deal. By the time I retire, it will likely be worth well over $1M given inflation over the next 25 years or so.

  48. ipoplaya

    Where’s my girl Lucy with her calc?!

    I did mine…

    I want to see how it will “cost you WAY more to own this house than to rent it” given that hypothetical $875K price I would pay.

    Let’s see the math Luce. You said I’m using fantasy math and I put my numbers up on the web for all to review. I ran calcs in Turbo Tax, checked the property tax load via the assessors site, checked out mortgage rates at my fave lender.

    I’m curious to see how much thought or data is in your conclusion…

  49. ipoplaya

    Looks like traders are pricing in 100% chance of a half point Fed cut in March and another .25 to .50 to likely follow.

    I’ve been holding off on the refi for this. Hope to see 3/1 conforming ARMs at 4.25 to 4.5% in March…

  50. Priced_Out_IT_Guy

    Can not the golden age of a country exhibit affordable housing?

    Your logic eludes me Nano. One would hypothesize that a land of opportunity would imply the ability for everyone to buy a chuck of it.

    Once IR finishes his time travel machine we’ll all take field trip and see if there were any housing hick-ups in Rome or China’s golden age.

  51. IrvineRenter

    “How is a 30-year fixed loan product risky?”

    “7.5% interest only ”

    I was responding to this statement with the risky financing. I thought you were using an interest-only number which would not be including principal repayment and takes on the reset risk at the time of refinance.

  52. ipoplaya

    Well it indeed doesn’t include principal repayment in the number as I’d plan to electively start paying down $1500-2000 per month in principal starting around year 7-8 of the loan after my daycare expenses mostly went away.

    Last time I checked, landlords didn’t take a portion of your rent you pay, save it for you, and then return it to you with interest when you moved…

  53. buster

    ipoplaya – keep hoping. Oh, can you hope for me to win the lotto, too?

    As inflation kicks up, interest rates will surely rise. With inflation running over 4% and looking to heat up as the Fed deflates the dollar, who’s going to lend you money at 4.25%. So let’s see, I can lend money against real estate (a depreciating asset) in a mortgage market with increasing defaults at a rate that doesn’t keep pace with inflation (real inflation-adjusted loss on investment). Sounds like where I want to put my invested capital!

    Yup – keep hoping. Almost forgot, I’m going skiing this weekend. Can you hope for some powder in Tahoe?

  54. Mr Vincent

    “the words “real estate” and “home ownership” will cause people to puke in public places…….time will tell”

    LOL….That will be the sign of a bottom…but we have a ways to go before we get to the “puke” stage.

    The cost of everything else is going up, making the budget for house payments almost impossible for buyers. This will get worse.

    At some point, like the kid who said the emporer had no clothes, someone will say “Damn, 500k is a hella lot of money”.

  55. ipoplaya

    Ah buster, ye of little faith… I can refi today into a 3/1 interest only conforming at 4.875. Helps that my LTV is around 65% or so. If the March Fed cut can just get me .375 lower, I’ll be happy to pull the trigger and lock up at 4.5% for three more years.

    I will be sad to see my 3.875% rate go away though. It’s been berry berry goot to me.

  56. Kyle

    Last summer mino, I made multiple runs at a 2700sf house

    What? Why on earth were you trying to buy a house during the bubble’s peak? And why are you still expending so much energy attempting to buy at one of the most precarious moments in real estate history? Good luck to you, but what a shitty time to buy.

  57. ipoplaya

    Stupidity Kyle, plain and simple. I was at least trying to get the place for 6-7% off peak pricing. Thank god the sellers were crazy people and stuck firmly to 2006 pricing… They are down another $100K now. Too bad for them. Unfortunately I am down $75K in equity loss since that time as well.

  58. ice weasel

    My point here Skek is what will the new fundamentals be? 160 GRM? 100 GRM? What will happen to wages in the next two years? I think there are a lot of things “on the table” here, as it were, that could affect this semi-mythical when it comes.

    At some point yes, fundamentals will set pricing, but what fundamentals?

    That’s one reason why predictions are so much fun and nothing more than hot air. None us knows where this is going. Some of us see a confluence of a large number of factors that could create some hellish changes in the ways we perceive real estate. Some of us of it see if differently. None of us, however, know what’s going to be a meaningful fundamental and what won’t be.

  59. tenmagnet


    Quit wasting time over this albatross and be thankful your offers weren’t accepted.
    Buying this place would destroy your self-esteem, even at $700K.
    There’s no pride of ownership. It’s the same reason why you’re a Lakers fan and don’t support the Clippers, you associate yourself with winners. Now make a run at something truly worthwhile that you and your family can really be proud of.

  60. Alan

    iPoop is just like that deer stuck looking into the headlights.

    This just in from our friends at Calculated Risk, Nouriel Roubini, Professor of Economics at at the Stern School of Business, NY University testified to the House of Representatives’ Financial Services Committee today. Dr. Roubini says the show (my word, he said recession) just started in Dec 07 and will be historic in magnitude. No soft landing possible. I thought I was a bear Dr Roubini has the claws and teeth out. CR also notes how CNN took a pass and didn’t report Roubini’s remarks as the testamony wasn’t news worthy since no child was kidnapped, no one was raped or murdered.

    You can read Roubini’s remarks here:

  61. Alan

    I resent that remark, I’ve been a laker fan since the days of Jerry West and Gail Goodrich. I remember watching the Celts beat us every year in the playoff’s until the breakthrough. I remember West’s half court shot.

    The Lakers’ haven’t always been winners.

    Oh and by the way, I don’t care where the Dodgers finish, as long as they beat the Giants (or better yet, knock the Giants out of the playoff’s I’m happy). Angle stadium has nothing to compare with Chaves ravine and Dodger dogs are the best!

  62. Condor

    LMAO! It seems, for many on this board, once a home reaches that magical million dollar mark it automatically needs to satisfy his or her sense of “traditional” entitlements. It’s a fairly boring mass produced box on a smallish lot that (at one time) was valued by this market at over that magical million dollar mark. It’s good that the market is starting to recover it’s sanity, but you’re going to ding them for not having a foyer?

  63. Surfing in Newport

    The whole bubble was caused by changing the fundamentals. If they are changing, then they are not fundamentals.

  64. ipoplaya

    Weird Al always quotes the most random people… Next thing will be “my neighbor George is predicting a recessional tidal wave of epic proportions that will undermine the entire banking system. George added on his way to Walmart that all credit cards will cease to work and McDonalds will employ monkey to run the drive-through in an effort to cut costs”.

  65. skek


    I think the thesis of this web site is that the housing market got out of wack because it departed from the fundamentals — for example, LTV, DTI and GRM. Some of the most compelling analysis on this site points to these numbers as historically constant indicators of either borrower creditworthiness or home value. Now you are wondering “what will the new fundamentals be?” So once again I ask, isn’t that the same as the bear in 2005 saying, “iceweasel, you are going to be priced out of the market — 250 GRM is the ‘new’ fundamentals.” I think it is and I disagree with that approach. To paraphrase Surfing: the fundamentals is what they is.

    I think your post is actually less about new fundamentals, and more about the bear psychology that will cause the market to temporarily overshoot the fundamentals on the way down before settling in at a historical norm for a while.

    I agree with you that even within the parameters of historical norms, none of us know exactly where we are going, including the components of the fundamentals — rent, incomes, rates. So there’s plenty of room to argue about numbers, and it is kind of fun…

  66. ipoplaya

    I hear ya ten.

    I was sweating out the Lakeys last night. They looked ugly against lowly Roy-less Portland for a good three quarters. Thankfully The Machine and Far More came to the rescue!

  67. Condor

    IPOP, I’m with you. I certainly wouldn’t calculate paying back principal as a cost of ownership. Over a long run (you said you would buy and stay), paying back the principal should just mean investing the principal at your mortgage’s rate of interest, no? And for that matter, when someone is calculating the opportunity cost of the down payment, I hope they subtract out the interest cost of the mortgage. Theoretically, if the source of funds are available to you, you can borrow the entire amount (that good ol’ 100% financing bugaboo again), thus freeing you to invest your saved down payment somewhere else. The opportunity cost is your earnings on the (former) down payment amount minus the additional interest paid on the mortgage.

    Anyways, everyone knows being an owner has intrinsic values of its own. I’ll probably get lambasted for saying this – but if that wasn’t the case there wouldn’t be such a great deal of interest in IR’s blog.

  68. ipoplaya

    Gail? Is that a dude’s name? Do you mean “I’ve been a Sparks fan”?

    Just kidding Weird Al. In spite of me being a baby when they played, I do have an appreciation for Stumpy and The Logo. Although my love for J.W. mostly stems from his pairing of Kobe and Shaq…

  69. Alan

    DeNile…. that river in Egypt

    Denile is what you do when you feel the need to mock the testamony given to the United States Congress from a senior economic professor at NYU.

    I guess since Dr. Roubini isn’t from Irvine Valley College that he must some random person.

    Oh well, you do what you gata do iPoop

    By the way, was it your cousin in programing at CNN who decided that this testamony wouldn’t be news worthy?

  70. tenmagnet


    You’ll get no argument from me. Although we may not always agree on housing, with regards to sports thus far we’re sympatico, unless you’re a UCLA fan. Now, I recall correctly, you’re also a fan of women’s beach volleyball and hot chicks in general. I’m looking forward to seeing the Blue play the BoSox next month. The new Japanese pitcher we picked up is light’s out. He’ll be in the rotation following Penny and Lowe.

  71. lendingmaestro

    I love the banter between Ipoplaya and Alan. It makes me smile. I do think you are way too optimistic though, ipop.

    Waiting to do something because of your opinions on where rates will go is too damn risky. Anything can happen with interest rates, long and short term.

  72. tenmagnet

    Let’s hope they don’t overlook the Heat tomorrow nite either.
    The big showdown is coming this Sunday against the Mavs.
    It’s a nationally televised home game so I think the Lakers are going to lay the wood on them. Anyway, mean’t what I said about going for quality and not compromising.

  73. skip

    who decorates these homes? They have a total of 500 bucks in furniture in there. and by the look of it, bought at garage sales.

  74. ipoplaya

    If the good doctor really knew his stuff, he’d be at MIT, University of Chicago, Harvard, Princeton, Stanford or Cal.

    The boys at CNN probably smartly realized the bloke couldn’t hack it at any of the top six econ schools in the country and left him off…

    Roger Clemens testified before Congress too but I sure wouldn’t want to hear what he thought about the economy.

  75. ipoplaya

    Hey ten, you think SC will make the tourney this year? If they win 3 of the last 4, they are a shoe-in. Winning only another 2, unless one is Stanford, and they are seriously on the bubble…

  76. tenmagnet

    I’m a little concerned about SC making the tourney this year.
    Would love to see them beat Stanford and get in with some momentum.
    Still get physically ill when I think about losing to Stanford in football this year.
    That national title was ours. Oh well, pasting Illinois in the Rose Bowl helped me get over it, somewhat.

  77. sunnyview

    Don’t worry, ipoplaya, 3/1 rate will go around 4.25 % by midsummer, when the equity market fall down badly. i miss refin 5.25% 30fix last month. still I am waiting for 5.5% 30fix for new conforming loan, my loan is less 500K, reset is time04/2009.
    it is difficult to get timing the max benefit point. an optimal range, which is good enough, i guess. economics is so important in this country, lots of data and information available , one could take advantage from that.

  78. Rocker


    Yesterday was a kind of a historic day, because I haven’t seen in a long time this set of bad news for US consumers put together in one morning:

    * Oil price above $100, it made an intraday high of $101

    * Year-over-Year wholesale inflation at a record since 1981

    * Historic valuation of Euro vs. USD 1 = 1.51

    * Record percentage decline in home prices since 1987

    And Fed cuts haven’t reduced substantially mortgages rates so far.

  79. ipoplaya

    “It is a very convenient argument to call into credibility the person who is making it. I suggest you read what he has to say and respond to his points, or would you rather listen to experts like Lawrence Yun?”

    I was just messing with Weird Al IR, but I did read it. Every word… Echoes much of what you and others have posted here. The catastrophic scenario detailed does indeed seem plausible. I’ll be a much bigger believer when the equity market starts pricing in something of the like. As equities are normally a leading indicator, the strength in stocks of late is surprising.

    Screw it, I’m going to buy anyway and hedge my downside risk with some housing futures…

  80. mmg


    one more time, price per SF will be some where between 175-200 per sf, thats if we dont go thru a severe recession.. people just dont make that kind of money in the OC.

    comprende :mrgreen:

  81. dilbert dogbert

    I am at Donner Lake which is about the same elevation as Tahoe, 6000ft. Great weather – warm, blue skys and calm winds. If you ski at Heavenly or Kirkwood up high I think you will find powder. We just finished clearing 4ft of snow off the cabin deck. Lots of hard work.
    We own three properties, all paid off, and maintenance is a bear. The heater in the cabin by the lake was off again. Another bill to pay. A ski trip last march was ruined by this same heater. Temps got into the teens and stayed long enough to freeze the lake so people could ice skate on it. Heater condensate line froze and shut it down then. This time it was the backflow preventer on the auto fill line. The year before we had a cold snap with a local power outage that froze the water line and it broke downstream of the hot water heater and hot water ran for 3 weeks! Ah! the joys of home ownership.
    Have a good trip.

  82. evan

    That house is Asian owned for sure. The furniture is typical of a first generation asian family. Everything was bought/given to at different times without any consideration for how they look with the rest of the house, only for how they function. The family portrait and the yard also gave it away. And to top it off Asians tend to stick together, hence the Asian realtor.

    And yes.. I’m Asian.

  83. alan


    “It is a very convenient argument to call into credibility the person who is making it.”

    That’s actually termed an “argument ad hominem”

    For instance, I could have replied to iPoop

    ah an argument ad hominem, how refreshing..

    But that would have been lost on iPoop because I doubt he learned anything that sophisticated at USC (the University of Spoiled Children)

  84. ipoplaya

    “I still don’t get your urgency to buy. If you wait 2 years, the house you plan to buy to live in for the next 20 years will either be 20% nicer or 20% cheaper.”

    IR, would that still be true if mortgage rates are 25% in two years?

  85. ipoplaya

    It would be interesting to put your forecasted home value declines along with a forecast of mortgage rates and then chart the affordability along the way…

    I know you think we are headed toward significant inflation. What do you think a buyer will be paying on a 30-year fixed jumbo loan two years from now?

  86. former_irvine_resident

    I think this is the most striking paragraph in the whole paper:

    “The time will come – unfortunately too late – when financial institutions will realize that they are better off freezing the resets and, at the same time, write down a part of the face value of the mortgage, to allow strapped homeowners to avoid default as the alternative of foreclosure and selling homes at steeply discounted prices in a very illiquid markets involves larger losses for the creditors than a reduction of the debt burden of illiquid and/or insolvent borrowers. Unfortunately this rational solution to the mortgage credit problems will come too late and only when massive insolvencies will lead banks to appreciate the benefits of this alternative and more radical approach to mortgage distress. In the meanwhile the housing and mortgage carnage will continue at accelerated rates.”

    This sounds a lot like FB’s who are not smart enough to avoid chasing the market down when they still have the equity to do so.

  87. Noob

    If rates become 25%, then wouldn’t your monthly payment go through the roof? Wouldn’t it make even more sense to rent if prices remain the same? Most likely, prices will fall through the floor, then rise quickly ONLY if your wages is rising with inflation. If you get inflation BUT no wage increases, then you’re screwed!

  88. awgee

    buster – I think you will agree, although there are many different possible estate tax scenarios, there are none which require listing a home for sale. For purposes of value determination, appraisal or comps are normal and adequate. There is no way we can know what her estate tax situation is, and it is immaterial to whether or not she needs to list the home for any tax situation. There is no tax situation which requires the listing of a home.

  89. Laura Louzader

    I checked out your RedFin link, and I’m stupefied.

    It looks like a ratty old slum motel that was converted to a single-family home. I’d like to know the story behind it. Did the owner buy it more cheaply than a conventional home? I have to think so. That’s how the place came with so many bathrooms and bedrooms, and so many entrances.

    I’m sitting in Chicago, so I don’t know the neighborhood, but the bars allover the windows are a good clue.

    The property looks horrid. No grass, no trees, just a cracked and pitted parking lot- another sign that it was once a motel.

    This property is so bad, you should be paid to take it. The cost of tearing the place down probably exceeds its worth, if indeed you’d want to rebuild in a neighborhood like that.

  90. Major Schadenfreude

    “Everything was bought/given to at different times without any consideration for how they look with the rest of the house, only for how they function. ”

    Hey, that sounds like me too!

    (No, I’m not Asian).

  91. ipoplaya

    Whoops, sorry. I meant 25% higher, not 25%…

    If rates are 7.25% today, they very well could be 9% in two years, which would take the teeth out of the decline in terms of affordability.

  92. No_Such_Reality

    No, it means the decline will be that much worse.

    The drops in pricing is based on affordability. The market stalled and collapsed with rates sub-6%. They market was overpriced 40% with rates at 6%. If rates move to 9%, the market will collapse even further to were the mortgage payments and TCO will be on par with rent.

    For example, in the bubble with 5.5% interest rates and option loans, prices for a townhome soared to $550K. Fair rent for the townhome was $1800, puting equivalent rental “price” right around $300K, 40% overpriced. If rates go to 9%, the market will push past $300K to about $225K to compensate for the additional expense.

  93. tonye

    I kept thinking Bates Motel… But then I thought it looks too chicano… So it must be Hotel De Bates

    Did you notice the color on the bedroom walls? That place is the poster boy for Cramer’s rant about bulldozing the Inland Empire.

    At least in Chicago it would be buried with snow every so often and in Miami the Cubans would hide it behind palm trees and pink flamingoes… but in Moreno Valley this is out there for 365 days for all to see and cringe.

    And they want a ton of money. Yowsah! What kind of a schmuck relator would do this? A good one would have put the kibosh on the sellers before they listed it…

    Eh Gawds.. it’s so bad it brings the Yiddish out of this gentile!!

  94. ipoplaya

    Ok, NSR, couple of extra questions based on your points… Not trying to be argumentative, just trying to understand.

    It appears the period from 1986-1990 was our last sustained period of higher and higher inflation. CPI growth was 3.2% during the first year of that period and in 1990 it was almost 6%. During that same period, the OC median home price shot up over 67%, from $144K in 1986 to a bubbly peak of $242K in 1990. This inflationary period appears to have coincided with rising home prices… This mini bubble led into the early 90’s housing recession right? How does that reconcile with your thoughts?

    Also, during a period of high inflation, wouldn’t rents be expected to grow considerably as well. If that is the case, wouldn’t that tend to slow home price declines? If rents, wages, etc. were climbing at 5-6% annually over the next couple of years, the GRMs get more favorable, i.e. we “catch up” quicker to the bubbly pricing…

    My assumption is that the additional house price declines as a result of higher inflation driven mortgage rates you describe would have to be paired with recession, low to no economic growth, higher unemployment, etc.

  95. zoiks

    Ipoop, if you want a WAG on mortgage rates in 2 years, try 8.5%.

    Here’s my argument: I think it’s objectively likely that inflation will continue to be a problem. Headline CPI inflation is about 4.3% right now, and trending higher. In the face of this, the Fed continues to cut rates. They always say there’s a lag between rate cuts and inflation of 6-12 months. Well, guess what, 6-12 months ago the funds rate was at 5.25%, our recent peak in rates. So, what do you think inflation’s gonna do 6-12 months from now, and beyond? It’s probably going up.

    Greenspan has warned that inflation is here and will be with us for a while. Bernanke just todays said pretty much the same thing. Let’s just say that headline inflation increases by 50% (of its current value). That puts it at 6-7% in two years. At that rate, a reasonable premium to place on mortgage rates might be 2%, so voila we have 8-9%. It’s not reasonable to think mortgages will be available below inflation. It’d be much safer for people to put their money in TIPS, or broad asset classes than giving it to a mortgagee for lower than inflation rates.

    Right now, 8.5% sounds outrageous for a mortgage rate (unless you’re subprime), but it’s also more inline with historical rates.

    The inflationary scenario, for the next several years, is what keeps us employed and avoids a severe recession. If we start deflating instead, then it won’t matter that we can get a mortgage at 5% because we probably won’t have a job.

    One thing I can tell you, Ipoop, you keep harping on $4k+ rent for that place, let me tell you you are dreaming. You *might* get that much *right* *now*, and then it will be probably vacant again in a few months or in a year. By the time the market price for this home gets to $700k, nobody’s gonna be getting $4k+ rent for it. Not gonna happen.

    I think some of the people on this blog lack imagination, especially Ipoop. In fact, I wonder if he experienced our massive real estate decline in the early 90’s. I have my doubts. People seem to forget that what happens in the future tends to be outside of what people’s expected ranges are. Ipoop was shopping for a home last year, salivating over a 6% discount against previous comps. He had little idea at the time what was in store for the next 6-9 months. Now he knows and just says it was stupidity at that time. Well, Ipoop, have you purged all possible denial, stupidity, and herd mentality from your thinking? I don’t think so.

    It’s very hard for people to think outside the herd. Humans act largely on memory, habit, and emotion. Rational thought is probably only 10% in the best of us. In the worst, it’s certainly 0%. The best economists are those that can use clinical tools to analyze the economy and draw proper conclusions from the analyses. A good example of such an economist is Robert Shiller. Everybody knows he called both the stock bubble and the real estate bubble. He has laid out in his books how he’s able to identify a bubble, its causes, and its progression. But who’s going to believe him when he calls the next bubble, if there is one? Probably only a few.

    The reality is that the economy has been propped up by real estate for the last 6-7 years. This has lead to economic activity based on debt, and lots of it. The debt machine has overheated and is now starting to sputter. Don’t believe for a second the talking heads that tell you it’s a temporary sputtering – we’re in for long term credit problems. The creditors have seen what happens to our asset valuations when they take a temporary break from loaning us money, and it ain’t pretty. They’re going to want to see stabilization before they feel comfortable opening the debt spigots again. That’s the problem, for the time being the closing debt spigots means things are *not* stable, and won’t be for a while.

  96. Lost Cause

    So what is poor Irvine going to do, when the school district is short $18 million, and they begin laying off teachers and staff? Is it already one of those overcrowded trailer school districts? Did I read that there is a school that consists entirely of trailers in Irvine?

    I thought Irvine is different.

  97. Lost Cause

    It is two houses, for the price of one Irvine condo. Two more houses, and you have a decent investment property.

  98. ipoplaya

    Thanks zoiks. You’ve confirmed my suspicious about you uber bears. You rail about the idiots that are buying and yet you don’t even realize your own forecast renders waiting to buy almost pointless…

    A move up in mortgages to 8.5% would effectively negate a 20% drop in home prices for the median buyer. For the most part, they would be in no better position in terms of monthly payment if they waited as you suggest and bought when mortgage rates went up 20% and price were down another 20%.

    It’s sad that you’ll post an 8-paragraph manifesto on the topic but not even take the time to consider the implications of what you are forecasting yourself…

  99. George8

    IPO, your 30-year hold move up house plan will work like a charm if all your assumptions follow through. But, if any of your assumption fails in the wrong time, potentially you will lose all your hard earned housing equity plus more.

    How? A long drag out stagflation can do huge damages. How likely, your guess is as good as any one else’.

    Let’s say you bought the featured home at $875k with $700k 30 year 7.5% fixed. And in 2011 or 2012, the 30 year fixed is 9.5% with CPI at 7% and your $875k house will be at $500k-$550k. If you can stick to your original plan, you will be fine. But, life could throw a curve ball at you at the lease convenient time. Well, loss of one job or two, forced sale because of relocation or even divorce, etc…

    Your $875k gets sold in 2011 at $575k. You lose $300k in equity in the trade.

  100. ipoplaya

    Remember George, I’m not a renter… If the featured home is $500-550K in 2011, what I own today will be going for $300K. Even if I don’t buy anything bigger, prices falling that far would/will cost me $250K of equity.

    Move-up buyers have different metrics on purchase decisions than renters looking to enter the market. Many people here on the good ole IHB conveniently overlook that…

  101. Lucy

    Wow, I didn’t realize I would provoke such hysterai from ipop on the figures. First of all, kudos to you for saving such a nice down payment (or whatever equity your have left in your condo), that’s admirable. Your calculations and your turbo tax friend are nothing more than what I call a typical “Disneyland math” for a couple of reasons. What’s giving me a pause is that your are mixing constants and variables in one basket. your are substracting your tax deduction from your monthly mortgage payment and costs, as if each moth you will write a check to a bank less $1600 with a note “Uncle Sam will pay the rest.” Your paycheck will be fatter, but your COST of ownership will stay the same $6,473 (which is more then renting). The cost of ownership is a constant and will more or less stay the same over the span of your ownership. The tax deduction is a variable that fluctuates with income. You may lose your job or be without a job for some time…life happens. This extra tax deduction will not always go to your principal. To calculate a constant tax deduction over 30 years span is optimistic, but is ultimately too speculative. Also, your monthly after-tax foregone interest income is too low, this should be closer to $500 (I am myself pulling over $300 in interest per month on a less than 100K right now). Another thing – you want to put extra into your equity once childcare costs are taken care of… what about college costs for your kids? This one is why many American home-owners HELOC-ed their homes up to the max. Also, you talked about renovating the place for another 50K…I suspect this is not all you are going to do on the house in the next 20 years?

    I don’t want to bicker further about it, if you want to buy this house of your dreams, then by all means. And good luck.

  102. ipoplaya

    Some good points Lucy, although from your response I take it that you realize it would NOT cost way more to buy vs. rent in this situation.

    “The tax deduction is a variable that fluctuates with income. You may lose your job or be without a job for some time…life happens”

    Life happening in most situations is income increasing as a result of promotions, inflation, investment income, etc. My family will likely make much more ten years from now than it does today, not the other way around. Neither my wife or I have entered our peak earnings years…

    “Also, your monthly after-tax foregone interest income is too low, this should be closer to $500 (I am myself pulling over $300 in interest per month on a less than 100K right now). ”

    Good for you. My figures are for my buying decision and my personal situation. For every dollar in interest income I make, I lose approximately $.42 to taxes. Maybe you aren’t taxed as heavily as I, I have no idea… Personally I’d have to earn 6% on $100K to get your $300/month after-tax. If you can show me and rest of the good savers here a safe, liquid place to keep my cash and earn 6%, it would be much appreciated.

    “what about college costs for your kids?”

    I have been putting $800/month toward college savings for my kids since pretty much birth. That is a permanent part of my budget. My 3-year already has $25K set aside for education between his IRA and 529 plan. My 1-year old has almost $8K. With earnings at 5% per year on this pace, I should have around $275K available to fund college by the time my oldest is in his freshman year. I don’t think I’m going to need to HELOC myself to death to pay for school…

  103. Surfing in Newport

    As far as I can tell (because of the changes in the tax law), you have the option of selling and renting for awhile. The cost will be ~3K extra in moving expenses and of course the disruption to your life.

  104. George8

    IPO, it may be true that what you own now will drop $250k in 2011 for argument sake. However, since your holding cost on this $300k condo will be smaller, the pressure for you to have a forced sale at the wrong time should be somewhat less. You still can support it with one job easily….

    You can tough it out much easier.

    Also, by the time the featured property is at $875k, your condo is no longer at $550k… but less. You’ll need to put up more of your saving to get it.

    Perhaps, it is advisable that you sell your condo at $550k and become a renter first?

  105. ipoplaya

    Most definitely smarter to sell my place now and become a renter. Alas, the wife still is not interested in joining the ranks of renters. Matter of fact, I just asked her again last night. She’d rather have 2400sf and not have to rent, move twice, uproot the kids, etc. vs. selling now and perhaps getting 3000sf after two years of renting.

  106. Marian

    I jumped to vote and I voted incorrectly.
    I looked at the house, and I said: I would pay $2500 in rent for it. Maybe a little bit more, but not too much more. So I voted “2000-2999″…
    My real answer: for a house that big, I want a pretty good discount for ownership.

  107. No_Such_Reality

    Ipop, I hear you and agree on some of the underlying points. Stable increasing rents results in higher GRM / lower ROI expectations. Higher interest rates decrease affordability psuhes for lower owner prices. Decrease affordability results in higher rental rates. They’re all interelated.

    Higher inflation typically pushes higher mortgage rates. Higher inflation pushes increased rents. Except in 91-96 timeframe.

    Regarding your inflation from ’86 to ’90 and the bubble, I’ll point to the mortgage rates from 1980 to 1990. In ’81ish mortgage rates where 17%. By 1984 they were 13% and then in 1986 dropped to 10% and stabalized from 86 to 90 at 10% +/- 1%.

    In other words, the bubble in 1986 to 1990 occurred at a time when inflation was increasing and yet mortgage rates remained stable at a rate 50% below their prior recent history of the first half of the 80s.

    From 90 to 94 inspite of continued decreasing mortgage rates, prices still fell. Prices fell and money got cheaper. Can you imagine what would have happened in the early 90s if money got more expensive?

    Here’s the Fed’s mortgage history.

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