Why does Christopher Thornberg hate freedom?
Home prices plunge, sales still slow - San Jose Mercury News
Economist Christopher Thornberg, founder and principal of Los Angeles- and San Rafael-based Beacon Economics, said that prices falling across the coastal Bay Area is the last part of the housing bubble bursting. Unfortunately, that area has been most resistant to the idea that their values may drop.<snip>
Instead, Thornberg said that the first signs of the housing bubble started in inland areas and are slowly moving outwards to the Pacific.
“You can’t have plummeting prices in San Joaquin and East Contra Costa counties that don’t affect Western Contra Costa and Alameda counties,” he said. “And you can’t have plummeting prices in Alameda and Contra Costa counties that don’t affect San Mateo and Marin.”
Foreclosures have become a larger part of the market in the Bay Area, making up 76.2 percent of home sales in San Joaquin County, 49.7 percent in Solano, 44.7 percent in Contra Costa, 26.1 percent in Alameda and 12.3 percent in San Mateo.
<sigh>
When will the MSM (Main Street Media) realize the difference between the Real Bay Area, and the Bay Area?
<sigh>
April 20th, 2008 at 11:44 am
Yeah, if this economist is so smart, how come he didn’t predict that Contra Costa County was going to fall while RBA would stay strong? All he’s doing is reading what has already happened, and making a guess what might happen to a neighboring region. Heck, do we really need him to make such a prediction? Our own Mr. Pralay here without any economic credential can make that kind of claim!
April 20th, 2008 at 12:09 pm
We just saw a nice house in San Mateo on 529 Santa Inez just go down in price from 899k to 889k just yesterday. Based on what i’m seeing in the area, yeah, I concur with Thornburg. Prices are DEFINITELY coming down in this area. I’m sure we could talk them down to 850k.
April 20th, 2008 at 12:11 pm
This comes from Thornburg in August of 2005. The man has high credibility due to the predictive value of statements made long before the general public or main stream media were picking up on this —
. CHRISTOPHER THORNBERG: So then you ask yourself, well why would anybody buy a house in this particular market? What would cause them to do that? And the answer is, there seems to be this expectation that housing prices are gonna go up by ten percent no matter what. What you have is, you have a buying public who are not thinking about the fundamentals, who just assume that housing price appreciation is a given without thinking about the fact that the price of a house is related to two very important factors: rent and mortgage rates. And both those factors say the housing prices should’ve been flat over the last two and a half years.
So, just like in the NASDAQ bubble, you have a circumstance in which people just expect appreciation, and as a result of thinking that there’s just going to be appreciation and that’s the way the world works no matter what, they’re making bad financial decisions. And that’s really why I call this a bubble.
What happens is, is people say “Gee, housing prices went up by five or ten percent last year. I gotta get into the market. This is a great place to make money.” So, a bunch of people run into the market trying to buy houses. And lo and behold, the prices go up, thus fulfilling their expectations and causing more people to turn around and go, “Hey. I gotta get into this market.” And they go rush into the market, thus causing the prices to go up yet again. You see how this works? It becomes this cycle.
This can only work as long as you have new people to enter the market and keep this pyramid growing. Functionally what it is, it’s a pyramid. And the pyramid works as long as you keep entering people at the bottom end.
Say goodbye to your pyramid, realestater.
April 20th, 2008 at 12:38 pm
MLS 776973 in San Mateo came down 799k to 737k. It’s a nice house, nice area, but small lot. We just saw it last weekend, and noticed the priced drop today.
April 20th, 2008 at 3:01 pm
MSG,
The way you’re shopping for real estate, you’ll lose all your money regardless of market condition.
No one with any common sense would bother with MLS 776973. The lot size is only 3239. The house is 91 years old. The location is on the east side of El Camino, and the house is directly facing a street. Exactly which of these attributes attracted you to the house? You’re extrapolating market condition from this house? LOL! I strongly encourage you to consult an experienced realtor. If you already have one. Fire the idiot.
April 20th, 2008 at 6:18 pm
Another big price drop in Belmont. MLS listing 776970 was listed at 1,019,000 (which was supposedly reduced already by 100k) when was saw it two weeks ago. We actually went in to inspect this place. It’s now being listed at 979k.
April 20th, 2008 at 9:13 pm
>>Another big price drop in Belmont.
Let me guess. Nobody dares to touch a house constructed on a sloped lot, which may be washed away by the next mud slide? Am I close?
April 21st, 2008 at 1:24 am
Well, that’s always been my concern with the Belmont Hills. I used to live up in the hills in a beautiful apartment with a great view and unmatched scenery. It was real nice. However, I was always worried about the place being built right along a huge hillside that doesn’t look all that stable. But, if it survived the late 80’s earthquake…
Actually, that place we looked at wasn’t really located on a steep hill. It was pretty stable looking terra firma, and definitely not what I would call a hill. I suspect it was because the house just sucked. We ventured on the property, and it wasn’t our cup of tea. I’m not that surprised the price dropped, however, the lot is big. There was a lot of land, although much of it needs to be landscaped.
We just got a call today from a realtor whom we saw in Belmont last week for a BEAUTIFUL home. It was 4br/3bath, nice sized lot, pretty new home, beautiful hard floor interiors, nice views with dual decks. The only thing I didn’t like about it was the big hill it was built on. Majority of the land you have is quite worthless: I wouldn’t call it a “yard” around the house, but a friggen hill that you could tumble down. Anyways, the price has been reduced by 70k. We’re deciding on passing. After living in Belmont for 3 years, I just hate driving up steep hills or driveways to get home. It’s such a waste of gas.
Anyways, RE, i’m not trying to prickle your nerves. I’m honestly trying to get more advice and insight into the BA real estate market. I’m just relaying the price drops. Even if these houses are “undesireable”, the fact is, the prices of homes on the Peninsula are dropping. I can’t see how they won’t affect the price of other homes.
April 21st, 2008 at 8:41 am
MSG,
My point is, picking out undesirable homes and extrapolating that to overall market sentiment is silly. It’s not like this is anything new, unless you’re new to real estate.
April 21st, 2008 at 9:55 am
Interesting article how how much people make:
http://www.sfgate.com/cgi-bin/article.cgi?file=/g/a/2008/04/21/moneytales.DTL
Certainly lots of people make $100K in this random sampling. Even a plumber makes $80K.
April 21st, 2008 at 10:29 am
^ The problem with that random sampling is the small sample size. Like you said, it’s silly to extrapolate from a small, skewed sample–I mean, really, downtown SF? Why not downtown Oakland? You’re kind of funny dude, dude.
April 21st, 2008 at 10:31 am
For a different opinion, listen/read this morning’s story on NPR regarding housing values:
“Home Prices Drop Most in Areas with Long Commute”
http://www.npr.org/templates/story/story.php?storyId=89803663
This is certainly more plausible IMO than a sweeping reduction in house values all across the region. Methinks that Mr. Thornberg is off the mark.
BTW… A price reduction in San Mateo from $899k to $889 is only 1.1% of the asking price. And I’m thinking that if the property is on Santa Inez it was probably overpriced to begin with.
April 21st, 2008 at 11:13 am
Yeah, if this economist is so smart, how come he didn’t predict that Contra Costa County was going to fall while RBA would stay strong?
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I agree. Thornberg is pretty dumb guy, all though he made correct forecasts for all these in 2006. But I would not count his dumb and correct forecasts, because he hurts my feeling.
April 21st, 2008 at 11:13 am
MSG,
I wasn’t extrapolating anything. I even told you it’s a random sampling.
April 21st, 2008 at 11:21 am
This comes from Thornburg in August of 2005. The man has high credibility due to the predictive value of statements made long before the general public or main stream media were picking up on this —
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But still he is not all that smart due to following reason:
1. I am smart no matter what.
2. Thornburg does not agree with my position.
Conclusion: hence, Thornburg is not smart.
April 21st, 2008 at 11:29 am
This can only work as long as you have new people to enter the market and keep this pyramid growing. Functionally what it is, it’s a pyramid. And the pyramid works as long as you keep entering people at the bottom end.
Say goodbye to your pyramid, realestater.
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Why not, Amway/Quickstar is a very successful business model. Millions people got rich on this scheme - just like real estate. In fact Amway/Quickstar’s main goal is to “shutdown Wal-mart” which is going to happen very soon.
Get into into Amway/Quickstar early, you will get rich quicker. Buy your home early, you will be rich quicker.
Hence, it’s good time to be a member of Amway NOW. It’s always great time to buy home NOW.
April 21st, 2008 at 11:42 am
This is certainly more plausible IMO than a sweeping reduction in house values all across the region. Methinks that Mr. Thornberg is off the mark.
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I don’t think Thornberg talked about “sweeping reduction”. He commented about “effect”. Yes, some area will be less affected than others. Some will be more.
But some real experts claim that somehow the price of certain area will be insulated completely from neighboring areas - there is no basis for this argument. That’s simply a wish for people who has vested interests real estate industry and people who bought home in inflated price.
April 21st, 2008 at 11:50 am
RE,
A random sample isn’t a small sample. You can have a large random sample, or a small random sample, and you could also have large skewed samples, and small skewed samples. Obviously, you will want a large random sample to infer characteristics on the entire population… getting < 50 responses in downtown SF is definitely a small, skewed sample.
And, I digress, I wasn’t sure what you were implying, and i’m not going to make that assumption, but the income post seemed a bit… loaded.
April 21st, 2008 at 11:55 am
I meant to say, a random sample isn’t necessarily a small sample–which is why that study is flawed.
Random sampling is good. A random but small sample isn’t that good. That study wasn’t random for the Bay Area or even SF. So, i’m my estimation, the study was skewed and had a small sample.
April 21st, 2008 at 11:58 am
On a side note, we did see a beautiful house in Belmont on Notre Dame. This is a house I would have bought had the bedrooms been a bit bigger. The lot was huge, it had a great view, wasn’t on a steep hill, and have a fantastic yard. That one did sell, and we confirmed it went over asking price on multiple offers. There is one caveat, i’m not sure if the price was reduced before.
April 21st, 2008 at 12:49 pm
MSG,
You are aware that EPA students get bused to Belmont schools, right?
April 21st, 2008 at 1:13 pm
I thought RE was joking, but it’s true:
http://en.wikipedia.org/wiki/Carlmont_High_School#Trivia
>>The novel My Posse Don’t Do Homework by LouAnne Johnson and subsequent movie Dangerous Minds were loosely based upon events that occurred at Carlmont in the 1990s. These ‘Dangerous Minds’ students were from East Palo Alto.
April 21st, 2008 at 4:50 pm
EPA students also go to Palo Alto schools.
April 21st, 2008 at 6:19 pm
Does EPA really have that many students to spread around?
April 21st, 2008 at 6:26 pm
Since PA and EPA are in different counties, only a few tokens from EPA go to PA. Most are sent to other districts within San Mateo County such as Belmont.
April 21st, 2008 at 8:23 pm
Right, San Mateo County schools are really horrible. Does anybody remember that really old Michelle Pfeiffer movie where she was a teacher in a “wrong side of the tracks” school (Dangerous minds, I think?). The scriptwriter actually based it on CARLMONT HIGH SCHOOL in Belmont! Not only that, Bill Clinton once spoke at Carlmont in the 90s to discuss his education agenda and not in a good way!
The fact that San Mateo and San Carlos/Belmont schools are so bad, is one reason I believe schools are only a secondary element to house prices here. My area Willow Glen has better schools than San Mateo county, for sure, although they are not the best schools in santa clara valley. And Campbell Union schools are MUCH, MUCH better than any schools in San Mateo/Seqouia district. The area in San Mateo county with excellent schools is Foster City- thats where you live if you want schools, but it is not the most expensive area up that way.
April 21st, 2008 at 8:38 pm
Oh sorry Crossroads, I see you already mentioned “Dangerous Minds”. LOL. I posted before I read all of the postings.
April 21st, 2008 at 10:27 pm
WG,
You might want to consider San Ramon for your investment property. School districts are excellent. You can buy a nice newish home in the 700K to 800K range, and rent them out for up to $3K / month without too much effort. Prices have bottomed there and should head up in the future. I think the location is quite promising, as it is within acceptable commute distance to the job centers in SF, Oakland, Pleasanton, all the way down to Fremont.
April 22nd, 2008 at 10:47 am
Really, San Ramon?? I’ve got to look into that too.
Wow, thanks for the heads up, guys. I didn’t know that the school districts in San Mateo County sucked that bad. Who would have thought. How about the schools in Burlingame? How are they?
Well, i’m not that upbeat on the prospects of public education in California. The public school system here is laying off teachers in the masses.
April 22nd, 2008 at 12:04 pm
“You can buy a nice newish home in the 700K to 800K range, and rent them out for up to $3K / month without too much effort.”
I’d only pay 300k, max 350k for a house that I can rent out for 1k per month. so the rent has to rise 2.5x or price has to fall 60%. Wake me up when the price and the rent converge.
April 22nd, 2008 at 12:12 pm
correction, that should have read “I’d only pay 300k, max 350k for a house that I can rent out for 3k per month” not 1k..
April 22nd, 2008 at 6:19 pm
The myth of the good school: the book Freakonomics makes a pretty good case that the quality of the school is not the most influential factor in individual academic achievement. I propose that “good schools” result not from not the schools themselves, but from being populated by motivated students from households that can afford beat the competition to buy houses in “good school” areas.
So why do home shoppers so rabidly seek out “good schools”? Perhaps they recall their own miserable high school experience, and believe, “If I get my child into a good school, he/she won’t have to endure what I did.” However, I believe this is also a myth, and that “good schools” often inflict more misery through cliques and peer pressure than “not good schools.” I call this the 90201 Effect.
Also, make sure your kid plays plenty of computer games, and watches reality TV (to find out why, read “Everything Bad is Good For You”)
April 22nd, 2008 at 6:40 pm
The myth of the good school: the book Freakonomics makes a pretty good case that the quality of the school is not the most influential factor in individual academic achievement. I propose that “good schools” result not from not the schools themselves, but from being populated by motivated students from households that can afford beat the competition to buy houses in “good school” areas.
Ross, a long time ago when I took my SATs for college I ordered a bunch of the supplementary reports you could ask for. And guess what was the best correlation with SAT score? High school grades? Nope. Number of AP classes taken? Nope. Percentage of kids in your high school who were college-bound? Nope? It was…. Family income!
Plus ca change, Plus c’est la meme chose.
April 22nd, 2008 at 6:52 pm
That makes sense. Smarter people have smarter children and smarter schools.
Cupertino!
April 23rd, 2008 at 10:07 am
High price levels actual has certain benefits. It’s a way to ensure the quality of your neighbors, which affects the quality of your neighborhood and the quality of your schools. If price were affordable, then anybody could move in next door. Those places are called ghettos.