Santa Clara county home sales are going gang busters!
Los Altos Town Crier » National home sales down, locally – up
In Santa Clara County, single-family home sales appear to be on an upward trend, according to information from MLSListings Inc., the Multiple Listing Service for the Silicon Valley Association of Realtors see article on page 38. There were 927 closed sales of single-family homes in Santa Clara County in June, up from 873 closed sales in May, 654 in April and 583 in March. The average price of homes in June was $922,149, down from $970,702 in May. During the same period a year ago, there were 982 closed sales of single-family homes in Santa Clara County, and the average price of homes in June 2007 was $1,066,610.Today’s market offers long-term value for buyers, according to SILVAR President Leannah Hunt.
“As home prices drop a bit, there are good opportunities out there for serious home buyers,” she said.
Sweet! Things are rocking and rolling! This might not be a year of our god given 15% annual appreciation, but it might just coming back soon!
The Real Bay Area: unstoppable.
2009’s catch phrase? “Damn I’m priced out forever!”
August 4th, 2008 at 7:32 am
From the NYT, more good news for CA -
“Housing Lenders Fear Bigger Wave of Loan Defaults
By VIKAS BAJAJ
Published: August 4, 2008
The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building.
Homeowners with good credit are falling behind on their payments in growing numbers, even as the problems with mortgages made to people with weak, or subprime, credit are showing their first, tentative signs of leveling off after two years of spiraling defaults.
The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time.
“Subprime was the tip of the iceberg,” said Thomas H. Atteberry, president of First Pacific Advisors, a investment firm in Los Angeles that trades mortgage securities. “Prime will be far bigger in its impact.”
In a conference call with analysts last month, James Dimon, the chairman and chief executive of JPMorgan Chase, said he expected losses on prime loans at his bank to triple in the coming months and described the outlook for them as “terrible.”
That’s gonna leave a mark.
August 4th, 2008 at 7:46 am
This appears to be another one of those useless shill pieces published by a small local paper, which as we all know are the kinds of papers that rely very heavily on Real Estate advertising revenue. The article is almost laughable. Oh gee! Prices are now 920k versus 970k?! Holy crap! What a buying OPPORTUNITY, especially for SERIOUS buyers, versus some of us buyers who were really just big kidders.
Lastly, the fact still remains that prices are down. The article did a pretty good job of smothering that little tidbit into obscurity. In addition, there’s zero value in paying almost a million bucks for a tiny little house. I don’t care if the house was located on the moon.
August 4th, 2008 at 8:08 am
I agree that the article is nothing more that a PR placement, but I can assure you that prices are up in the paper’s home city. Courtesty of an open house last week, I am looking at a list of 150 closed deals from the last nine months in Los Altos and I am not seeing any bargains. Only 28 sold for under $1.5M and half were at $2M and above.
Right now, in Los Altos, a 2000 sq ft ranch home with minimal updates since its 195x construction date will sell the first week for $1.7 provided it has the semi-standard 1/4 acre lot and isn’t on a busy street. More significantly, these deals are often closing in 1-3 weeks, an indication that the accepted offers have no financing contigencies. These are very well qualified buyers with no issues accessing capital.
Here’s a great example. 584 Cuesta - a busy street. Prop was listed on 4/29. It closed escrow on 5/8. Sales price, 1.55M for 1942 sq ft on a 1/4 acre lot. Not likely to see that property as an REO anytime soon.
August 4th, 2008 at 8:23 am
It just seems amazing to me that some of these areas can still sell at these prices. Over here in the East Bay, the story is totally different: NOTHING is selling, even in the nicest parts. Prices have been falling, and appear to still be doing so. Eventually, the prices here are going to be too steep for those looking on the Peninsula to ignore, and this will create a sort of vacuum.
Another interesting observation I made was that I spend the weekend up in the Foothills of the Sierras. These small gold towns had some serious price reductions over last year. For the first time I saw a billboard for homes starting in the 100’s. Yes- the 100’s. Not the 300-500’s they were last year. The Sacramento is where the bust originated. It’ll be interesting where the BA winds up.
August 4th, 2008 at 8:42 am
A 13.5% YOY decline? Unthinkable!
August 4th, 2008 at 8:50 am
Seriously, Bob, I’m with you. I sometimes marvel that puff-pieces like this get published anymore. You are also right to remind us that the collapse in prices began in the Central Valley and have spread outward toward the BA and into the Sierra foothills.
Tom
August 4th, 2008 at 8:53 am
Re:”Here’s a great example. 584 Cuesta - a busy street. Prop was listed on 4/29. It closed escrow on 5/8. Sales price, 1.55M for 1942 sq ft on a 1/4 acre lot. Not likely to see that property as an REO anytime soon.”
I know the family who sold this house, hahaha! What a small world. They had multiple offers and it went for over asking. But come on, Los Altos is a different world…
Places like Los Altos will be the absolute last to feel the collapse of the bubble.
August 4th, 2008 at 9:05 am
To get news & numbers from someone whose livelihood doesn’t depend on you buying a house, try
“Santa Clara County June-08 Foreclosure Stats” at
http://www.viewfromsiliconvalley.com/id433.html
-or-
“The Last 30 Days (Jun’08 Data)”
http://www.viewfromsiliconvalley.com/id431.html
Then tell me if prices & sales are going up.
August 4th, 2008 at 9:06 am
HELLBOY: I agree. If Los Altos feels prices declining, the bubble really has well and truly popped.
As a Los Altos resident (right on the PA/LA border) I can tell you that price/rent is still *way* out of whack here. Until 2BR/2BR start renting for $6000/mo, anyone buying is betting on 10%-15% appreciation or fear of being priced our forever, because on a cash flow basis they are deep in the red.
Finally, I would add that so far, demand remains robust in Los Altos.
-zanon
August 4th, 2008 at 9:08 am
@Hellboy: Why were they selling? Where are they moving to?
August 4th, 2008 at 9:13 am
Obtain a copy of the Town Crier. Scan the ‘paper’ for actual hard news. What do you see? I see a REIC/local real estate cartel propaganda sheet exrolling the virtues of the many, so called REALTORS operating in the area. It is, and has been this way for years. Its also a geat way to validate the status of the used-house peddler crowd so they can continue deducting their business expenses and automobile leases when the IRS comes calling and give them something to talk about and congratulate themselves at Rotary, Kiwanis, etc, etc…
Caveat Emptor. Why would ANYONE pay 6% to sell/buy a home or trust one of these strangers advertised in a local weekly paper? Do your homework and make sure their E & O policy is up to date…
Los Altos Native
August 4th, 2008 at 10:45 am
@vfsv, do you have any stats for foreclosures in Los Altos or Palo Alto? or sales data from these cities?
@bob, here is a short explanation on how prices in the (true, not imaginary) RBA can hold. Let’s take two areas in RE’s favorite city, Palo Alto, as an example.
A post last week on valleywag about a certain google founder’s house cause me to zillow sale prices for the stretch on either side of waverly btw Oregon and Addison. for those that don’t know, this is the nicest part of the city and true, high end RBA. the housing stock is old and large, the lots are expansive (for palo alto). and, the location is excellent. you can walk to downtown or a football game; you have a short drive to your tech job. this is a $4-14M neighborhood
now, look at the dates on last sales, especially for the bigger lots. not too many in the 2000s. not too many in the 1990s. a few around the last big bubble (88,89). you can’t feel sorry for those “bubble” buyers as their $1M investment is now worth 8x or more. but, the point is that (post-prop 13), people are leaving these houses feet first, and there are far more buyers than there are sellers. dial down the appreciation some and you can repeat this analysis for atherton, hillsborough, presido heights, pac heights, etc.
now let’s head over to south palo alto to the “low” end and look at greenmeadow (either side of creekside dr). this is faily crappy housing stock, build in the early 50s. they are roughly 1800sq ft on 7500 sq ft lots, yet they sell immediately for $1.5++ when they hit the market. look at the last sales. see a pattern? lots of original owners (or their kids) still there. you’ll see this repeated in los altos, west menlo park and burlingame.
as I mentioned in another post, of course all this could change dramatically. but, a first step is that there have to be sellers. absent a massive earthquake, a tech/VC depression (not a blip like 2001) and/or the repeal of prop 13 I don’t see that happening anytime soon.
August 4th, 2008 at 11:06 am
@ Burbed, re:”@Hellboy: Why were they selling? Where are they moving to?”
They wanted to get a bigger place, kids tend to do this to a family. They had considered moving north as far as Burlingame( one works in SF the other is Tech in the valley )but I’ve since found out they got a deal IN LOS ALTOS no less so they are staying in the area. I can’t wait to see the house…
August 4th, 2008 at 11:09 am
Steve’s observation is spot on for my neighborhood in Los Altos.
I bought several years ago from an original owner whose father developed his orchard into housing in the early 1950’s. My original owner passed away shortly after selling to us, but her brother and a couple of her cousins still live in their original houses in this neighborhood.
A joke that is popular with our friends that have bought in Los Altos is, “People are dying to get out of Los Altos”.
August 4th, 2008 at 11:25 am
15%? 15%?? FIFTEEN PERCENT? No no no no no! The God given amount is more like 21% (because you have to give the real-a-tors their God given 6%
–Timeline Guy™
August 4th, 2008 at 11:37 am
I’m not sure it’s prop 13 that keeps the oldsters in their homes. I thought there was a way to keep your same property tax if you are over a certain age and stay in your county thus you could trade down. Maybe they stay because of the tax consequences. In the areas mentioned by Steve, most of the original owners have probably easily made over 500k and would then have to pay the capital gains unless it was given to the kids in the trust.
August 4th, 2008 at 12:02 pm
Well,
One thing I’d like to see if there’s any information pertaining to the actual mix of houses sold. I don’t deny that there’s some super-rich people spending big bux on homes around here. But if say- a few multi-million dollar homes sold in one month, that would grossly inflate the median value of the home sold. I’m guessing that there’s a ton of bottom-scraper REOs and knockdown houses selling, which would explain the rise in the number sold.
Regardless, anyone buying a million-dollar house had better be making at least 400k-500k a year minimum because the payments on something like that would be pushing over $10,000 a month not including taxes.Even if you made 500k, close to 50% of your take home pay would be going to the mortgage alone. And again, if you’re making half a mil and buying a 50’s starter home, I’d hope that at least some of them stop and think for just a second at the irony of paying big to live like middle class paupers.Something about these going prices still doesn’t compute and is grossly out of line with sound financials on par with the peak of the boom in the rest of the BA.
August 4th, 2008 at 12:19 pm
“15%? 15%?? FIFTEEN PERCENT? No no no no no! The God given amount is more like 21% (because you have to give the real-a-tors their God given 6%”
Au contraire good sir, please see the ad on:
http://www.burbed.com/2008/07/31/what-does-1199999-buy-in-alamdea-these-days/
In these tough times its now 8% (4%x2! Ahh, real estate scumbags. It certainly is a good time to pay them a commission for being worthless…
“Regardless, anyone buying a million-dollar house had better be making at least 400k-500k a year minimum because the payments on something like that would be pushing over $10,000 a month not including taxes.”
Good point. Now, I recall RE stating that the 1.2mil TURD in Sunnyvale would be purchased by a director level person. How many directors make 400-500k?
August 4th, 2008 at 12:21 pm
Btw, bob, your numbers are a little skewed - someone making 500k would take home around 250, but never the less the point is valid.
Let’s be very clear: Only an idiot would buy a home in the RBA.
August 4th, 2008 at 12:24 pm
Bob - I don’t mean to specifically pick on you but could not let this pass. “The irony of paying big to live like middle class paupers” sounds straight from RealEstater’s mouth. Equally large chip on the shoulder.
Let me assure you that the size of the house or even the location has pretty much NOTHING to do with anyone’s lifestyle. I’d even venture that the larger the mortgage, the tighter the lifestyle as a result. So your sentence really makes no sense except it reveals your utter contempt for us common people.
August 4th, 2008 at 12:26 pm
Rocket - Love the quote. Definitely a sign of a great neighborhood when it takes a gun, rope or poison to free a spot and move in.
August 4th, 2008 at 12:28 pm
“Let me assure you that the size of the house or even the location has pretty much NOTHING to do with anyone’s lifestyle.”
This is a joke, right? I missed the sarcasm. What factors do you feel ARE relevant to one’s lifestyle?
You go on to say:
“I’d even venture that the larger the mortgage, the tighter the lifestyle as a result.”
This is precisely the point bob is making. Having overpaid on a SHITTY home, there isn’t as much left over for other incidentals, correct? Is living a ‘tight’ lifestyle because one overpaid for a home good “lifestyle”?
August 4th, 2008 at 12:29 pm
anon - “idiot” is the new fashion word with Trolls. Sure enough to elicit reactions.
After all if they have so much money to burn, they must be idiot, the whole lot of them. Good thing we know better don’t we.
August 4th, 2008 at 12:31 pm
anon - “idiot” is the new fashion word with Trolls. Sure enough to elicit reactions.
After all if they have so much money to burn, they must be idiot, the whole lot of them. Good thing we know better don’t we.
I’m sorry. I will use the term fools instead in the future. That’s much more pc, wouldn’t you agree?
August 4th, 2008 at 12:36 pm
anon - no sarcasm. Lifestyle / quality of life: primarily time spent commuting and $$ available for hobbies, good food and cultural events. What seems overpriced to you may be a nice compromise for someone else who could afford a bigger house. That’s the choice we made a few years ago. By buying a smaller place (”shitty home”) we can afford not to live like “paupers”, exactly the opposite of what bob is stating.
August 4th, 2008 at 12:42 pm
anon - As long as your vocabulary reflects your thoughts…
Idiot: “person [...] having a mental age of less than three years old and an intelligence quotient under 25.”
Fool: “a person who lacks judgment or sense.”
I think you know well what you’re doing when you use the word “idiot” on this board.
August 4th, 2008 at 12:42 pm
Zanon, I can assure you property in Los Altos IS renting for $6K/mo. The rental market is on fire on the peninsula and south bay. Just looking on craigslist for Los Altos, 3+ BR (to weed out the apts)- there are 13 listings over $5K/mo… 6K and 7K common, and 19 under $5K/mo with many of these in the $4900 range. The rental market is priced competitively with home ownership for the first time I have seen in almost 10 years. A $5K/mo rental equates to a $7500 mortgage payment after all.
We are now at a place where the high end districts like Palo Alto, Los Altos, Burlingame etc are renting at 5K/mo AND UP.
I know you said owning in LA isn’t price competitive with renting until a 2BR/2BA rents for $6K, and I’ll grant you we aren’t there YET, but we are close. I would love to hear the rationale for why rentals are rising like this also- I am surprised by the strength in rental pricing.
August 4th, 2008 at 12:47 pm
You have flip flopped. The above post is in stark contrast to your previous statement: “Let me assure you that the size of the house or even the location has pretty much NOTHING to do with anyone’s lifestyle.”
Now you say: “Lifestyle / quality of life: primarily time spent commuting and $$ available for hobbies, good food and cultural events.”
So, does it not stand to reason that the location has quite a bit to do with quality of life? The amount of time spent commuting is related to the location, right? The proximity to good food and cultural events is also related?
Again, you are saying the same thing as bob. You chose a less nice home so that you would not be “house poor,” correct? This is exactly the point I am trying to get across.
Sure, you “compromised” when you bought your house. My assertion is that in order to live in the bay, you had to compromise too much. Put another way, WHATEVER you spent on your home, you did not get much VALUE. Why did you have to compromise so much? Because too many speculators were using the banks money to sell each other homes at over-inflated prices.
Whatever. I suppose it all comes back to the fact that it’s special here…right? Sophistication by proximity and the like…
August 4th, 2008 at 12:48 pm
previous post directed at dreamt
August 4th, 2008 at 12:53 pm
Steve (post #3) -
Just because the property closes escrow fast doesn’t mean people are paying cash. I closed the last two houses I bought in 10 days. I was mostly pre-approved and the mortgage broker had to move FAST. But I assure you, both places had mortgages. It can be done… especially now when brokers aren’t very busy!
August 4th, 2008 at 1:02 pm
bob - No flip-flop on location. By location I mean for example walking distance to Castro Ave. or University Ave, versus living two cities away not far from a freeway. The point I’m making is we don’t consider ourselves “middle-class paupers” by having chosen the latter even though real-estate wise this is a ‘poorer’ location choice.
A more “prime real estate locations” in my opinion does not guarantee a better quality of life due to the compromise on house price. You can have a better location and end up poorer. Read my posts again in this light, maybe you’ll see this time that there’s no contradiction.
August 4th, 2008 at 1:03 pm
But to get back to Bob’s point -
“Regardless, anyone buying a million-dollar house had better be making at least 400k-500k a year minimum because the payments on something like that would be pushing over $10,000 a month not including taxes.”
This statement would only be correct for a buyer who did not previously own a home right? Los Altos would be a trade up area I think.
Today (don’t know what will happen in the future) I have about 850k equity in my home. If I wanted to buy the $1.5mil house I would not need 400-500k salary.
My new mortgage would be 1.5mil - 850k = $4162. mortgage. Personally, I would not want this large a mortgage as I would also have to pay the new higher property taxes so I would likely sell some of my options and throw another 200k at the downpayment.
Anyway, that is how it is done if you don’t make 400k a year. Feel free to correct my math. This is my real case though so it is not based on assumptions.
August 4th, 2008 at 1:12 pm
WG “I would love to hear the rationale for why rentals are rising like this also- I am surprised by the strength in rental pricing.”
My neighbors sold their home at the top of the market (guessing correctly it was the top of the market) because they wanted a larger home and didn’t want to remodel. I think they probably got 100k more then they would have had they not sold. They are renting until home prices go lower and won’t buy until this happens. This is a finance guy and he new the bubble would eventually pop. He purposefully sold when he did and is purposefully waiting. I doubt that many others had this insight and are doing the same, but he did become a renter. This is on the peninsula.
August 4th, 2008 at 1:14 pm
anon - I disagree with you, I don’t feel I compromised too much to live where I live. I feel I found the right compromise between house price and lifestyle at this time in my life. Accordingly, I don’t feel my house was overpriced and I am getting the value I expected, and recent buyers in the same neighborhood have drawn the same conclusion. Most important, I don’t feel I live like a “middle-class pauper.” For some people, purchasing in MV is a compromise, for us it would be a stretch. For some purchasing where we live would be a stretch, for us it’s not. You’re hardly credible if you say that nobody’s getting their value’s worth when they purchase a house here, because it’s easy to find people who’ll contradict you based on personal experience.
August 4th, 2008 at 1:16 pm
Of course anon anybody who’ll disprove your assertions will be labeled an “idiot” won’t he/she?
August 4th, 2008 at 1:18 pm
I’m not going to entertain discussing the difference in the “quality of life” in regards to paying a ton of money for a little house anywhere, even if it in perfect tropical paradise. If paying these kinds of prices is meant to indicate a higher standard of living, then that plate of Sushi you’re buying, or that chamber orchestra you’re watching, or those sidewalks you’re walking on had damned better be the best sushi, orchestras, and sidewalks on the planet, because you’re paying DEARLY for the privelage, which to me is beyond nonsense. You see, I still can’t really take much of this seriously simply because my common sense part of the brain screams otherwise.
Paying 6k for rent is ludicrous. Paying a mil for a house is equally so.
August 4th, 2008 at 1:23 pm
Bob - My point was not about what’s in a quality of life but about your perception of the bay area residents (not just buyers, but all residents). In your opinion we’re all middle class paupers. I thought that comment revealed a lot about you (and besides disagreed with your premises). I stand by the ‘chip on shoulder’ comment.
August 4th, 2008 at 1:24 pm
WillowGlenner: I live right on the Palo Alto/Los Altos border, I know many people who live here, I know how much rents are.
Yes, they are higher than they were 3 years ago, but you can rent a SFH 2 BR/ 2 BR place for ~$2500/mo. I don’t know about craigslist, I just know how much folks I live with in the area pay.
Rents are going up because rent/price is out of whack, and those two numbers need to shift to get back in line with historical averages. If prices are not going to go down (just as RE, and you are also bullish on housing prices) then rents have to go up. It’s pretty simple.
You can use creative (and now nonexistent) financing to pay almost any amount for a home, but paying rent is straight cash-in, cash out. $6K/mo in rent is $72K/year, post-tax, which is about $110K/year pre-tax. Even in a two engineer family, that’s hovering at 50%+ of pre-tax takehome pay, which is a lot to pay for housing. I sure hope the dry cleaners of los altos don’t have big dreams, as there isn’t much left for them.
I don’t think anyone is paying for these places OOP, I think they are executive housing, subsidized my the company for a year until they can find a place to buy. Certainly they do not represent the standard housing market.
-zanon
August 4th, 2008 at 1:38 pm
DreamT,
One thing I’m curious about is if you’ve lived anywhere except Europe and California? Your answer would probably shed some light for me.
Anyhow, Just to drastically prove a major point, I kind of forgot that I had made a photo album showing where I grew up, as well as some of the pictures I took around my home state awhile back. Take a look at the pics of the family home and property.Also look at photos of the various cities. My Parents are squarely middle class. Both live less than 10 miles from their work. The home has been paid for since the 80’s, and they bought in the 70’s. Even today, the property is worth 180k. Probably less now. Now take a look at this and compare it to any number of the small, 1 million dollar houses on this site. See anything sort of wacky? Do you now see where am coming from?
http://s265.photobucket.com/albums/ii226/bobwilson1977/
August 4th, 2008 at 1:38 pm
I actually do feel like a middle class pauper as I know I could be living in a huge house somewhere else in some parts of the country. However, when I visit my cousins Mcmansion in Ohio, I am only envious until I remember I would have to wake up every morning in Toledo. Not that there is anything wrong with Toledo…
August 4th, 2008 at 1:42 pm
One other thing you all might want to consider is that rents are moving higher b/c of all the FB’s who bought out in livermore or merced or tracy or modesto figuring they would commute but then got caught with their collective pants down when the bubble burst. If they still have a job they are certainly considering moving back to the bay area to rent both to save money on gas and mortgage…
August 4th, 2008 at 1:53 pm
Bob, it’s all a matter of what people can afford and are willing to spend to be comfortable. You are living frugally for a number of reasons. Your choice; more power to you for not falling into the “spend” impulse that grips too many these days.
When I first moved to CA in 2001 we rented for $2700/month. Why? Because we had moved out of our 3600sf house in the midwest (mortgage, $2200/mo), and wanted to be comfortable in a nice place in a nice neighborhood. I looked at at LEAST a dozen apartments, starting at about $1500/month. Didn’t like any of the cheaper ones. With only one of us working, we could afford it so why not maintain our standard of living in terms of housing? Does that make us foolish?
Reminds me of a Suze Orman quote I just laughed at the other day… she was asked if it’s possible to get your money’s worth buying a home in SF. She said “if you have the money to get your money’s worth, you bet you can.” Seemed nonsensical until she clarified by pointing out how much she values walking to Crissy Field and doing other local things. The point though is that she can afford it.
August 4th, 2008 at 1:54 pm
I find more value owning a smaller home in a place I love to live, rather than a large home where I have no interest in renting. If I have 3 million in the bank, it isn’t much of a stretch to pay a million and half for a home. Salary shouldn’t have much to do with buying a million dollar home. Luckily, for most people the prices are coming down around the bay area which will give average (income wise) people a chance to own a home. They won’t be able to buy in Los Altos, but they will be able to buy in many other cities in the bay area. I however, would rather have that small home in Los Altos than that big one over in Fremont.
I think the mindset that one should live in a big house or as big of a house that they can afford is flawed. I’d rather use less gasoline, less energy and buy fewer things to fill my home and have more time with my family.
People shouldn’t buy homes they can’t afford, and banks shouldn’t lend money to people who can not pay it back. As long as someone can afford it, why do some have to label others as idiots, when they are enjoying their lives? I can easily put labels on those that buy homes outside the bay area because I don’t feel they share my values, they don’t live the way I want to live, so there must be something wrong with them right? When someone doesn’t share the same viewpoint as ourselves there is something wrong with them isn’t there?
August 4th, 2008 at 2:03 pm
DreamT,
You try to bolster your point by stating: “By location I mean for example walking distance to Castro Ave. or University Ave, versus living two cities away not far from a freeway.” Again, this is a far cry from: “Let me assure you that the size of the house or even the location has pretty much NOTHING to do with anyone’s lifestyle. ”
I am done discussing this because if you can’t see it, you’re not going to.
Of course you don’t feel like you compromised too much. You already made your decision and acted upon it. Now, you’re trying to rationalize it as if it was a good decision. I hope that you like where you are because it will be a while before you can leave without incuring a substantial financial loss.
With respect to your statement: “Of course anon anybody who’ll disprove your assertions will be labeled an “idiot” won’t he/she?” You’re correct. My assertion that the amount of home you get for the amount of money you spend in the bay area is just about the worst in the country. I don’t see how you could dispute this. It’s like trying to dispute gravity or the fact that the sun is the center of our universe. I’ll say it again: What you get for the money in the bay area is a joke.
Bob, beautiful pics: Looks green and serene. But, where are the fart sniffers? The starbucks on every corner? the traffic? the smog? the 17% increase on groceries!?????!
You must have had an awful childhood.
August 4th, 2008 at 2:03 pm
No Bob, I don’t see anything wacky. People aren’t rushing from their hometowns to move to TN. There aren’t many people competing for homes in TN. I don’t want to live in TN. TN, doesn’t have as much to offer me as the bay area does. There are many people that feel the same way, which is why you pay a premium to live in the bay area. BTW- just in case you didn’t know there are “turd” houses that sell in other parts of the country for premiums in the nicer parts of their cities. What’s wrong with owning a 1500 square foot ranch home on a golf course and paying a premium for it rather than buy one of those new 2600 square foot homes in the subdivision up the street? Not everyone wants a lot of land and yard to take care of either.
August 4th, 2008 at 2:19 pm
Reminds me of a Suze Orman quote I just laughed at the other day… she was asked if it’s possible to get your money’s worth buying a home in SF. She said “if you have the money to get your money’s worth, you bet you can.” Seemed nonsensical until she clarified by pointing out how much she values walking to Crissy Field and doing other local things. The point though is that she can afford it.
There’s a point here, if you took the average worker and gave him a $150,000 two bedroom apartment in San Francisco it would still be a challenge for him to get the most out of the experience. It’s like getting a Porsche for cheap at an auction - fun for a few days until you realize how much it costs to maintain and insure the damn thing.
August 4th, 2008 at 2:50 pm
zanon, pardon me for suggesting this but you sound a little like bob. Care to qualify your statements please, back them up with facts etc?
I provided a source of what new rentals are going for. Thats all that matters, really, the fact that you know people renting for $2500/mo in los altos only means they were lucky or got in prior to the recent uptick in rents, but it isn’t meaningful as to what the current rental climate is like.
Rents are going up because rent/price is out of whack, and those two numbers need to shift to get back in line with historical averages.
What historical averages? Are you trying to say there is some kind of historical average of rents vs. mortgages in the bay area? I don’t think such a thing exists, but if it does it would typically register that rents are lower than mortgages, which is what you seem to be saying anyway.
but paying rent is straight cash-in, cash out. $6K/mo in rent is $72K/year, post-tax, which is about $110K/year pre-tax. Even in a two engineer family, that’s hovering at 50%+ of pre-tax takehome pay,
No it isn’t! Christ the constant banter of bears trying to save the consumer from themselves is getting really old. First of all a “2 engineer family” as you say probably brings in more than $144K after taxes. If one of those engineers is a contractor, they can write off everything and probably take home 144K on one income alone.
August 4th, 2008 at 2:54 pm
Hellboy and thread, what does FB stand for?
Yes I can come up with 2 things driving rents through the roof, 1) more local jobs now that hiring in India is too expensive, 2) people who bought in tracy or outlying areas need to come back in due to cost of commuting.
thats probably most of it.
August 4th, 2008 at 3:00 pm
>> My assertion that the amount of home you get for the amount of money you spend in the bay area is just about the worst in the country. I don’t see how you could dispute this. It’s like trying to dispute gravity or the fact that the sun is the center of our universe.
I stand by you anon. We agree with BA housing situation completely . Just a disagree with the mistake that sun is center of universe. There millions of suns like ours in the universe and it’s hard to ascertain if any one of them is at the center because universe keep growing all the time. You could have said:
It’s like trying to dispute gravity or the fact that the sun is the center of our solar system.
August 4th, 2008 at 3:09 pm
@hellboy, it is a small world, and yes, los altos, palo alto, atherton, menlo park, burlingame, hillsborough, … are in a different reality — they are the RBA
@zanon, agreed. although I have heard about some crazy rents these days. my agent mentioned a 1500 sq ft PA house that rented next day at $5200.
@WG, good data. backs up others are saying about RBA rents.
@rocket, awesome. reminds me of something I read about Palo Alto along the lines of “if you just want to live in Palo Alto, you never will,” the point being you needed to have an all-consuming desire to come out on top of the multiple offer heap to live in PA.
@nomadic, totally agreed. my point wasn’t so much tha the offer had to be all cash, just that the access to financing had to be rock solid (”These are very well qualified buyers with no issues accessing capital.”) I imagine you fall into this category. And for them, like you, I’m not seeing foreclosures on the horizon. don’t prove me wrong
@madhaus from a few threads ago, thanks. sounds about right for sunnyvale, although it might be headed back up. I had a strange weakness for mid-century modern so a few weeks ago I saw an Eichler on Olympus Ct (hear Homestead). It was listed for 1.149 and it is under contract over 1.2. Its next door neighbor is now on the market for 1.149 and it will certainly sell above 1.2. The open house was crowded on Sunday.
finally, @bob, this one will blow your mind. also from my Sunday tour MLS 80808963. great lot but sadly, remember I like mid-century modern, it has enough structural issues to make it a tear down. I’m not sure how long it will sit, I’m not looking for tear-downs so I don’t know the market, but it will sell.
August 4th, 2008 at 3:13 pm
If one of those engineers is a contractor, they can write off everything and probably take home 144K on one income alone.
——–
WG,
Geez, you are demanding others to qualify their statements, but you yourself making such a blatant statements.
What kind of contractor can write off “everything”? Contractor working in Google office? Contractor working from home? If it is home, how many hitech engineers work from home 40 hours per week? They got to be rare species of contractors.
I am not even going into other expenses like buying health insurance (could be quite expensive), dental, life etc.
August 4th, 2008 at 3:20 pm
We are now at a place where the high end districts like Palo Alto, Los Altos, Burlingame etc are renting at 5K/mo AND UP.
———-
Do you have any idea how much 3 bed/2 bath SFH for $2900 at Palo Alto would cost?
August 4th, 2008 at 3:26 pm
Or may be this $3200 / 3br - 2ba Professorville home.
August 4th, 2008 at 3:28 pm
Gee, steve, didn’t your agent tell you that Palo Alto houses are renting for $10k a month now?
http://sfbay.craigslist.org/pen/apa/783020723.html
Yeah, ignore other places that goes under $6000 a month in Palo Alto and Los Altos, they don’t exist because they don’t fit your imagination.
August 4th, 2008 at 3:30 pm
How about this 2000 sqft and 10,000+ Lot 3br Los Altos home which is renting for $4500?
August 4th, 2008 at 3:53 pm
Willow Glenner: Please don’t conflate me with Bob (not that there’s anything wrong with Bob, but Bob does not believe that a small house is ever worth $1M and I do not hold that position. I do hold the position that buying something that’s cash flow negative in the hopes of appreciation is risky).
You point to craigslist, I can point to craigslist too (although I prefer http://www.housingmaps.com/ for rentals). I see 3-4 BR going for $3100 to $6500 in Los Altos. The $6500/mo rental has a zestimate of $2.2M and has prop. tax of just $8K, so it’s been a while since it was sold last. Monthly payment with 30 year fixed, 10% down, is $13K.
So, if you’re going off Zillow, renting is still 50% cheaper than owning on a cash flow basis, but as we’ve discussed many times, appreciation (if it happens) will put you ahead, while depreciation will wipe you out.
But I personally know too many renters at $2-2.5K in $1.5M-$2M houses to say that the $6K example is representative of the overall rental climate. Just as an FYI, one of my LA neighbours who renter recently said that it was a competitive market — lots of people showed up to get the place — so I’m not saying it’s not tight.
WG: “What historical averages? Are you trying to say there is some kind of historical average of rents vs. mortgages in the bay area? I don’t think such a thing exists, but if it does it would typically register that rents are lower than mortgages, which is what you seem to be saying anyway.”
I assure you that you can take historic data of rents in the bay area, and divide by historic house price information in the bay area, and get a historic ratio. It’s just math.
This historic ratio has recently jumped dramatically. So, if price/rent was 500, it’s now 1000. I like looking at the ratio because it takes out all the rubbish about how nice the bay area is, how much tax deduction you get, the evils of prop13 etc. etc. etc. and simply looks at the ratio since that other stuff has been the same. The ratio changed dramatically due to cheap credit. Now that cheap credit is gone, the ratio is reverting to mean through falling prices outside of the RBA. Within RBA, maybe rents will rise to restore it?
WG:”First of all a “2 engineer family” as you say probably brings in more than $144K after taxes”
At 35% national and 9% state, and 7% FICA? To get $144K after taxes you would need $300K household income a year, $150K each. That’s the top 1% of households in the US. Glad they all live in the RBA!
August 4th, 2008 at 4:16 pm
“It’s like trying to dispute gravity or the fact that the sun is the center of our solar system.”
point taken; thank you.
August 4th, 2008 at 4:17 pm
Oh come on zanon, just think about the tax savings.
You can save on the $13k a month in interest payments, and then later on you can sell it with $2m tax free income in 10 years. Boy I haven’t even mentioned all the expenses you can deduct from renting out this out: your truck, your gas, your visit as a landlord, etc.
August 4th, 2008 at 4:27 pm
a contractor can’t write off everything… They can only deduct things that are ‘reasonably related’ to their business.
August 4th, 2008 at 4:31 pm
This article is spot on regarding the RBA market, and it’s what I see everywhere around me. What Bob and Pralay can’t relate to is that competition is heavy at the top.
Rental market does not matter. People who rent out their house in Los Altos are not looking to cash flow. They may be on an overseas assignment, and just want to get a few bucks to cover taxes, and have someone there to exercise the plumbing.
August 4th, 2008 at 4:32 pm
Great post zanon.
Drives the point further that the housing euphoria and perpetual state of denial I am seeing from bubble sitters basically mirrors the exact same behavior that I witnessed during the dot com bubble. Guess we never learn.
A thousand justifications and convoluted facts to try to desperately justify these inflated housing prices.
In the end, the only thing that will force them to accept the obvious is when it hits them directly over the head. And I’d love to see Congress try to justify another housing bailout to help those “poor Real Bay Area” folks making $200k+ per year. That will fly well. Not!
August 4th, 2008 at 4:36 pm
bob - I grew up in the countryside 15 miles from the Atlantic ocean. My dad’s job was 3 miles from home (elementary school teacher), the land is 1.3 acres, the village consists of 10 houses including 2 relatives and 3 farmers. I don’t have pictures to share but suffice to say the place is as gorgeous as your first picture shows. The house looks vastly different of course, it’s not made of wood but breeze blocks(?) and orange tiles. The only place that comes close to where I grew up is Atherton, not because of the mansions but because of the small winding countrywisde roads, the large acreage and the grass smell in the night.
Fortunately I am not so one-dimensional as to think that unless I find a replica of that environment, the place is overpriced. I’m not sure this site is the right place to debate bay area suburban live versus country life, but one does get spoiled living close by everything, and the convenience esp. as parents cannot be beat.
I’ll admit though that I’ve not been to TN nor to NC. I plan to visit both in the years to come.
Re. your question where I’ve lived, add NY and Manila. But Europe is diverse enough to cover most of what’s out there in term of living environments.
August 4th, 2008 at 4:41 pm
@TNTinCA, I read zanon saying that rents and sales prices are out of balance — something that has been true for most of the time I have lived in the RBA and something few people will dispute.
I don’t read zanon predicting a collapse in pricing for historicall desireable property. Since you are staring into your crystal ball, can you tell me what will happen to Palo Alto and Los Altos sales prices over the next 1-3 years and explain why? I think they are going to continue to edge up because demand >> supply, but I am clearly in a state of denial.
August 4th, 2008 at 4:41 pm
They may be on an overseas assignment, and just want to get a few bucks to cover taxes, and have someone there to exercise the plumbing.
——
I would love to have those kind of landlords. I am sure if they don’t find renters in reasonable rent price, they will let people live in their homes free to “exercise the plumbing”.
August 4th, 2008 at 4:43 pm
anon - “It will be a while before you can leave without incuring a substantial financial loss” You’re incorrect. The recent comps (4 houses for 2008, one a month) indicate prices are still increasing in my neighborhood. It would not only take a decrease but a drop of ~15% for me to be in the red. It might happen! But until we even see signs that prices stop going up locally, your statement is flat-out wrong. You’re making the basic mistake of extrapolating what’s happening in a specific neighborhood based on county-wide statistics.
August 4th, 2008 at 4:52 pm
I know right, Pralay! Perhaps you should take out an ad on craigslist: Looking for RBA property to house sit in while owner is overseas. Will be sure to poop in each toilet at least once a week. Will water lawn with love.
Evidently you roll with a different crowd of wealthy people than I do, RE. Aside from the ones that come from old money, the wealthy people got that way by sound financial decisions.
August 4th, 2008 at 4:53 pm
DreamT,
Try to sell your home. See what happens.
August 4th, 2008 at 4:55 pm
threads like this are interesting as they expose many divides.
there are the Bay Area is a great place to live folks (WG, DreamT, …) v. the Bay Area sucks guys (Bob and some folks who have moved away)
then there are the you can be cash flow positive guys (WG, maybe Nomadic) v the no matter what you buy you will lose money guys (Pralay, et al)
finally there are the prices are rising in the best plaes people (me, RE, DreamT and others in this thread) v they are falling everywhere
Can we agreee on the following:
*if you hate the bay area, move. the rest of us will appreicate the drop in conjestion
*only very experienced investors should be (or are) buying BA property to generate income. most people are buying for schools, neighborhoods and, most importantly, because they can
*prices in Palo Alto, Los Altos, etc (the RBA) are rising and seem completely de-coupled from what happens in the east bay (always have, always will?)
August 4th, 2008 at 4:57 pm
Steve & DreamT: You both make good points. A collapse in prices seems tough when demand remains strong. And prices will need to fall (15%) to leave some folks in the red.
Given that the housing run-up was caused by cheap credit, the housing down-turn will be driven by that credit disappearing.
The East Bay is a nightmare of subprime from Oakland down to San Jose. You get very little subprime on the Peninsula, except for EPA, Redwood City, Sunnyvale, and parts of San Jose. Prices in all of those areas will come under pressure as the debt under those houses collapses.
I cannot find any stats for how much of the Peninsula was Alt-A. People think that subprime was the only high-leverage mortgage instrument on the market, but this is not true. Alt-A was extended to prime borrowers and is not classified as subprime mortgage financing, but it does enable the borrower to be very highly leveraged. If the RBA is sitting on a huge pile of mortgage debt, it will also come under pressure as the finance system deleverages. If it’s not, it won’t.
Does anyone have data on this?
-zanon
August 4th, 2008 at 5:05 pm
Steve/Zanon,
Actually I do think Zanon thinks that because rents are cheaper than buying - desirable property in RBA will collapse. Did I read that right, Zanon?
I agree with Steve-
- I dispute that renting vs buying equation makes any difference
- I think rents are starting to do what they did in 99 anyway where renting here was as expensive as owning anyway
August 4th, 2008 at 5:05 pm
@zanon, exactly. Honestly, I’d rather see my current property return to 2002 prices so I could buy something I like more at the same discount, but I don’t see it happening. There have been too few sales the past 4 or 5 years to very qualified buyers (best terms like big % down and fast close win multiple offer situations) for their to be REO danger.
The exception would be if folks got HELOC-crazy Irvine style. I’ve heard that info like this is available at PropertyShark. Does anyone have a subscription?
August 4th, 2008 at 5:07 pm
anon - Why would I sell? I’m not a flipper and not planning to sell for ~ 7 more years.
What makes comp sales so irrelevant that I’d have to place my own house on the market to prove a point? Please answer this question and explain to everybody here why comp sales are in your opinion irrelevant.
August 4th, 2008 at 5:10 pm
steve - I agree with your post except I’m not claiming the RBA is a great place to live. I think it’s a great place to start a career in your early 20s if you can, build a nest egg, and if you can afford the good places, raise a family. When I no longer need a job, I’ll probably retire away from the bay area, in a place much more similar to where I grew up. Different times, different needs.
August 4th, 2008 at 5:17 pm
@DreamT, fair enough. for me, I came out too long ago for college and all of my friends settled here, so it is hard to imagine living anywhere else at this point.
must stop reading burbed and go back to doing work…
August 4th, 2008 at 5:18 pm
RE, I think you missed what’s probably the case for quite a few of those lower-priced Los Altos rentals. The owners have probably had the places for 10+ years and at the lower rates they are cash flow positive or very nearly so. They hang onto the house for further appreciation and they don’t need the cash. It’s probably (some of) their retirement funds.
Steve, you summed things up quite nicely there in post 68. P.S. I personally wouldn’t buy a rental in this market but I’m fiscally conservative and am not experienced enough with property strictly from an investment perpective. I’ve also seen that while overall prices are still rising in the best places there are exceptions. It’s touch and go out there right now. (By exceptions, I mean on an individual house basis.)
August 4th, 2008 at 5:20 pm
Without knowing the specifics of your home, its impossible to say. The market is changing on a monthly basis and unless they were sold within that time frame they are irrelevant.
If you’re not a flipper, what do you care if it goes down? In the ***LONG*** run, it will go up so stop trying to assert that it hasn’t gone down in value in the past year.
Am I the only one who drives around and sees the same home with a for sale sign for months and then sees it removed? Why is this happening?
August 4th, 2008 at 5:21 pm
the no matter what you buy you will lose money guys (Pralay, et al)
———
That’s another blatant statement, Steve. Where did you find such a statement made by me? Care to provide the reference?
———-
*prices in Palo Alto, Los Altos, etc (the RBA) are rising and seem completely de-coupled from what happens in the east bay (always have, always will?)
——-
Come on, Steve. Even one year back East Bay was strongly coupled with south bay and the whole area was de-coupled from Stockton. Then sometime happened and now you are saying east bay is de-coupled from RBA. If that is the case, it seems the point of de-coupling is moving around with time.
August 4th, 2008 at 5:25 pm
WillowGlenner:
You said: “Actually I do think Zanon thinks that because rents are cheaper than buying - desirable property in RBA will collapse. Did I read that right, Zanon?”
Half right. Rents and prices are out of whack, but rents could always rise and prices stay the same to bring the ratio back into historical alignment. Personally, I don’t see that happening as I honestly don’t think the incomes here can support that, but I could be wrong.
Alternatively, rents and prices would stay out of whack for a while as people buy going for that appreciation upside. Who cares if you are cash flow negative at $6k/year if you’re gaining $100K/year in appreciation? I think that making that bet is risky. As we both know, stocks were great from 1988-1998, but they stunk from 1998-2008. RBA home prices have had a historic run from 1998-2008, but 2008-2018 has yet to be written. And if that appreciation does not materialize, I can see folks moving their money elsewhere.
One way I’m trying to get more information on what might happen is to see how leveraged homeowners in the RBA are. People who have been here for decades probably have no debt at all since they’ve enjoyed so much tax free appreciation. On the other hand, homebuyers from 1998-2008 might be very leveraged and had to take a low money-down mortgage to fit into the property (esp. 2003-2007).
As we all read in the papers, credit is collapsing in the US. If the RBA’s housing market was fueled by credit, then it’s in trouble. If it’s not, it’s not. I just don’t know the answer, and was wondering if anyone had any data on how leveraged the RBA home owner is. You cannot just look at subprime originations and see, as RBA borrowers are not subprime, but may still be very-small-downpayment borrowers.
-zanon
August 4th, 2008 at 5:25 pm
Zanon - you left out Prime loans in the form of Option ARM’s, I/O’s, and Hybrid ARM’s. Santa Clara County, San Mateo County, and SF will be the last to find out what happens when credit contracts…
The Map of Misery shows option payment loans make up a significant portion of Bay area loans and they don’t come free although they seem to for about 3-5 years.
August 4th, 2008 at 5:40 pm
this thread is like quicksand, must escape…
@pralay the no matter what you buy you will lose money guys (Pralay, et al)
sincere apologies if I misread some of your posts. are there are Bay Area places, if purhased today, you think will appreciate over the next 5 years?
August 4th, 2008 at 5:49 pm
anon - “what do you care if it goes down” - Not much in the short term really. Who said I did? I’m not planning to refinance either.
“stop trying to assert that it hasn’t gone down in value” - Why not? I was describing comps and keeping it objective. You sound like you’re making it personal and try calling it wishful thinking instead. Not knowing what house we’re talking about, you just end up sounding like a sad, frustrated person with no facts to put on the table with regards to my situation.
So in your opinion, comps are generally irrelevant. I guess I’ll leave our discussion at that.:)
August 4th, 2008 at 5:54 pm
Zanon, can you please post a link to this “ratio” or whatever it is? I don’t believe any rent to buy ratio has jumped recently. It cost double to buy vs rent in 92, was roughly even in 99 and reverted back to double in this decade, from my perspective.
I don’t believe any ratio here doubled etc due to cheap credit either, because nobody buys with max credit unless they are in East San Jose.
I assure you that you can take historic data of rents in the bay area, and divide by historic house price information in the bay area, and get a historic ratio. It’s just math.
This historic ratio has recently jumped dramatically. So, if price/rent was 500, it’s now 1000. I like looking at the ratio because it takes out all the rubbish about how nice the bay area is, how much tax deduction you get, the evils of prop13 etc. etc. etc. and simply looks at the ratio since that other stuff has been the same. The ratio changed dramatically due to cheap credit.
August 4th, 2008 at 5:58 pm
Hey does anybody ever click on burbed banner or some post link on this site and get a strange page full of special characters? What does this mean, is it me, my browser, a virus or what?
- signed, a marketing person
August 4th, 2008 at 6:11 pm
WillowGlenner: I have no idea why you have “ratio” in scare quotes. Ratios are not scary.
Perhaps you mean you don’t believe I have a historic rent-to-price series for the RBA? You are correct in that, I don’t, as I don’t think the RBA is tracked as a distinct entity anywhere outside this blog. But I think it’s pretty obvious that from 1998-2008 rents have stayed pretty flat, while house prices have gone up by 100%+. It was not cheap renting in RBA in ‘98, and it’s not cheap now, but prices were much lower 10 years ago. I think that’s pretty obvious to everyone on this board, but maybe I’m wrong.
I can link you to other historic rent-to-price series, but I’m not sure if that’s really what you want.
http://money.cnn.com/magazines/fortune/price_rent_ratios/
http://209.85.173.104/search?q=cache:YP8_wFS2pzUJ:morris.marginalq.com/DLM_fullpaper.pdf+historic+rent+to+price+ratio&hl=en&ct=clnk&cd=2&gl=us
http://bigpicture.typepad.com/comments/2008/05/housing-price-t.html
http://azrealestate.wordpress.com/2007/11/28/25-us-real-estate-markets-poised-to-fall-nov-2007/
-zanon
August 4th, 2008 at 6:36 pm
Just for yux, I checked Craiglists again for my neighborhood to see what my house would rent for today. Hard to say, but it looks like prices are up a little from last time I checked. I didn’t find a house close enough like mine to be sure. Several places in Sunnyvale/CUSD renting over $3500. Several places in the Ortega Park area for rent, too. I don’t know if they are for rent because the owners want income or because they can’t sell them for the wishing price.
steve, there is little for sale in 94087/CUSD/Homestead where I live. A few that have sat around for a long time and many that sold quickly. The place listed for under a mil was snapped up in 6 days, I’d say it went for over a mil but not by much, it’s on Cascade which is a thoroughfare but not as bad as Homestead (a place there not selling).
As to the Alt-A data, again, the NY Fed reserve has this data and their maps show Alt-A loans and % late, resetting, etc.
August 4th, 2008 at 7:07 pm
So far, the only thing I’ve heard in response to my link showing how a typical middle class resident lives in another area is
” Well “x” state isn’t in the Bay Area, and I can’t get all the things that I can in the BA”
In other words, none of you have lived much of anywhere else. People in general fear what they don’t know, and clearly that’s the case. Someone made the comment that everyone is moving out of TN, or other rural areas, etc. Or that there isn’t any competition for houses. That last one sort of blew me away. Isn’t LESS competition what you want anyway? That to me sounds like an oxymoron. The previous comment is also inaccurate, since in reality, NC,TN,and even AL are all enjoying record growth for precisely the same reason that people are displeased with areas like the Bay Area-aka- prices and too many people fighting at the teat… to compete for space. What’s more, the same assumptions are made that anywhere that’s outside a very limited area is totally incapable of being just as progressive and full of intelligent, forward-thinking people.That too isn’t a black and white situation.
It isn’t my place to say that you’re wrong for liking the BA so much that you’re willing to pay a massive premium for it over other areas. But to say that the BA is worth the price because it is better or provides more than an area you’ve never even been to, let along lived in isn’t really a case at all.
Anyhow, I’m not going to try to do anymore convincing. A lot of people already get what I’ve claimed here. My advice: Go out and explore your country. There’s a lot more than just NY and CA.
August 4th, 2008 at 9:07 pm
Oh Bob, keep your advice. I have explored the country. I’ve lived in other states and other countries. TN, a place that I have been to, does not offer me the life that I want to live, a life that I am willing and able to pay a premium for in the bay area. The bay area is worth the price because it provides a life that is better suited *for me*. Who are you to say what the case is or isn’t for bay area residents? You must think an awful lot of yourself and your opinions. You keep repeating the same assumptions about the people who choose to make the bay area home.
1. They have never been to TN
2. They have never explored the country
3. They think that everyone outside of SF or NY is less progressive or unintelligent
Who said that people were moving out of TN or other rural areas? Also, if rural areas are experiencing population growth, they probably are not rural anymore. Or did you mean certain cities and suburbs of your mentioned states are experiencing record growth?
Bob, the size of your house doesn’t lay the foundation for your lifestyle. I can live in a 1950’s starter house and send my kids to private school, pay for college and yearly trips overseas and make sizable donations to the charities every year. Heck, maybe one of those stupid lazy people that lives in one of those overpriced ranchers in Palo Alto travels all over the world to give money to those less fortunate to help them build better communities and better lives. One can also live in a 1950’s starter home and only afford the very basics in life. One can live in a 1950’s starter home and be in debt with the heat off in the winter. Why on earth would anyone assume the 3 have the same lifestyle based on the type of house they have? Can you not see the flaw in your in thinking while pointing how illogical and under-travelled everyone else is?
August 4th, 2008 at 9:11 pm
In other words, none of you have lived much of anywhere else. People in general fear what they don’t know, and clearly that’s the case.
You’re a gem, bob.
August 4th, 2008 at 9:37 pm
nomadic Says:
>>RE, I think you missed what’s probably the case for quite a few of those lower-priced Los Altos rentals. The owners have probably had the places for 10+ years and at the lower rates they are cash flow positive or very nearly so. They hang onto the house for further appreciation and they don’t need the cash.
I agree with your explanation, and let me add to that: Everyone knows RBA is a great investment. The longer you stay, the more equity you gain. Rent is a small part of the equation. That’s the part I didn’t get to elaborate on in my haste to write that post (too busy managing mega project at work). In any case, rent doesn’t matter. How much do you make in rent anyways? 30K before taxes? That’s small change compared to the million dollar equity most of these home owners are sitting on. Many of these houses are either paid off, almost paid off, or can be paid off. That’s why I keep reminding people that rent vs. buy is a very lousy way to judge the RBA market. Rent simply doesn’t matter.
August 4th, 2008 at 9:42 pm
From my understanding, people buy investment properties in the BA with the understanding that rents will keep going up as wages continue to inflate unabated. So far, that particular bet has never gone wrong. It’s like buying a high-divided stock such as AHR - hold on to it until you retire and the money you earn from it will dwarf the speed bumps from market fluctuations.
August 4th, 2008 at 9:50 pm
THE Bay Area has the crappy problems of NY, but not the glam nor the history nor the museums nor the teams nor the celebs nor the infra nor the diversity. Heck - it’s more expensive than NY sometimes.
August 4th, 2008 at 9:52 pm
Pralay says,
>>That’s another blatant statement, Steve. Where did you find such a statement made by me? Care to provide the reference?
Because it’s so blatantly obvious. You need a reference? Where should one start?
I gave you a suggestion to look at San Jose if you want low prices, but you wouldn’t consider it. You want RBA. That’s why you so desperately want prices to fall, so that you can take advantage.
Let’s just say that if you are waiting for RBA to fall, you’ll be waiting for a long, long time. Just remember: Home ownership in RBA is a privilege, not a right.
August 4th, 2008 at 10:11 pm
Willowglenner I’m calling you out as a soft housing head.
You pick the bottom of a neighborhood on housing price and the high end *asking” rent price on a rental and just call the $1500/mo difference “about the same as buying”. Give me an f—ing break.
You think someone should give away $18K a year to the bank in a declining market and call that a good investment? Your math is on crack!
Why is it again that anyone should take your opinions as insightful?
August 4th, 2008 at 10:17 pm
And Real Estater - your math and confused logic aren’t up to their typical pretzel-ly, trollish goodness today.
You’re going to need to work harder than “privilege not a right” to get your troll-star rating today.
August 4th, 2008 at 10:21 pm
Don’t know what you are talking about Wanker, can’t follow your post or what you are trying to say.
It seems like you might be making a big deal out of a $1500 discrepancy in rent vs mortgage, but on a typical bay area mortgage thats about the tax differential. So a $3000 rent vs a $4500 mortgage is about even in terms of out of pocket costs, just as a ballpark.
August 4th, 2008 at 10:21 pm
RE, you left out one more thing. You said “rent simply doesn’t matter.” One more factor that makes that true for some landlords - Prop 13. You can bet that if they were paying $1,000 per month in property taxes, rent would start to matter a bit.
bob, I didn’t comment on your ode to TN because I’m not interested in TN. This is an RBA blog. I’ve lived in the midwest and have been to at least 35 states. Just not interested right now. Yay for you - one less person to compete with you over there.
August 4th, 2008 at 10:26 pm
>>One more factor that makes that true for some landlords - Prop 13. You can bet that if they were paying $1,000 per month in property taxes, rent would start to matter a bit.
Prop 13 isn’t going away, since voters overwhelmingly support it. God bless Prop 13!
August 4th, 2008 at 10:27 pm
@wanker, near the top of the thread I posted a quick summary of los altos sales in since 12/07. I think the low was around 1.25M - the high was over 4M. The median was right around 2M and only 28 of the 150 were at 1.5 or under. around 2.1 or 2.2, the house start looking like “million dollar houses” - below that, nothing special with some being tear downs.
I think we’ll all stipulate none will rent for total costs (oppty cost on the down, debt service, insurance, TAX, maintenance), so some would say these 150 buyers were foolish. where do you stand, or do you just enjoy jabbing a stick at RE (not that that isn’t fun)?
August 4th, 2008 at 10:32 pm
“Everyone knows RBA is a great investment. The longer you stay, the more equity you gain. Rent is a small part of the equation. That’s the part I didn’t get to elaborate on in my haste to write that post (too busy managing mega project at work). In any case, rent doesn’t matter. How much do you make in rent anyways? 30K before taxes? That’s small change compared to the million dollar equity most of these home owners are sitting on. Many of these houses are either paid off, almost paid off, or can be paid off. That’s why I keep reminding people that rent vs. buy is a very lousy way to judge the RBA market. Rent simply doesn’t matter.”
Wow. Are you kidding me? What impeccable logic and analysis. And you manage people? Good lord.
“What you’ve just said is one of the most insanely idiotic things I have ever heard. At no point in your rambling, incoherent response were you even close to anything that could be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul.”
- The Principal
August 4th, 2008 at 10:34 pm
anon13 - “Why on earth would anyone assume the 3 have the same lifestyle based on the type of house they have?”
Thanks so much for synthetising my long tentative of an explanation into one clear question.
August 4th, 2008 at 10:37 pm
@RE, God bless Prop 13!
I write a post defending you and you have to go do that. As Madhaus has explained, Prop 13 has been a disaster for city and county services.
Aditionally, prop 13 distorts the RE market (if you locked in low taxes, why sell if you can afford to hold on) and it is inherently unfair. Let’s say I move next door to you. I can guarantee that I will consume less services yet I will pay 5x or more the tax.
I agree it will never die, but Prop 13 (and its inter-generational provisions) is very poor public policy.
August 4th, 2008 at 10:42 pm
LOL.
This part is my personal favorite.
“Many of these houses are either paid off, almost paid off, or can be paid off. That’s why I keep reminding people that rent vs. buy is a very lousy way to judge the RBA market. Rent simply doesn’t matter.”
Yep. I guess that about covers it. Absolutely brilliant.
August 4th, 2008 at 10:42 pm
We have anon, zanon and anon13 and all three seem to hold different views. Can two out of the three upgrade to a semi-anonymous pseudonym? And don’t get me started on “What?” post #98.
August 4th, 2008 at 10:47 pm
“I agree with your explanation, and let me add to that: Everyone knows RBA is a great investment. The longer you stay, the more equity you gain. Rent is a small part of the equation. That’s the part I didn’t get to elaborate on in my haste to write that post (too busy managing mega project at work). In any case, rent doesn’t matter. How much do you make in rent anyways? 30K before taxes? That’s small change compared to the million dollar equity most of these home owners are sitting on. Many of these houses are either paid off, almost paid off, or can be paid off. That’s why I keep reminding people that rent vs. buy is a very lousy way to judge the RBA market. Rent simply doesn’t matter.”
RE, I’m sorry, but there is no way in hell that you’re not a Realtor.
August 4th, 2008 at 10:47 pm
steve - RealEstater is our local scorpion. He may look accommodating and play along for a while, but eventually it’s in his nature to sting with a lofty, indefensible yet unattackable assertion. It’s just in his nature.
August 4th, 2008 at 10:50 pm
The purchase price to monthly rent ratio in desirable sections of SF, Peninsula, and South Bay is somewhere between 280-320x. In the example above a $4500 a month mortgage (excluding prop-tax) using a 5/1-ARM/20% down would pencil in at $900k purchase price. The equivalent rental can be had for about $2800-$3000/month. If you throw in property tax, upkeep, and maintenance you’re talking about $5500+/month.
Is there any doubt that renting is a good idea, especially in a market where housing most probably will be a deflationary asset? If you’re an investor and can cut that down by 60% then the property may pencil out (6% cap rate).
As rates increase purchase prices must either come down or wages must come up. As we are entering a recessionary phase, any takers on rising wages? If you had $180k cash to put down on a house wouldn’t you rather put it in a deflation fighting financial instrument?
August 4th, 2008 at 10:54 pm
sonarrat - what’s a “high-divided stock”? A google search on this yields exactly one result.
August 4th, 2008 at 11:07 pm
DreamT, Steve, and all,
Supporting Prop 13 is not a sting. This is the view of the majority in a democratic country. One man one vote is as fair as it gets.
August 4th, 2008 at 11:15 pm
>>As we are entering a recessiona