“Make the splurge, you won’t regret it now, you won’t regret it later.”
Wow… commenter Steve really stirred up some discussion. Here’s what Steve had to say yesterday:
Real Estate is Saved! Thanks stimulus package! [Burbed.com]
well, I’m ecstatic. I bought in October 2005 on the Peninsula (the good part), my house has appreciated $200K while everyone said it would never happen, and now I can refinance out of my jumbo loan to save $$$ every month.
Can’t wait for my 15% appreciation in the Spring! I love Bush!
The pessimism for the market carte blanche is misplaced.. just need to pick carefully. Los Altos, Palo Alto, Mountain View resale homes above $1M all have appreciated just fine during a flight to quality schools, quality employers, and most importantly areas with no new housing development. There’s zero inventory, LP remains above 100%, high-tech is weathering the storm just fine, etc, etc. My advice – jump in to these areas now… the water’s fine!
Pralay – (I’m not a RE agent) I agree with you on sales, but by pulling listings in this area, demand = supply for these areas where there are no investors, good schools, solid job prospects, and most folks lovin’ their low prop 13 tax base. My sources:
Inventory, 12-month avg source: rereport.com/scc/ (click on relevant cities), Zillow, Trulia
MV=25 homes in inventory, 12-month avg. up ~ $200K (Zillow MV non-condo=$100K gain)
LA=20 homes, 12-month avg. up ~ $150K (Zillow LA = $200K gain)
PA=20 homes, 12-month avg. up ~ $300K (Zillow PA = $200K gain)Current snapshot of mlslistings: 46 homes for sale in MV, 27 in LA, and 31 in PA… very low, and it’s been that way for 6 months…
Trulia has MV & LA up for non-condo (3&4 bed) units. Kinda tough to tell on Palo Alto 3&4 bed.
And, my favorite, Creekside Realty: top 10% of homes in SCC increased median from $1.37M to $1.70M in one year. Check it out: http://www.creeksiderealty.com/bay_area_real_estate/2008/santa_clara_county/1jan.htm Yeah, I know there are more high $$ selling than low, but look at the historical trend back to 2000…
I’m just proving the premise of this site – There is The Real Bay Area (>$1M houses in NW SCC county) and there’s everything else… Make the splurge, you won’t regret it now, you won’t regret it later.
Well… what do you think? Do you share Steve’s sentiments? Is now the right time to buy in The Real Bay Area?
January 26th, 2008 at 10:05 am
Sure! buy buy buy! RE only goes up! The gov’t will always bail you out!
For the rest of us who will never own a house, the Paladin Press has some fine, fine, Molotov Cocktail recipes.
January 26th, 2008 at 10:22 am
Steve must be a realtor.
January 26th, 2008 at 10:42 am
Steve should do what he said , buy one more house in the real bay area. Interest rate is lower.
January 26th, 2008 at 10:44 am
Here is what a realtor’s blog said:
Silicon Valley companies are doing very well as is evident in premier communities like Palo Alto. Here’s an interesting scenario for both the home buyer and the investor. A coworker just bought a home in midtown for $1,425,000 – not huge at all – 3 bedrooms, 1 bath and maybe 1,300 square feet on a normal lot. One day’s rental listing on Craigslist.com generated 4 applicants all willing to pay her $4,800 asking rent! Does this make “investment sense”? Not if you consider cash flow as the only aspect of return on investment. Investment return also involves appreciation, debt reduction, tax benefits, depreciation deductions and holding period. Will my coworker make money on this deal – in my opinion – absolutely yes – does it take guts and risk – yes also – but markets like Palo Alto will forever be in demand – so the risk is quite mitigated.
January 26th, 2008 at 10:59 am
Buy, buy, buy … this is why bay area prices will never go down:
Fine Print in a Fact Sheet sent by a “A” “P”rominent “R”ealtor: All reports presented are based on data supplied by Contra Costa, Bay East, Santa Clara County, San Mateo County, Santa Cruz, Stanislaus County and San Joaquin County Association of Realtors or their MLSs. Neither the Associations nor their MLSs guarantee or are in anyway responsible for their accuracy. Data maintained by the Associations or their MLSs may not reflect all real estate activities in the market. Information deemed reliable but not guaranteed
Have others seen things like this? Maybe I should post the whole discussion…. or better we should have a special thread about realtors and their factual (ahem, bullshit) insights.
January 26th, 2008 at 11:21 am
hey, Burbed, thanks for the platform!
I’ll repeat, I’m not a RE agent, just a homeowner in the valley workin’ like the rest of us in the tech biz.
Half the reason I posted yesterday is that I personally think the bubble talk has become, well, pretty darn boring. Yup, if you look at the AVERAGE real estate return in the Bay Area and if you look at the AVERAGE inventory levels around here, it all stinks to high heaven.
But, I don’t care about the average – I care about my specific, individual home investment. I care about whether my school district has API scores above 900, I care about how Google is doing down the street as I, in effect, own equity in that company despite not working there or not owning any of its stock. And I care about the level of investment the City is making in University Ave, Castro Street, Main Street, and investments others around me are making in their homes.
And, what’s the alternative now? Renting and putting the rest in the stock market? Check out the whoppin’ return on the S&P over the past couple years. Oh, that’s the average too – instead, pickup great companies that have been pounded on, like Disney, Boeing, GE, etc…
Anyhow, I digress – either sit on the sidelines and wait for… what? Or take some risk and invest in either an undervalued asset or an asset whose increase in value you can always bank on…
January 26th, 2008 at 11:23 am
Wait… Steve’s source (rerenter.com/scc/)has a similar disclaimer. Aha, I get it … posting statistics and claiming NO responsibility for accuracy is the in trend nowadays.
January 26th, 2008 at 12:22 pm
Steve,
“MV=25 homes in inventory, 12-month avg. up ~ $200K (Zillow MV non-condo=$100K gain)
LA=20 homes, 12-month avg. up ~ $150K (Zillow LA = $200K gain)
PA=20 homes, 12-month avg. up ~ $300K (Zillow PA = $200K gain)”
You are showing December numbers. December is normally low inventory month. Look at October inventory in MV. From October the inventory started going downward. Is it because homes are selling hot? No, number of sales are not going up. That’s because homeowners are simply pulling out their homes from market. That’s the secret of so-called “low-inventory”.
Now look are the “Annual Trends” section in the rereport.com. Both inventory and number of sales are going down since 2004. It indicates that market is showing down from the peak of 2004. It is not slowing down not as fast as other areas, but it is slowing. It’s a matter of time the price will become flat or start falling in MV and PA too. Because once the home prices become cheaper and affordable in surrounding areas, it won’t make sense to buy overpriced homes in PA or MV (even if they are attractive). When the RE market was good, the price growth happened outward. This is how home became overvalued in Gilroy or Morgan Hills or Central Valley. Now in bad RE market it’s just opposite – the slowdown is creeping inward. 2008 and 2009 will be fun years.
January 26th, 2008 at 12:46 pm
“Anyhow, I digress – either sit on the sidelines and wait for… what? Or take some risk and invest in either an undervalued asset or an asset whose increase in value you can always bank on…”
Steve,
I will rather rely on the advises given by many economists:
If you want to buy home TODAY, think of it as an asset which can either appreciate or depreciate in future. Take risk accordingly. Don’t take it granted that it will appreciate. If you are not in hurry to buy a home, watch the market for a few years, because it started slowing down.
Now, tell me Steve, in what way your advise is better than the above one? Your assumption is based on only ONE home and that is your home. It certainly does not cover the broad spectrum of RE market. And guess what, your assumption is based on some zestimate (or something else) which is unrealistic at the best in present day RE market. So, let’s put your assumption into test:
1. You put your home (which is appreciated $200K) into market and let us know the MLS number. Let’s us know what kind of offer it gets.
Or
2. Find a similar to your home in your neighborhood which is listed currently. Let’s us know the MLS#. We will watch how it sells eventually.
January 26th, 2008 at 12:51 pm
“Steve should do what he said , buy one more house in the real bay area. Interest rate is lower.”
I too encourage him to do exactly that:) Take the equity from current home and buy another home in MV/PA/LA.
January 26th, 2008 at 12:51 pm
I think I agree with Steve, and with Pralay both. It’s true that in the rich meaning upper class areas of the bay area values I think will hold pretty much steady, and at worst may see a small decline. However in the more ‘middle’ class areas of the bay area the prices will continue to decline because the fact that people just don’t have the salary power to keep values high.
January 26th, 2008 at 2:18 pm
Renter –
3/1 houses in midtown PA may sell for $1.4 million, but they certainly don’t rent for $4800 a month – more like $3000 a month. I own a shack in midtown and track this stuff.
Steve – I bought in 2003 and generally side with you that its probably still a good time to buy a house to live in if its in a prime Bay Area location (which really isn’t that large of an area) especially since mortgage rates are almost back to where they were in 2003 to early 2004. But as the monthly rent / purchase price numbers in the paragraph above indicate, unless you are prepared to lose 2-4 thousand a month, its insane to buy a house as an investment to rent out.
Given the complete failure of single family homes as income generating property for investors does anyone have any ideas on where to buy rental properties that will actually be cash flow positive in the first year??
January 26th, 2008 at 4:23 pm
So, I think it’s important to distinguish between a property that you own for your residence vs. a property you buy solely as an investment.
Right now, I think it’s still prudent to buy in the former case (in these areas) for three main reasons: 1) you are comparing vs. rent on the marginal difference between renting vs. buying, which you don’t do with a second property; 2) your time horizon is probably longer; 3) intangibles (the neighborhood, better living environment, you have a yard, your commute whatever)
PA Homeowner, I think you pose an interesting question on investing for its own sake in today’s environment, but a one-year cash-flow positive return is going to be pretty risky. Maybe 3 years min, but 5 years to be safe. For cash on cash return over a 3-5 year period, you’d have to look at someplace outside the Bay Area where prices have been pummeled, but where fundamentals (job growth, schools, etc) are sound.
Pralay – for the above reasons, my time horizon is 5+ years, so I’m too early to cash (and, heck, gotta live somewhere… not to mention transaction fees for getting in/out). As for option #2, I look at sales vs. LP every month and 90% of all properties are selling for $50-$100K over LP. Again, I agree with you that sales are tanking AND I agree that people are pulling houses from the market. My point is that this ‘hunkering down’ is preserving prices and unique in this area vs. other areas where people can’t/aren’t taking their properties off the market… and where the resulting inventory drives prices declines.
I’d bet you on what the price changes will be this Spring… but it sounds like we’ve both made our bets!
January 26th, 2008 at 4:24 pm
So, I think it’s important to distinguish between a property that you own for your residence vs. a property you buy solely as an investment.
Right now, I think it’s still prudent to buy in the former case (in these areas) for three main reasons: 1) you are comparing vs. rent on the marginal difference between renting vs. buying, which you don’t do with a second property; 2) your time horizon is probably longer; 3) intangibles (the neighborhood, better living environment, you have a yard, your commute whatever)
PA Homeowner, I think you pose an interesting question on investing for its own sake in today’s environment, but a one-year cash-flow positive return is going to be pretty risky. Maybe 3 years min, but 5 years to be safe. For cash on cash return over a 3-5 year period, you’d have to look at someplace outside the Bay Area where prices have been pummeled, but where fundamentals (job growth, schools, etc) are sound.
Pralay – for the above reasons, my time horizon is 5+ years, so I’m too early to cash out (and, heck, gotta live somewhere… not to mention transaction fees for getting in/out). As for option #2, I look at sales vs. LP every month and 90% of all properties are selling for $50-$100K over LP. Again, I agree with you that sales are tanking AND I agree that people are pulling houses from the market. My point is that this ‘hunkering down’ is preserving prices and unique in this area vs. other areas where people can’t/aren’t taking their properties off the market… and where the resulting inventory drives prices declines.
I’d bet you on what the price changes will be this Spring… but it sounds like we’ve both made our bets!
January 26th, 2008 at 4:38 pm
Hello all:
I think Stevo makes a good point.
It *is* true that Palo Alto, Mountain View, Los Altos, Los Altos Hills, Cupertino, Atherton, Menlo Park (aka the real bay area) have shown dramatic, and continuing price appreciation. They are *not* crumbling like marginal areas on the East Bay, or closer to San Jose, or further north.
Will this continue? It’s hard to say.
If you are a renter now, interested in buying, the question is should you buy *now* (so you can enjoy appreciation) or should you rent for a few more years, pocket the sizable difference between renting and buying, and then get the same house for 2007 prices in 2009 (or whenever).
It all depends on whether you think prices in the Real Bay Area are going to keep going up or not, and if they are going up, how fast. If appreciation is about the same as inflation, you can sit tight and it makes no difference. If there are more years of 15% y-o-y upside, you should jump in now.
-zanon
January 26th, 2008 at 6:26 pm
more like get a house at 2001 prices in 2009. Yeah. Rent.
January 26th, 2008 at 7:02 pm
What can I say? Priced out forever.
It is always easy to “imagine” what your home is worth, until you sell.
The law of economics is the same. The weak assets crushed first in a downturn, then the strong ones. Those people holding Apple and Google stocks are sure thinking that their stocks are special, cause they are taking over the world and such. After all, how low can they go right? Pretty much like Cisco, Sun, EMC, blah blah.
I am not planning to buy a $1m home so what do I care about how Palo Alto is selling. If homes remain expansive then people just don’t buy, simple as that.
January 26th, 2008 at 9:40 pm
I am happy that your house appreciated by $200K. If you can refinance, do it sooner than later.
From what I here from realtors and friends looking to buy, the $1 million dollar housing “Real Bay Area” market is still strong. High traffic at open houses. Multiple bids. Etc. Etc. However, the sales numbers since August clearly show that the “Real Bay Area” market was much stronger in 06, 05 and earlier. Right now, the “Real Bay Area” is strong compared to “everything else”. The strength is trending weaker and weaker each year.
I do not buy the “flight to quality” argument. “Everything else” had been very strong for many years, and now it is broken. The price reductions that burbed has been posting. $50K. $100K. $200K. Truly amazing. The reason behind the strength was the easy money over the last 8 years. Anyone, ANYONE, could get a home loan. No job. No money down. No credit. No problem. The banks have tightened lending standards, washing out demand in “everything else”. The demand being speculators, “investors” and people who could not otherwise afford to buy.
With that said, I believe the same thing will come to the “Real Bay Area” in time. The banks have tightened lending standards, but it is still “easy” for borrowers with good credit and good income to acquire interest only, ARM, Option ARM and other creative financing. When these loans go away, where will the money come from?. And, these loans will go away, but they need to start blowing up first. The wave of loan resets coming in 2009 – 2011 will impact interest only loans, ARMs, etc of borrowers with good credit (non sub prime).
I work in the tech industry, and on the surface, the job market is excellent and there is no reason to worry. However, there are legitimate recession concerns on Wall Street right now. If we see unemployment go up or see real signs of a tapped out consumer, this will be catastrophic for the tech industry. The VC money that has been pouring into the valley the past few years has been going to Web 2.0. Web 2.0 is all about advertising. Web advertising is (again) expensive compared to its effectiveness. The competition for the consumer’s dollar has been fierce, and advertisers have been willing to pay the premium for web ads. Without a spend silly consumer, Web 2.0 ad money will dry up fast. The flight from online advertising was seen during the .com bust. This will mean job losses in the tech industry. (Assuming the consumer is dead…)
[Interestingly, one of the top web advertisers over the past few years was Countrywide Financial. When CFC is bought by BAC this year (Q3), CFC's ad spending spree will be over.]
I believe there are just as many finance jobs as tech jobs in the Bay Area. In the past few months, CitiBank and other financial institutions have announced huge layoffs. If you have been following Wall Street and seen the balance sheets of many leading financial institutions, you have to believe that more write downs and job cuts are coming.
When these job losses happen and borrowers with 800+ FICO scores cannot afford an ARM reset, we will see where the “Real Bay Area” truly is.
January 26th, 2008 at 10:36 pm
Can’t imagine tech taking a hit during a recession. Nope, not possible. GOOG will never trade below 550, no chance. W will save Silicon Valley just like he saved Iraq and New Orleans. Holy crap, people, the Bay Area is going to get leveled during this deflating bubble. Only an imbecile would buy now.
January 26th, 2008 at 10:57 pm
“I do not buy the “flight to quality” argument. “Everything else” had been very strong for many years, and now it is broken.”
Dan,
You explained it 1000 times better than me. I am monitoring the RE market (and economy in general) quite a while. Here the nature of local RE forecasts from RE industry in nutshell:
In 2005 and early 2006 (when things were as good it as can be): “California is special. Here weather is so great, the price will never go down here.”
In late 2006 and early 2007 (CA RE market showing signs of slowdown): “Bay Area is special. So many guys are earning above 100K here. The price will never go down here.”
Now, in late 2007 and early 2008 (even bay area is not immune): “PA, LA, MV are special. Google is here. The price will never go down here.”
It’s apparent that “special” area is shrinking quite fast. So let’s keep the following space for RE industry for farther forecast:
In late 2008 and 2009: _______________________________
Here my wild guess: “Google campus is special. The price will never go down here.”
January 26th, 2008 at 11:39 pm
Pralay: Amen to that!
Or maybe “The Real Bay Area” will end up being a couple of blocks in Atherton?
January 27th, 2008 at 12:09 am
You’re right, the problem with buying in “The Real Bay Area” is that it keeps shrinking. A couple of blocks in Atherton may be right, or maybe the “Real Bay Area” will shrink to a Platonic Ideal, existing in the mind like a perfect triangle and nowhere else.
January 27th, 2008 at 12:14 am
“My point is that this ‘hunkering down’ is preserving prices and unique in this area vs. other areas where people can’t/aren’t taking their properties off the market… and where the resulting inventory drives prices declines.”
Steve,
There is nothing unique about this phenomenon.
I already mentioned earlier. It’s called market freeze. And it happened in earlier RE market slowdowns (e.g. 1990). People don’t try to sell homes because they know that they are not going to get the price they want. People don’t buy homes because either they cannot afford or they don’t get within the price they want. Basically supply is zero and demand is zero.
But, the values of homes in certain area are not decided by the homes that did not sell. It’s decided by the homes sold in recent past. Eventually someone has to sell for some reason (losing job/moving out/old parents died and their children are selling it). When there was demands, this how home price appreciated rapidly in 2003/2004, isn’t it? One guy sold his house for 500K. Next month the next door neighbor put up his house in market for 550K. Then next month another guy in neighborhood put his house in market for 600K. The price goes down similar way. When there is no demand and one house is sold for 500K, nobody will be willing to pay next house for 700K even if the owner wants it.
It reminds me a story about Japan’s real estate bubble in late 1980s. I read it somewhere. One Japanese woman was saying “You know what, the value of my home is multi-million. Every homeowner in Japan is a multi-millionaire, because of his/her home.”. Then she adds “But you know what, there is no multi-millionaire left in this country who could buy our homes”.
January 27th, 2008 at 12:39 am
“They are *not* crumbling like marginal areas on the East Bay, or closer to San Jose, or further north.”
zanon,
In normal RE market the *crumbling* is very unusual. It almost does not exist in the dictionary of RE market. In general RE market settle down slowly and it takes years for that. Past slowdowns took many years to settle down. It’s not like stock market where people sell off quick when things start heading down.
However, the current RE bubble is very unusual too. Too many people got into this market who could not afford their homes in conventional mortgages. They got into market too fast and now they are getting kicked out too fast. The result – *crumbling fast*.
January 27th, 2008 at 12:46 am
“I’d bet you on what the price changes will be this Spring… but it sounds like we’ve both made our bets!”
Steve,
Spring is not far. I will be eagerly waiting for your post in Spring.
burbed,
Please revive this topic in Spring
January 27th, 2008 at 6:50 am
Pralay – I’ll bet on continuing strength in jobs, schools, and business/government/residential investment in the area any day. See ‘ya in the Spring!
January 27th, 2008 at 7:19 am
Probably a $30K Millionaire posting from Scottsdale, or a stock option king-for-a-day. Gee, never seen that before, or a trolling realwhore lie.
I’m glad you are so positive. You should offer your prescient wisdom to the White House. They could you use your BIG brains.
January 27th, 2008 at 9:34 am
> “Pralay – I’ll bet on continuing strength in jobs, schools, and business/government/residential investment in the area any day. See ‘ya in the Spring!”
Steve,
I am yet to see ONE SINGLE article that indicates the magnitude of optimism you are describing. But your last comment tells me that you are not keeping yourself up-to-date with local news. Just keep your ears and eyes open for all the press releases from your local city offices. Here some brief summary from all the news I came across so far.
- Home price tanking –> less property tax –> less new development project, less maintenance and improvements of streets and street lights, less law enforcements, less recreational activities offered city offices.
Now you know why many city offices are not liking the fact that home prices are going down. Don’t be surprised if you see too many potholes in your local streets and they are not getting repaired.
Have you seen the latest news of retail sales? That means less sales tax. Go figure what that means.
January 27th, 2008 at 11:07 am
Pralay –
Round and round we go. Since home prices haven’t tanked in the areas that I’m interested in, I’m not interested in the decrease in those area’s tax receipts. And on retail sales? http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/12/21/BUB8U25FO.DTL
Here’s my view – jobs, schools, investment:
VC spending: up 11% YOY and highest since 2001
http://www.mercurynews.com/vc/ci_8018519
NON-residential investment project investment approved: $191.4 million. This is 2 times the amount in 2006.
Employment: 922,100, highest since 2001. Unemployment remains low @ 5%
Hardcopy report, but scan available here: http://www.homei.us/home-values/economic-indicators-november-2007.html
API scores: all schools in area maintaining pristine scores. http://api.cde.ca.gov/AcntRpt2007/2007GrthAPICo.aspx?cYear=2004-05&cSelect=43,SANTA,CLARA
Conforming loan amounts increase, interest rates drop – get ready for the Spring bounce!
January 27th, 2008 at 11:58 am
I put my time in, in Silly-Con Valley for about 4 years, mid 03 to mid 07, and the trend I saw from my vantage point dealing in electronic surplus, was that tech is dying. Right now, stuff that used to be worth real money, test equipment, parts, etc is worth only its scrap value. The no. of places to obtain surplus is a quarter what there was say 5 years ago (a bunch of surplus dealers went out of biz just before I arrived) and now the few remaining surplus places are laying off people and closing up shops – their owners working out of their houses.
It will take a while but Silly-Con Valley will eventually go back to being a fruit growing area.
January 27th, 2008 at 12:27 pm
Oh no wonder – that’s hardware. Yeah hardware is definitely gone. It’s all about Web 2.0 baby!
January 27th, 2008 at 4:45 pm
Very simply, Steve has cherry picked his data from a relatively small segment of the market and takes one single data point (his own) and guesses it has appreciated.
While he may be right about his particular circumstance, his argument does not hold for the aggregate. Just look at the S&P/Case-Shiller Home price Index……
January 27th, 2008 at 10:07 pm
Steve,
If you’re placing all your hope of home appreciation on Google, I would look somewhere else.
I worked at Google recently and I have to tell you- I haven’t seen such wanton waste of money since the dot bomb days!
Employees get free breakfast, lunch, dinner and 3pm ‘snacks’. The food is all done by professional chefs, so it isn’t cheap.
There’s free massages. If you can’t make it to the appointment, you can schedule a desk side massage. You get on-campus dentists and car washes, not to mention fully equipped gyms in every building. To top it off, there’s heated toilet seats.
It’s quite amazing, if you think about it. Sure, they’ve been named the number one company to work for in 2008, but how long will that last when the money runs out?
What companies have been paying Google’s high ad fees lately?
I’ll give you a hint- they usually feature a man or woman dancing for joy after getting a new lower mortgage rate. You guessed it- Countrywide.
When Countrywide doesn’t have the ad money for expensive Google ads, I think we’ll see how many perks will be taken away from all those Googlers.
When Google doesn’t make their earnings target, the stock price will plummet.
Where will your house price be then, Steve? I’ll tell you- in the sewer, along with the rest of the “Real Bay Area”.
January 27th, 2008 at 10:15 pm
It’s total bullshit what Steve says, otherwise houses like this one in Mountain View wouldn’t have been on the market for months upon months:
http://www.mls-2.com/houseDetail.jsp?id=778276
List Date: 2007-09-20
Yeah! What a great real estate market this is.
January 28th, 2008 at 4:58 am
I agree with Steve’s comments. Some of you may need to get out and see some open houses in the real Bay Area before drawing your conclusions. Regardless of whether you can afford this market, go out and take a look at what’s reality.
I went to several open houses in Sunnyvale this weekend. There’s lots of traffic and interest. In one instance, I asked the realtor if there is any significant issue in the inspection report. The realtor said there is no inspection report; the house is being sold as is. Quite a contrast to the desparation depicted in the media!
Steve is right that it doesn’t matter what’s happening in Antioch, Central Valley, East San Jose, or anywhere the school API score is under 800. The “real” Bay Area market is where everyone wants to be, including people who keep hoping the market will go down. This is precisely the reason the “real” Bay Area will always keep its value — anytime there’s a dip, there will be tons of people rushing to get in, because they realize the window of opportunity is short.
If you think about it, for what reason should this market go down now? It didn’t go down during the dot com bust. Comparing to those times, the job market is way better now, and mortgage rates are almost as low. If you point to the credit crisis, I will tell you that Real Bay Area home owners don’t have sub-prime loans! They have 30 year fixed, and their mortgage rate never resets.
January 28th, 2008 at 7:08 am
Why are all the realtors coming out of the woodwork all of a sudden?
Could it be because we’re getting mounting supply and record foreclosures? Could it be because prices have dropped 10% YOY and we’re only at the opening innings of a multi-year downturn?
I smell desperation from the realtor community.
They’re even willing to come to blogs like this one to try and convince us to get out there and BUY, BUY, BUY!!! Before it’s too late!!
They aren’t making any more land, you know…
January 28th, 2008 at 8:14 am
If there is a fall it won’t happen until 2010. That’s when all the five-year ARMs written in 2005 will reset, and you’ll see people doing panic sales trying to get rid of their investment properties. Right now they’re still in the introductory period and there’s no reason to sell at a loss; they’re more likely to just take the house off the market.
It seems to me that whatever slowdown we’re seeing is more due to the banks than anything else. More and more places are drinking the “20% down” Kool-Aid, as though sinking 20% into a house is a guarantee of financial stability. Heck, I’d say that doing that leaves people WORSE OFF, because they just went and tied up a huge amount of money, and they can’t get it back without a home-equity loan!
But anyway, since very few people have $200,000 sitting around in their bank accounts, sales have slowed because people can’t get financing.
January 28th, 2008 at 8:30 am
>>But anyway, since very few people have $200,000 sitting around in their bank accounts, sales have slowed because people can’t get financing.
Not sure how you came to this conclusion. There are certainly enough people with that much. Tons of people make $100K+ salaries, lots of people have stock options, and lots more people who currently own a home have >200K in equities, which makes it possible for them to trade up.
January 28th, 2008 at 8:47 am
Steve,
Do you know why VC were getting lots of money in 2007, although it is considered riskier? Because growth in other sectors slowed down significantly in 2006-2007. Due to this reason lots of big institutional investors (especially banks) and retire funds were taking these risks. But it is going to end soon after all the big write downs in subprime market. Keep in mind that all the write downs happened in 3rd quarter of 2007 when significant VC funds were already allocated. It will be interesting to see how it goes in 1st and 2nd quarter of 2008.
Regarding sales tax collection, did you read the article carefully? The trends is downward since 2005, including bay area. Yes, in bay area the growth is still positive, but when the curve in the graph is downward you got to be wondering how long it will stay positive. It simply does not support the kind of optimistic picture you are trying to portray. And look at the industry-wise break up at the end of the article. “Building and construction” dropped -14.3% from 2006. Wow! That’s a quite encouraging number for you, isn’t it?
January 28th, 2008 at 9:00 am
> Steve is right that it doesn’t matter what’s happening in Antioch, Central Valley, East San Jose, or anywhere the school API score is under 800.
RealEstater,
As I mentioned earlier, similar kind of words were being said for WHOLE bay area couple of years back.
Yes, good school districts are still doing better, but I wonder how long it will continue if home price difference between good school district and not-so-good school district is significantly high. I know a guy who bought home in not-so-good school district and sending his kids to private school. His comment “I will rather invest my money on my children, instead of house”.
January 28th, 2008 at 9:08 am
> Tons of people make $100K+ salaries, lots of people have stock options, and lots more people who currently own a home have >200K in equities, which makes it possible for them to trade up.
Trading up? Who is going to refinance when investor like Goldman Sachs thinks that California homes are 30% overvalued.
January 28th, 2008 at 9:29 am
>>I know a guy who bought home in not-so-good school district and sending his kids to private school. His comment “I will rather invest my money on my children, instead of house”.
You should look at the total cost of living. Private school tuition runs around $1500/month/child. Assuming your friend has 2 kids, and a mortgage of $2500/month, then he is paying $5500 a month on housing and education (1500×2 + 2500) each month.
A different choice would be to live in a “Real Bay Area” neighborhood with a mortgage of $5500/month, and send your kids to the neighborhood school with a 900+ API score. That is clearly a better outcome, because:
1. Neighborhood schools are more convenient, and lets your kids know the other kids in the neighborhood.
2. You friend would be building equity faster.
3. The house would maintain its value better during a downturn, and appreciate better during an upturn.
4. Better enjoyment due to better neighborhood, and other associated factors (less crime, etc.).
January 28th, 2008 at 9:45 am
One more comment about schools. California schools mostly suck. That’s not a secret. The only island of good education is in those choice Bay Area neighborhoods with API scores above 900. This is why people pay up for a spot to live there. It’s not just about the house, it’s about your children’s future! When the California budget cuts hit, education in the state will go down the toilet, but you know what happens in the Real Bay Area? The schools there will start some fund raising campaigns, and the CEO/CFO/CTO parents will donate the funds directly to these schools. It does not get funneled through the state, so it’s 100% targeted and highly efficient.
January 28th, 2008 at 10:53 am
I think RealEstater is somewhat right but mostly wrong. I went to a number of open houses with some friends for kicks the past two weekends. There are quite a few folks out there but the ones that I talked to were trying to gauge the drops in pricing. For example, there are a number of Eichlers out there that have dropped their asking price (one from 1.15 down to 900k).
One home on Mary street has increased its price from 850k to 877k. That one is a total joke. Busy street and they’ve been burning incense (probably to cover a mold issue?).
I don’t know if TONS of people make over $100k. What I do know that those of us who make over $100k are sophisticated enough to be wary of buying a home in this market when rentals are lagging way behind purchase (around $2300 versus $4800). Saving $2500 and investing that elsewhere (let’s say the real estate market in Austin TX) is the better idea.
As for schools, there’s a strange mindset here in the Bay Area about the API scores. My friends and I have talked it over. Most of us went to crappy high schools and somehow ended up getting graduate degrees at Ivies. Trust me, it isn’t about the schools, it’s all about the parents.
So obviously, I’m a contrarian and I’m willing to sit it out here in the Bay Area and invest elsewhere in RE.
January 28th, 2008 at 12:09 pm
> 3. The house would maintain its value better during a downturn, and appreciate better during an upturn.
This is a good one “maintain its value better during a downturn”. I thought someone said here good school area will continue appreciate. You just need a Spring in very year
And guess what, every year has a Spring. Home price will sprung with Spring….every year.
It’s defy any logic that somehow good school district will be unaffected when home price will continue to fall in other areas. Yes, probably it won’t fall as badly as other area, but they will be affected slowly.
BTW, it’s sad to see Real Estate Industry gave up on “Bay Area” and is banking only on pockets of “good school districts”.
January 28th, 2008 at 12:12 pm
> Trust me, it isn’t about the schools, it’s all about the parents.
Exactly! One of my friends once said “If you move all the educated families from Cupertino, Saratoga, Palo Alto to a crappy place in desert, the API score of that desert will jump way up”.
January 28th, 2008 at 12:22 pm
> California schools mostly suck. That’s not a secret.
It sucks and it will suck big time in future, given the mismanagement and shortfall in state budget. And that is one of reasons it is a gamble to invest on so-called good school districts. Oh, I forgot, those CEO/CFO will save school districts
I have not seen many CEOs sending their kids to public schools. It’s hard to believe that they will be sympathetic.
January 28th, 2008 at 12:52 pm
> Trust me, it isn’t about the schools, it’s all about the parents.
>Exactly! One of my friends once said “If you move all the educated families from Cupertino, Saratoga, Palo Alto to a crappy place in desert, the API score of that desert will jump way up”.
I think we’re all saying the same thing. It’s about the extended educational environment. In the neighborhoods above, it’s more likely you’ll find educated parents who place high value on education, thus your kids will go to school with other kids who come from such families, as opposed to kids who do drugs, join gangs or hang out at the local arcade.
January 28th, 2008 at 12:56 pm
Wow – 47 posts and this thread is still going strong.
Ultimately, as some are now posting, this boils down to investing in X (The Real Bay Area) vs. Y (Other RE like Austin as one poster put it, the stock market, under a mattress, ???). It’s an ROI equation. So, folks like RealEstater and I have been putting forth our thesis on why it makes sense to put money in “The Real Bay Area” given the options on the table. At a minimum, I need to clear the mortgage rate hurdle (let’s say 6% for discussion purposes), but more importantly, I need this investment to produce a better return vs. the alternatives out there.
Obviously, we have a lot of votes for Y, but it’s very strange that, aside from one post on investing in Other RE, we haven’t seen ANY constructive arguments in favor of alternative investments. But yet, this assumption is implicit in anyone who favors Y as renting certainly frees up cash to do something… So, what are examples of that ’something’ that you all are investing in and why?
January 28th, 2008 at 1:36 pm
Steve,
Historically real estate barely keeps up with inflation. So, just like stock market, it’s all about buying it at right time in right location and selling it at right time. That’s how many flipper made money who bought homes five years back and able to sell their homes already. And that’s how many flippers are going to lose money who bought 1 or 2 years back and are struggling to sell their homes. Common-sense says it’s not a good time buy home and think it as a “good investment”. There is a good possibility that the price will fall and there is a very thin narrow possibility that it will appreciate. Just look at Case-Shiller Index.
Basically, this is what you said in the initial post:
“….invest in either an undervalued asset or an asset whose increase in value you can always bank on”.
This is simply untrue in present RE market. Why do you think that your argument is correct when most of the economists are saying otherwise?
January 28th, 2008 at 1:48 pm
> Obviously, we have a lot of votes for Y, but it’s very strange that, aside from one post on investing in Other RE, we haven’t seen ANY constructive arguments in favor of alternative investments. But yet, this assumption is implicit in anyone who favors Y as renting certainly frees up cash to do something… So, what are examples of that ’something’ that you all are investing in and why?
It’s not about having alternate investments. I think we were discussing whether RE is a good investment in present market. When Fed chairman and other experts are using “R” words for US economy, probably stock market is not a good investment either. But your logic is: “if A (stock) is a bad investment, then B (real estate) must be a good investment”. In your logic, showing negative aspects of A (stock) somehow translates to positive for B (real estate). This is simply wrong. You failed to show how RE could be a good investment in present market (without pointing finger at stock market). Is it possible that both could be bad investment at this moment?
January 28th, 2008 at 2:20 pm
Steveo:
There are tons of investments other than housing. I personally don’t consider a house to be an investment, but a place to live in providing that it fits into my finances, which it currently does not in the bay area.
As for other places to invest money, that’s hard, since there is whole stock market, bonds, and such to invest in. I’ve got my money invested conservatively, so that it won’t take too much of a hit in the upcoming recession and it’s yielding me about 6% annually. I was earning around 10% when I was invested into riskier index funds and stocks.
So, the question comes down to where you should put your money in a slowing economy with high inflation? My bet is that commodities and energy companies will do well. Commodities and energy track inflation pretty well, and global energy demand is increasing, regardless of economic downturns, so you should see positive ROI even in a slow economy.
January 28th, 2008 at 2:24 pm
Hm,
I’ve checked around open houses around Cupertino in October, and they were no other visitors except us. Except in one 2m+ house, very nice built and does seem to be a bargain, there is a Google employee negotiating. At that time good houses with a lower price than similar homes were still selling.
So I guess Sunnyvale must be more special or like RealEstater/Steve said: just wait for the Spring!
BTW, my old neighbor just closed a 4/2 house in SJ at $625k, the asking price was $750k (in 2005 I think it would have been $800k, probably even now by “Zestimate”
). He started negotiation in October, and was the only one submitted an offer. Oh never mind, that is not the real BA.
January 28th, 2008 at 9:05 pm
Here are some facts:
1. Nobody ever rented their way to riches.
2. Nobody ever saved their way to riches.
One can keep renting/saving, and developing a false sense of security. The truth is that such a strategy would never get you ahead of the curve. It’s the old rich dad/poor dad sort of story. To get rich you need to own assets. At this moment, I can’t think of a better asset to own than a Bay Area house. It’s way safer than putting your money in the stock market, and certainly more effective than “safe” investments like a CD. With the Fed lowering interest rates, it doesn’t make sense to be in a cash position. One of the best ways to capitalize on the current economic weakness is to get a deal on a mortgage. Yes, now is the right time to buy even an investment property.
January 28th, 2008 at 9:37 pm
All the same desperate pathetic contentions made by the realtors above have been made about Los Angeles. Today, the median asking price in LA has dropped 102K from peak and it’s dropping like a rock. $1,900/week. Yeah, that’s a terrific investment. It’s good that your kids are getting a good education. They’ll need it to dig themselves out from under the debt you’ve saddled them with. Welcome to the future, real bay area.
PS – at my urging, my brother took a long, sober look at the market and sold his SV house this summer. He took the profits and dropped it into GLD, which has gone from about 700 – 900. (Note: You don’t have to invest in the S&P.) When the appraiser came by, my brother asked him where prices were heading, and the appraiser arced his thumb downwards as a Roman Senator might. As Bill Paxton so eloquently put it in Aliens, Game Over!
January 28th, 2008 at 11:54 pm
> To get rich you need to own assets. At this moment, I can’t think of a better asset to own than a Bay Area house.
RealEstater,
It’s a straw man argument. Nobody here said that people should not own assets. But owning it in OVERVALUED price makes no sense. Bay area home price is overvalued.
Here some facts:
1. In most of the places in bay area the price already started falling dramatically. In some areas slowly.
2. Even if the home value is appreciating in some pockets of bay area, the rate of appreciation is slowing down. It’s very clear that soon the value will remain flat for years. Or, it will start falling in those areas too.
3. Prices are still far too high in relation to local rents and incomes.
4. Case-Shiller Index curve? Downward. Other forcasts about RE market? Bad.
And last but not least:
5. In a market that is both overvalued and oversupplied, prices will decline. After all it is supply-demand market.
January 29th, 2008 at 8:23 am
I’m a young professional right out of college. I cannot afford to buy real estate in California, not when a condo just like my apartment is $390,000. Could I get some fly-by-night to take a chance on me and get me a loan? Sure. I almost did that a year ago (with all the rate cuts since then, glad I didn’t!!). But where am I going to come up with $2300 a month for the mortgage, HOA, insurance, and property taxes? Is this what they mean when they say it takes money to make money? I don’t think so. I think that buying would be positively suicidal.
January 29th, 2008 at 10:11 am
When people say that it takes money to make money, they sure don’t mean getting a huge loan, it means wise investing. One of the few things that I agree with RealEstater about is that you won’t make a lot of money putting it into a savings account, but you also will not make money on an overvalued house, and your jumbo loan does not care that your house loses value.
For example, right now I pay $1400/month to rent a house that Zillow values at $1.04M. With an 80/20 loan @5.6%, my monthly interest would cost $3890/month during the first year. So, I’m renting a place for a lot less than the interest on my loan, and pocketing and investing the rest, even though I can afford to buy such a house. Which is the wiser move, RealEstater? At the rate I’m going, I will be able to buy a house outright in a few years, especially if housing prices decrease, and I had a very good ROI on my savings over the last few years, on par with housing appreciation, it’s just that my investments are appreciating slower now due to the slowing economy while housing prices are falling.
January 29th, 2008 at 1:03 pm
Here is also one fact:
A lot of those on their way to real estate riches are in BK now.
If you have not noticed, just check those real estate tycoons, Tom Wu and such. There was a nice piece from Dr HBB or burbed months back.
January 29th, 2008 at 1:47 pm
Who the heck is Tom Wu?
January 29th, 2008 at 1:55 pm
“1. Nobody ever rented their way to riches.
2. Nobody ever saved their way to riches.”
Oh good lord. I think Warren Buffet (WHO LIVES IN OMAHA FFS) would say otherwise. Jesus christ, if I ever wondered what kind of retard buys real estate in the Bay Area, now I know.
January 29th, 2008 at 4:13 pm
“Here are some facts:
1. Nobody ever rented their way to riches.
2. Nobody ever saved their way to riches.”
Read “The Millionaire Next Door” before you make broad based statements that display your idiocy for all to see.
January 29th, 2008 at 10:52 pm
>>I’m a young professional right out of college. I cannot afford to buy real estate in California, not when a condo just like my apartment is $390,000. Could I get some fly-by-night to take a chance on me and get me a loan?
>>But where am I going to come up with $2300 a month for the mortgage, HOA, insurance, and property taxes?
Sonarrat: You’re right, you’re not ready to buy just yet. Coming out of school, you may not even know where you want to live, where you will be working, etc. Buying a place is an investment, as well as a commitment. Since you can’t come up with the money (and I wouldn’t expect you too), you’re not in a position to take on such a large investment. However, you can still follow real estate, keeping yourself abreast of the market, so that you are well prepared when day comes to buy.
January 29th, 2008 at 11:02 pm
Malcolm,
Actually, there are plenty of millionaires “next door” to me, because they are home owners in the Bay Area! While you are toiling away each day, enduring long commutes, trying to out-do your co-workers and impress your boss, all they did to become millionaires is simply by living in their houses.
January 29th, 2008 at 11:31 pm
mtv-renter :
>>One of the few things that I agree with RealEstater about is that you won’t make a lot of money putting it into a savings account, but you also will not make money on an overvalued house, and your jumbo loan does not care that your house loses value.
Just because something is expensive doesn’t mean it’s overvalued. It could be because it’s highly valued. For example, I consider many houses in non-real Bay Area neighborhoods overvalued at $600K. You see those junks on Burbed all the time. However, if you find something in Palo Alto/Los Altos/Menlo Park/Cupertino (“real” Bay Area) in the low $1million range, it can very well be a bargain, and these homes are in fact highly saught after.
>>So, I’m renting a place for a lot less than the interest on my loan, and pocketing and investing the rest, even though I can afford to buy such a house. Which is the wiser move, RealEstater? At the rate I’m going, I will be able to buy a house outright in a few years, especially if housing prices decrease
You should consider renting as your temporary strategy (and I think you do). At the same time, don’t deceive yourself by comparing renting to buying. Every penny you spend on rent is throw away money. You can never recover any of it, let alone getting a return on it. The above argument (that renting is cheaper than owning) held true 10 years ago, and you don’t need me to tell you which way came out ahead. In addition, don’t forget to take taxes into the equation. You can either pay for mortgage, or pay taxes.
Final point: Unless you’re in retirement age, you should never pay for your house outright. You would lose the two major benefits of real estate investing: 1)Tax shelter 2)leverage. Having a mortgage is considered “good debt”. It will even improve your credit score.
January 29th, 2008 at 11:56 pm
> Actually, there are plenty of millionaires “next door” to me, because they are home owners in the Bay Area! While you are toiling away each day, enduring long commutes, trying to out-do your co-workers and impress your boss, all they did to become millionaires is simply by living in their houses.
RealEstater,
Remember that Japanese woman I mentioned in one of the earlier posts?
January 30th, 2008 at 12:08 am
> Just because something is expensive doesn’t mean it’s overvalued. It could be because it’s highly valued.
Well, Larry Ellison’s house could well be considered “highly valued”. But average middle class people should not care about those houses. An average middle class person should not buy a million (or multi-million) dollar house and stretch himself financially when rent is much much lower in comparison. Period.
January 30th, 2008 at 12:14 am
> For example, I consider many houses in non-real Bay Area neighborhoods overvalued at $600K. You see those junks on Burbed all the time.
And who are the people who convinced those poor guys to buy those junks and told them that someday their houses are going to be million dollar too?
Let me try to guess…..
(after a long thought)
Someone who told “Home price always go up”?
Someone who told “They aren’t making any more land”?
Someone who told “Don’t get priced out forever”?
Am I guessing right?
January 30th, 2008 at 12:28 am
> The above argument (that renting is cheaper than owning) held true 10 years ago, and you don’t need me to tell you which way came out ahead.
Not true. In 1997 the median price was about $350K. Rent similar home would be around $1300-$1500.
Now, Median is well above $800K when a single family house can be rented in $2000.
January 30th, 2008 at 12:31 am
> Every penny you spend on rent is throw away money.
And how exactly paying interest is not throwing away money?
January 30th, 2008 at 12:38 am
> 2)leverage. Having a mortgage is considered “good debt”. It will even improve your credit score.
Yes, I agree. That’s the strongest point I found so far in favor of buying a home. I am convinced…at last. I am going to buy an OVERVALUED asset (which will start depreciating soon) and pay for it for next 30 years – just to increase my credit score!
Rich people got to be very dumb, because they always buy assets in cash. No credit score. What a loser!
January 30th, 2008 at 1:43 am
Real Estater Says:
> You should consider renting as your temporary strategy (and I think you do). At the same time, don’t deceive yourself by comparing renting to buying. Every penny you spend on rent is throw away money.
I absolutely disagree with this, which is why I posted numbers. Interest on my loan is money that I throw away as well, I will never see it return. Right now, I’m throwing away far less on rent than I would be on a loan. If you factor that the loan would net me a tax savings of about 35% of the annual interest, I’m still throwing away far less on rent without any sort of deduction (about half as much). In the end, I am saving and investing far more per month than I would be paying principal, so I am building equity faster. I’m also not heavily leveraged. In an 80/20 loan, if the house loses 5% of its value, I actually lose 25% of my down payment, since the loan does not decrease by by 5% (yes, leverage also has upsides in an up market).
While houses in Palo Alto or Los Altos hold their value, that’s fine by me, since, as I said, a house for me is a place to live, not a place to invest. If I was buying right now, of course I would choose one of those areas, but remember this prediction; those prices will come down as well. They are disconnected from fundamentals. The bay area has a lot of wealth, yes, but this wealth also relied on heavy debt to buy these houses and may not be able to cover it.
January 30th, 2008 at 9:43 am
Pralay:
>>But average middle class people should not care about those houses.
It depends on whether one wants to stay as average middle class, or become a millionaire home owner.
>>And how exactly paying interest is not throwing away money?
Interest is your tax shelter. It’s money you would’ve given to the government anyways.
>>I am going to buy an OVERVALUED asset (which will start depreciating soon) and pay for it for next 30 years – just to increase my credit score!
I can just about guarantee you no real estate in the Bay Area will depreciate for the next 30 years. You will only see fluctuations in the short term. Even if you buy an overvalued asset today, you will still make money.
January 30th, 2008 at 9:48 am
mtv-renter:
Don’t be a career renter! Your point about interest on loan is answered in my last post. I’m not saying you won’t make progress by saving money, it’s just way too slow. Where can you invest now that gives you both yield and stability? I hope it’s not the stock market. Did you check the price of VMWare and Google lately?
January 30th, 2008 at 10:52 am
> It depends on whether one wants to stay as average middle class, or become a millionaire home owner.
RealEstater,
People should buy asset (car, house or whatever) within their means. People should buy house FOR THE PURPOSE LIVING. People should NOT buy home to get millionaire. If someone’s home appreciates from $100K to million dollar, of course this is a good investment. But AT THE TIME OF PURCHASE, the buyers should not take it granted that it will appreciate and become a million dollar home.
The whole subprime crisis is result of this – you guys pushed too many people to buy something outside their means showing pipe-dreams that someday THEY ALL ARE GOING TO BE MILLIONAIRES. You know what, when you guys start showing those rosy pictures based on lies (home value never drops, it will appreciate 10% per year, rental is throwing away money etc), they make stupid decisions and buy outside their means. And this exactly what happened. Just look at this two monkeys from Real Estate Industry about 2007 housing market prediction.
http://www.youtube.com/watch?v=yoZV5jt9puc
These Real Estate guys know nothing about economy. They want transactions to go through get 2.5%-3%-6% commission out of it – it is as simple as that. They will do anything do get it – even if showing people pipe-dreams and pushing people to buy assets outside their means.
January 30th, 2008 at 10:53 am
> Interest is your tax shelter. It’s money you would’ve given to the government anyways.
Bullshit! Another poster mtv-renter already showed how your calculations are wrong.
January 30th, 2008 at 10:57 am
> I can just about guarantee you no real estate in the Bay Area will depreciate for the next 30 years. You will only see fluctuations in the short term. Even if you buy an overvalued asset today, you will still make money.
I can guarantee that after the big correction (in next 2-5 years) the real estate in Bay Area will barely keep up with inflation in next 30 years. Just look at the historical data for long term home values.
January 30th, 2008 at 2:33 pm
“Actually, there are plenty of millionaires “next door” to me, because they are home owners in the Bay Area! While you are toiling away each day, enduring long commutes, trying to out-do your co-workers and impress your boss, all they did to become millionaires is simply by living in their houses.”
Asinine comment from a deluded individual.
I rent in Saratoga, Carnac. My commute to Cupertino where I work is about 10 minutes. The people I know who own show up FAR later at work than I do largely in part to their LONG commutes.
Oh, and to the comments made in regards to Los Gatos real estate “not dropping”, I live right next to Los Gatos. Guess what: prices are DROPPING. I see a myriad of “Price Reduced” signs all over the place. The reason that the median price is holding up is due to the fact that only the higher priced homes are selling. Check out the condo and townhouse prices in Los Gatos for a real eye-opener. Better yet, log onto RealtyTrac and check out the foreclosure listings.
One final note: to the poster that indicated that real estate is a “better” long term investment than other asset classes really needs to pick up a book.
Historically, real estate has been the LEAST performing asset class relative to others. You can verify this in just about any book on fundamental economics. And no, I don’t mean books written by David Lereah.
Stocks have historically (over a 100 year period) averaged annualized rate of return of 11%. Bonds historical rate of return is 6% annualized. And real estate? Well, hold onto your hats partners. It registered at a whopping 3.7% annually. And these stats came from someone who went back in records in certain areas for 350 friggen years. So find any NAR stat that long term.
I agree with a poster before me (Pralay). Not only do I think that Bay Area real estate will be a bad investment over the next 2-5 years, I actually think it will be a HORRIBLE investment based on historical data. Anybody that bought in the last two years or is planning on buying in the next three years will likely NEVER break even. Ever.
Remember folks, we only have one frame of reference for a real estate bubble of this magnitude. And that is Japan. Which has been in a spiralling real estate downtrend for over 15 years! And I do love how the NAR and those with vested interest in real estate spin the fact that “the USA is not Japan”. Well, they are right. Japan has no budget deficit and it’s population does not live under a mountain of debt. Two things that are not going to help real estate prices moving forward.
January 30th, 2008 at 3:15 pm
Oh, I forgot to mention something to the deluded realtor: I AM a millionaire. And all I had to do was get copious stock options tossed my way and cash them out. Happened during the dot com era. And like many a moronic stock analyst of those days was saying, stocks can only go up! Well, we all see how that turned out. But hey, real estate is different, right? It’s the “new economy” afterall….
January 30th, 2008 at 3:30 pm
Malcolm:
With 11% annual return in stocks, how many years will it take for you to catch up to the 300% return yielded by Bay Area real estate in the past 10 years?
Your 3.7% figure for real estate includes places like Iowa, Nebraska, North/South Dakota, Montana, etc. We’re not talking about those places. They don’t have Silicon Valley, and they don’t have our weather. If you focus on the Bay Area for a moment, you’ll find that on the average Bay Area properties double in price every 10 years, without exception. It will surely double again, and it doesn’t matter what happens in the next 2-5 years. So far, you have not been able to explain what would be the drivers for lower prices; you’re just making a claim based on your own guess.
One other comment about rents. Over time, rents will increase. However, if you have a fixed rate mortgage, your housing expense will not go up with inflation. Most people I know who bought say 10 years ago, are paying less for mortgage than what it would take to rent the house. In other words, the cost advantage of renting is only short term. Renting is like leasing a car. At the end of the day, you get nothing.
January 30th, 2008 at 3:44 pm
Tom Vu.
Oops.
January 30th, 2008 at 4:14 pm
RealEstater, I think you have gotten caught up in the bubble runup mentality and you’re not objective in predicting future trends, and you are ignoring past history.
First of all, prices have gone down in the Bay Area. San Jose experienced a 38% drop in the early 1990’s, other cities performed similarly. There are places rich people congregate where prices drop less, but those also have an upper bound on growth potential, since at some point, the housing becomes overpriced, even for people who can afford the prices. A house price is based on the value of the land, the value of the house, and the expected gain due to future appreciation. As houses get more expensive, most people (not you) see less upside potential, so they are less willing to consider the house as a speculative investment.
You make the statement “on the average Bay Area properties double in price every 10 years, without exception”. This is flat out false. They have increased tremendously due to cheap credit and speculation post 2001, but the financial conditions which made that possible no longer exist. Credit is harder to get, speculators are in trouble. Consider for a second what you are saying; if houses double in price every ten years without exception, that means that during a 30 year loan, they would double three times; 2*2*2 = 8. Do you honestly think that an $1M house would cost $8M 30 years from now? $32M 50 years from now? No way, man. Where’s this money going to come from? Google and VMWare won’t be around forever, and only their early employees made a pile of cash, and there aren’t very many of those, numbering maybe 5,000 total. Most of the buyers who drove up prices did so with cheap credit and speculation.
Yes, you are right, rents go up over time, loan interest goes down. You can easily express the expected cost of renting and investing versus buying and appreciation, and there are times when it makes more sense to buy, and times when it makes more sense to rent. Right now, the balance is on the renting side in the bay area, other cities are different. I refer you to the fantastic NY times rent vs own calculator. I could go through the math here, but they did it with nice pictures and sliders: http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=3&th&emc=th&oref=slogin&oref=slogin&oref=slogin
For your reference, a doubling of price every ten years assumes a 7.1% annual appreciation, which is out of the realm of the possible outside of a bubble environment, which is ending now.
January 30th, 2008 at 4:26 pm
“With 11% annual return in stocks, how many years will it take for you to catch up to the 300% return yielded by Bay Area real estate in the past 10 years?”
Easy. By simply waiting for that 300% increase to erode over the next 5-10 years until it normalizes into a rate of return that matches the historical norms. In 2000, I could have easily used the same logic you are applying by stating that “how can your measily 10% returns in real estate match my grandious 500% return in E-Bay?”. A dumb statement utterred during the dot com era that merely morphed into a similar catch phrase for use by the realtor establishment.
“Your 3.7% figure for real estate includes places like Iowa, Nebraska, North/South Dakota, Montana, etc. We’re not talking about those places. They don’t have Silicon Valley, and they don’t have our weather. If you focus on the Bay Area for a moment, you’ll find that on the average Bay Area properties double in price every 10 years, without exception.”
Oh really?
You may want to check out these charts that burbed linked to a while back:
http://www.burbed.com/2007/02/16/how-the-bay-area-caused-home-prices-to-go-up-nationally/
Seems like those prices over a long period of time were yielding diddly squat, except for the recent, and all to obvious “bubble”.
And incidentally, you are wrong. Prices in the Bay Area have NOT doubled consistly every ten years forever. How do I know? Simple. Because wages did not double every ten years in the Bay Area. Housing in the Bay Area, while more expensive than the rest of the nation, merely reflected the higher rate of wages that this area was paying. And while wages essentially peaked since 2000 and have actually been stagnant, real estate skyrocketed. Why? Simple. Larger and larger mortgages. (Perhaps you’ve been reading the news about that “problem”.)
“One other comment about rents. Over time, rents will increase. However, if you have a fixed rate mortgage, your housing expense will not go up with inflation. Most people I know who bought say 10 years ago, are paying less for mortgage than what it would take to rent the house. In other words, the cost advantage of renting is only short term. Renting is like leasing a car. At the end of the day, you get nothing.”
You really are making this too easy for me. Renting is burning money and so are INTEREST PAYMENTS. Nobody here says that buying a home 10 years ago was a bad idea. They are saying buying a home DURING THE BUBBLE ERA was a bad idea.
I have friends that bought homes as much as five years ago and STILL pay more for mortgages and property tax than most pay in equivalent rent. Rents declined for almost 6 years after the dot com era while housing skyrocketted. As it stands, yearly rents are between 2-3% of the purchase price while even with reduced mortgage interest rates, home ownership is between 7-9% of the purchase price. So it costs almost three times as much to buy a home than to rent.
I know many will ask why I am bothering to converse with a realtor troll looking to assert himself. (Or herself) But it is not for their benefit, it is for the benefit of those who might be reading this page and wondering how to invest their hard earned money. So don’t take either mine or the realtors advice. Just do the math. And if you want an excellent frame of reference, here is an outstanding rent versus buy calculator:
http://www.dinkytown.com/java/MortgageRentvsBuy.html
Give it a try. I am certainly not afraid of the numbers it will produce. I am wondering if the realtor is as confident. Of course, with their spin tactics, the crack house in East Palo Alto is not a decrepid shack, but a great first time home and fixer-upper!
January 30th, 2008 at 4:29 pm
Just as an FYI – some messages are getting stuck in the moderation queue for a few hours, due to number of links posted.
I have no problems with bunches of links being posted – I’m just saying that if you do, expect your post to delay showing up.
Now, back to the thread!
January 30th, 2008 at 4:49 pm
> So far, you have not been able to explain what would be the drivers for lower prices; you’re just making a claim based on your own guess.
Supply-demand. Supply is soaring and demand is going down.
Let me ask you a counter question. What is the basis of your guesswork that home price will double in next 10 years? What kind of inflation adjusted historical data you are taking about?
January 30th, 2008 at 4:57 pm
> Your 3.7% figure for real estate includes places like Iowa, Nebraska, North/South Dakota, Montana, etc. We’re not talking about those places. They don’t have Silicon Valley, and they don’t have our weather.
RealEstater,
If you want to isolate bay area data from rest of USA, what stops you doing same from stocks? Actually some stocks are better than others and return is lot higher than 11%. What if someone bought Google stocks in 2004?
January 30th, 2008 at 5:06 pm
BTW, this is the chart I found for inflation adjusted home price for SF metropolitan area.
http://mysite.verizon.net/vodkajim/housingbubble/san_francisco.html
It’s very clear that RealEstater does not know anything beyond last 10 years.
January 30th, 2008 at 11:11 pm
mtv-renter:
>>if houses double in price every ten years without exception, that means that during a 30 year loan, they would double three times; 2*2*2 = 8. Do you honestly think that an $1M house would cost $8M 30 years from now?
That sounds about right, give or take a million. You don’t believe it? I’ll give you some real life examples.
- My next door neighbor is in their 80’s. They bought their house in 1957 (5 decades ago) for $30K, which was already at the higher end of the market. Let’s do some math here: 30*2*2*2*2*2= 960K. I can tell you their house is worth much more than that.
- My parents bought their house in 1978 (3 decades ago) for $100K. I should note this is in Southern California, nevertheless, the results are similar:
100*2*2*2= 800K. This is just about how much their house is worth.
January 30th, 2008 at 11:22 pm
Pralay:
>>Let me ask you a counter question. What is the basis of your guesswork that home price will double in next 10 years?
Supply and demand. Supply in the Bay Area is limited. This is not a secret. Bay Area is land locked, and fully built out. The only way to build new houses is to tear down an existing one.
Demand, on the other hand, is ever increasing, due to many reasons, such as: growth of Silicon Valley, immigration, attractive weather, etc….actually, just ask yourself why you’re here.
One fundamental concept about real estate is that home appreciation is driven by demographics. In states like California, the population is projected to increase at a higher rate than the housing inventory can accomodate. In places like Iowa, Wyoming, Nebraska etc. there is no such trend, so home prices stay stagnant for long periods of time.
January 30th, 2008 at 11:36 pm
Malcolm:
>>Oh, I forgot to mention something to the deluded realtor: I AM a millionaire. And all I had to do was get copious stock options tossed my way and cash them out. Happened during the dot com era.
Your formula for success is not repeatable. It’s just luck from a one time event. Home ownership does not require such luck. All home owners who bought 10 or more years ago are sitting pretty today. Yes, ALL. Everyone won the prize.
Secondly, your method is inefficient. If you cashed out $1 million in stock options, you end up getting only $500K. If your home appreciated by $500K, you get to keep every penny, because there is no tax on the first $500K for couples.
January 31st, 2008 at 9:04 am
“Your formula for success is not repeatable. It’s just luck from a one time event. Home ownership does not require such luck. All home owners who bought 10 or more years ago are sitting pretty today. Yes, ALL. Everyone won the prize.”
Really? So in other words, there are NO companies in the Bay Area (hint: Google, VMWare, Apple) that are likely to make people handsome returns in the near future? Last time I checked, the true wealth of Silicon Valley is not attributed to real estate, but to the companies that reside here and the profits people have incurred working and investing with them. Or am I wrong and did Steve Jobs, Larry Ellison, and a myriad of others merely make their wealth investing in real estate?
And how about those people who bought homes 5 years ago or less with interest only, negative amortization loans? How are they doing? And clearly the 300% returns you tout over the past 10 years of real estate IS repeatable, right? People that buy now will have homes three times as expensive as they are now in 10 years? Seriously dude, are you just trying to troll or are you actually this ignorant?
“Secondly, your method is inefficient. If you cashed out $1 million in stock options, you end up getting only $500K. If your home appreciated by $500K, you get to keep every penny, because there is no tax on the first $500K for couples.”
Actually, I cashed out $2.3 million in stock options. And I am not sure who does your taxes, but the last time I checked, my capital gains tax rate was not 50%. And in actuality, because a lot of my profits were through exercising and holding ISO stock options, my federal capital gains tax was the standard 20%.
Care to try again there, Sparky?
You know, I had previously been indifferent to the people who made stupid decisions with real estate and are now in dire straights because I felt they should be completely accountable for their actions. But when I read RealEstater words, I have to rethink my view. If he is knowingly spreading this propaganda and false rhetoric to individuals who are counting on him being truthful, than I have to lump realtors into the group of people that need to be held accountable for this debacle. I am sorry, but in any other profession, if an individual outright lies and skews data to fit their agenda, they are usually dealt with rather severely.
January 31st, 2008 at 10:01 am
Something interesting I noticed.
Why is it everytime that myself or some of the other posters on this board make a point, we can site example and link to actual data sets while the realtor can only give us examples of people “he knows”, i.e. friends, family, etc. as justification for his conclusions.
Well hey, if its that easy. Hey realtor! My sister’s cousin’s nephew’s spouse’s former roomate made 500% returns this year on Gold stocks. So clearly, gold stocks are the road to riches!
January 31st, 2008 at 11:07 am
RealEstater says:
> “- My next door neighbor is in their 80’s. They bought their house in 1957 (5 decades ago) for $30K, which was already at the higher end of the market. Let’s do some math here: 30*2*2*2*2*2= 960K. I can tell you their house is worth much more than that.
- My parents bought their house in 1978 (3 decades ago) for $100K. I should note this is in Southern California, nevertheless, the results are similar:
100*2*2*2= 800K. This is just about how much their house is worth.”
RealEstater,
It is intellectual inability or intellectual dishonesty? Why are you not taking inflation into account?
Why don’t you adjust the price with this inflation calculator and let us know the exact number?
http://www.westegg.com/inflation/
There are two happened in bay area in last 10 years. One, housing price appreciation from 1998 to 2001 due to job growth (that’s why nobody label that appreciation as “bubble”).
Two, then from 2003-2005 housing price appreciated due to NINJA loans and irrational speculation.
So, I won’t be surprised if your next door neighbor home comes to 1997 level, if you take the inflation into account.
January 31st, 2008 at 11:45 am
RealEstater says:
> Supply and demand. Supply in the Bay Area is limited. This is not a secret. Bay Area is land locked, and fully built out. The only way to build new houses is to tear down an existing one.
Demand, on the other hand, is ever increasing, due to many reasons, such as: growth of Silicon Valley, immigration, attractive weather, etc….actually, just ask yourself why you’re here.
RealEstarer,
What bothers me that you just throw some vague words without backing up with data or analysis.
Demand? If demand is high, then why sales are falling everyday? Do you read news? I am really curious.
And supply? Do you have any idea about inventory level in California (or bay area for that matter)?
And population growth. Let’s see the census numbers:
quickfacts.census.gov/qfd/states/06000.html (add http and “://” at the beginning)
California population growth from 2000 to 2006: 7.6%.
Whole USA: 6.4%
Not much difference.
Now let’s see Santa Clara country (just select Santa Clara country from the manu at the top):
Population growth: 2.9% in 2000-2006.
Wow! That’s less than the overall USA number.
Regarding me, well, I moved to Bay Area for very same reason many of my friends moved from Bay Area to other places – Portland, Phoenix, Dallas. So it’s not true that the whole USA population is moving into Bay area. Just look at the above numbers.
January 31st, 2008 at 11:47 am
Pralay:
I’m just answering the question you asked me. I said the prices will double again; I did not say there is no inflation, did I?
Speaking of inflation, it’s another solid reason you should own a house. Money will be worth less and less, but land, like Diamond, is forever.
January 31st, 2008 at 11:59 am
Malcolm,
>>Really? So in other words, there are NO companies in the Bay Area (hint: Google, VMWare, Apple) that are likely to make people handsome returns in the near future?
Most companies are not handing out stock options like they used to. In addition, you need to enter the right company at just the right time, and happen to sell your options at the top of a bubble. Like I said, you need luck to make it happen.
>>Or am I wrong and did Steve Jobs, Larry Ellison, and a myriad of others merely make their wealth investing in real estate?
It’s not easy to duplicate their successes, and it’s difficult to become a billionaire. However, it is not too shabby to be millionaire. All you need to do is live in a house!
>>Actually, I cashed out $2.3 million in stock options.
If you did, I wonder why you’re still renting. Perhaps you’re just sour grapes over the fact that you didn’t make the most out of your good fortune.
January 31st, 2008 at 12:01 pm
RealEstater says:
> “One fundamental concept about real estate is that home appreciation is driven by demographics. In states like California, the population is projected to increase at a higher rate than the housing inventory can accomodate. In places like Iowa, Wyoming, Nebraska etc. there is no such trend, so home prices stay stagnant for long periods of time.”
This is utterly false. Again, I am looking for data to backup your argument. You know what, you are adding nothing new in this discussion. I heard all these from many other Realtors too – weather is great etc etc etc. Could you justify how 2.9% population increase in Santa Clara results double the price of home? It all happened due to NINJA loans and irrational speculation. And that’s why home price is going to fall.
January 31st, 2008 at 12:06 pm
> I’m just answering the question you asked me. I said the prices will double again; I did not say there is no inflation, did I?
RealEstater,
I am yet to see a single logical argument from you to back up your prediction. I already posted a video from YouTube – two Real Estate guys are predicting 2007 market in Jan 2007 (they were predicting 10% appreciation in 2007). You sound no different from those two guys.
January 31st, 2008 at 12:15 pm
> Speaking of inflation, it’s another solid reason you should own a house. Money will be worth less and less, but land, like Diamond, is forever.
Why am I having doubt about your intellectual ability? Having money does not mean that I am going to keep all the green papers under my mattress and allow it to get devalued over years. Of course I am going to invest somewhere. You argued that home is a better place to invest. That’s NOT true – especially in this bubble market where there is every indication that home price is going to fall. In long term home price barely keeps up with inflation. There are other places to invest money where I can get better returns. And at this moment, even buying gold is lot safer investment than home.
I doubt you are getting it.
January 31st, 2008 at 12:29 pm
“>>Actually, I cashed out $2.3 million in stock options.
If you did, I wonder why you’re still renting. Perhaps you’re just sour grapes over the fact that you didn’t make the most out of your good fortune.”
Not at all. It is just that one of my two degrees is in economics and I understand the difference between a good investment and a bad one. Which is why I recognized the internet bubble for what it was and was able to capitalize on my good fortune. And concurrently, I recognize the real estate bubble for what it is. The exact same thing.
How about you, Mr. Realtor? What degrees and scholastic expertise are you drawing on when making your assertions? MBA from Harvard, perhaps? And if so, care to provide some data points as reference? Myself and Pralay have done so.
How about it? How about a nice housing chart of the Bay Area home prices spanning 50 years that demonstrates your “double every ten years” argument.
By all means. Regale us with facts.
January 31st, 2008 at 12:42 pm
> In addition, you need to enter the right company at just the right time, and happen to sell your options at the top of a bubble. Like I said, you need luck to make it happen.
What a dumb argument! It’s true for real estate too. You need to buy in right time and sell at at right time. Didn’t I mentioned earlier that it’s all about timing? Someone who bought home in 1995 and sold it in 2005 indeed made money. But someone who bought in 2004-2005 (listening your “investment advise”), I doubt he will be able to sell his house today in same price.
After reading all the posts, I don’t think you qualify as Financial Adviser. So, please do not advise people where to invest money. I am guessing that you are qualified as Realtor – who knows the locality, all the details of house, what to inspect before home purchase, legal issues in home purchase, nut and bolts of a home sale transaction. So please limit your ADVISE within the area of your expertise.
January 31st, 2008 at 1:02 pm
Malcolm say:
> If he is knowingly spreading this propaganda and false rhetoric to individuals who are counting on him being truthful, than I have to lump realtors into the group of people that need to be held accountable for this debacle.
Malcolm,
At the end of the day, it’s buyer’s fault because he sought the advise from wrong guy. People should seek advise from proper person (or do some homework in his own) before making the biggest purchase he is going to make in his lifetime.
I don’t ask swimming pool maintenance guy what car to buy. I don’t ask car mechanic what stock to buy. Same way, I would ask a Realtor where to invest my hard-earned money.
January 31st, 2008 at 1:04 pm
Sorry for the typo in previous post. The last line will be:
“Same way, I would NOT ask a Realtor where to invest my hard-earned money.”
January 31st, 2008 at 1:08 pm
“At the end of the day, it’s buyer’s fault because he sought the advise from wrong guy. People should seek advise from proper person (or do some homework in his own) before making the biggest purchase he is going to make in his lifetime.”
Mixed feelings on that statement. Ultimately, within the real estate industry, Realtors ARE considered experts, at least by the general population. You and I may think of them as nothing more than glorified used car salesman, but others look to them for truthful and unbiased advice. (Yes, I know, obvious conflict of interest)
But nonetheless, where are the ethics? I have no problem with a salesperson making a sale. But it is quite another for the salesperson to flat out LIE. Like if a salesperson touted the benefits of a vacuum they were selling that were actually completely fabricated. That is called “misrepresentation” and it is against the law.
So my question is: why can real-tard get away with making clearly false claims which in turn cause someone to make a bad purchase, but they can do so without recriminations?
I understand buyer beware, caveat emptor. But that does not mean accountability can be thrown out the window in the realtor world.
January 31st, 2008 at 1:59 pm
Pralay Says:
> “One fundamental concept about real estate is that home appreciation is driven by demographics.
>>This is utterly false. Again, I am looking for data to backup your argument.
Just look at where real estate prices are highest; it’s places like Tokyo, Manhattan, Hong Kong, and Bay Area, where there’s either high population, or high growth of population. Bay Area is actually still quite reasonably priced compared to the other cities listed above.
>>I already posted a video from YouTube – two Real Estate guys are predicting 2007 market in Jan 2007 (they were predicting 10% appreciation in 2007). You sound no different from those two guys.
If you read my posts, you should’ve understood that I never made any prediction on per year basis. I even told you about near term fluctuations, telling you to disregard 2-5 year returns. Real estate requires longer term vision. It’s the opposite of day trading.
>>Of course I am going to invest somewhere.
You’ve said this many times, but have yet to state where is that “somewhere”?
>>at this moment, even buying gold is lot safer investment than home.
Ha ha ha….if you like gold at current prices, I have some land on the moon I’d like to sell you.
>>What a dumb argument! It’s true for real estate too. You need to buy in right time and sell at at right time. Didn’t I mentioned earlier that it’s all about timing?
Like I said above, you don’t do day-trading with real-estate, you invest. Over the long term, you can expect Bay Area homes to double in price every 10 years.
Still skeptical? I have some home work for you:
Do you have a grandmother? Ask her how much homes cost in the Bay Area in the 1950s. Ask her again about 1970’s. Then, look at prices today. Do the math, and convince yourself. DataQuik doesn’t go back that far, but your grandmother does.
January 31st, 2008 at 2:06 pm
“Ha ha ha….if you like gold at current prices, I have some land on the moon I’d like to sell you.”
Hold onto that land, Mr. Realtor. The moon is the next big growth area, didn’t yah know?
“Like I said above, you don’t do day-trading with real-estate, you invest. Over the long term, you can expect Bay Area homes to double in price every 10 years. ”
Data, Mr. Realtor. Please show us the data. And I don’t think asking our grandmother’s qualifies.
How hard is it? The NAR must have long term data trends. Find me a chart that demonstrates real estate doubles every ten years in the Bay Area. Pralay and I have linked you to several charts that do not corroborate your claim. So by all means, SHOW US YOUR DATA.
January 31st, 2008 at 2:19 pm
Malcolm says:
> Ultimately, within the real estate industry, Realtors ARE considered experts, at least by the general population.
One person once said to me in 2006: “These guys have no clue what they are doing. They just got their licenses in last 10 years and have no idea about the *normal* Real Estate market.”
He referred the RE market as “not-normal”, what I call “bubble market”. Actually he is an experienced Realtor whom I met once, through a friend. He was taking about the mushroom-growth of Realtors in last 8-10 years. In fact couple of years back in every party or BBQ I used meet people who used to hand out their business cards. Either they are Realtor or mortgage broker. It looked like every household has a Realtor-family-member. It does not require degree in economics or MBA to become a Realtor. Many of them have no idea how the *normal* RE market feels. All they have is the experience of bubble-era. They are trained in the area I mentioned in earlier post – home transaction. That’s pretty much. Why someone would seek *investment advise* from Realtor – that’s beyond my comprehension. But, yes, I agree, many people do that.
I am working in hi-tech industry. Should anybody ask me for advise on investing money on hi-tech industry (or buying stock for my company for that matter)? I don’t think so (unless I have some broad idea about the trend in hi-tech industry). Same way, why would someone ask a Realtor about investing money on home?
January 31st, 2008 at 2:21 pm
Malcolm:
>>How about you, Mr. Realtor? What degrees and scholastic expertise are you drawing on when making your assertions? MBA from Harvard, perhaps?
I’m just a Silicon Valley tech guy, not a realtor. I don’t have an econ degree, but I do remember econ courses were pretty tame compared to upper division EECS. We took them sometimes just to boost our GPA.
In any case, the beauty of real estate investing is that it doesn’t require a genius to execute. You just need a “rich dad” mentality and an open mind. With all your qualitifications nice theories, you missed the boat on Bay Area real estate.
January 31st, 2008 at 2:22 pm
Correction:
>>qualitifications nice theories
should be
qualifications and nice theories
January 31st, 2008 at 2:23 pm
> Just look at where real estate prices are highest; it’s places like Tokyo, Manhattan, Hong Kong, and Bay Area, where there’s either high population, or high growth of population. Bay Area is actually still quite reasonably priced compared to the other cities listed above.
Mr. Realtor,
How about some data about these area and comparison with Bay Area?
Population density. Number of jobs. Median/Average salary. Job growth etc?
January 31st, 2008 at 2:28 pm
> If you read my posts, you should’ve understood that I never made any prediction on per year basis. I even told you about near term fluctuations, telling you to disregard 2-5 year returns. Real estate requires longer term vision. It’s the opposite of day trading.
RealEstater,
Those two guys made prediction without any basis. You are doing same – without supporting data. It’s not a question of year-to-year prediction or decade-to-decade prediction. Without data or proper analysis, all you and them fall into same category.
January 31st, 2008 at 2:30 pm
> You’ve said this many times, but have yet to state where is that “somewhere”?
Actually others (especially Malcolm) explained many times that Real Estate is the least performing asset in long term. Got it?
January 31st, 2008 at 2:33 pm
> Ha ha ha….if you like gold at current prices, I have some land on the moon I’d like to sell you.
If gold in current price is so bad, what makes your OVERVALUED home any better? In next 2-5 years the price of gold has less chance of falling than your home.
January 31st, 2008 at 2:35 pm
RealEstater Says:
“Just look at where real estate prices are highest; it’s places like Tokyo, Manhattan, Hong Kong, and Bay Area, where there’s either high population, or high growth of population. Bay Area is actually still quite reasonably priced compared to the other cities listed above.”
Tokyo experienced a real estate run up in the 1980’s just like we have here. It was fueled by a lending explosion due to very low interest rates due to a government attempt to prevent a recession. Does this sound familiar yet? This lending bubble eventually collapsed in the same way that it is beginning to collapse in the US. Real Estate prices in Tokyo have been falling for the last fifteen years as a result! Your example has just proven our point. Here is a graph for you to look at:
http://en.wikipedia.org/wiki/Image:EconomistHomePrices20050615.jpg
Over the last ten years, people who bought in early into the real estate market and cashed out by the end of 2005 did make huge amounts of money, nobody disputes this. What we are disputing is the blind prediction that this is sustainable. People who know anything about economics understand that the prices of goods, housing included, are related to income levels. In order for housing to appreciate at 100%/10 years, salaries have to keep pace. Since salaries are growing at a far slower rate, it means that homes become less affordable for an increasing number of people, creating a lesser demand, which creates downward price pressure.
It’s clear that we renters will not convince you that you are wrong in your predictions, and you will not convince us to buy. The real test will be what we do with our money. If you are heavily leveraged and own several houses, I think you’re screwed. If you are lucky enough to own a house in downtown Palo Alto or something, I suspect you will break even, perhaps take a small loss over the next ten years. If you are right, you will make a lot more money than our investments.
You said that those of us who advocate investing never give you examples of where to invest. Well, the thing about investment is that there are so many possibilities, that there is no one strategy that works. The name of the game is diversification, and if you know a little more about the economy than just basics, you can diversify more strategically. Right now, we have an inflationary monetary policy and we are entering a recession, so it means we need to shield the money from the inflation and invest in lower risk (hence lower yield) investments. As I said before, I am betting on commodities and energy, since world demand is growing and being in a very international market, they tend to track inflation quite well.
January 31st, 2008 at 2:39 pm
> Still skeptical? I have some home work for you:
Do you have a grandmother? Ask her how much homes cost in the Bay Area in the 1950s. Ask her again about 1970’s. Then, look at prices today. Do the math, and convince yourself. DataQuik doesn’t go back that far, but your grandmother does.
Mr. Realtor,
Is it the best source of data you have? Grandmother? I thought you have better source of data, though which you can PROVE THAT HOME PRICE DOUBLES IN EVERY 10 YEARS.
January 31st, 2008 at 2:50 pm
It should also be pointed out that huge chunks of The Real Bay Area was farmland in the 1950’s.
It’s sort of a tough comparison to make.
January 31st, 2008 at 2:51 pm
> In any case, the beauty of real estate investing is that it doesn’t require a genius to execute.
And the RE bubble, price going down, high rate of foreclosure proves that it require minimum level of education/intelligence (I am not taking about college degree) to invest money. As I said before, people should buy home *for the purpose living* and they should buy within their means. Listening to someone saying “home price will double in next 10 years” could be a disaster.
January 31st, 2008 at 2:59 pm
“I’m just a Silicon Valley tech guy, not a realtor. I don’t have an econ degree, but I do remember econ courses were pretty tame compared to upper division EECS. We took them sometimes just to boost our GPA.”
A nice little zing there. Unfortunately for you, my other degree is Electrical Engineering. So beyond economics, I’ve studied quantum mechanics, electro-magnetic theory, thermodynamics, second and third order differential calculus and enough general physics and math to make the average person’s head explode six times over.
And your EECS background would lead me to believe you have some understanding of elementary math and statistics. That being said, I find it quite unusual that you have such difficulty absorbing the math and data sets myself and others have been posting on this thread in counter argument to virtually all of your posts.
So being that you are not a realtor, now everything makes perfect sense. You are a bubble sitter desperately trying to justify your inflated home purchase.
Enjoy the ride my friend. Watch that first bump. Its a doozy.
January 31st, 2008 at 3:36 pm
I challenge any of you to show me my data is wrong. For example, show me home prices in the 1950’s was not less than $30K. Don’t know how to use Google? Click here:
http://www.thepeoplehistory.com/50s-homes.html.
Can’t do math? I’m sorry, you need to go sign up at a JC.
Yes, I’m not a realtor, and I have no vested interest. Just trying to “share the wealth” here, and help out those of you who require a market meltdown to save your day.
January 31st, 2008 at 3:40 pm
RealEstater says:
> “I challenge any of you to show me my data is wrong. For example, show me home prices in the 1950’s was not less than $30K. Don’t know how to use Google?”
This is so funny. This is the first link you have provided and I got this:
Not Found
The requested URL /50s-homes.html. was not found on this server.
Additionally, a 404 Not Found error was encountered while trying to use an ErrorDocument to handle the request.
January 31st, 2008 at 3:49 pm
That’s because there is a period at the end of the URL. Remove it and the link works. The describes how those homes were built in the 50’s and that they cost $30k. The link has nothing to do with proving his prediction.
A $30k home in 1950 would cost $245k in 2006 dollars, for reference. Inflation has to be taken into account.
January 31st, 2008 at 3:49 pm
Well RealEstater,
This time you got it (after removing the dot from the end).
How ironic! Did you see the “average income” in that page and calculated the ratio with home price?
January 31st, 2008 at 3:51 pm
mtv-renter:
>>Over the last ten years, people who bought in early into the real estate market and cashed out by the end of 2005 did make huge amounts of money, nobody disputes this. What we are disputing is the blind prediction that this is sustainable. People who know anything about economics understand that the prices of goods, housing included, are related to income levels.
The biggest run-up in the “real Bay Area” happened after 2005. Even if you were in the market last month, you still have to pay over asking. Want data?
http://www.julianalee.com/reinfo/sold-PA.htm
Home prices in the Bay Area are more correlated with the income of the top 25%. If you look at that group, there’s plenty of money to go around. Like Malcolm said, lots of money was made at Google, VMWare, Ebay, Facebook…and on and on. When the government raises the Jumbo Loan limit to $730K, a whole new group of buyers will be unleashed. At the end of the day, it’s about monthly payments. Any dual income family with each person making a typical engineer salary of 100K can afford a 1 million dollar home with no sweat.
January 31st, 2008 at 4:07 pm
RealEstater,
As others mentioned earlier, when price starts falling in weaker market. Then eventually it catches stronger markets. Palo Alto is one of strong markets in Bay Area and that’s why price is still holding up. But how long it will continue to hold – that’s anybody’s guess. And that’s the reason it is risky. Looking at the current trend there is a very good possibility that the price won’t double in next 10 years.
You commented “the biggest run-up in the real Bay Area happened after 2005″. Do you have data to support that?
And do you know the average income of top 25%? Where is your reference?
January 31st, 2008 at 4:22 pm
RealEstater,
Better data is here:
http://www.trulia.com/real_estate/Palo_Alto-California/
Go to the “Palo Alto Community Info” section at the bottom of the page and click on “Household Income” tab from the table.
Household income 200K+: PA: 16.83%, Santa Clara County: 7.80%.
Where the hell are you getting your numbers?
January 31st, 2008 at 4:27 pm
“Like Malcolm said, lots of money was made at Google, VMWare, Ebay, Facebook…and on and on”
So wait a minute: first you state that making money via stocks options and the right company is rare and a “one time event”. Then you justify your home prices by using the Google and VMWare folks as your frame of reference? Your argument is circular.
“Any dual income family with each person making a typical engineer salary of 100K can afford a 1 million dollar home with no sweat.”
Yes, they could. Barely. And too bad the median family income for the Bay Area is not even remotely close to the 200k combined salary of your two engineers. (Gosh, hope one of them doesn’t lose their job)
Incidentally, the historical median home price as a ratio compared to historical median salary is between 2.6 to 2.8. Which is why banks use to use the magic 2.5 times annual salary rule for buying a home.
Your two engineers, making 200k together buying a 1 million dollar home are at almost double that ratio at 5 times.
And this statement here:
“Home prices in the Bay Area are more correlated with the income of the top 25%”
That is the most moronic one to date. You cannot subsist a housing market in ANY environment if housing only correlates to the top 25% of the income earners. Your own statement basically concludes the downside potential of the market because 75% of people cannot purchase anything. Thus demand is LOW and supply is HIGH. (This sinking in yet, sport?)
In actuality, the affordability index, which is a measure of those capable of buying a home is far less than 25%. (I think around 14%) So that in itself dictates we cannot have demand. As Pralay indicated before, the only reason we had demand during the bubble runup was because it was created artificially through exotic mortgages and high leverage. Now that this engine no longer exists, there are no fundamentals to maintain home prices. Why else are sales AND prices dropping? Why do you think California is the foreclosure capital of the USA?
But hey, at least you got that land on the moon. And you know they aren’t making any more moons…
January 31st, 2008 at 4:37 pm
OK, guys, it’s time for me to finish up this thread. I thought I have a lot of free time, but I cannot compete with Pralay, who must be unemployed!
To sum it up: To acquire wealth, and to remain wealthy, one has got to be in real estate. If you look at the richest people in the world, the majority of them made their money in real estate. This is true not only in the U.S., but internationally — even in a communist country (e.g. China).
If dumb luck handed you 2 million dollars, it may still not be enough to sustain your expenses through retirement. However, if you own houses, you are set. Just ask your landlord. He’s getting your check, month after month. Social Security cannot make you this kind of guarantee; stock market canot give you this kind of guarantee. Gold cannot give you this kind of guarantee. Besides, Gold is the functional equivalent of a piece of rock. If you can’t live in it, forget it!
January 31st, 2008 at 4:50 pm
> “OK, guys, it’s time for me to finish up this thread. I thought I have a lot of free time, but I cannot compete with Pralay, who must be unemployed!”
Come on, RealEstater. So far I have put only two links as your data points and they, ironically, prove nothing. That means you haven’t started yet. And you talking about “competing”???? I am yet to see any sort of data/reference that makes sense (and did not come from your grandmother as source). And, my employment? That’s irrelevant. What I can tell you is that I am not one of those proverbial ostriches who bought homes at peak of the bubble and living in self-denial. Not reading newspapers, not looking to data, not educating yourself does not mean that home price is not falling. It is happening whether you know it or not.
January 31st, 2008 at 4:56 pm
OK, a few departing comments for Malcolm.
>>So wait a minute: first you state that making money via stocks options and the right company is rare and a “one time event”. Then you justify your home prices by using the Google and VMWare folks as your frame of reference? Your argument is circular.
Money is always made by folks who are in the right place at the right time. My point was that this is hard to get right intentionally. If you disagree, try to find me the next Google. I’ll send in my resume right away.
>>In actuality, the affordability index, which is a measure of those capable of buying a home is far less than 25%. (I think around 14%) So that in itself dictates we cannot have demand.
The reason it’s that way is because of limited supply of land and homes. There’s really only enough homes to go around for 14% of the people, so having 25% of the people being “in the game” produces more than enough demand. It really doesn’t matter what happens with the other 75%.
January 31st, 2008 at 4:59 pm
> “To sum it up: To acquire wealth, and to remain wealthy, one has got to be in real estate. If you look at the richest people in the world, the majority of them made their money in real estate.”
Majority? Example, example, example. Please, please, please!
Actually, just like any other investments, it is possible to become rich by investing money on RE. But one has to know three IMPORTANT things:
1. When and where to buy (by looking at local economic data).
2. What to do with the RE (development – commercial or residential? Farming? leasing?).
3. When to sell (again by looking into economic data).
I don’t think you know any of those three points. You just bought something OVERVALUED at the peak of the bubble and living like a proverbial ostrich. You are even not like those lucky people who happened to buy their homes before 1997.
January 31st, 2008 at 5:16 pm
> “Money is always made by folks who are in the right place at the right time. My point was that this is hard to get right intentionally.”
RealEstarer,
It amazes me how you keep arguing without any logic. You said that Bay Area is not a like rest of the USA. You said in Iowa or South Dakota the home price does not appreciate that much. Doesn’t that mean 33 million people in rest of the USA are not lucky enough to invest money on their homes? If you compare with Palo Alto population with rest of of the USA – where does it go?
But hey, someone in South Dakota could buy Google stock on 2004. In fact Warren Buffet lives in Nebraska and he does not need to move to Bay Area to get rich.
Actually only lucky folks will come out from this housing bubble are who bought homes before 2002 and sold it before 2006. And it’s apparent that you are not one of them.
January 31st, 2008 at 5:24 pm
> “The reason it’s that way is because of limited supply of land and homes.”
Bullshit! The housing inventory of bay area show otherwise. 2007 inventory is anywhere from 25% to 100% higher than 2006 level – depending one the area. 2008 will be lot more fun!
Inventory increase = price drop.
It’s as simple as that.
> “There’s really only enough homes to go around for 14% of the people, so having 25% of the people being “in the game” produces more than enough demand.”
And you have not substantiate your 25% number. Where is it coming from?
January 31st, 2008 at 6:03 pm
> “stock market canot give you this kind of guarantee.”
Poor chap! I understand you have sour feeling about stocks. After all, there not much to save or invest from paycheck after paying mortgage for an overvalued home.
BTW, when did you go to vacation last time? I know many in bay area who cannot afford to go for vacation – after buying their overvalued homes.
January 31st, 2008 at 7:38 pm
“Money is always made by folks who are in the right place at the right time. My point was that this is hard to get right intentionally. If you disagree, try to find me the next Google. I’ll send in my resume right away.”
My friend, if that Google-to-be ever came across your posts and views here, I seriously doubt they would hire you for anything other than comic relief.
“The reason it’s that way is because of limited supply of land and homes. There’s really only enough homes to go around for 14% of the people, so having 25% of the people being “in the game” produces more than enough demand. It really doesn’t matter what happens with the other 75%.”
ROFLMAO!!!!!!!
Now THAT is funny. Only homes to go around for 14% of the people? Where are the other 86% living? Under the Golden Gate??
That is, hands down, the most moronic, half-assed, half-baked BS statement I have ever heard being uttered by even the most zealous individual in the realtor establishment.
You may wanna check out the number of available homes versus population in the Bay Area and the rate it has been INCREASING for the past 5 years or more.
But I digress. I would have a better chance of teaching integral calculus to a baboon than I would trying to explain real estate house appreciation rates and demographics to you. Enjoy sitting on your rapidly depreciating asset. Just don’t stand in line for a government handout when you’ve lost your shirt.
January 31st, 2008 at 8:01 pm
Last time I checked this thread, we were at post #47. Looks like folks just got a whole lot more pissed off. I love it!
I don’t need 100 posts to make my point – I can write it on the back of a napkin: VC money is POURING in, jobs are PLENTIFUL, prices in 2007 have INCREASED over the past year, inventory is LOW in the REAL BAY AREA over the past year, retail sales are doing JUST FINE, employment is UP UP UP, and prices have INCREASED in TRBA on homes that aren’t dukin’ it out with the fringes (eg: > $1M). All of these are facts backed up by my posts.
Oh, I know, I get it – all of this is magically going away? Yeah, that’s what patrick.net said two years ago.. and I’ve got a nice hefty return on my money since. Sure glad I wasn’t in stocks!
Now we get HIGHER conforming loan limits, and LOWER interet rates. I smell a Spring bounce!!!
To all who still read this, ignore the petty bickering. BUY NOW!!!
January 31st, 2008 at 8:31 pm
Oh, and in case you think that we’re sinking like the Titanic, check this out: http://promo.realestate.yahoo.com/americas_fastest_growing_metros.html
Yeah, baby – TWO of the top 10 are ours. 20+% growth over the next few years. Get your $1M starter home now!!!
January 31st, 2008 at 9:12 pm
“I don’t need 100 posts to make my point – I can write it on the back of a napkin: VC money is POURING in, jobs are PLENTIFUL, prices in 2007 have INCREASED over the past year, inventory is LOW in the REAL BAY AREA over the past year, retail sales are doing JUST FINE, employment is UP UP UP, and prices have INCREASED in TRBA on homes that aren’t dukin’ it out with the fringes (eg: > $1M). All of these are facts backed up by my posts.”
*yawn*
I just logged onto realtor.com to check out some of the properties in my area (Saratoga/Los Gatos)
The average percentage drop in price since the 2005 peak is 15%. Guess Saratoga and Los Gatos are not part of the “real Bay Area”. Which, like Xanadu, apparently only exists in the figments of many deluded people’s imagination.
And to close out the thread:
Google just missed, Yahoo is laying off 1000 people, hiring is slowing, outsourcing is increasing, foreclosures are skyrocketing and mortgages are far harder to come by.
Enjoy the ride down folks. Like I said before, watch that first step. It’s a DOOZY.
January 31st, 2008 at 10:59 pm
Steveo says:
> “Oh, and in case you think that we’re sinking like the Titanic, check this out: http://promo.realestate.yahoo.com/americas_fastest_growing_metros.html”
Oh, yes, when there is no good news anymore, that’s the best news you got – higher jumbo loan limit and *comparative* ranking among US metropolitan areas. And guess what, jobs are not going from San Jose to Colorado Springs, CO (or vice versa). They are going somewhere outside USA – in India and China. A whopping 2.9% population increase in Bay Area in last 6 years (please see the census link in one of the earlier posts) got to be VERY ENCOURAGING!
January 31st, 2008 at 11:14 pm
Steveo says:
> “Yeah, that’s what patrick.net said two years ago.. and I’ve got a nice hefty return on my money since. Sure glad I wasn’t in stocks!”
Well, if the housing market is so good, I wonder what brings you to all the bubble blog sites again and again. Got to be something. Anxiety? Let me guess. You bought your house in 2005 – at the peak of the bubble.
If you are so right, all the Real Estate sites and MSM (who were cheerleaders for RE industry for a long time) should be sufficient to vindicate your point. Are they missing something?
January 31st, 2008 at 11:28 pm
Everyone is welcomed here at Burbed!
January 31st, 2008 at 11:40 pm
>> VC money is POURING in,
All happened before all the write downs due to subprime crisis in 4th quarter. Watch out for 2008.
>> jobs are PLENTIFUL,
Oh, yes. Just read this article.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/01/25/BUE9ULA53.DTL
Prediction for job growth is very encouraging! And it did not take all the potential layoffs into account, especially in financial sectors.
>> prices in 2007 have INCREASED over the past year,
Keep praying. When all the numbers are against you, you need lot of praying. A lot of.
>> inventory is LOW in the REAL BAY AREA over the past year,
2007 inventory is up 25-100% from 2006. Just check zipreality data.
>> retail sales are doing JUST FINE,
Retail sale: 2006: 5%, 2007: 3.7%. The rate of increase is going down since 2005.
>> employment is UP UP UP,
2006 unemployment rate: 3.8%, 2007: 4.8% (read the link given above).
>> and prices have INCREASED in TRBA
Again, keep praying. And I forgot – wait for Spring.
February 1st, 2008 at 12:01 am
>> Everyone is welcomed here at Burbed!
Come on Burbed! Some people need not only “welcome”, but lots of solace. How about some Spring music? May be Spring part in Vivaldi’s ‘Four Seasons’?
February 1st, 2008 at 8:01 am
Dude – “Praying” is built into your alias. And do you even read the Burbed posts? I have tons of homeowner friends that do and they all love reading about the latest shack that proves the REAL BAY AREA IS SPECIAL.
Judging by the sheer poundage of your posts, it is YOU who are fretting, Pralay. YOU are betting that this year is going to be different… and I bet you thought that last year, the year before, and the year before. Just sat on the sidelines…. what could have been… so sad.
Sure, a slowing here and there – I’m not denying that – but a slip up in TRBA prices. I don’t think so!
So, this is my last post on this topic. It’s been fun all. TRBA IS special – go out and buy that Cupertino home before it’s too late!
February 1st, 2008 at 8:50 am
>> YOU are betting that this year is going to be different…
No, this year is not going to be different. 2008 will be similar to 2007, may be worse. 2009 will be similar to 2008, may be worse. And, 2010 will be similar to 2009, may be worse.
Keep in mind that all the trends are downward since 2006. I don’t need to hope different. It’s already different from 2005.
It’s YOU who is praying that this Spring will be different.
February 1st, 2008 at 1:09 pm
>> Judging by the sheer poundage of your posts, it is YOU who are fretting, Pralay.
Steve,
What about you and RealEstater? First you tried to *pretend* that you guys are really doing favor to us by sharing the secret of becoming rich. Read ReadEstater post where he said that he is trying to “share the wealth” (post #119). But reading your and his posts, it’s very apparent that “sharing the wealth” is not reason you are posting here. So, what’s the hidden motive? Is it too hard to guess? I don’t think so. Unfortunately, you are not as smart as you think.
Ok, for the sake of debate I assume that you *really* want us to get rich *from your heart*. In that case, why betting for price to go down is a bad idea? You should be happy about it, isn’t it? Home price go down, we buy home cheap, then home price *DOUBLES IN NEXT 10 YEARS* and we get rich. End of story, isn’t it? But from your posts, it’s very clear that you don’t care whether we get rich or not. Your main headache is price-going-down part. And that’s the part both of you are arguing whole time.
February 1st, 2008 at 1:10 pm
>> I have tons of homeowner friends that do and they all love reading about the latest shack that proves the REAL BAY AREA IS SPECIAL.
This one takes the cake.
Do your “tons of homeowner friends” understand sarcasm?
February 2nd, 2008 at 5:13 am
[...] Want to join in the conversation? It’s here! [...]
February 2nd, 2008 at 8:17 am
What’s the point of arguing.
In 10 years SF homes will be worth $1.6m on average, and we can surely buy them with 1% mortgages, on $150k average household income.
Or maybe, priced out forever!
I would just wait it out forever, instead of arguing with those people. Heck in 20 years I will be retiring at my 50s and moving to a nicer place. I am sure there are a lot of people on this site arguing home prices in BA never goes down. This year much less people are arguing, and they are arguing home prices will not go down in REAL BA. Next year Stevo will be quiet and RealEstater will be still argue, “But you won’t become rich without Real Estate.” Yeah I figure those 2m people in forclosure must agree, and it might be a good time next year to start looking at foreclosures.
February 2nd, 2008 at 9:17 am
> Exactly! One of my friends once said “If you move all the
> educated families from Cupertino, Saratoga, Palo Alto to a
> crappy place in desert, the API score of that desert will jump
> way up”.
California is the crappy place in the desert — have you tried driving a little towards the east? Just one hour is enough. After that, the next time you see water is when you hit the Rockies!
February 2nd, 2008 at 9:23 am
>A different choice would be to live in a “Real Bay Area”
>neighborhood with a mortgage of $5500/month, and send your kids
>to the neighborhood school with a 900+ API score. That is
No thank you, it is better to spend your money on an active asset (human capital – education) that has +ve payoff, than on a passive asset that can be flat to negative in next 10 years!
>clearly a better outcome, because:
>1. Neighborhood schools are more convenient, and lets your
>kids know the other kids in the neighborhood.
Kids know other kids wherever they live — tehy dont need to go to public school for that.
>2. You friend would be building equity faster.
Ha ha ah.. Is he shorting the house or something to build equity as the market falls? If anything he will be inverted on his loans faster.
>3. The house would maintain its value better during a
>downturn, and appreciate better during an upturn.
H aha hahahaha ha. See #2.
>4. Better enjoyment due to better neighborhood, and other
>associated factors (less crime, etc.).
There is no crime in the US of A. To see crime go live for a year in Baghdad. I’d rather live in East Palo Alto than in Baghdad. How about you? If anything poorer people are more honest and hardworking than the CEOs, CFOs CTOs who backdate options (yes Steve Jobs, I am talking about you!) and sell overpriced crap (Windows Vista, MacAirBook) to steal money.
February 2nd, 2008 at 9:27 am
> There is a good possibility that the price will fall and there
> is a very thin narrow possibility that it will appreciate.
> Just look at Case-Shiller Index.
Shiller wrote a book some years back where he said the housing market will crash. Now, he is no longer allowed to forecast prices because, according to his lawyer, “his words will impact the market (negatively)”. But the last time he opened his mouth he said to expect a 30% crash from that level. Which would be closer to 50% decline from current prices.
February 2nd, 2008 at 9:33 am
> However, if you find something in Palo Alto/Los Altos/Menlo
> Park/Cupertino (”real” Bay Area) in the low $1million range,
> it can very well be a bargain, and these homes are in fact
> highly saught after.
I’ll pay a million if it has an acre of land. O/w I’ll pass.
February 2nd, 2008 at 9:35 am
> Every penny you spend on rent is throw away money.
As is every penny you pay as interest on a mortgage loan. Or in HOA fees, or in RE taxes. And right now the interest + HOA/RE + maintenance fees are way more than renting. So it makes perfect sense to keep renting and build up the equity in equities, rather than in overpriced house!
February 2nd, 2008 at 9:40 am
Dumbass comment of year award goes to: “Interest is your tax shelter. It’s money you would’ve given to the government anyways.”
Scroll up and see who is the dumbass that said it.
Mr Dumbass, do you somehow get a 1:1 credit for all your interest? No! I thought so, you get a 1:1 deduction, which means a 28 cents on the dollar. And you still pay interest out of money on which you have already paid FICA/Medicare, so you really have to make $1.15 to get that 28 cent refund on $1 of interest.
February 2nd, 2008 at 9:43 am
Thanks Burb, for showing to chart. It just further proof that Bay Area real estate doubles every ten years. It’s the biggest ‘duh’ in the history of mankind. At any moment in time, you always think it’s expensive, but I’m telling you that a decade from now, it’ll be worth twice as much again.
February 2nd, 2008 at 9:44 am
> “on the average Bay Area properties double in price every 10 years, without exception”
Great. That is 7% per year, on the average. I’ll stay in stocks at 11% per year, on the average.
February 2nd, 2008 at 9:55 am
SantaClarite,
The thing is, all those ‘dumbass’ people can outbid you on a house, and price you out forever.
February 2nd, 2008 at 10:04 am
“when I read RealEstater words, I have to rethink my view. If he is knowingly spreading this propaganda and false rhetoric to individuals who are counting on him being truthful, than I have to lump realtors into the group of people that need to be held accountable for this debacle. I am sorry, but in any other profession, if an individual outright lies and skews data to fit their agenda, they are usually dealt with rather severely.”
RE agents are like lawyers – scum of the earth. The other day on NPR there was this dumb RE agent who was asked why a RE agent in Bay Area should get 6 times the fees of one in midWest. The dumbass said that a RE agent in Bay Area has to do 6 times as much work as a RE agent in the mid West to sella house.
WTF is he smoking?
RE agents are desperate now just like the music, video and print industries — they are watching their industry implode and it will soon go up in smoke as the internet enables buyers/sellers to get together with just two attorneys representing them at a flat rate!
February 2nd, 2008 at 10:06 am
“The thing is, all those ‘dumbass’ people can outbid you on a house, and price you out forever.”
I can live with that — it means that house prices wont skyrocket in other nicer parts of the country and the world! Perfect if you ask me, if all the idjits in the world buy houses in California.
February 2nd, 2008 at 10:14 am
“Ultimately, within the real estate industry, Realtors ARE considered experts, at least by the general population. You and I may think of them as nothing more than glorified used car salesman, but others look to them for truthful and unbiased advice. (Yes, I know, obvious conflict of interest)”
Worse than that. Real estate agents are just pimps. For ugly houses. They should be compared to drug dealers rather than to used car salesmen.
(btw: realtor is not an English word, it is like Xerox or Google – a trademark. The actual English word is Real Estate Agent.)
February 2nd, 2008 at 10:15 am
“Just look at where real estate prices are highest; it’s places like Tokyo, Manhattan, Hong Kong, and Bay Area, where there’s either high population, or high growth of population. Bay Area is actually still quite reasonably priced compared to the other cities listed above.”
Tokyo, Manhattan, HK are nice to live in and have a culture.
What has Bay Area got? Nothing. That’s why it is cheaper.
February 2nd, 2008 at 10:22 am
“It should also be pointed out that huge chunks of The Real Bay Area was farmland in the 1950’s.
It’s sort of a tough comparison to make.”
And it is going back to farmland — the computer industry is moving from its manufacturing phase (chip/hardware) to software and to services, which is massively outsourced to other cities, states and countries. The startups are in Austin, Denver, Boston, all over the map.
Bay Area is going to look like Chicago or even Detroit in 20 years’ time. The empty house shells will be torn down and converted to beautiful Cherry Orchards once again!
February 2nd, 2008 at 11:08 am
RealEstater:
You said “Every penny you spend on rent is throw away money.” ROFL.
In order to find the proper value of a financial instrument or an asset, one can invoke the concept of arbitrage. Example #1, how do we determine the interest rate of a 15-year fixed-rate mortgage? Well it should track the yield of the 10-year Treasury notes. Just imagine what one can do to profit from the scenario where, say, the former is at 3% while the 10-year Treasury yield is at 6%!
Example #2, how do we value the price of a call option? Black & Scholes derive the value of the option by imposing the arbitrage-free assumption. In addition, if you look at the Black-Scholes equation [ http://en.wikipedia.org/wiki/Black-Scholes ], you’d see that the price of an option depends on the risk-free interest rate.
I think the mortgage payment-to-rent ratio is a good metric to consider when deciding whether to buy or rent a house, much like the P/E ratio for stocks. A “hot” company such as VMware, despite the recent sell-off, is still trading at a forward P/E of 37, because we are expecting the company to grow their earnings rapidly. Similarly, Citigroup is trading at a forward P/E of 8 because they are considered to be “dead money”.
Since the mortgage payment-to-rent ratio is about 2 for a $1M house in a decent area in Cupertino, the house is “expected” to appreciate rapidly as the expectation is priced in. If it does not, expect the market to adjust its price. Prices can stay irrational for a while, as the P/E of Intel was ~80 during the tech bubble, but it has fallen to less than 20.
February 2nd, 2008 at 11:13 am
RealEstater Says:
“The thing is, all those ‘dumbass’ people can outbid you on a house, and price you out forever.”
I know — those dumbasses outbid me for fine companies like Cisco and Intel during the last tech bubble. They were willing to pay as much as ~$80 for CSCO in 2000 — how could I have competed with them?
I believe that there is a good time to pick up good assets but there is also a terrible time to do so.
February 2nd, 2008 at 12:04 pm
“Bay Area is going to look like Chicago or even Detroit in 20 years’ time. The empty house shells will be torn down and converted to beautiful Cherry Orchards once again!”
Quite possibly the dumbest thing written on this board. And that’s saying something.
February 2nd, 2008 at 1:10 pm
RealEstater says:
> “Thanks Burb, for showing to chart. It just further proof that Bay Area real estate doubles every ten years. It’s the biggest ‘duh’ in the history of mankind. At any moment in time, you always think it’s expensive, but I’m telling you that a decade from now, it’ll be worth twice as much again.”
RealEstater,
Just look at inflation adjusted graph. People, who bought their home 1990, did not get even until 1999. That got to be a amazing nine/ten year period, isn’t it? Keep in mind, according to the graph the trend is downward since 2005-2006. If we assume that it is going to be just like 1990, then next 10 year (2005-2015) is going to be another amazing decade!!!!
1990 was a very bad time to buy home. Same way, 2005 was a terrible time to buy home too.
February 2nd, 2008 at 1:29 pm
RealEstater says:
> “The thing is, all those ‘dumbass’ people can outbid you on a house, and price you out forever.”
RealEstater,
Even dumbass has a limit of doing dumb things. Your argument is a self-defeating argument. A dumbass making others priced out forever is same as making HIMSELF priced out forever. Let’s assume you bought you home for price X. Now, after some years, another person can buy your home only if he can afford X + Y (Y is appreciation). If everybody gets priced out forever, nobody will be able buy your home (remember, that Japanese woman story I told earlier?). And if nobody is buying your home, it is pointless to speculate the value of your home. Record drop in home sale volume from 2006 – does it ring any bell in your mind? And the volume of sales is dropping every month. There is end in sight.
Now, looks at the graph again. Why price is going downward since 2005? Because dumbass people hit their limit. Even both family-members working fulltime, not going for vacation, using discount coupons from newspapers and mailers for buying foods, not heating up the home in cold winter nights do not solve the problem.
February 2nd, 2008 at 1:35 pm
Continuation from previous post:
And that’s why home price is always tied to income level of that area. Dumbass hits the ceiling, the market goes back to normal.
February 2nd, 2008 at 2:24 pm
>“Bay Area is going to look like Chicago or even Detroit in 20
>years’ time. The empty house shells will be torn down and
>converted to beautiful Cherry Orchards once again!”
>
>Quite possibly the dumbest thing written on this board. And
>that’s saying something.
JayDawg, you don’t get sarcasm, do you? The above was in response to the chap who said it is difficult to compare home price with 1950 as this whole area was farmland. Well, duh! There were fewer people in the world then, but that does not mean you cannot compare house prices.
February 2nd, 2008 at 6:41 pm
>>Now, looks at the graph again. Why price is going downward since 2005?
Homes are still going for above asking price in virtually all real Bay Area neighborhoods. The “downward trend” is caused by data being grouped with outlying areas that got into the subprime mess. There’s no bubble in the real Bay Area, because prices were up due to strong fundamentals, rather due to creative financing. There’s no evidence of foreclosure problems in the real Bay Area. By “real Bay Area”, I’m not referring to a small number of cities. I’m talking about all the core locations – Cupertino, Sunnyvale, Los Altos, Palo Alto, Menlo Park, Atherton, Woodside, Portola Valley, Saratoga, San Mateo, San Carlos, Foster City, Hillsborough, Burlingame, Millbrae, last and not least, San Francisco. That’s a pretty big area!
Second point: Even if prices are down after 2005, that’s only like 3 years ago. When you look at real estate, you need to look at the longer time horizon. History shows that when prices take a breather in the Bay Area, it always turns out to be a great opportunity to get into the market. That is what happened around 1990.
February 2nd, 2008 at 6:46 pm
Pralay:
>>1990 was a very bad time to buy home.
If someone were to offer their house for sale at 1990 prices, regardless of where that house is, I can guarantee you there would be thousands of offers on the house.
February 2nd, 2008 at 8:46 pm
>> “There’s no bubble in the real Bay Area, because prices were up due to strong fundamentals, rather due to creative financing.”
RealEstater,
I, Malcolm and others repetitively asked to show some number/reference/data etc. But failed show any. Instead you have some vague words.
What the hell this “fundamental” you are talking about?
February 2nd, 2008 at 8:49 pm
>>> “Homes are still going for above asking price in virtually all real Bay Area neighborhoods.”
Again, data please. Please compare 2006-2007 with 2003-2004-2005. Compare the difference between SP/LP ratio.
But, what the heck! I am pretty sure you don’t have any data to backup your claim.
February 2nd, 2008 at 8:57 pm
>> “I’m talking about all the core locations – Cupertino, Sunnyvale, Los Altos, Palo Alto, Menlo Park, Atherton, Woodside, Portola Valley, Saratoga, San Mateo, San Carlos, Foster City, Hillsborough, Burlingame, Millbrae, last and not least, San Francisco. That’s a pretty big area!”
RealEstater,
Well, even in last downturn all the so-called “core- locations” were affected, including San Francisco city. I don’t think it will be different this time either. If you think otherwise, please lay out your logic.
February 2nd, 2008 at 9:16 pm
>> “If someone were to offer their house for sale at 1990 prices, regardless of where that house is, I can guarantee you there would be thousands of offers on the house.”
Another dumb meaningless argument. The demography of 1990 and 2007 is totally different. So, nobody expects someone to offer 1990 price today. And, yes, did I mention the inflation?
People who bought their home in 1990 saved by two things:
1. job growth in 1995-2001.
2. RE bubble 2002-2005
If these things were not in the scene, they would still be under water today (taking inflation into account).
Now, tell me how someone who bought home in 2005 is going to be saved. Another job growth just like 1995-2001? Another RE bubble just like 2002-2005?
Well, all the jobs are going to India and China. Did I mention Yahoo is laying off?
February 2nd, 2008 at 9:36 pm
>Because dumbass people hit their limit. Even both >family-members working fulltime, not going for >vacation, using discount coupons from newspapers and >mailers for buying foods, not heating up the home in >cold winter nights do not solve the problem.
Yup.
I know people who have change-the-world kind of jobs and are making money that’s commensurate with the magnitude of what they’re doing. They can’t afford to upgrade from Sunnyvale to Palo Alto. They can’t afford to upgrade from grungy-side RWC to nice-side RWC. My pediatrician complained to me about not being able to afford a nice house as a first-time buyer. These are hard-working, high-potential, big-money-earning, upper-middle-class people.
The only way that housing prices can go up any further is if the entire market is bought by foreign investors and converted to rentals. Or if everyone who owns inherited their money. Or if only lawyers and medical specialists buy. This is the model for Manhattan, and I suppose it could happen here… but I think local business would feel the hurt of no longer being able to lure employees here.
February 2nd, 2008 at 9:54 pm
Pralay:
It’s obvious that you don’t follow real estate. The data you are constantly asking about is published every single month. If you haven’t been paying attention, don’t write so many meaningless comments. What is your point anyways? That the market is crashing? No, sorry to disappoint you. Let me say this again: people are still paying over asking as of last month in virtually all parts of the real Bay Area.
February 2nd, 2008 at 10:00 pm
>>Did I mention Yahoo is laying off?
Did you hear Microsoft is buying Yahoo? That’s like 45 Billion dollars invested in a Bay Area company. All the Yahoo employees will become Microsoft employees. When was the last time you heard about a layoff at Microsoft?
February 2nd, 2008 at 10:12 pm
>> “It’s obvious that you don’t follow real estate. The data you are constantly asking about is published every single month. If you haven’t been paying attention, don’t write so many meaningless comments.
What an excuse!!!!! And what kind of data are you are talking about that would support your claim? There is none.
February 2nd, 2008 at 11:02 pm
>> “Did you hear Microsoft is buying Yahoo? That’s like 45 Billion dollars invested in a Bay Area company. All the Yahoo employees will become Microsoft employees. When was the last time you heard about a layoff at Microsoft?”
(Note: This site does not allow me post messages with too many links. Add http:// if your browser needs it. All the links are tagged by prefix “Site:”).
Earlier you said you work in tech industry. This time I am having doubt about it. MS is buying Yahoo – that’s got to be good news, isn’t it? Let me ask you a counter question: Do you know where all the new Microsoft jobs are going? Let me give some hint:
Site: http://www.microsoft.com/india/msidc/
It’s true that companies like Microsoft or Sun Microsystems do not layoff that often. But it is also true that Microsoft is not growing in Redmond either and Sun Micro is not growing in Bay Area either. Microsoft is growing elsewhere
Actually, in my opinion, Yahoo has more chances of growing in Bay Area if Microsoft does not buy it (and I hope they don’t).
Coming to your original question. When did I hear last time Microsoft laid off people? Answer: Very same time when Microsoft was recruiting heavily in India. Check these links:
Site: seattlepi.nwsource.com/venture/layoff.asp (search for Microsoft from the list).
Site: blog.taragana.com/index.php/archive/microsoft-investing-17-billion-in-4-years-recruiting-3000-professionals-in-india/
There are more news. Just google it.
And of course Microsoft is buying Yahoo because they want to compete with Google. Ok, let’s have look at their competitor.
Site: http://www.news.com/Google-begins-recruiting-in-India/2100-1022_3-5535059.html
And this is only a very simplified view of tech/job world. The reality is lot more complex because tech companies do not do all the work in their own. They either outsource or do on-site contracting to other companies. And do I have to tell you where those companies come from?
So, unless you bring all the jobs back to Bay Area from China and India, how are you going to replicate another 1995-2001 in Bay Area, Mr. RealEstater?
February 2nd, 2008 at 11:11 pm
BTW, one of links I provided in earlier post got truncated for being too long. Here, an alternate link for the same news.
http://in.rediff.com/money/2005/dec/07gates1.htm
February 2nd, 2008 at 11:43 pm
> “Homes are still going for above asking price in virtually all real Bay Area neighborhoods.”
Some additional notes about this topic. In one of the earlier posts I specifically asked for SP/LP ratio. Why is it important? Because that gives an idea where the market is heading.
In addition, nowadays, the real estate market is considered buyers market (not true though). In buyers market, it’s not uncommon for buyer to ask seller to “upgrade” certain things in the home before buying and include the cost sale price. For example, someone wants trees to be cut and swimming pool to be gone from backyard. If seller agrees (of course he would because that’s the only offer he got and he is not going let it go away), he would do all these and add all the costs in sale price (and it is legal to do so). By doing this, it allowed buyer to spread these costs in 30 year mortgage. So, it is not unusual sale price going above listed price.
February 2nd, 2008 at 11:51 pm
>> “I am sure there are a lot of people on this site arguing home prices in BA never goes down. This year much less people are arguing, and they are arguing home prices will not go down in REAL BA. Next year Stevo will be quiet and RealEstater will be still argue, “But you won’t become rich without Real Estate.”
Indeed true. Actually one of the guys is too busy to file bankruptcy.
http://www.patrick.net/housing/contrib/fbr.html
On TV, even in early 2007 there are too many guys from RE industry who were showing extraordinary optimism about housing market. Suddenly they are gone in 2008.
February 3rd, 2008 at 12:32 am
>> “I’m talking about all the core locations – Cupertino, Sunnyvale, Los Altos, Palo Alto, Menlo Park, Atherton, Woodside, Portola Valley, Saratoga, San Mateo, San Carlos, Foster City, Hillsborough, Burlingame, Millbrae, last and not least, San Francisco. That’s a pretty big area!”
Dear real-estater, I can quote a number of houses in those areas that have been languishing in the market for a while.
For example, take a look
http://www.redfin.com/stingray/do/printable-listing?listing-id=1264360
This is the part of San Mateo that is pretty close to Burlingame.
It says it has been on the market for more than 90 days. I have noticed at least two empty open houses.
I drove by and saw the seller sitting at the front door, waiting.
So, go ahead! Buy right now! Prove your point and save the seller. What’s stopping you?
February 3rd, 2008 at 1:16 am
Pralay:
SP/LP ratio has consistently hovered around 100% to 105% over the past few years. You won’t be able to deduce any kind of trend there, except to conclude that prices are holding solid. When the ratio is over 100%, I can tell you it’s not because the seller is offering to fix something. Go talk to a real seller or buyer. The reason is always due to multiple offers.
February 3rd, 2008 at 1:27 am
Pralay,
Just because your job was outsourced doesn’t mean there are no jobs out there. As a matter of fact, people with good tech skills are hard to come by. That’s why new grads get offers at $90K. At my company, they make no secret of the fact that business is brisk, and retention has become a major focus of the HR department.
You seem to buy the hysteria in the media that the sky is falling. What you need to do is sort out the details, for examples:
- When they say prices are falling in the Bay Area, what they really mean is that prices are falling in Antioch, Stockton, Fairfield and low-income, outlying areas like those.
- When they say unemployment is up, what they really mean is that unemployment is up in manufacturing; e.g. car assembly in Detroit. Jobs are actually up in the service sector.
If the economy is really that bad, Wall Street should be dumping stocks. What we saw is that stock prices gained last week. Would people be buying stocks if we’re falling off a cliff?
February 3rd, 2008 at 1:37 am
sg,
You can always find a particular listing that languishes on the market. I can even find you a house in Palo Alto that does not sell. It could be due to a number of reasons unrelated to general market conditions.
Yes, I am shopping for an investment property this year, and what I’m finding is that conditions are still challenging for the buyer. Inventory is thin, and lots of buyers are out at open houses. Most likely I’ll make my move after the government lifts the jumbo loan ceiling.
February 3rd, 2008 at 10:34 am
> “SP/LP ratio has consistently hovered around 100% to 105% over the past few years.”
RealEstater,
Of course you are lying when you state “homes are still going for above asking price in virtually all real Bay Area neighborhoods”. No, they are NOT selling over listed price virtually everywhere in bay area. In reality the numbers are mixed…and showing downward trend.
Let’s look at this Real Estate agents monthly newletters:
http://www.aviurbanrealestate.com/pages1/form_new.html
The latest newsletter (Dec 2007) about Nov 2007 SFH sales:
Whole bay area SP/LP: 98.8
Palo Alto: 104.8 (number of sales: 26)
Cupertino: 99.8 (NOS: 26)
Los Altos: 99.3 (NOS: 21)
san Jose: 97.3 (NOS: 227)
Sunnyvale: 101.0 (NOS: 37)
Now, look at Nov 2006 data (Dec 06 newsletter):
Whole bay area SP/LP: 98.9
Palo Alto: 101.2 (number of sales: 41)
Cupertino: 99.8 (NOS: 27)
Los Altos: 99.2 (NOS: 36)
San Jose: 98.8 (NOS: 480)
Sunnyvale: 99.9 (NOS: 48)
SP/LP increased in Sunnyvale and Palo Alto. But their drop number of sales and increase is median price shows that the LP/LP is skewed by higher end homes.
In addition, just look at the SP/LP graph. It shows how SP/LP is going down from Feb-March 2005.
Basically, whatever you stated was true for 2005. But it is no longer true for 2006 or 2007. That explains why you don’t show any reference when you claim something. What a pathological liar!
February 3rd, 2008 at 11:13 am
>>Basically, whatever you stated was true for 2005. But it is no longer true for 2006 or 2007.
Funny how you pick Nov. to demonstrate your point, when most people are not shopping for homes. How about August 2007?
Cupertino: 101%
Los Altos: 104.3%
Mountain View: 104.5%
Palo Alto: 105.6%
Santa Clara: 101%
Sunnyvale: 102.9%
Another data point: June 2006 -
Campbell: 100.7%
Cupertino: 101.1%
Milpitas: 100.4%
Mountain View: 102%
Palo Alto: 104%
Santa Clara: 100.8%
Sunnyvale: 102%
Does this make you a pathological liar?
By the way, I have advanced data for December 2007, and most of these cities are at 100% or higher. Even the 99% figures you are showing is not too shabby is it? Where is the market crashing? Where is the downturn? Are you saying a market that goes from 100% SP/LP ratio in the summer to 99.9% is a downward trend? Ha ha ha ha…what a joke.
February 3rd, 2008 at 11:24 am
>> “Just because your job was outsourced doesn’t mean there are no jobs out there.”
Again straw man argument. You are putting word in my mouth and then arguing against it. All I am saying that companies like Microsoft are growing elsewhere. Even Google is growing its significant part outside USA. It’s a sharp contrast from the job growth in 1995-2001 period when virtually all the jobs were here in Bay Area. So, unless you can replicate similar job growth of 1995-2001 period, you cannot replicate the similar home price appreciation in Bay Area (Or, you have replace it with another positive factor).
>> “As a matter of fact, people with good tech skills are hard to come by. That’s why new grads get offers at $90K. At my company, they make no secret of the fact that business is brisk, and retention has become a major focus of the HR department.”
Again, just look at the overall job growth in bay area tech sector in last two years.
>> “You seem to buy the hysteria in the media that the sky is falling. What you need to do is sort out the details, for examples:”
Isn’t the same media which was a major cheerleader for RE industry. Things changed since 2005. Isn’t it?
>> “- When they say prices are falling in the Bay Area, what they really mean is that prices are falling in Antioch, Stockton, Fairfield and low-income, outlying areas like those.”
ANOTHER LIE. No, even in Real Bay Area the prices are falling. And sale volumes are dropping too (and inventory is piling up). Only places like Palo Alto, Atherton are holding up. But it will be interesting to how long it will hold up.
Keep in mind, if someone said in 2005 that price is going to fall in Santa Clara country, nobody would believe him. Same thing goes for Palo Alto today.
>> – “When they say unemployment is up, what they really mean is that unemployment is up in manufacturing; e.g. car assembly in Detroit. Jobs are actually up in the service sector.”
And where exactly you got the data from? Again grandmother?
February 3rd, 2008 at 11:39 am
>> “Funny how you pick Nov. to demonstrate your point, when most people are not shopping for homes. How about August 2007?”
Because that’s the latest data. If people were not shopping for homes Nov 2007, they were not shopping in Nov 2006 either. That’s why RE market is compared with the same month of prior year(s). Don’t you know that? I did not compare with Nov 2007 data with Aug 2006. I did with Nov 2006.
If you really want to compare, you should compare between Aug 2007 and Aug 2006, taking number of sales into account (because, again, drop in sale indicate the number could be skewed).
February 3rd, 2008 at 11:43 am
>> “Does this make you a pathological liar?”
Of course. Because you cherry pick the best data point, and then you try to give an impression that the number represents overall trend. That explains why you don’t like to provide data reference when you claim something.
February 3rd, 2008 at 11:58 am
>> “Even the 99% figures you are showing is not too shabby is it?”
It does not. But it shows that you are a liar.
>> Where is the market crashing? Where is the downturn?”
Just look at the inventory level and sale volume, dude!
>> “Are you saying a market that goes from 100% SP/LP ratio in the summer to 99.9% is a downward trend? Ha ha ha ha…what a joke.”
Well, you started this topic by claiming that *virtually everywhere in Bay area* people are buying homes over listed price. Basically, you tried to give an impression that it is an indication of market doing better. But the number just shows are you are incorrect and it doesn’t support your claim.
Bottomline, SP/LP going down from 100+ to 99.9 is certainly NOT an indication of market doing better – atleast not as good as 2005.
If you really want know the downward trend, you just need to look at sales volume and inventory level.
February 3rd, 2008 at 12:17 pm
>> “If the economy is really that bad, Wall Street should be dumping stocks. What we saw is that stock prices gained last week.”
I wonder how long that half point interest rate cut will help. And, tech sectors? The news of MS buying Yahoo and Motorola’s spin off are only two good news which helped stock price to soar. Keep hoping that these two good news will somehow generate tremendous tech job growth in Bay Area
February 3rd, 2008 at 8:44 pm
Pralay:
Did it ever occur to you that this is an election year? Economy just doesn’t go sour during an election year. We got at least 10 more months of sunshine ahead of us.
February 3rd, 2008 at 10:01 pm
>> “Did it ever occur to you that this is an election year? Economy just doesn’t go sour during an election year. We got at least 10 more months of sunshine ahead of us.”
Ha ha ha! This is most ignorant comment I ever heard about politics + economy. Let me give some clue to the answer. There are not many former US presidents living today. Just ask ALL OF THEM except Bill Clinton. Others indeed have bitter taste (or “sour” if you want to call it) about economy on election year.
February 4th, 2008 at 1:54 am
Guys, your exchange stopped being funny many posts ago.
A few comments I’d like to throw in there:
#1. The discussion about renting versus owning, and the one about buying property for investment (as landlord) is completely separate. The former takes a long-term view with all the intangibles of home ownership, the latter takes a short- to mid-term view with only cold hard financial facts. Please keep both discussions separate.
#2. Home prices don’t have to be a function of solely local income, when foreign investors buy with mid-term horizon. As long as people from outside the Bay buy real estate into the bay, you’ll have to take this factor into account and accept that home prices will stay somewhat disconnected from media local income.
#3. Anybody looking at the past to make predictions about the future (it’s always appreciated that way so it’ll continue being that way) failed to understand the first rule of investing: past returns are not an indication of future results.
#4. Why does nobody mention the risk of earthquakes? The risk of terrorist attacks? The rising sea level? Etc. Shouldn’t these be factored in as well in considering Bay Area real estate, live-in or rent out?
#5. Is everybody single on this board? When you have wife and kids, living in a safe, homely neighborhood with long-term residents around is a must. The areas with concentrated rents tend to correlate with higher crime and resident turnover… even when they are half a mile from Google.
February 4th, 2008 at 9:11 am
The problem with “owning” (how much do you really own a home when you have no equity in it) in the bay area is that the intangibles of “owning” are far more expensive than the tangible benefits of owning. You can get all the real benefits of owning a house by renting it if you’re a decent negotiator (pets, paint, small architectural mods, gardening) for less than half the price of owning. I don’t really see the upside of buying a place, even though I have a wife and dogs (with kids coming soon).
February 4th, 2008 at 9:17 am
The discussion about renting versus owning, and the one about buying property for investment (as landlord) is completely separate.
Don’t be silly, they’re part of the same market for SFRs. And if it doesn’t make sense to buy to rent, it doesn’t (usually) make sense to buy for any purpose.
Home prices don’t have to be a function of solely local income, when foreign investors buy with mid-term horizon.
Oh, that’s funny. Do you know what percentage of houses are bought with foreign money? Less than 1%.
past returns are not an indication of future results.
At least we can agree on this. History doesn’t repeat, but it does rhyme. After every runup, with one exception, prices have gone back down. The exception corresponded with the introduction of the 30-year fixed.
When you have wife and kids, living in a safe, homely neighborhood with long-term residents around is a must.
So rent – and with the money you save over the interest payments, you’ll be able to afford an ivy league school. And no, I’m not making that up – I’ve saved six figures in the last 2 years by not buying, and investing the difference. And all that without being raped, murdered or mugged. Lots of good houses in good neighborhoods for rent, at 1/2 the price of buying. It’s a great time to be a renter in SF Bay. Just look at Craigslist for a feel of it.
I also find it pretty funny that we’re arguing about how the Real Bay Area will never go down. How old are the people posting here. Has everyone forgotten the early 90s?
February 4th, 2008 at 10:28 am
Jim D.,
Thank you for the response. We’ll have to agree to disagree on your first statement. Comparing renting to buying, you are only looking at tangibles, but we are not. For example we just replaced our heating duct and also installed a humidifier and air cleaner, because air and water are investments into one’s family’s health. You cannot do this if you rent unless you are a dazzling negotiator as you say. Renting vs owning is not just about money.
I am interested to know where you collected the date for the 1% figure you quoted on houses bought with foreign money. With rampant inflation I am also interested to find out about the trend year over year. I am personally convinced that the Cupertino area prices have been maintained with the help of foreign money but have no hard data to back this.
I am happy for you for making it safely in your neighborhood in the past two years. My experience is different. We were renting in the MView triangle, ripe with drugs, car thefts and a murder all within or nearby our condominium complex. We moved and bought into a SFR just for safety reason. Long story short, your personal experience or mine are of little relevance, best keep it to statistics that you can extract off the MView Voice to back my assertion that renting generally exposes one to higher-crime areas.
Finally in a discussion of renting vs owning you’d want to go beyond a snapshot of the current situation to justify not buying. That’s a somewhat reactive way to approaching real estate isn’t it?
February 4th, 2008 at 10:34 am
>>Long story short, your personal experience or mine are of little relevance, best keep it to statistics that you can extract off the MView Voice to back my assertion that renting generally exposes one to higher-crime areas.
Amen. That’s why right now is a great time to buy in East Palo Alto!
February 4th, 2008 at 11:13 am
Burbed, but since when A implies B is equivalent to non-A implies non-B? Doesn’t effective sarcasm respect basic induction and deduction logic?
February 4th, 2008 at 11:22 am
Not when you own the site.
February 4th, 2008 at 2:48 pm
[...] proof that when you rent, you put your lives at risk! Just like DreamT recently posted in this comment: I am happy for you for making it safely in your neighborhood in the past two years. My experience [...]
February 5th, 2008 at 11:29 am
I am interested to know where you collected the date for the 1% figure you quoted on houses bought with foreign money. With rampant inflation I am also interested to find out about the trend year over year. I am personally convinced that the Cupertino area prices have been maintained with the help of foreign money but have no hard data to back this.
There was an entry in the BusinessWeek Hot Property blog not too long ago. It said that total US foreign money in RE was around $110 billion – IIRC, that included Commerical RE. It was up by, I think, almost 10%.
That sounds like a lot, but when you include NYC, LA, Miami, Jackson Hole, etc, etc, it’s not that much. 1000 houses in the bay area at $500k each is $500 million. That’s not even a month of sales in a down market.
Now, it may be that it’s larger, since that doesn’t include residents of the US who are foreign nationals – and that’s who’s been buying in places like Cupertino. But that’s not ‘foreign money’, that’s US money in foreign hands.
As for “intangibles” of home ownership. I’m *very* willing to pay for those intangibles. I’m willing to go as much as 20% higher.
Sadly, it’s right now 75% or so higher. Spending that much on intangibles is just dumb money. But hey, don’t be glum! Only last year, the price of intangibles was 100%! It’s certainly headed in the right direction.
As for renting in a crime ridden neighborhood – if you think that’s bad, try *buying* in a crime ridden neighborhood. Now that *really* stinks.
(I have both water filters and air filters installed in my rented apartment, it wasn’t hard to do. They’re not as nice as yours probably are, though.)
February 6th, 2008 at 3:33 pm
Jim,
Rather than evaluating the % of foreign money used to purchase the house it would have to be the % not tied to present and future local income. That’s the whole downpayment plus income from stocks, rental properties, savings moved from a US or foreign bank, financial gains from (re)financing, etc. Another indicator is indeed the % of foreign nationals. When you get down to it, figuring out how local house prices are expected to be disconnected from local wages must be an impossible endeavor: they only fully connect if each resident’s expense is fully and only covered by his monthly cash flow from a local job, which is less likely the wealthier the neighborhood is.
As for the duct work + air filter + humidifier, our vacuum cleaner picks up almost no dust on carpets now on a weekly basis. We suspect leaks in the attic’s heating duct and return flow under the house would gather and project dust inside(the house is 52y old, was leaking 45% of the heat). In that sense, home ownership gives you both the opportunity and incentive to manage your living environment beyond what you can do as a renter.
February 7th, 2008 at 8:03 am
When you get down to it, figuring out how local house prices are expected to be disconnected from local wages must be an impossible endeavor: they only fully connect if each resident’s expense is fully and only covered by his monthly cash flow from a local job, which is less likely the wealthier the neighborhood is.
That’s an interesting theory, but history tells me that during normal times in the bay area, houses sell for somewhere very close to what they bring in in rent. I’m expecting that day to come back shortly. (Even leaving aside that less than 1% of the buyers aren’t going to move the market.)
Now, the Bay Area is Special – normally, houses do sell for just a little more than rental income, instead of like the rest of the country where they sell for a little less. We’re just not as Special as you think.
There’s a house in Sunnyvale I’ve been watching. Originally listed at $700k, now down to $550k. Still hasn’t sold, though. I wonder if they can go lower, or if they owe too much? It’s already a short sale…
February 8th, 2008 at 10:08 pm
Hello,
I have read through all the comments, started from #1 and just finished #207. But I am afraid that after all that reading, I am still a bit confused about what to do. Is it a good idea to buy a house now, or is it not? It seems the general consensus is that the prices have not hit bottom and it is not a good time to buy.
However, the prices in, say, Brentwood, are pretty low right now. I can buy a house there with a mortgage that will be equal or maybe even a little lover than my current rent, which is $2K a month. Will the prices in Brentwood go even lower? I do not know, I think they will, but nobody really knows how low they can go. What do you guys think?
As for “real Bay Area,” I would love to buy a house there, but I doubt $1.5M homes will come down in price to, say, $500K, which is the going price right now in Brentwood for a rather large, brand new house. I have stopped by about 10 houses in Burlingame, O.M.G.! 2,000 Sq. Ft. or less and they are about $2M or more, it is just insane.
February 11th, 2008 at 1:21 pm
Mr. Big,
Just have a look at this graph for Monthly Mortgage Rate Resets:
http://consumerist.com/340334/monthly-mortgage-rate-resets-2007+2016
As you can see, 2007 was only the beginning. The whole year of 2008 is ahead with much higher level of resets. So, whatever the subprime crisis you have seen in 2007, that’s only the tip of the iceberg. You will get far far better picture in the beginning 2009. Then of course, there are huge amount of option ARM and Alt-A resets in 2010 and 2011. It will be interesting to see how the RE market looks after 2011.
Anyway, long story short. If you
- badly want to own a house
- can afford monthly mortgage payments very easily (not much difference from renting on equivalent home).
- want to live in this house for longer term.
- have good downpayment (10-20%) in bank account.
- have contingency plan for at least 6 months.
- don’t care about falling price in future.
- don’t consider home as an investment (but a stable place for living).
Then, go ahead and buy your home. I would like to stress falling price (and your question about hitting bottom). There is no way to exactly know the bottom, unless it is already past. In general real estate market takes many years to correct and many years to stabilize, due to the fact that it is not a liquid asset like stock. And 2008 is is the only beginning. So, if you think the home price is reasonable, go ahead and buy it. But if you think that you are not in hurry, then it’s better to wait and watch the market.
Last but not least, don’t take Realtor’s financial advise. They are just real estate agents who get commission from home sale transactions. In general they are incapable for giving financial advise. They don’t care about your financial health. They just want commission.
March 14th, 2008 at 10:12 am
I agree, and I’ve put my money where my mouth is. I’m in the process of buying two foreclosed homes. A 4/2.5 and 4/3, both ~2200 sqft, newly constructed, within 500 feet of decent schools (not 900s, mind you), with rents in the area over $2000. I go in expecting at least another 10% drop, but am holding on to the homes long term. Even if prices drop another 20%, I’m still decently covered by the fact that I paid 79 cents on today’s dollar. Granted, it’s not easy, and can be quite stressful, but ask me in 2-3 years if I regret it, and I anticipate my answer will be a resounding “No way!” Rent your home if it makes sense to you, but go out there and snatch up a bargain investment or two in the meantime.