House Price Predictions Do Not Matter

Searches for house prices predictions are a frequent way people find their way to this blog. I imagine these are people considering buying or selling their residence. House price direction is less important to this decision than it might seem. What’s important is the amount of money tied up in a house vs the amount of value provided by owning the house.

Suppose the costs of interest plus taxes, insurance, and upkeep work out to 9% of a the cost of a home. The a $200,000 dollar home requires $18,000 a year or $1,500 per month. If rent on a comparable place is more than $1,500, owning it is providing net value. This formula works the same regardless of what percentage of the home is financed.

Generally houses that are well maintained stay at about the same inflation-adjusted price over time. Years where prices change 10% are an anomaly. They are rare, though, so you can safely focus on the calculation of the amount of money tied up in the house and ignore the unlikely possibility of price fluctuations.

A change in interest rate affects the whole formula. What if rates go from 5% to 10%? That 9% value becomes 14%. The reasonable price for a house drops considerably. Since rates are at an all time low, my guess is they will be going up and houses will be getting less expensive.

This guess on my part shouldn’t influence someone’s judgment. What should influence a decision is the comparison of the actual costs of ownership versus comparable rent in today’s market. If this formula tells you to buy a property and my prediction of falling house prices comes true, you still won’t get hurt unless you want sell that property and not buy another one. If my prediction is wrong and house prices rise, owning a house during that time won’t help unless you sell it and use the proceeds for something other than real estate.

The deciding factor should be “Does the property cash flow?” not “What will prices be in the future?”

I have never owned real estate investments apart from my own home. I would love comments from people successfully earning money in real estate who will certainly know more than I do.

Superconductors for Transporting Renewable Energy

My IEEE chapter hosted an interested talk from American Superconductor this week.

Superconductors are materials that when cooled to very low temperatures conduct electricity with very low resistance. Resistance turns electrical energy into heat.

One application for superconductors is transporting energy from renewable sources to populated areas. Most of the renewable energy in the US is in the desert or other sparsely populated areas. Another application is moving more modest amounts of power around densely populated areas where large power lines would be unsightly.

A 765kV power line made of superconductors costs the same per mile to install and maintain as a power line made of regular cables. The power capacity of a 765kV non-superconducting lines drops off at ranges over a couple hundred miles. Superconducting lines can be as long as you want. The only way to transmit power over long distances without superconductors is higher voltage power lines suspended from large towers.

Superconducting lines have the drawback of needing to be cooled all the way along the wire. If even one part of the wire is not refrigerated, the whole line is useless. Developers of superconducting equipment say redundant cables and cooling systems overcome this problem while keeping the cost similar to conventional power lines. If this is true, we could have an energy superhighway to move large amounts of energy around the country as needed without unsightly high-voltage power lines.

If someone invents and energy storage device that can be charged with electrical energy, can store energy with the same energy density as gasoline, and can discharge useful energy as fast as an internal combustion engine, such a device would be a killer app for superconductors. The energy could be generated by nuclear or a renewable source, transported, and used with no CO2 emissions. I am not predicting such a technology but something sort-of like it must be developed soon. The world is using oil faster than we can extract it, and there is no plan for how we’ll power our society going forward. If the right storage technologies are developed, superconductors could be a big component of the solution.

Cash for Caulkers? Can We Have Cash for PCBs?

Based on the success of the Cash for Clunkers program (at trashing perfectly good cars by burning up their motors), the White House is considering a Cash for Caulkers program to insulate homes. That sounds good because my method of reducing our natural gas use is to put plastic over our windows for the winter. Maybe they’ll give our landlord cash to update the windows.

What I want more than Cash for Caulking, though, is cash for printed circuit boards (PCBs), cash for estate plans, and cash for industrial wireless modules.

I seriously think if the American Bar Association and the Nation Society of Professional Engineers did a better job lobbying, my wife and I could have “cash” for the stuff we sell. After all, some of my circuit boards are in an Iraqi water plan protecting freedom from those who hate us because we’re so beautiful/good/free/etc. And planning for your children after you pass away is a family value.

All kidding aside, electronics and estate planning are important for society and the economy. If those are the criteria to receive cash from the government, my family should be sharing in the stimulus.

PE Magazine: Engineers Good at Building Wealth

The Nov 2009 edition of PE Magazine quotes a study showing engineers are good at building wealth:

Anyone looking for the secret to accumulating wealth should take some tips from engineers.

According to a new survey by author and researcher Thomas Stanley, engineers are more successful than doctors and lawyers at transforming income into wealth.

Estate data from the Internal Revenue Service shows that about 1 in 13 (7.6%) of all male decedents with a gross estate of $1 million or more was once an engineer. Yet engineers account for only 2.3% of the male working population in the U.S. Thus, engineers are overrepresented by a multiple of 3.3 times the expectation.

Engineering is also the highest paid profession that requires only a bachelor’s degree. It is also one of the few professions in which you can often get a master’s degree completely paid for by a school or employer. It’s unfortunate that “doctors and lawyers” are often seen as the only iconic well-paid professions.

For someone selecting a profession, all of this is only somewhat important. These are the averages. The average person in any profession, even the highest paid, does not earn that much money. In every industry, even ones with low average pay, the best in the industry earn more than the average person in all other professions. You're better off going into something at which you can be above average than picking a profession with a high average pay and planning on mediocrity.

Fathering is a Cultural Issue Well Under the Radar

The NYT ran a good story about the issue of father’s role in parenting: Fathers Gain Respect From Experts (and Mothers)

Full-on sexism is alive and well when it comes to parenting. I was completely oblivious to this until I had a baby.

The NYT article brings up excellent points regarding fathers’ role. The very language of fathers being “involved” highlights the sexism. You would never ask how involved a mother is. It’s expected she is more than “involved”. If a father is “involved”, it’s seen as a virtue.

Here are a few points I would add to this article:

• It used to irk Melissa Calapini when her 3-year-old daughter, Haley, hung around her father while he fixed his cars. Wow. I’m guessing it would have been okay if it had been a boy.
• Because mothering is their realm, some women micromanage fathers and expect them to do things their way. It is easy to fall into this trap. No one person is to blame when it happens.
• The article said low-income families benefited more from parenting classes with both parents attending than with father-only classes. This is interesting. The sexism of parenting is often less in low-income families because they often have no alternative to having one parent work while the other watches the children. In the future they should study more affluent parents who have a greater ability to separate parenting roles than poor families.

I am glad to see articles like this in the New York Times. These are huge issues that are barely talked about when a couple is having a baby. There’s a lot of talk about baby shower products and decorating the baby’s room. Regardless of what the couple wants each parent’s role to be, they should work out a detailed plan so that the rigors of parenting don’t lead them roles by default.

Florida Criminal Justice Problem Is Symptom of a Cultural Problem

From the NYT: Justices Weigh Life in Prison for Youths Who Never Killed
There are just over 100 people in the world serving sentences of life without parole for crimes they committed as juveniles in which no one was killed; 77 of them are in Florida.

I spent 22 years living in Florida, so Florida weirdness, which comes up on a regular basis in news stories always catches my eye.

I don’t know the best approach to dealing with young teenagers who commit heinous crimes. If we’re going to treat them as adults when they commit crimes, though, it seems like they should get all the other rights and responsibilities of adulthood without committing a crime. People naturally want to break away from their nuclear family at that age and find their own way. The very best thing about US culture IMHO is that we view people finding their own way as a fundamentally virtuous thing. The trouble is breaking away from the nuclear family at 13 years old is compatible with modern society.

I don’t have a program in mind to apply this idea to the goal of reducing juvenile crime. People knowledgeable about criminology should work on it though.

What advice do I have for Florida regarding this problem? Foment feelings of community. Florida is full of people who left places where generations of their families lived in the Midewest and East Coast. The void left by family is filled with the mass media, which largely are funded to promote products. So consumerism replaces family culture. Florida needs to work on making people feel part of something, especially the poor. People need to feel like citizens and neighbors, not just consumers. People need to feel that there are few laws, enforced vigorously and fairly by a criminal justice system that they have some role in managing.

Why Engineering Past Achievements and Future Goals Seem Different

I saw an article in IEEE Spectrum magazine (a magazine for electrical engineers) today that reminded me vaguely of recent partly tongue-in-cheek post asking why liberal politicians don’t have bigger dreams. Engineering Achievements: The Two Lists

The National Academy of Engineering put together lists of 20th century’s greatest engineering achievements and greatest engineering challenges for the 21st century. (I blogged about the energy-related items on the list two years ago.) The 20th century achievements include things like airplane and telephone. The challenges for this century include items like prevent nuclear terror and develop carbon sequestration methods.

The article asks why the old list involves discrete thing-like inventions that ushered in sweeping cultural changes while the new list involves social/cultural goals we’d like to see some sort of technology to address. The reason, IMHO, is the difference between hindsight and foresight. Looking forward we see a list of problems and risks we’d like to see addressed. The technologies of the future may solve those problems in ways we can’t foresee. For example, instead of finding ways to sequester carbon from burning fuel, we may find ways to adjust other areas of the environment to compensate for higher levels of CO2. The list of 21st century accomplishments, I suspect, will include discrete product-like technologies just as the our 20th century list does. “Carbon sequestration” and “Prevent nuclear terror” might be replaced by “nuclear fuel cell” and “subatomic particle scanner”.

When I consider our ability to produce things now that were unheard of 100 years ago, it makes me wonder how reasonable it is to compare GDP now with then. We are immeasurably wealthier now than then. The same thing will happen over the next 100 years. So we shouldn’t fret over GDP being flat for a few quarters, medicine getting a little more expensive, or houses getting a little less expensive. We need to keep teaching people math and science and to work hard, and in a century our great grand children will not even be able to measure how much wealthier they are.

Liberal Dreams

The Democrats are doing well politically partly because they offer to have government manage parts of people’s financial lives at a time when people feel like they cannot manage their lives on their own. This will end when the media start reporting positive stories about the economy and people feel like they’re more on top of their lives.

I would love to see Democrats take on something truly big and fund it as if it were a war. We have a war about every ten years, so this isn’t such a big deal. Here are ideas in rough order of decreasing merit:

• Massive anti-poverty program focused on nutrition (decreasing the death rate), housing, and educating girls (decreasing the birth rate)
• An alternative energy program aimed at helping the entire world, including the developing world, move to getting more than half its energy from renewable non- polluting energy sources.
• A network of high-speed trains
• Grants to any local government or private organization who can teach kids to be #1 in math, science, history, and language compared to all other countries
  
• An Apollo-style space program focused on sending people to Mars and beyond and/or putting a decent-sized permanent research facility and business incubator in low earth orbit.
• A program to end the drug war and all that comes with it by researching medications for addiction and more innocuous recreational drugs for those who insist on using them.
• Research into technology to incubate fetuses in vitro as an alternative to abortion – If successful, this would put an end to a contentious issue.

I know the government can’t do any of these things well, but they’re just potential alternatives to: We must spend $100 billion per year on fighting loosely-defined enemies who hate us because we’re so good/free/beautiful/etc. The answer would be, We’ll they’re really gonna hate us now because we’re striving to be even better. (It should go without saying, BTW, if you think people hate you because you're so good, you probably have some kind of psychological problem.)

I know this is just liberal dreaming, but it doesn’t seem that much worse than Democratic goals:

• Manage your healthcare spending
• Help people stay in $400,000 houses they can’t afford
• Help you out with a few bucks if fuel costs rise
• Manage part of your retirement savings
• Even out the economic cycle a bit through government borrowing and spending

Those are lame. If politicians are going to sell something, I want them to sell giving every human being access to food, water, education, right to own lands they’ve squatted on for decades, and contraception. I want a nano-tech project focused on materials strong enough to build an elevator literally to outer space. I thought liberals wanted to save the world. Why are we selling a plan for the government to borrow money to save us a few hundred bucks on insurance? Politicians should leave that to Geico and, if they refuse to offer simply to leave us alone, they should focus on some really momentous dreams.

Posts from Rortybomb on Libertarianism and Personal Spending Priorities

I am more efficient at circuit design than commentary, so I’ve been slow to post lately. Here are links to two excellent posts on Rortybomb.

Libertarianism and Culture: If libertarians could accept cultural values playing a role in public policy and be generally less radical, they would be the majority.

Spending and Inequality: We often hear about people saving money by going to the coffee shop less and worrying about spending a few dollars more for fuel, but oftentimes the real problem is in a few large budget items: housing and transportation. People irrationally spend large amounts on these and then scrimp on everything else they buy.

These are not directly related apart from the idea that if people took more charge of their personal/family budgets, they would be more inclined to libertarianism.