8 people living in a house in Redwood City
There are Burbed readers outside of the Bay Area – in fact, one gentleman from Virginia donated $25. (You can too!) One question I do hear from time to time: “How do you people afford to live there?”
Now, naturally most people are earning at least $100k + bonus, and many others have stock options. But, let’s face it – not everyone is that fortunate and can be in tech, be police officers, or be bus drivers. Some people work in other industries that aren’t so lucrative.
But the fact is that Silicon Valley residents are known for their perseverance and entreprenurial skills. Let’s look at another example:
County home foreclosures skyrocketing – Inside Bay Area
Antonia Hernandez, 52, saw her monthly mortgage shoot up to $6,883 on a two-bedroom, one-bathroom house in Redwood City that she’s in danger of losing.It went into foreclosure after the loan on the house reset. Hernandez, a housekeeper, and her husband, a refinery worker, originally paid $4,300 per month in mortgage payments when they purchased the house two years ago. Their combined monthly income is $5,400.
Hernandez and her husband live with six nephews in the house, and may have to walk away from it.
[snip]
The family purchased the house for $775,000 with a subprime loan, and the interest rate adjusted upward. As of February, the Hernandezes stopped making payments because they could not afford them.
Hernandez is working with the group ACORN, the Association of Community Organizations for Reform Now, which is trying to negotiate a loan modification in her behalf.
You see what I mean? In the rest of the country, where there are no smart people or great schools like Sequoia High, people would be like “Whoa… 8 people? How do we fit that in 2br/1ba?” But these are likely the same people who would be asking: “Whuh? The web can be both read and write?”
Now granted, this isn’t as innovative as the 990 sqft East Palo Alto house that had 14 people in it. But still, it’s another fine reminder that if there’s a way, people in Silicon Valley will find it.
<sniff>
I’m getting all choked up. I love this place. Don’t you?
June 18th, 2008 at 5:40 am
Can we get a DNA test on those “nephews” please.
Our Turkish townhome neighbors have 7 “cousins” who are all “students” in a 3 bedroom attached unit. Slackers.
June 18th, 2008 at 7:00 am
755K for a 2/1? To a house keeper and refinery worker who make less than the mortgage reset? The mortgage broker should be sued for fraud. No wonder banks are losing a billion a day.
June 18th, 2008 at 8:01 am
They’re working on a LOAN MODIFICATION for them??? Only way that will work is if they get a 100 year amortization schedule. What the heck was a couple making $60k a year doing “buying” a $775,000 house?
I agree with JC up there; the mortgage broker ought to be sued (or jailed) for fraud. Ridiculous.
June 18th, 2008 at 8:28 am
There are a few other ways of looking at this. First, they may have second “cash only” jobs or tips that increase their income. The “nephews” may be old enough to work or have part-time jobs, and contribute. So it may not have been so much of a stretch at the time. But again, may not have understood the ramifications of a loan reset, which we hear has happened to many non-native speakers in the area (although this couple may be perfectly fluent in english). As for the loan restructuring, it would benefit both parties. If the owners have to walk, they have nowhere to live and the bank is left with a home probably worth about $500-550,000 (just a guess). This home will probably sit idle for a period of time until it gets to the market. That is a loss of income for the bank. And when it does sell, it’s for $200k or more less than the current loan. Everybody loses.
More importantly, as we sit in our castles on high, with our 2 kids, 1 dog and 2 cats in 2500 sf, do we need to throw stones at a family trying to raise nephews? What if their parents were killed in a car accident and they had nowhere else to go? Our culture is such that we don’t even want our parents living with us as they age, and we can’t wait to get our kids out of the house. For what? So we can be lonely? You have to respect families that pull together in times of need, that respect their elders, and try to make the best of a bad situation. That certainly is not always the case, and people definitely take advantage, possibly like the Turkish neighbors, but you do have to be careful about throwing stones.
June 18th, 2008 at 8:37 am
it’s called renting. like the rest of us.
June 18th, 2008 at 8:56 am
I used to work with a couple of Hispanic guys back in the day when I worked in retail. Both of these guys lived in smallish homes with their parents, brothers, sisters, and even grandparents. This wasn’t because they simply couldn’t afford to buy on their own ( which I imagine they couldn’t) but more because in Mexico and in Mexican American households, its actually very common for extended family to live 5,6,8 people per house. Parents are expected to take care of Grandma and Grandpa. This usually means that Grandma and Grandpa move in with them. Kids live at home until they get married, or in one of the guys I worked with, until they were married long enough to get out on their own.
One of the guys bought a new Dodge truck. But it was his, his dad’s, and his Uncle’s truck because they all made the payments. This way, the payments were smaller and they could all use it when they needed it.
It wasn’t such a long time ago that we in this country did the same. My Mom recalls having to take care of her Grandmother when she moved in with her parents. It used to be that the old folks simply lived with you when they got to be too old. Homes were smaller. The average family home was 700 square feet and the average family had one car in the driveway, and one TV set.
The ironic thing is that the level of contentedness was in 1957… when all that I mentioned above was standard. As it is now, the average family home is well over 3,000 square feet, the average family has 2 cars ( sometimes 3), 3 TV sets, and they tend to put the old folks in a home- or in the case of most of the people in the Bay Area, who are either from NJ, NY, or some other East Coast locale- never bother to see dear old Mom or Dad at all since they’re out here makin’ all that dough for their crappy little house. The fact that more blogs full of discontented,irate people seem to exist with the greatest concentration in cities like the BA is indicative that people are not at all happy or content, even if they make wads of cash.
The fact that these people got a loan for this house is ridiculous. I also don’t feel sorry for them. I don’t want to hear that they simply didn’t understand what they were getting into even if they don’t speak English. But I don’t necessarily ridicule their lifestyle. Perhaps there’s some parts of it that we could learn from.
June 18th, 2008 at 9:02 am
As ludicrous as a 755k house sounds for a couple making 60k, it happened every day from 2004 to early 2007. In a perfect world, the mortgage broker should be sued for fraud. But the world we live is far from perfect. A couple years ago, I saw a single women with kids making 50k a year qualify for an 800k loan. Fortunately she was able to get out upon realizing the financial realities, but the situation was eye opening and astonishing. Sadly, the least sophisticated are and will continue to be the hardest hit as the shakeout continues, as many didn’t speak English and actually trusted the crooked “financial expert” accross the table. I truly feel sorry for them. The people who were cabable of realizing they were biting off more than they could chew, I don’t feel too sorry for. It is these people (ie. option ARM people) that are now going to start walking away from their overpriced crap shack.
June 18th, 2008 at 9:25 am
You know I see a lot of blame being placed on 2 sets of people for these mortgages- first the buyers who sign for the toxic loans and secondly the loan brokers. But what about the LENDERS who structure these loans? Lets apply a little common sense here. Lets say I am an engineer in a hot area of technology and every company wants me. I send out resumes and ask for a starting salary of $120K (reasonable) that balloons to $250K in 3 years. I ask all the companies to sign a contract saying this will be adhered to. Some large companies pass on hiring me but some little desperate ones go for it FULLY EXPECTING to find some reason for a “layoff” prior to the salary reset. Come on, these resetable loans with teaser rates were created for one purpose- to get people into homes they would not have qualified for. There is a place for low rates for the beginning of a loan- since initially buying a house, coming up with the down payment etc are difficult for many people- these are the 5/1 resettable loans that address that issue, where a loan is fixed for 5 years and resets after that, those are fine. But these subprimes were not structured that way, they reset way too quickly. The lenders are the ones who should take the hit on this, primarily.
I notice there are a lot of right wing types with nothing but disgust for these poor buyers while the lenders get a pass, give me a break.
June 18th, 2008 at 9:27 am
“If the owners have to walk, they have nowhere to live and the bank is left with a home probably worth about $500-550,000 (just a guess).”
Depends on the area. I’m willing to wager it might be closer to $400K.
June 18th, 2008 at 9:35 am
BTW this is from my recent home purchase (foreclosure) appraisal:
The market in San Jose has slowed over the past year or so, much as it has
across large portions of the country. Since there has been a shortage of potential buyers, property prices have declined over the past
1.5 years. In recent months more homes have sold than have been listed, indicating the over-supply is beginning to abate.
June 18th, 2008 at 9:38 am
An expecting near-term real bay area couple were recently involved in a head-on collision, which resulted in both the husband and wife going into a
ten day coma. Luckily, the doctors were able to save the couples’ twin babies via cesarean section.
The new mother awoke from her coma to find a pair
of beautiful twins, a boy and girl, in her arms.
RBAWife: “Thank you Doctor, i’m so grateful that you saved them.”
Doctor: “Not a problem, its my job.”
RBAWife: “So should I name them now?”
Doctor: “No need to do that, your brother has already opted to name them…”
RBAWife: “My brother? but he’s retarded, he has a mind of a two year old, he bought in East Palo Alto and put zero down…”
Doctor: “Oh sorry to hear that..”
RBAWife: “I mean seriously, he’s not competent. This is horrible…”
Doctor: “Well, whats done is done…”
(A few minutes of silence)
RBAWife: “Ok… So what did he pick?”
Doctor: “For the girl, he named her Denice”
RBAWife: “Oh my goodness, thats a beautiful name, even better than I can pick myself. I guess living in the not-so-real bay area still paid off! and how about my son?”
Doctor: “Denephew…..”
June 18th, 2008 at 9:38 am
Sonorrat, I am a foreclosure buyer. There are almost no houses in the bay area outside of some remote areas of Concord that sold for 800K at the peak that are now 400K. Typical declines are more like 650K at the peak down to 400K. I know, because I look at Redfin daily- in all areas including east san jose and Alum Rock which are the worst markets and it is very rare to see a “last sale price” above 699K for a house now selling for 400K.
June 18th, 2008 at 10:06 am
The truth is that blame cannot be placed on just the lender, the “homeowner”, the banks, or any other specific group or body. The blame goes all around. The media and the NAR whipped the public into a frenzy over housing because the actual economy at the time stunk, thus THE THING to be in was housing. Buyers knew precisely what they were getting into. They accepted risk. Lenders knew what they were doing too and also took major risks. Everyone took a risk, and even when little hints that things were dangerously close to collapsing started showing up on the nightly news, people still bought and did so until the whole thing came crashing down.
It was greed, stupidity, and arrogance- basic human nature- that created the whole environment. The worst part is that its still going on, people are still buying homes as “investments” and jumping in way before the mayhem is close to being through.
We are in for a very rough ride. When its all over, hopefully people will buy simply because it is a house and all will be forgotten about how a home “makes you money” etc etc.
June 18th, 2008 at 10:39 am
I think Crossroads summed it up best – they should have remained renters. While it is amazing, by American standards, to put so many people in a house, I figure they have the right to do what they choose in their own home (and within any zoning restrictions).
And while I’m not sympathetic to most of these mortgage sob stories because I firmly believe that people need to take responsibility for their own actions, I do agree that the LENDERS should bear most of the hardship for the aftermath of the bubble. If the crooks on Wall Street didn’t create these mortgage-backed securities, the rest of the mess could not have occurred. Unfortunately they pushed the risks on to “other people” while pocketing all the loot. Shame on the regulating bodies for not preventing this.
June 18th, 2008 at 11:29 am
WG, be patient, how long ago the decline started? Unless you are forecasting the shortest decline period on record.
June 18th, 2008 at 11:53 am
WillowGlenner: this is Redwood City we’re talking about. If it’s in that zone east of 5th Avenue and near the train tracks (either side), many 2/1’s have fallen to $300K and lower and are still not selling.
June 18th, 2008 at 11:53 am
Its not a short decline period Rick, the declines started 3 years ago with the peak of the housing market in fall 2005. This is very close to the bottom price-wise and inventory is starting to get depleted. Thats why I bought.
June 18th, 2008 at 12:07 pm
Historically is there any housing market decline which lasted less than five years?
June 18th, 2008 at 12:26 pm
2001 in the bay area lasted one year or 18 mos depending on who you ask
1987 and 1982 were a few years each.
The only one LONGER than a few years was the early 90s downturn but that was something that occurred only after a huge speculative bubble had been created in CA real estate (similar to the nasdaq bubble in stocks)
June 18th, 2008 at 12:46 pm
Calling bottom is completely impossible. If you are buying now, then at best you’re simply guessing.The last downturn lasted from 1990-1997, a seven year stretch. This period had a fairly pronounced period of stagnation.
I suspect that what we will see with this downturn is a repeat of the last, which is that we’ve experienced a fairly robust early correction which depending on how all those Alt-A loans settle next year will either experience another whack of fresh dramatic reductions, or be followed by an extended period of stagnation.
Banks are going to be extremely wary of lending money to anyone that lacks financial soundness, which in many areas in the BA means there will likely be few sales until their local medians correct to levels that support actual wages. This in turn will continue to have a domino effect on the rest of the market.
If you really want to make some sort of attempt to “call bottom”, which as I mentioned isn’t possible, then there is a SUPER EASY way to do this. Rather than jump and guess at what you ‘think’ is the bottom- which will likely mean that you’re incorrect- wait until reports show at least a solid quarter of increased universal appreciation. Better yet, wait a full six months because just like the stock market, housing markets can have false bottoms. After that, you’ll be closer to the true bottom than if you had guessed. Its better to buy at the start of appreciation when you can see actual concrete numbers versus guessing.
What’s going on now is what I expected: early knife catchers gettin’ in at the first sign of weakness.
June 18th, 2008 at 1:27 pm
WG,
I don’t think the decline in BA started in 2005, if you are talking about soCal then yes, heck for RBA there is no decline at all.
Madhaus,
14 living in < 1000 sq is not normal anyway you put it, I can’t imagine how they squeeze in. Even in China and Japan they have 200 sq/person, I can’t imagine Mexico can get lower.
June 18th, 2008 at 1:44 pm
“2001 in the bay area lasted one year or 18 mos depending on who you ask
1987 and 1982 were a few years each.
The only one LONGER than a few years was the early 90s downturn but that was something that occurred only after a huge speculative bubble had been created in CA real estate (similar to the nasdaq bubble in stocks)”
———
Isn’t a huge speculative bubble similar to the NASDAQ bubble what just occurred? I think most would say that this latest bubble was the biggest in history, bigger than any late 80s/early 90 bubble. Thus, why don’t you expect to see a 90’s type, protracted decline? I value your thoughts and am not trying to be sarcastic, just curious as to why this correction will be short. I think based on what your post, many would conclude the opposite.
June 18th, 2008 at 2:01 pm
2001 in the bay area lasted one year or 18 mos depending on who you ask
———
You know why it was so short? Relaxed lending standard. If there is no relaxed standard, the market decline would have continued from 2001, instead of restarting it from 2005. In that case you would not see the massive real estate run up all over US between 2003-2005.
Unless similar relaxed lending standard comes back to market again, I don’t see any other kind of alternate steroid which can keep housing market floating.
In any case, I just went thru this SJ Mecury News article: Bank economists say home prices yet to bottom.
June 18th, 2008 at 2:04 pm
What’s going on now is what I expected: early knife catchers gettin’ in at the first sign of weakness.
———–
I am sure many of us will remember all the false bottom calls in dot-com bust. In that period there was no shortage of early knife catchers either.
June 18th, 2008 at 2:04 pm
To add to what I also tend to agree as being an enormous speculative bubble even bigger than the NASDAQ bubble of the dot-com, we have what nobody ( not even us bubble folk) expected to occur, which is rampant inflation in some major items such as food, fuel, and energy.
There is an enormous amount of downward pressure being placed on RE. The bottom is likely far from over.
June 18th, 2008 at 2:49 pm
“What’s going on now is what I expected: early knife catchers gettin’ in at the first sign of weakness.”
Those people already bought in 2007 and are likely being foreclosed on right about now. Foreclosures were high then, too, but people were still able to get loans. Now they can’t, and the banks’ liquidity crisis has forced loans lowers. Now that paper is being written again it should hold fairly steady regardless of inventory levels, except in the areas that haven’t corrected yet.
June 18th, 2008 at 2:56 pm
Nothing has corrected yet. We’re still in a correction cycle, thus things are “correcting”. As long as that’s the case, then there will be instability in the market.
The correction phase in my opinion has barely started. People buying now I would classify as knife catchers.
June 18th, 2008 at 3:09 pm
>> This is very close to the bottom price-wise and inventory is starting to get depleted.
Inventory is starting to get depleted? Where? When?
http://www.creeksiderealty.com/bay_area_real_estate/2008/santa_clara_county/5may.htm
Santa Clara County – Single Family
Jan ‘08 – 4,432
Apr ‘08 – 5,540
That’s a 25% increase in three months.
Apr ‘07 – 3,378
Apr ‘08 – 5,540
That’s a 64% increase in one year
The one “positive” number being bandied about inside the industry is the percentage of listings under contract, which is above 20%. I personally don’t put much stock in that number since the number of days to close and the TFT (transaction fell through) rates have both increased dramatically.
To remove the jargon, a house with an offer lower than the outstanding mortgage can sit “under contract” for two months before the bank decides not to accept the offer. The fact that an offer was made an accepted proves nothing because no sale actually takes place.
I wish some in the industry would set aside their own short term needs to accelerate this correction. The sooner the market reaches equilibrium with rents, the sooner we return to a normal volume of transactions and reliable if unspectacular appreciation. All the bottom callers are doing is prolonging their own misery and creating more misery for their clients.
June 18th, 2008 at 3:26 pm
Curious if anyone else read the book “Sell Now! The End of the Housing Bubble” by John R. Talbott published Jan 2006. I would be especially interested in Real Estater’s thoughts since the whole book is opposite to what he believes. For example one of Talbots thoughts is that there is a desire for status in home buying. “…Clearly, if people have a sudden moral awakening and realize that life has more to offer than a never-ending race to consume more than a neighbor, housing prices in the ritziest neighborhoods could come under pressure. But we don’t have to wait for such a moral epiphany. Because paying big prices for houses solely to acquire status is economically unproductive, buyers will not be able to recoup their investments in rental incomes. Banks will eventually pull the plug on this type of lottery-like status seeking, so the housing market will crash regardless of whether status seekers mend their ways. And many of the most stretched status seekers will exhaust their incomes long before they ever become satisfied with the size of their homes or the look of their neighbors.”
June 18th, 2008 at 3:50 pm
And many of the most stretched status seekers will exhaust their incomes long before they ever become satisfied with the size of their homes or the look of their neighbors.
That’s like assuming “Once there is world peace…”
We’re always making more people status seekers. It’s in our nature as Americans.
June 18th, 2008 at 3:53 pm
Lots of bubblehead talk today.
I’m personally amazed to see that since 2005 the prices in my immediate neighborhood have held steady. Only one house placed on the market for a 10-month stretch in 2007. Prices are climbing again now, although actual numbers will be public only in ~ 2-4 weeks. DOM remains exceedingly low. The houses present well, but these are the 1955 ranches of Santa Clara CUSD, nothing you’d consider an “emotional” purchase. Yet a housing tract with not a single foreclosure these past two years. Long story short, a casual observer of this micro-market might conclude that this remains a seller’s market and any talk of bottoms don’t apply here, since the prices aren’t even going down. You can wave statistics and speculate all day long, but it does not begin to scratch the reality on the field, which has been different from tract to tract and will continue to be.
June 18th, 2008 at 4:15 pm
Just to clarify, I agree with the rationales presented here (speculative bubble, easy credit, inflation, etc.) But then all of the posts do the quantum leap and states “therefore prices haven’t hit bottom.” The reality is so much more complex though. If economists could get price movements right, they’d all live in our hills. What makes you more qualified than them? Zip-wide generalizations using 3-variables logic based on incomplete or obsolete data collected only online? Someone like WG might still have made a bad investment – who knows – but his knowledge of local markets and their changing dynamics place him way ahead of most of you.
Most of all in any market there are deals, and there are suckers. There is no wrong or right time to buy, there are just wrong or right deals to make. Quit the bubble talk please and grow up…
June 18th, 2008 at 4:26 pm
Just because your street or house hasn’t been nailed by depreciation ( yet) doesn’t universally apply to the entire Bay Area. I can just as easily mention that in my area ( Alameda), practically nothing is moving, prices are down by close to 100k in most cases, and I actually noticed 2 “Bank owned” signs out front of a number of houses that were open last weekend.
The number do not lie: all in all, the BA has been experiencing price declines. Sticking your fingers in your ears and going ” oh ya? well on my block, homes are STILL selling, therefore everything is A-ok!”
I mean, personally, I don’t care about the Peninsula anyway. People spending 1 mil on 5-’s tract homes are complete morons. Hell- I don’t even like those houses personally, but I suppose if someone has more money than sense, then they can have at it.
Lastly- the premise of this blog is very heavily tilted towards the absurdity of housing prices in the BA. If you don’t want to read people’s comments that tilt towards the negative side of housing bubbles, then perhaps you aught to find a pro-real estate blog.
June 18th, 2008 at 4:40 pm
Bob –
I am not claiming “Therefore everything is A-ok!”, I am claiming prices follow different trends in different housing tracts, so generalizations have been and will continue to be incorrect in the bay area market.
I also don’t call people morons especially if I don’t know them personally. You must have pristine values to judge people so quickly.
I am no more pro-real estate than I am anti-real estate. A previous post of mine (#66 http://www.burbed.com/2008/06/15/affordable-housing-bad-for-quality-of-life-mountain-view-2/#comment-19424) clarifies I only bought when renting was as costly as owning.
Finally I want to read _ and DO read _ people’s comments. I appreciate many people’s posts, knowledge and insight, including some of yours in past threads. Your posting tells me that rather than doing the same, you did some quick profiling on me, added some wrong assumptions on top, and proceeded to respond off the mark.
June 18th, 2008 at 4:44 pm
Don’t mind, DreamT, but you sometime sound like “soft RealEstater”. RealEstater in an attempt to put forth a nice face.
June 18th, 2008 at 4:53 pm
A lot of this reflects the complexity of the Bay Area real estate market.
June 18th, 2008 at 4:57 pm
austindweller, not sure what you mean by that… bob confusing me with RE maybe?
I was hoping my posts have less logic holes than many of RE’s postings. I have never advised to buy anywhere today or in the future, I don’t care much about cars, don’t have a tech position, etc. But skewed or flawed logic do make my teeth grind, whatever the topic.
June 18th, 2008 at 5:01 pm
But then all of the posts do the quantum leap and states “therefore prices haven’t hit bottom.”
————
Well, the whole topic started when someone called it bottom. Ok, let’s look at the latest DQ report for bay area.
How about Santa Clara County?
Sale volume drop: 32%
Median price drop: 13%
Does it sound like we bottomed? Historically May and June are two months that move highest number of inventory. This year it does not look like so.
So, the question: what kind data we are talking about which would prohibit me from saying “therefore prices haven’t hit bottom”?
June 18th, 2008 at 5:07 pm
2004 is hear. Welcome 2004. I hope in 4 months it would be 2003.
June 18th, 2008 at 5:11 pm
Damn, spell checker is a must 2004 is here.
June 18th, 2008 at 5:19 pm
Pralay,
To answer your question: madhaus’ weekly postings give me the impression that areas of East San Jose have appreciated greatly these past few weeks while at the same time some areas of Sunnyvale and Mountain View finally started depreciating. So it’s a real estate market that does not like generalizations.
Also what’s the relevance of the aggregate Santa Clara statistics for real estate buyers/investors? One area already hit bottom, another hasn’t started to decrease, etc. Or we can say “yes but the prices will decrease eventually again, so they haven’t hit bottom, and they will decrease still further then.” Due to the multiple variables, I’d like to see some maths to back that or the reverse claim! But again for people like you and me I venture that it would be completely irrelevant anyway. The aggregate statistics probably are of interest to a mortgage or brokerage company, or someone buying securities tied to the overall santa clara market. But the focus of this site has mostly been individual (and very funny) aberrations, typically overpriced properties, and I doubt any of us is a brokerage executive.
On the other hand I think discussing whether a specific neighborhood has hit bottom or not is 100% relevant and very useful to all of us.
June 18th, 2008 at 5:22 pm
You can wave statistics and speculate all day long, but it does not begin to scratch the reality on the field, which has been different from tract to tract and will continue to be.
——-
DreamT,
I think the major confusion is right here. If you identify certain segments/blocks/homes and say that prices have bottomed in these SPECIFIC areas, that’s is more valid argument. I don’t know what WG intended to say, but from his comment it sound like he called bottom for general bay area market. In that case, it’s perfectly fine to “wave statistics”.
You cannot make general market prediction and then, if someone wants to make a counter argument against it, say “oh, that’s just statistics divorced from the ground reality”.
June 18th, 2008 at 5:31 pm
Pralay – smart post. I don’t think WG meant it to be a general prediction, he must have talked about the specific neighborhood he told us many times he was looking into. It still doesn’t clear refuters from making specious arguments
June 18th, 2008 at 5:59 pm
But again for people like you and me I venture that it would be completely irrelevant anyway. The aggregate statistics probably are of interest to a mortgage or brokerage company, or someone buying securities tied to the overall santa clara market.
——-
I don’t think it is totally irrelevant. It tells you overall health and trend of the market. It would have been irrelevant if somehow certain segment of market is unaffected by general market trend and conditions. But this is not the case. Market is same. The only thing variable is that different timelines for different segments of the market.
June 18th, 2008 at 6:04 pm
DreamT: The reality is so much more complex though.
DreamT: …I only bought when renting was as costly as owning.
Actually the reality is almost as simple as your second statement. Traditionally the premium on home ownership over renting is relatively small and when we reach that state, either through falling prices or rising rents, the number of transactions will increase. That’s more relevant than pronouncements about appreciation, inventory, or economics.
People in the business are fond of repeating the line “the law of supply and demand” as if they mastered in economics at Stanford. The “demand” is for housing, not home ownership. Renting may be an imperfect substitute, but the price elasticity has historically been limited, except when morons overpay based on the assumption that a “greater fool” will overpay in the future. That’s how we ended up with the housing bubble.
June 18th, 2008 at 6:35 pm
In the 80s you don’t need price decline, you just need below inflation rise and you have a serious decline in real price. Inflation ran to 15%, you lose 15% staying flat.
‘00 was a decline saved by something we all know, toxic loans.
June 18th, 2008 at 6:46 pm
Stepford, yes I read that book. I think he missed the toxic loans by a whole lot, he mostly think the bubble was caused by wrong borrowing formula (expecting low returns and hence low interest rate), he doesn’t acknowledge about the toxic loans (ALT-A, neg am, 0% down, etc), which is rampant in the BA.
June 18th, 2008 at 6:51 pm
Pralay – we disagree here. I think local markets are different if loosely connected, and I see many variables that affect not only timing (shifted timelines), but also amplitude (how much does it go down if at all).
Example of variables:
* Permanent demographics shifts & gentrification due to various reasons permanently affect the relative strength of real estate markets (see WG’s postings about 70s Burlingame, PA or Sunnyvale). Typically and as much as I hate to say it, this adds resilience to a micro-market.
* Herd mentality: PA prices appear to climb steady, so people try to buy in PA. Hello bubble (amplitude).
* New vs established neighborhoods. % of resident renters vs resident owners. % of main residence vs investment residence. % of SFR. Crime rate. The neighborhoods with the most favorable numbers may well follow opposite trends from the ones with unfavorable numbers because of buyer’s perception of where it is safest to live versus where there are deals to be found.
* $$ invested by the city in a specific neighborhood’s resources and services
* Residents’ resilience to certain crises (wealth in assets including house equity) which means a neighborhood can weather certain down cycles that others cannot, by not placing any house on market, fooling you on their down cycle timing.
* Relative health & attractiveness of alternate markets (Seattle, Las Vegas, Austin, etc.)
* Immigration laws and relative strength of the dollar, which impact any two neighborhoods very differently
Also the interconnection of real estate markets works in mysterious ways. Newer Mountain View residents depend mostly on tech companies for their jobs, right? But east Redwood City residents depend more heavily on nearby wealthy cities to supply jobs such as home, car & garden maintenance, construction, etc. So how real estate micro-markets influence each other also must take the local economy at a micro-level into account.
Overall health and trend are nice to know but won’t tell you if you’ve found a deal somewhere, if you should make an offer for a specific house or not. We’ll never be in a situation where all the houses are underpriced and everything is a deal to snap. If that were the case, they’d all get multiple offers anyway. When a neighborhood is on its way up, there’ll always be another one on its way down. So in my opinion there’s no substitute to knowledge and research of micro-markets, there are always deals and suckers, and any attempt to simplify or generalize is misguided. Especially now that we all agree it’s very unlikely that there’s a general real estate bubble anytime soon lifting all of the bay area along with it.
June 18th, 2008 at 7:08 pm
Frank, I’m not claiming complexity on what caused the housing prices to get out of whack with rent, but about estimating whether the prices have now hit bottom in a real estate market or not.
I realize lots of people say this will be when house prices and rents are back to their historical ratio. They’re mostly correct I think. However my rent went from $1275 to $1825 within six months in 2001. Rent went back to 1999 levels in many places, but has started to climb back up, and inflation’s now everywhere. So even if the ratio story continues to prove true in the future, there are several variables at play here, starting with local city zoning and tax plans all the way to the government’s handling of debt, immigration and openness to foreign markets. Also if gas prices stay high (which I personally doubt), there’ll be more demand for shorter commutes. The question becomes: will it truly have been a better idea to wait until the magic ratio’s back? – a rhetorical question as it depends on each person’s capacity of investing that would-be downpayment elsewhere.
June 18th, 2008 at 11:05 pm
Frank Jewitt, if you are going to post YEAR OVER YEAR figures and look for a trend, you won’t declare a turnaround in RE until 2012. Inventory is starting to deplete month over month in Santa Clara county. Thats what it said in my appraisal, and these days, appraisals are really tough. Compared to last month many santa clara counties saw median and avg price increases. I can’t post the chart here otherwise I would. Saratoga saw an 11% rise in median price from last month- cupertino 4%, Sunnyvale 3%. Some were down like Campbell down 7% and Palo Alto down 15%. On sales volume it is up between 40-100% over last month for virtually all cities in Santa Clara. Sales volume always goes up on May over April, but not like this. It was fairly encouraging- so I decided to buy and I’m glad I did. I am either at, or very close to the bottom.
June 19th, 2008 at 12:41 am
Wow, I don’t post for a day or so but people are responding to me in a new thread anyway. (esp post #21)
WG, I checked Altos Research inventory numbers and they aren’t going down in the prime zips (I checked a few but not all), maybe inventory going down in one particular neighborhood? There’s a slight (VERY slight) dip but I’d attribute that to end of Spring Bounce.
Even Palo Alto, the so-called superstar, is a buyer’s market with a rating of 21.16. 30 is even between buyer and seller. That’s the SAME rating as Sunnyvale — ALL of Sunnyvale.
June 19th, 2008 at 8:41 am
DreamT,
Sorry if I was sounding like I was profiling you personally. That wasn’t my intent. But I think there is some confusion in this topic, which is whether the argument is about the general BA and it’s appreciation/depreciation, or whether a specific area is appreciating/depreciating.
In general, the BA is slipping. Of course certain areas claim to show an increase in appreciation. But then again, this might not actually indicate that general prices are increasing. In places like Marin, Palo Alto, and parts of SF where a large supply of million dollar homes exist, their sales have been down consistently for well over a year. But homes are selling. However, if you look at what is selling, they tend to be the upper end of the market. These sales get tossed in with all the rest of the sales, whether it be 1 bedroom condos, crappy fixer-uppers, or mansions. With fewer sales, and most sales being at the top of the market, of course the median will reflect appreciation.
I’ll even admit that yes, certain areas have more rich people that others. By virtue, people that have enough to buy multi-million dollar homes even in a recession probably aren’t exactly concerned about buying at the bottom, top, or rather be worried about the state of the housing market. If you have that kind of cash, then you’re going to simply buy a house. Palo Alto is weird though because so much of the housing stock is so obviously former middle class type housing with prices that defy gravity.
This argument begs to ask exactly how attached are people to the idea of paying 50% more for a so-so house just to be closer to work or say that they live in Palo alto when they could simply move 30 miles to the East Bay, or some other area? While I don’t plan on staying here, I look at the BA as a general area. If I was going to buy, I’d look in a neighborhood that perhaps wasn’t so close to work, wasn’t as perfect, or whatever. I think many are of the same line of thinking.
That brings me to my final point, which is that in housing markets just like economics, a few rotten apples will eventually effect the whole lot. As we speak now, there is some massive corrections happening in the East Bay. Specifically, the not-so-great parts of Oakland. This in turn is starting to affect the better parts, and so on. Let’s say that eventually, the East Bay experiences a 40-50% correction. With its proximity to PA, I’d wager to bet that the severe price differences will draw away demand for the Peninsula, which will ultimately affect places like PA.
Anyhow, again I apologize if I sounded nasty earlier.
June 19th, 2008 at 5:25 pm
Pralay – we disagree here. I think local markets are different if loosely connected, and I see many variables that affect not only timing (shifted timelines), but also amplitude (how much does it go down if at all).
———-
DreamT,
Interestingly, all the variables and factors you cited tells me that local market are NOT loosely connected. Your Redwood City and Mountain View example is a good one. In this example, the basic assumption is that there are two set of population – hitech people with higher income and lowtech people with low income. But in reality bay area population constitutes very wide spectrum of economic and social categories. It would be very difficult to draw line somewhere and declare, “ok, these kind of people buy home in Mountain View and those kind of people buy home in Redwood City”. For example, for a single hitech person, who works at Mountain View, may opt to buy home in bad school district at Redwood City because home price is lot cheaper there. I have friend who works at Mountain View bought home in Fremont. Can it be said that Mountain View and Fremont markets are different?
Bottomline, housing market is always affected by surrounding area and they are affected in various ways – price difference, job growth/loss, demographic shift etc.
Secondly, nowhere I claimed that all the markets will go down in same amplitude. In dot-com bust all the companies did not go down same way. Some companies fared better than others. Similar way, some area will fare better than others area in this housing market downturn – especially better area with better school districts. But it would be a bit stretch to say that those better area are and will be immune.
June 19th, 2008 at 5:47 pm
Pralay,
Points taken. I’ll qualify a bit better what I was trying to say. First of all, we’re mostly talking about people who bought since 2005, they’re the source of the majority of current and upcoming foreclosures. So if you make abstraction of people who bought before in the same location (and obviously typically have lower socio-economical status) then the distressed markets – the ones who must sell – are not as mixed as one’d think. Second, I’d venture many preferred to rent in a nicer area than buy in areas that were “not good enough” for them. So the spillover is more limited than one’d think. Finally, your example MV versus Fremont is good, and I don’t call these loosely connected. Fremont is a good alternative to MV if you cannot afford it. But how about Evergreen vs Tully/Story? Atherton vs East RC? Pacific Heights vs Visitacion Valley? They’re neighbor markets yet almost no buyer in either one would ever look in the other. That’s what I meant by loosely connected.
June 19th, 2008 at 7:40 pm
WG, Madhaus covered my point. I don’t see inventory drops either month-to-month or year-over-year. I look at both because you really do need to account for seasonality in this market. Now that Memorial Day has passed, seasonal data suggests that inventory will grow as sales decline. Perhaps that won’t happen. We’re in uncharted waters because REOs make up an unusually large chunk of inventory and sales, though they aren’t always listed on the MLS.
June 19th, 2008 at 8:30 pm
My recent appraisal indicated inventory was abating, and there are plenty of articles like this:
The numbers tell the story:
• For each of the past four weeks, more than 300 houses a week found buyers and went into escrow, the first time that’s happened since May 2005.
• An average of 41.8 homes sold each day in the five weeks ending June 5, faster than the year-ago pace of 34.4 sales a day, and about equal to the June 2006 pace of 41.5 a day.
• There were about 7,140 houses and condos for sale in Santa Clara County on Wednesday, down from a peak of just under 7,600 in mid-May. In normal years, the inventory of homes for sale continues to rise in June and into the summer.
“Those are great numbers, from where we’ve been,” said Fred Hibbert, manager of a Coldwell Banker realty brokerage in Los Altos.
http://www.mercurynews.com/realestatenews/ci_9632445
June 19th, 2008 at 10:11 pm
Here’s how you can check inventory in Santa Clara County.
1) Go to MLSListings.com, the public face of the local MLS.
2) Click View All next to the City field.
3) Check Santa Clara County to select all cities in SCC.
4) Select Class 1: Single Family Residential.
5) Click Preview Count.
6) Repeat steps 4 & 5 for Class 2: Common Interest Development (condos)
Here are the numbers I got tonight:
Homes – 6,417
Condos – 2,133
These numbers include pending show and pending with release, which we consumers can’t filter out. Now that we have our own data source, perhaps Burbed can check on a slow news day and provide periodic updates?
I can verify anecdotally that there is a lot of interest in REOs, which buyers see as a “steal” because of the huge price difference compared to stagnant “lottery ticket” listings.
Santa Clara County appears to have been trailing this wave relative to areas like Inland Empire. I’ve seen knife catchers who bought REO steals down there last year that are now upside down. We’ll see what happens.
June 19th, 2008 at 10:11 pm
Here’s how you can check inventory in Santa Clara County.
1) Go to MLSListings.com, the public face of the local MLS.
2) Click View All next to the City field.
3) Check Santa Clara County to select all cities in SCC.
4) Select Class 1: Single Family Residential.
5) Click Preview Count.
6) Repeat steps 4 & 5 for Class 2: Common Interest Development (condos)
Here are the numbers I got tonight:
Homes – 6,417
Condos – 2,133
These numbers include pending show and pending with release, which we consumers can’t filter out. Now that we have our own data source, perhaps Burbed can check on a slow news day and provide periodic updates?
I can verify anecdotally that there is a lot of interest in REOs, which buyers see as a “steal” because of the huge price difference compared to stagnant “lottery ticket” listings.
Santa Clara County appears to have been trailing this wave relative to areas like Inland Empire. I’ve seen knife catchers who bought REO “steals” down there last year that are now upside down. We’ll see what happens.
June 19th, 2008 at 10:22 pm
Frank, hopefully if anybody bought real estate last year they were not expecting to profit within one year only. WG can confirm or contradict me on this, but I’d assume he’s looking to hold for several years. If not, well it’s quite the risky game.
June 19th, 2008 at 11:09 pm
I would not consider an appraisal necessarily an accurate depiction of true market activity. The appraiser has to justify the price you paid for the house, so the bank can sign off on the loan. Too many lowball appraisals and the bank won’t rehire. Guess what the appraiser will decide to do.
Every time I refi’d my house, the appraisals were complete bull. They’d use comps from different school districts. They’d just plug in houses from a mile away across the dividing lines. They just picked 3 houses to make the numbers work. They’d pick crappy houses so my house would come in higher. I’m amazed they didn’t try a few places in East Palo Alto as comps.
I’ve refi’d 4 times, so I have 5 appraisals on this one house, not one is worth the market analysis. Plus I’ve also played with rental property (and got out), so I’ve done this in another county, same problem with the appraisals. There is nothing to stop these people from saying anything they want as long as they make your loan fly.
June 19th, 2008 at 11:37 pm
What site are people using to locate REOs? Is there a site tracking REO data?
June 19th, 2008 at 11:45 pm
DreamT, I think the people buying REOs right now do think they are making an immediate profit because they are comparing the REO discounted price to the “market price” set by the non-sellers. Why do I think this? Because I’m hearing stories about REOs getting multiple offers (more than 10) and selling for well above asking (more than 10% over).
Here’s my question? If the market is flooded with REOs with more on the way, why overbid by more than 10%? The answer is pretty obvious. Buyers still think they are getting a steal. I bet I know who is reinforcing that perception, too. Like I said, we’ll see if the number of REOs increases and prices fall. No point in calling scoreboard today.
June 19th, 2008 at 11:59 pm
Frank, I’m not as convinced as you are. maybe the people buying REOs are overbidding because that’s still the cheapest way to get into a specific neighborhood today. Some non-REOs still get multiple offers. Maybe they’re thinking that if they hold 5-10 years it is a good deal. Maybe they plan to sell next year, more REOs will flood the market, and it’ll be their loss. That last scenario certainly occurs, but for how many REOs? REOs aren’t reserved to investors: there are people out there who still buy houses for living in long-term, and I’d wager these are the ones who tend to overbid because they’re more emotionally attached to the purchase than pure investors.
June 20th, 2008 at 12:10 am
Let’s look at Santa Clara County Report from Realtor Ken Callahan’s website.
Year-Over-Year comparison for month of May:
Campbell: Sale drop 60%, Inventory drop 8%, Median drop 13%
Cupertino: Sale drop 23%, Inventory up 12%, Median up 6%
Milpitas: Sale up 29%, Inventory up 29%, Median drop 23%
MV: Sale drop 13%, Inventory up 45%, Median drop 15%
PA: Sale drop 24%, Inventory up 26%, Median drop 5%
Santa Clara: Sale drop 29%, Inventory up 68%, Median drop 11%
Saratoga: Sale drop 33%, Inventory drop 11%, Median drop 4%
Sunnyvale: Sale up 3%, Inventory up 66%, Median up 1%
Lastly,
Overall San Jose: Sale drop 6%, Inventory up 31%, Median drop 17%
Neighborhood-wise,
Willow Glen: sale drop 40%, Inventory up 12%, Median drop 8%
Evergreen: Sale up 9%, Inventory up 29%, Median drop 18%
Alum Rock: Sale up 85%, Inventory up 38%, Median drop 39%
So, except Campbell and Saratoga, inventory is up across the board.
June 20th, 2008 at 12:23 am
Pralay, anecdotally it can be a good sign if inventory is up. There was only one house for sale in my neighborhood last year. Now four long-time residents so far have placed their house for sale, and they’re going one by one above asking price, bringing local median up (above 2006 prices). So inventory being up is a sign that people are comfortable selling again. So the inventory numbers really should include at least % short sales&foreclosures for better interpretation. Why does it mean that campbell inventory is down, for example, how do we interpret that?
Bet that one isn’t done crashing either, what with the meth factories in the hills.
-39% median price at Alum Rock, that’s nasty.
June 20th, 2008 at 12:44 am
DreamT,
Inventory up is a good sign provided median price (or dollar per sq-ft) goes up. That was the case in 2003-2004-2005. Now median dropped across the board. What makes sellers comfortable? Are they really comfortable or just worried?
June 20th, 2008 at 12:57 am
The sellers I was referring to – no idea. But I thought their offer price was consistently rather high (save for one). If they were worried they’d have tried and stayed within the comps from two years past rather than price 5% to 10% higher. Anyway as I said that was just an anecdotal observation.
So how does one interpret inventory down in Campbell, I’m curious? Maybe fewer sales in an established neighborhood is a greater sign of worry by the locals, justified or not.
June 20th, 2008 at 1:01 am
sorry, rephrasing last sentence:
Maybe lower inventory in an established neighborhood is a greater sign of worry by the locals, justified or not.
There ought to be a formula combining inventory delta, sales delta and median delta and maybe something else to speculate if the locals are comfortable or worried.
June 20th, 2008 at 11:39 am
So, the real story here is probably Illegal Aliens purchase house with no money down, that they can’t actually afford and cram everyone inside.
For $4300 a month they could have rented a house in Emerald Hills.
They probably thought that prices were going to go up and they could make a lot of money.
I don’t buy their sob story for one minute.