As for business, it’s true that foreclosures are getting more attention. If you’re a lender, it means you are taking back more property or negotiating short sales. If you’re a borrower, it means that you are getting into a squeeze because bankruptcy protections have changed and borrowers are less likely to qualify for a Ch.7 and will have to stay in a 13. This means that they still have to make their post-petition mortgage payments. Of course, once their 2/28 ARM rates spike, they won’t be able to do that and lenders will get relief from the automatic stay to take back the property at foreclosure sale. Foreclosure investors may make out or REO investors who have been holding on to some cash will be more selective because there is more inventory. More for work for a real estate attorney like me? Yes.

“aspiring to attend Cal like many good Bay Area natives”

That part really puzzles me. Why not Princeton, Dartmouth, Georgetown, Yale, Tufts, NYU or Cornell?

I noticed on your blog that it says this:

“DirtLaw Blog: Providing commentary and insight into trends in California real estate law and lending law, mortgages and foreclosures.”

Has business been picking up with the recent rise foreclosures?

I agree King & Story looks like crap. But I feel totally safe whenever I head down there and check out the Cinco de Mayo festivities, Lunar New Year Parade & Fair, or head over to Grand Century for some dim sum. I’m not even Mexican! go fig, huh? Crime-ridden?…um not so much… More like a vibrant, organic neighborhood full of color.

I was specifically referencing Tim’s absolute fear of mexicans, as is quite obvious in his posts concerning the rise of taquerias and gangs and crimes…as if one has a direct correlation with the other. That’s plain ignorant. Tim also throws out unfounded assertions about education and crime rate to further demonize San Jose.

I actually agree with you…it’s the lack of care that’s put into the houses that’s bringing down the quality of the area. And I agree that it LOOKS like shit in some places, but that doesn’t make it a third world country, by some people’s assertion. Palo Alto along certain stretches of El Camino looks like shit…that doesn’t make it third world. Almost all cities have their armpits, and painting the rest of the city in the same stroke as the armpit is ridiculous (just like that last analogy!!!! )

Like burbed, I was really pointing out the inherint anti-mexican comment in Tim’s posting.

And Tim, BTW, so was King & Story, and East San Jose in general NOT full of taquerias and birrias 35 years ago? That’s funny, cause I’m pretty sure Cesar Chavez’s family felt there were plenty of taquerias and birrias when they moved to the predominately Hispanic neighborhood in 1930. Somehow I get the feeling your “old east side haunts” weren’t really that “old” or “east side”.

Maybe that’s why HOAs are growing in popularity – even though they can easily become evil. People want dictatorships.

I guess you wouldn’t find this piece surprising:

Survey Reveals America’s Manners at an All-Time Low
http://www.harrisinteractive.com/news/newsletters/clientnews/2006_Lenox.pdf

burbed Says:
February 13th, 2007 at 2:34 pm e
>>The average per household salary in the Bay Area is roughly $70,000 per year.

Actually, as noted here:

http://www.burbed.com/2007/02/13/bubble-war-long-island-versus-bay-area/#comment-6831

The Median income in this area according to HUD is:

SAN JOSE-SUNNYVALE-SANTA CLARA, CA
$97100

Using this calculator:

http://www.dinkytown.com/java/MortgageQualifier.html

Using the default settings, and adding an annual income of $97,100 and cash on hand of $50,000 – the purchase price should be $328,591.

That sounds about right – the median price for a home sold last month was $660,000. About 2x the traditional recommendation.

JasonofsoCal Says:
February 13th, 2007 at 2:07 pm e
Damn, people are getting downright caustic around here. Everybody take a step back, take a deep breath, chill out.

Ok folks, economics 101 for everyone. We are going to go beyond the notion of what’s nice versus what’s not nice. Let us set aside any of the aforementioned statements regarding housing being a “sure thing”. And let us also set aside the “they aren’t making anymore land argument”.

Let’s just stick to the math. So here goes:

The average per household salary in the Bay Area is roughly $70,000 per year.

Based on historical norms and formulas that have been in place for about a century, up until recently, individuals were encouraged to not take on a mortgage more than 3 times the pre-tax salary of the household.

By following that concept, the MAXIMUM mortgage size utilizing that formula should be: $210,000. Let us assume a downpayment of $50k as reference. That would yield a house price of $260,000.

Of course, now here come the rants. The Bay Area is “special”. The jobs are here. The land is disappearing. Etc. I am not going to debate those items. I am here to simply demonstrate the math.

Another way to determine “fair valuation” for housing is a rent/buy comparison.

Historically, homes (just like stocks) have certain P/E ratios. Those ratios dictate the valuation of an asset class. As far back as the late 1800s, the average P/E for a home was between 11 and 12. For the sake of argument, I am going to provide a premium for the Bay Area (since it is “desirable”) and allow for a P/E ratio of 15.

Now, the formula for home P/Es is:

P/E ratio = (home price)/(years rent – expenses)

So let’s do some math here.

Assume a standard Bay Area home with an average price of $600,000.

Now let’s make an assumption regarding renting. As a reference, I know of two friends who rent homes in San Jose for $2000/month. A peruse through craigslist seems to indicate that is a fair estimation.

Now let’s itemize:
I am going to low ball general maintenance and insurance costs for the property at about $200 per month. (its much higher, but I am demonstrating a point)

So the math yields
P/E ratio = (600,000)/(24000 – 2400)
therefore: P/E ratio = 28.

In other words, the P/E ratio is almost DOUBLE the HIGH BALL value I gave in reference to the P/E. By historical standards, it is MORE than double.

So there is the math. Before anyone dives in with their standard real estate cliches, I want some justification for the above math. If I hear phrases like “new economy” or “new paradigm”, it will simply re-enforce the view of the bloated nature of housing. Because folks, I was around during the dot com era and quite frankly, I’ve heard that before.