It’s time for an update on the real estate bubble, which I have been watching since 2003. About a year ago, I laid out a timeline for the real estate boom. Knowing real estate happens in 16-year cycles, I juxtaposed the last boom/bust cycle in the early 90’s onto this cycle. Here’s what I came up with:

1990 (2007): Prices take a serious plunge. One article claims that housing booms are a bad thing and we should hope prices stay low. Increasing mortgage rates are blamed for the bust. The word “recession” is mentioned. Gloom and doom.

That’s next year. How many times do you think you will hear the words “looming recession” next year? More than you want to, that’s for sure…

Ah, yes. Recession, recession, recession… Yep, all over the news. Notice I called it a “looming” recession in my post last year. That’s because “A recession is traditionally defined in macroeconomics as a decline in a country’s real Gross Domestic Product (GDP) for two or more successive quarters of a year (equivalently, two consecutive quarters of negative real economic growth).” (thank you, Wikipedia.) We won’t hit two consecutive quarters this year (or, if we do, it’ll be 2008 before we know we did.) I think the actual “recession” will start next spring.

2008 will be a disaster year for housing. Let me share with you a choice quote: “‘Recent mortgage disruptions will hold back sales temporarily, but the fundamental momentum clearly suggests stabilizing price trends in many local markets,’ said Lawrence Yun, senior economist for the Realtors.” That’s from this article, published today and titled “Existing Home Sales Fall in 41 States.” Have a good, hearty laugh over that one. Prices are nowhere near “stabilizing.” Homes here have lost about 15% of their value since the 2006 peak. They still have a good 25% more to go down from here…and that’s probably a conservative number.

The proverbial **** has hit the fan here in California. You are no longer able to get an interest rate under 8% for a loan over $417,000. Take note of that number, because I don’t doubt that will become the subject of a heated political debate. $417,000 is highest rate at which Fannie Mae and Freedie Mac will buy a loan. Loans at or below $417,000 are called “conforming.” Loans above $417,000 are “non-conforming”. Since non-conforming mortgages are defaulting at shockingly high rates, and there is more risk associated with them in a market where prices are going down, interest rates have skyrocketed for those loans.

61.9% of the loans in the Bay Area in January-June 2007 were non-conforming loans.

That’s why this post is entitled “The Game is Over.” The jig is up — there’s simply no way more than half of the buyers who qualified for home loans in 2005-2007 in the Bay Area will now be able to afford loans. Add that to the people who can afford home loans, but don’t want to buy in a declining market, and you have a perfect recipe for huge price drops.

I don’t think we’ll begin to see huge price drops until this time next year. A year from now is probably the first point at which I’d recommend actually buying a house…no matter where you are in the country. Prices are dropping now, but they’ll drop more once all of the bad loans are squeezed out of the system. This is going to take a while. Sellers haven’t realized what happened…the bomb that just dropped. They’re still pricing their houses 10-15% below peak. It will be several months before housing prices adjust to this new reality. Don’t kid yourself…this is the new reality. Bernanke may drop the Fed funds rate later this year by 0.25% or 0.5%, but that doesn’t automatically mean that you’re going to be able to get a non-confirming mortgage at less than 8%. Those two things simply aren’t correlated. Mortgage interest rates are dictated by the market for mortgage-backed securities and what buyers of those mortgages are willing to pay, not by what the Fed dictates. Remember, in my chart I mentioned that it wouldn’t be until 2010 that houses truly became a bargain. Notice the quote from the early 90’s bust: “1993 (2010): It’s definitely a buyer’s market. Some people are saddened by the fact that current prices are 50% of what they were in the 1980’s.” We have quite a way to go until we reach that point. We will get there, but it’s not going to happen more quickly this time.

I’m happy to wait things out. How are you doing? I hope you sold your house last year… we’ve passed the point of no return at this point, and it’s downhill from here for the next 6 years or so. I’m optimistic about all of this, though. Downturns are when the most amazing things happen… inventions get made, and people band together to help each other. Yes, it won’t be easy. We will be hit harder than we were in the dot-com boom. But opportunity always awaits.

By the way, if I could make a recommendation… invest in a growing country, and get out of dollars. Which country? That’s for you to determine. 🙂

I had a crazy-busy weekend. I am going to Burning Man again in late August (my 3rd Burn!) Last year my friend Erik and I rented an RV and split the cost. The total ran about $2000 to rent for the week. I’m really glad I rented once, because it gave me an excellent idea of how to operate an RV and what to expect in most RV’s.

This year, though, rental was going to be another $2000. Even split, it’s hard to justify that cost. I knew I could probably find something decent to buy on craigslist. I spent pretty much an entire day (Saturday) reading online and trying to decide what I wanted. There are many options. I could have bought a conversion van and put a small camping porta potty in it (cheapest), or bought a truck and a 5th wheel trailer and towed the 5th wheel (most expensive.) I looked at my cash situation — I had about $3K accessible, and could stretch that to $4K at the most. That ruled out a 5th wheel + truck. It still left lots of conversion van options, but after thinking about it some more, I decided I probably didn’t want to go to multiple Burns without an RV or trailer of some sort. Porta potties are nice but you do have to empty them, and a conversion van didn’t get me a fridge or cooking gear.

On Sunday morning I decided I really wanted an RV. (Well, ideally, I wanted a 5th wheel and a truck, but I wasn’t keen on getting a loan to do so.) I hit up craigslist in earnest and started calling around. I made a list of what I wanted: automatic transmission, under 100K miles, working toilet, smogged, runs well, holding tanks for black & gray water were the top priorities. After that, stove/oven, air conditioning, propane refrigerator, solar retrofit potential, and generator were the “nice to have” features.

I found a perfect RV at the very top of my budget: $3900. But it had a generator! So Richard and I drove up to Oakland to take a look. Oh, he was a beaut… I fell in love at first sight. Original 1970’s decor, complete with green shag carpet. A working toilet. A Honda generator!! Air conditioning! Dan and Patricia, the sellers, were as sweet as could be. They spent hours with us showing it off and I could tell they had put a lot of love into it over the 8 years they had owned it.

The RV started right up and I took him for a (very slow) test drive around Oakland and Berkeley. There is some goofiness (the RV door sticks a bit, the parking brake isn’t catching quite right, the sound system was stolen and will need to be replaced, and the stove and oven may or may not work.) But all in all, he’s in excellent working condition considering his age. He drives well and the engine sounds great.

As I was driving him home, I knew he had to have a name. The interior was very retro, and I was amused that I had bought such an old “backwards” RV, so I christened him Retrograde.

Retrograde!

I have to go get him smogged and registered this week. (Dan and Pat gave me a $60 credit toward the smog check, so my total came out to $3840.) I also need to put some insurance on him. I paid cash and have title in hand, which was the best part… I knew I hadn’t stretched myself too thin. Even at about $1000/year in maintenance, which is what Dan and Pat sounded like they had put into him, it’ll still be about as expensive as renting an RV for the next 3 years for Burning Man. Plus, I own him now, and can take him to Tahoe or camping or wherever we want to go. Oh, it was a happy day yesterday. Totally exhausting, but wonderful. Welcome home, Retrograde!

More pictures of Retrograde on my Flickr page

Last night, I was working on the new Simpli website. The designers who did the website had a Javascript that created breadcrumbs at the top of each page (you know, those links that say Home > Section Name > Page Name). I thought it was really silly to do that in Javascript; plus, the code was hard to modify and had a bug in it that was difficult to fix since the variables were named (I am serious) a, b, foo, and bar. Ugh!

I searched and found this free PHP breadcrumb script, but it didn’t do some things that I wanted — namely, if the visitor is on the index page of a section, it shouldn’t link that section name (since the link would be to the same page the visitor is already on.) Also, I wanted the final breadcrumb to be the page name if the page wasn’t an index page (for instance: Simpli Hosting > About Us > Our Datacenter, instead of Simpli Hosting > About Us for the Our Datacenter page.) That script didn’t offer that.

Also, even though I had “convert underlines in page filenames to spaces” and “uppercase the first letter of every word” enabled, they didn’t actually work. So I fixed that too.

Since the original author released the PHP breadcrumb script free of charge, I will release my modifications free of charge, and document my modifications below.

Here is the script: breadcrumbs.phps

You use it simply by including it in the page, and it will output the breadcrumb based on the directory structure of your site. For instance, a directory structure of http://www.simpli.biz/FAQ/Colocation_FAQ.php will generate:

Simpli Hosting » FAQ » Colocation FAQ

Change the $topLevelName and $separator variables to change the text in the first part of the breadcrumb (in this case, “Simpli Hosting”) and the separator between each breadcrumb (in this case, ».)

The key here is that if you’re on the page http://www.simpli.biz/FAQ/index.php, it won’t print “index” and it won’t link “FAQ”. However, if you’re on http://www.simpli.biz/FAQ/Colocation_FAQ.php, it will link FAQ to http://www.simpli.biz/FAQ/index.php.

This script does assume index.php is your directory index in every directory, and it does convert underscores in pages to spaces and uppercase the first letter of every word in the breadcrumb. If you don’t want it to do this, you can comment out the lines in the code that do that. See if you can figure out which lines do that.

This script is free to download, free to use (public domain), but there is no support. If it works for you, great! If not, hack it till it does. 😉

One catch: My modifications use $_SERVER. If you use $HTTP_SERVER_VARS, you will need to global $server and change $_SERVER to $server in the MPBCDirIndex function.

For the past week, I’ve been exploring some new techniques to rearrange my time so that it is used most effectively. This follows my realization in What’s Most Important? (my previous entry) that time will become my most valuable resource.

I have several goals:
1) Make my time at the office of maximum effectiveness, as I want to be in the office no more than 8-9 hours a day. (No more 12-hour days every day, please.) Putting the same amount of work into an 8-hour day as I had in a 12-hour day seemed hard, but I’ll tell you how I successfully managed to do it.
2) Free up some time to exercise for 1/2 hour or more at least 3 times a week.
3) Get rid of side projects that were taking up my weekends so I could have weekends free to read, brainstorm, hang out with friends, go shopping, and catch up on TV and movies.

I started reading The 4-Hour Workweek, which is an interesting book that I’ve seen mentioned on several blogs lately. I expected a bit of an ego trip from the author, Timothy Ferriss, and there was a bit of ego there, but what I found most interesting were the radical changes he made in his life that simply weren’t obvious to most people (including me). For instance, he sets aside 1 hour every day to read and respond to email, and keeps his email client shut off the rest of the time.

I implemented a variant of this, deciding to keep my email client off during the day except for predefined times that I would have it on. I was moderately successful: I immediately noticed my productivity spiked, but since I didn’t set aside a time to respond to email, some emails did not get responded to. I’m going through this weekend and responding to them, but that is obviously sub-optimal. Next week, I intend to set aside a time every day to respond to emails and ensure that all emails from that day are responded to on the same day, as well as just reading them and sorting my inbox.

The biggest change I made was inspired by Timothy’s book, however, and this improved productivity dramatically: I stopped reading blogs at work. That was a huge difference. I didn’t realize how much time reading blogs took. Timothy points out in his book that “batching” saves an incredible amount of time. That is, instead of taking 5 minutes 20 times a day to read email, you can “batch” and do the same amount of email reading and responding for 1 hour. 5×20=100 minutes; 1 hour=60 minutes.

Reading blogs, for me, turned out to be the same way. I typically now read them at night when I get home — I can read them more effectively once a day instead of 10 times a day. Plus, most blog posts aren’t that time-sensitive. I sorted my RSS reader into two categories: Daily and Occasional. I put all the blogs I wanted to read on a regular basis under Daily. I put everything else (mostly news aggregators like TechCrunch) under Occasional. I stopped reading blogs at all when I was in the office, and also asked my friends to email non-work-related blog entries to me on my Gmail account instead of IM’ing them to me. I read the Occasional blogs only when I have plenty of extra time.

Those 2 changes allowed me to squeeze about 2 extra hours out of my day. I’ll continue to work on other time-saving changes. But 2 hours was enough for me to move on to the next phase of my plan…

Today I signed up for a gym membership at a local gym. I’ve listened to lots of friends who talk about gym memberships and the most common reason the memberships fail is that the people sign up for a gym membership with no set plan of action. I didn’t want me to be a gym membership failure, so by the time I walked in to the local gym today, I knew what I wanted: a reasonable monthly rate; to do Pilates; and to have a personal trainer do several sessions with me to get me up to speed on all the machines and design a workout plan that I could do effectively. I also committed to myself to pay for additional personal training if at any point I felt like I was falling off my goal of exercising at least 3 times a week. Finally, I know that gyms are fairly negotiable up front, but once you sign, you’re in — so I went in knowing I wanted to negotiate.

The gym I went to offered a free month of Pilates training (cool!) and 4 free personal trainer sessions if I signed up for a 1-year commitment and paid $65 monthly and a $75 signup fee. They also offered free daycare, and I didn’t need free daycare, so I negotiated another 4 free personal trainer sessions instead (that’s about $265 according to their list prices, by the way.) Included in the monthly fee is unlimited use of the gym and nice pool, plus free group workouts every day. I looked at the group workout calendar and immediately determined that I would be best served by signing up for the “core strengthening” session twice a week. I figure the 3rd time every week will be what the personal trainer wants me to work on solo; if that doesn’t work, I’ll reassess later.

I have just allocated $855 for fitness over the next year (plus any workshops I decide to do, like continuing Pilates, tennis, or dancing lessons), so I need to be committed to this. I am open and flexible to design a fitness plan that works for me, but I also know I’ve spent some money now, so I must follow through and work diligently on achieving my fitness goals for the next 12 months. I plan to go in at 9 or 9:30AM 3x a week (this means getting up earlier than I am used to.) I’m pretty sure this will work. I’ll keep you all posted. 🙂

I talked about goal #3, eliminating side projects, at length in my previous blog entry, so I don’t have anything new to report there. I’ll keep posting more time-saving tips as I find them.