Comments on: Good news, bad news for Real Estate in Silicon Valley

By: bob

bob — Mon, 18 Aug 2008 15:49:56 +0000

SiO2,
I guess I’m a little confused as to why you would be under more pressure to make an offer on a house if you were renting. If anything, it would actually enable you to take your sweet time finding a home that’s within your desired price range. If you found one and lost the bid- oh well, its not like people don’t sell homes in the RB all the time. Hell- people sell houses here like groceries. So by renting, the equation would be in your favor. Renting seriously isn’t a death sentence. I’ve done it for over 10 years. Just imagine how many houses have sold since then.

I look on Craigslist Nashville, Austin, and Raleigh every other week, and have done so for 4 years. Every single time I look, there are probably 5-10 houses that I could buy right now and are actually really cool houses. One was a 1860’s two story log cabin with a large yard for $160,000. I was really tempted. But guess what? Every time I look, there’s always a few that are also really awesome. So if there were cool houses 4 years ago for sale, there will be equally nice ones for sale in 4 more. The same goes for here: there’s no rush. Take your time.

By: Lionel

Lionel — Sun, 17 Aug 2008 05:13:58 +0000

WG, I wrote that VC appears to be contracting. Hardly hyperbolic. What amazes me is that people in SV can’t understand that, as the rest of the country falls into a recession, there will very likely be fewer consumers of software and hardware. RE was crowing about how much better SV was than Wall Street, citing recent layoffs in NYC. Who do you think is a primary consumer of computer products? Personally, I’d feel a whole lot better being short Google right before 3Q earnings come out than long. No hyperbole, just noting that we’re in for rough times.

By: WillowGlenner

WillowGlenner — Sat, 16 Aug 2008 16:47:09 +0000

Lionel and all, how about a real source for all your hyperbole? There are no IPOs, but there is more M&A than ever, even past the dot com era. So its not like nobody can cash out. In fact I would argue an acquisition is actually better than an IPO for a startup.
http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=aQZFFShsmkxk

Quattrone is plunging back into the fray at a dismal time for what he knows best — IPOs. Through July 28, 383 companies went public worldwide, down from 702 a year earlier — the slowest pace since 2003, according to data compiled by Bloomberg. There were no venture-backed IPOs in the U.S. during the second quarter, the first time in 30 years such a period passed, according to the National Venture Capital Association and Thomson Reuters Plc.

Today, Quattrone’s best opportunity lies in M&A advice. The U.S. technology industry has produced 60 deals of at least $1 billion apiece in the two and a half years ended on June 30, Bloomberg data show. The deals sport an aggregate value of $280.5 billion, topping the glory years of 1999 and 2000 when companies carried out 83 like-sized transactions valued at $265.7 billion.

By: rick

rick — Sat, 16 Aug 2008 06:09:00 +0000

WG, seriously, if you can provide some information of the cash positive opportunities you are talking about. That will help everyone, RE might finally be an investor, and some of us might shut up and even buy something. That is good information and educational.

By: DreamT

DreamT — Sat, 16 Aug 2008 05:45:58 +0000

nomadic – luxurious? well your previous comment makes sense. I’m from a very modest upbringing as well but discovering exotic cultures and places is more appealing to me and much more of a treat than some lights and sparkles. My previous job sent me to the world’s best hotels, and while it’s a nice experience each time, I wouldn’t call it enriching.:)
You know what they say about luxury: you get used to it so quickly that you feel emptier after than before.

By: madhaus

madhaus — Sat, 16 Aug 2008 03:08:19 +0000

No joy getting the loan info from Mr. Mortgage. He snippily told me that was covered in his previous articles and that I was asking too many questions for 1 email. NO. IT. WAS. NOT. COVERED. ANYWHERE. Not at the neighborhood level.

TNTinCA, would your banker friend be willing to share some observations here about whether the RBA loans are any less leveraged than the cheaper zips?

By: nomadic

nomadic — Sat, 16 Aug 2008 02:01:47 +0000

It’s a bit out of date, but here’s some of the VC data you may be interested in:

http://www.viewfromsiliconvalley.com/id112.html

By: nomadic

nomadic — Sat, 16 Aug 2008 01:53:35 +0000

DreamT, I wasn’t disparaging your vacations (#37). To me, exotic also means luxurious. Coming from a rather modest upbringing, that is foreign to me as well. Given that I take a “real” vacation every five years or so, I make sure it’s a treat (by my definition).

By: WillowGlenner

WillowGlenner — Sat, 16 Aug 2008 01:12:49 +0000

They care *a lot* if their $1M home falls to $900K, because now they’ve been wiped out.

Sure of course everybody cares if they lose $100K on a house, but they still have a place to live and a mortgage payment that is probably only slightly more than they’d have to pay to rent here.

By: SiO2

SiO2 — Fri, 15 Aug 2008 20:12:18 +0000

Bob and DreamT, thank you for the advice. I’m not actively buying right now as the “RBA” target areas have not gotten cheaper. for now at least my neighborhood in SJ still has houses going pending in one month as long as they are reasonably priced, but I definitely am keeping an eye on this in case RBA falls in price and there’s a buying oppty.

The other drawback to the sell then rent strategy is that I would feel more pressure to win the bidding war for a particular house. Which in the long run would probably be ok but would make me unhappy while signing the papers.

nonetheless it is well thought out advice, thank you.

By: DreamT

DreamT — Fri, 15 Aug 2008 19:57:58 +0000

If buying a house nowadays is as much a gamble as it ever was, selling the old one in a timely manner ( < 2 months) is probably way more of a gamble. In that I agree with bob, for once.
I believe there are rental places out there that specialize in this kind of transition, where you’re not expected to sign a 6-month or 1-year lease. I drove by such a place on Saratoga Ave. in San Jose.

By: bob

bob — Fri, 15 Aug 2008 19:37:21 +0000

SiO2,
Ben’s bubble blog is full of stories every single day where families bought a new house before selling the old house and are suddenly up Sh!t creek without a paddle because wouldn’t you know?-they can’t sell the old house either. Just for safety’s sake, I’d strongly suggest renting after selling, then buying. Sure- it might be an incovenience, but worth it in order not to be ruined financially, that is unless you can easily afford two mortgages. Just my personal opinion…

By: bob

bob — Fri, 15 Aug 2008 19:21:43 +0000

There’s an awful lot of factors that can also determine if or when an area could potentially lose value, one of which would be to see what the mix of housing selling is. I know for fact that as last as early this year, Marin had a very similar pattern the the RBA: Home prices were flat to showing a single digit increase. The mix of housing was such that the extreme upper end was still selling but not much of anything else was. As of now, Marin is now negative. It seems like the same pattern is repeating in the RBA, with very slow to flat growth, while the areas around it get pummeled. So we’ll have to see.

In any regards, I’m still a firm believer in history, and by and large, income versus cost does generally come back inline with a bust of which the RBA hasn’t experienced yet.And again, I’ve seen areas that were seemingly invincible to the bust go belly up all across the Bay Area time and time again. I don’t see why the RBA would be excluded.

By: DreamT

DreamT — Fri, 15 Aug 2008 19:07:42 +0000

SiO2 #44 – The move-up strategy quandary you describe is very real. I also think the fear to be saddled with an old house that is not selling quickly enough might cause some move-up buyers to delay the purchase. If that is the case, once sales pick up in their old neighborhood, prices in destination neighborhoods will climb higher still due to the new influx of buyers. That’s another variable that is pretty much impossible to quantify but I believe will have a real effect.

By: Pralay

Pralay — Fri, 15 Aug 2008 18:54:56 +0000

Rick, You are an "amateur types". Just shut up.

By: rick

rick — Fri, 15 Aug 2008 18:50:34 +0000

#30, I just love poking on him, no insult like some others have done. Is that a crime?

One reason is that he just owns one property (his own home) and claims to be an investor, and has been giving investment advices on RE, and he thinks his wisdom on RE even beats out Warren Buffet.

By: Lionel

Lionel — Fri, 15 Aug 2008 18:08:48 +0000

“But, VC money is not leveraged (unlike private equity). So in a credit contraction, it’s not going to go anywhere.”

Yet it appears to be contracting.

By: zanon

zanon — Fri, 15 Aug 2008 17:52:44 +0000

Lionel & Bob: I agree with you that there have been almost no IPOs, and VCs are leery of investing.

But, VC money is not leveraged (unlike private equity). So in a credit contraction, it’s not going to go anywhere. Also, I tried googling for the numbers, but the total amount of funds allocated in VC is still high — but I don’t know if it’s higher or lower than in ‘98.

BOB: Your point about home price/income is correct, but also incomplete. You also need to know how leveraged the asset is to see what $100K/year can support. Look, I’m a big believer in price/income too, so we fundamentally agree, but you also have to recognize that while other parts of the Bay Area have experienced dramatic price declines, the RBA has not. This is just as true as the deviation from historic price/income ratios!

Given that the price rise, and decline, was driven by credit expansion and contraction, I think that knowing how much credit (debt) underlies RBA prices will tell us more about where prices will go than price/income alone.

Look at it this way. Suppose there were hardly any sales in RBA during the run up. Prices were set by those who bought last, maybe some tech guys who get rich off their IPO. Everyone else is sitting on an enormous equity cushion as their 2BR/2BR in PA went from $200K to $1M. Do you think they care if their home now falls to $800K? Or even $700K? They do not care because their home is primarily financed by equity, not debt.

OTOH, suppose there were a fair number of transaction, and those transactions were financed by high LTV mortgages, like IO, 80-10-10, and various other flavors of high LTV Alt-A. They care *a lot* if their $1M home falls to $900K, because now they’ve been wiped out. If they were an investor banking on appreciation, as cash flow is clearly very negative in RBA, then they need to get out of this losing position fast.

I have no idea how leveraged the RBA is.

-zanon

By: SiO2

SiO2 — Fri, 15 Aug 2008 17:42:53 +0000

About Alt-A;
part of Alt-A is stated income. There’s bogus/fraudent reasons to use stated income of course. But there’s two valid reasons:
1. in my experience, stock options and investment income do not count when the bank looks at income for full-doc loans. So someone who makes $150k/yr but also makes $30k/yr by cashing-in options, getting dividends, selling ESPP, etc will not get bank credit for that $30k/yr. But with a stated income it’s not a problem. This could be avoided if banks would look at tax returns and not just the income line on the W2, but in my experience that’s not what they do.

2. It’s a fairly common practice to buy the upgrade house, then sell the starter house. I’ve wanted to do this (but was getting outbid). Why would I do this vs selling first? The odds of finding an upgrade house within 1-3 months of selling are not good in CUSD/Saratoga/Los Altos as there’s really not that many houses for sale at any particular time. And I don’t want the inconvenience of selling, moving to a rental, then moving to the upgrade. (yeah, I’m a big whiner!) To use the equity in the starter house, you can get a HELOC. But from the banks standpoint, mortgage on starter house + HELOC on starter house + mortgage on upgrade house may add up to 60% of income. It’s a temporary situation but may still require an Alt-A. But after selling the starter house maybe it’s only 25-30% of income, as the LTV is only 50% or so based on the equity from the starter house.

So, I wonder what %age of Alt-A stated incomes are purely bogus (end situation with 60% of income) and what %age is due to income from stocks, or the temporary situation. I have no idea, but I think we could agree that it matters.

By: Lionel

Lionel — Fri, 15 Aug 2008 16:21:06 +0000