August 22, 2008

Free guy on the couch with purchase of this oakland home

1470 17th Ave, Oakland, CA 94606 MLS# 80784432 – Property Details

$289,000

* Status: Active
* Bedroom: 2
* Bathroom: 2
* Year Built: 1910
* Lot Size: 1498
* Square Footage: 744
* List Date: 3/14/2008
* Garage Spaces: 1

* MLS#: 80784432
Rare opportunity! You can own a single home for less than $300,000. Very cozy 2 bedroom and 2 full baths in a very quite neighborhood. Close to Hwy 880 and walking distance to park. This home has alot of upside potential and ideal for the first time home buyer.

Burbed doesn’t usually venture to Oakland, but since Burbed reader Alex sent this in, I figure I’d share it with you.

Frankly, I’m tired of people complaining that there’s no affordable house in the Bay Area. Oakland is part of the Bay Area, not the Real Bay Area, but the Bay Area nonetheless. This house has very easy access to 880, another draw.

But what I think fascinated Alex the most was some of the photos that the Real Estate agent felt necessary to include. Let’s take look:

Sweet! You get a pair of men’s legs and the right to sleep in your living room. You can totally be all starving artist like here. Like Salvatore Dali!

Wow. Check out this awesome kitchen. It leaves me speechless. But suddenly I’m sort of wondering if this is actually also the bathroom. How confusing.

Anyway, you get the point. There’s plenty of affordable housing – you just have to quit being whiny!

Comments (71) -- Posted by: burbed @ 5:49 am

71 Responses to “Free guy on the couch with purchase of this oakland home”

  1. sonarrat Says:

    Who does the realtor think he’s trying to fool? There are hundreds of houses in Oakland under $200K, many of which are larger than this house and in better neighborhoods. And almost every day since I pulled out of a deal in the Laurel, I’ve seen another house that’s a better value than what I was looking at before. See 2300 38th Ave for example.

  2. cardinal2007 Says:

    Well, I wouldn’t be so hard, if the realtor is just getting back from a 2yr vacation, he/she might think that $300k is still a bargain in Oakland.

  3. bob Says:

    Weird looking interior. Sort of looks like the inhabitants filled it with street furniture. The area its located in is what I’d probably call sketchy at best. International Blvd. is full of car parts stores, garages, and shady looking abandoned warehouses.

    Anyone notice that the grass appears to be growing up to the porch?

  4. rick Says:

    This one won’t worth more than 150k. The realtard should be taken out and shot, which is a pretty good sport in Oakland.

  5. Gavin Says:

    Oakland is not part of the “Real Bay Area” so for some people on this web site this house may not matter. But I am curious about believers in the “Real Bay Area” a place where house prices new go down. How do they ignore very fundamental economic truths? For instance: life is a series of tradeoffs. The classic example is that if the price of chicken goes up people switch to steak.

    But sometimes you may be unable to choose the substitute. If you were Hindu you may not eat beef because of religious prohibitions. Do the “Real Bay Area Residential Fundamentalists”, (R-BARFs) belong to some sort of cult or secret society that forbid them from choosing to live elsewhere no matter what happens to prices of surrounding areas? How do the “R-BARFs” have such strong convictions that their sacred land will not fall in value?

    As a new comer to the Bay Area could someone fill me in?

  6. Gavin Says:

    The second sentence in my previous post should read:

    “But I am curious about believers in the “Real Bay Area” a place where house prices never go down.”

  7. Crossroads Says:

    there are rumors that RBA cities like cupertino are being pumped in ads in beijing and mumbai. immigrants who hold valuable currencies and low debt and are ok with living 2 families to a 1000 sqft house are then moving in and buying them up.

    you are right that there are tradeoffs. the rumor is that immigrants are willing to make the tradeoffs that would otherwise make housing unaffordable or unrealistic.

    multiple families living in a house is not just for strawberry pickers anymore.

  8. Rocket Says:

    I don’t think I am a R-BARF. I certainly know that RBA can go down or become stagnant, like it has after the 1978, 1989, 2000, and 2007? peaks. I am mostly here for my family and startup opportunities. If they were in Sacramento, San Diego, Phoenix, or Tucson I would be there too. I like the hot arid climates. :-)

    I have question that is somewhat similar to Gavin’s. Why haven’t all the companies left for cheaper environments? Is it really necessary for the Silicon Valley 100 to be here?

    I have my thoughts on why, but it would be interesting to hear what others have to think.

  9. madhaus Says:

    You know, I’ve heard this idea that foreigners are going to rescue us from the ongoing housing bubble collapse and I don’t completely buy it. I live in a transitional part of the RBA (meaning that prices are very slowly coming down so it’s probably no longer RBA but it was) and I do see Chinese and Indian families but they are one family per house, although more likely to have one or two grandparents as well.

    So I want some quantifiable proof that foreigners are the reason that prices stay up in the RBA (which is down to about six cities at this point). I say it’s because most current owners are sitting on so much equity they don’t have to sell if they don’t like the price the market set, so no one’s in any hurry to leave. Clearly, the demand for Palo Alto or Cupertino is still bigger than the supply at the current prices.

    Stock options make more sense. I’d say at this point that buying a starter home in the RBA is close to impossible (where starter home is defined as 85% of the median price) for a first time buyer.

  10. madhaus Says:

    Rocket, I’d say the companies are here because having all these companies together gives them critical mass: access to all those engineers who are already here.

    Oh yeah, today’s non-RBA house. I wonder how long it will take for us to see homes in bad areas of Oakland have negative value, like we saw in Detroit.

  11. Pralay Says:

    there are rumors that RBA cities like cupertino are being pumped in ads in beijing and mumbai.
    ———

    Of couse the clueless people would believe it. Mumbai is much more unaffordable than Cupertino (if you take the income of middle/upper-middle class into account). Even upper-middle class people are having hard time to buy “flat” (condo) there. And someone is hoping that they is going to buy home in Cupertino when they cannot afford their own homes in Mumbai.

  12. Pralay Says:

    I do see Chinese and Indian families but they are one family per house,
    ———

    And they are not “foreigners”. They are settled here and working at LOCAL companies like Intel, Sun, Cisco or Google. Most likely they are US citizens too.

  13. madhaus Says:

    I’ve met them, I am referring to first-generation families, and yes, some are citizens, some are here for a medium term and plan to go back to their home country. I do talk to them.

    There is a house near ours and the owner usually rents it to Japanese or Israeli nationals who are here for short-term (2-3 year) stays.

    I haven’t met any of the families where the mom and kids are here and the dad is working in the home country, although I’ve heard of this situation where they cannot afford to buy in the area, plus they want their kids to learn English. Lots of Koreans doing this in Australia.

  14. Ross Says:

    International Blvd, that’s a really scary part of Oakland. Much worse than East PA, IMHO.

    Madhaus, I think it could be both: the immigrants who are also getting all the stock options. And any immigrant who isn’t getting options is probably in a cash business with no pesky expenses such as taxes.

  15. Pralay Says:

    some are here for a medium term and plan to go back to their home country. I do talk to them.
    ———

    Believe me I know a guy who is thinking about going to India for last 18 years since he came here for study on student visa on 1991. I bet he is not going back in next 18 years. Most of the immigrants from third world countries tend to settle here if they get opportunities to do so (I mean getting green card etc). It’s simple – difference in living standards, opportunities for future generations. Due to this reason I have seen immigrants from Western Europe and Japan tend to go back after short term or “medium term” – because they think that either their home country is better or more or less same. But I don’t think it applies to China and India.

    Having said that, there people who go back to India for various reasons. And some of those reasons are:

    1. Being closer to family – older parents, family support etc.

    2. Some of the parents think that American education is crappy. Some conservative Indians think American education too liberal (“sex-education to my kids? no way.”). They want to raise their kids in Indian style – very same way they themselves grew up.

    3. Recent outsourcing trend created tremendous career opportunities. Good reason to go back. For example, one of my friends used to work for Oracle here as project manager. He went back to Oracle Bangalore as VP of Engg. Not a bad opportunity.

  16. WillowGlenner Says:

    if that listing has the correct square footage and lot size then this place is severely overpriced. You have to be careful because a lot of these bargains aren’t really. Some banks ar selling distressed properties today for cheaper than you will ever get that property, even at auction. While others are trying to get top dollar. Its all a case by case basis.

    And how about that US track and field team?

  17. SiO2 Says:

    I thought about this argument a little bit the other day. To some degree substitution works for sure. But for “move up” neighborhoods, maybe not.
    I live in San Jose. But aspire to “RBA”. Sunnyvale (where Madhaus lives, CUSD) is better than where I live in SJ. Right now, a given house (say a 2000 sq ft in reasonable condition) might be 1.65m in Saratoga (CUSD) but 1.3m in sunnyvale CUSD Homestead High. (guesstimates, feel free to flame if you disagree). (also I do not mean to insult Madhaus’ neighborhood, as I said it’s better where I live now).
    Let’s say that the Sunnyvale house drops to $825k. It’s now 50% of the Saratoga house. But I might still not buy it, because it’s not so much better compared to where I now live that it’s worth the trouble and expense from my $700k SJ house. Which probably would drop more if Sunnyvale dropped like that. Plus the loss of Prop 13 tax if I move. If that all happened I’d just stay put and send kids to private school. I guess I’m substituting private school for CUSD.

    so to summarize, the substitution effect can easily break down in housing, because the alternative to the “RBA”, while not bad, may not be good enough.

    And a $150k house in Oakland, well, I’d rather live in a condo in SJ. It would be more spacious!

  18. zanon Says:

    SiO2:

    The “move up” strategy where you start in West San Jose but end up in Los Altos has always been dubios to me also.

    How can that work if your West San Jose home goes down in value and Los Altos goes up? For people to trade up, they need to have made a gain and lower price homes are falling in value faster than upper price homes (sub prime crumbles before Alt-A). And if you don’t have that money from starter homes, who is going to pay for RBA?

    Madhaus may be right: RBA is sitting on tonnes of equity and does not care, and you need to make big $ with a tech company and then cash all that money into a 2BR/2BR.

    Think of it like an exclusive club: startup founders, SVPs, and old teachers.

    -zanon

  19. madhaus Says:

    SiO2, no need for me to flame you, $1.3m is doable for a 2000 sf house here. I looked at a nice 2400 sf house I liked that went for $1.4m. There’s an 1800 sf house that isn’t selling at $1.3 something because it’s got a bizarre layout on the tiniest lot in the tract, and it was originally priced at the laughable $1.48m.

    And yes, Saratoga in CUSD is more expensive because the lots are bigger and Lynbrook is a higher-scoring school than Homestead; Miller also outscores Cupertino Middle, both by significant margins.

    As to substitution, it will cost you the same in money and aggravation to move to Sunnyvale or Saratoga from San Jose, but I could see deciding that you’re not getting enough for your money to move to this level, yet you’d consider paying more to move to Saratoga. I feel the same way about not moving to Mountain View since I don’t see it as an improvement from where I am, even though the typical house in 94040 (West side) costs more than mine. But if I had an extra $750K I’d look into moving to Palo Alto or Los Altos.

    I figure if SW Sunnyvale (CUSD/Homestead) drops to $850K from $1.3m, then your house is going to fall from $700 to $400K. So you’d better sell your house today, rent in CUSD for a couple of years, then buy that $850K house. Also the Saratoga house should drop to $1-1.1m so you could move there. A while ago I made a prediction of which cities would be kicked out of the RBA (price drops) in which order. Saratoga should be moving on out within 6-12 months.

  20. DreamT Says:

    If the local “whiners” were content with the “affordable” housing stock that burbed advertises, we’d never hear a word from them.
    Which proves two points:
    1. These are posters who, when they cannot get what they desire, choose to whine (on a daily basis to boot) rather than do something about it (get a higher school degree? compete in the job market? take risks? build their company? join networking seminars? get married? put a bounty on that rich uncle from Australia?)
    2. These are people who are TOO GOOD for this type of house & location (and enjoy bashing them). They DESERVE better because they ARE better.
    Nothing’s right for them. Affordable? Crappy. Not affordable? Overpriced. This is bob, anon and a couple others in a nutshell.

  21. Pralay Says:

    For people to trade up, they need to have made a gain and lower price homes are falling in value faster than upper price homes (sub prime crumbles before Alt-A). And if you don’t have that money from starter homes, who is going to pay for RBA?
    ———-

    Exactly. It can work if the appreciation in higher priced home is outpaced by the appreciation of lower priced homes. I know a guy who bought new home in Mission San Jose (Fremont) in mid-1990s. As the RE market was not good that time and builder was still building those homes, he got it pretty cheap. Then he sold it in 2004 and bought home in Cupertino. Basically the big gain in his Fremont home was good enough to have a comfortable mortgage payment for Cupertino home. It would not work if his Fremont home was losing value (like present situation). He would have got stuck there.

    In addition, income has to increase significantly to cover the mortgage difference between higher end homes and lower end homes. It happened from mid-1990 to 2002.

    People try to justify this move-up theory based on the experience from last one and half decade. It will work in future only if you can replicate the same condition in future. I doubt, because lower end homes are losing values.

  22. DreamT Says:

    Pralay,
    Lots of people live in starter homes today who will continue to elect to upgrade. If they’ve been in their starter home for 10-15 years already, do not doubt that many were promoted at least once or twice since, with a corresponding income bump. There will always be candidates for the RBA and almost all of them have already owned their current house for some time.
    I actually know of someone who was wary of selling one of his properties because it had gained too much in value and he wanted to avoid the capital gain tax.
    Credit and house appreciation conditions change, but in my opinion nowhere near enough to tip the RBA balance of offer vs demand.

  23. Pralay Says:

    Why haven’t all the companies left for cheaper environments?
    ———-

    Whenever they could, they did. Haven’t heard about hardware? I thought that’s how this place got the name Silicon Valley.

  24. DreamT Says:

    As a job seeker in the software field, I am amazed at how many semiconductor companies still remain in the valley. Maybe the cleanup costs would be too high if they were to vacate tomorrow.

  25. Pralay Says:

    Pralay,
    Lots of people live in starter homes today who will continue to elect to upgrade. If they’ve been in their starter home for 10-15 years already, do not doubt that many were promoted at least once or twice since, with a corresponding income bump.

    ———

    DreamT,
    You sidestepped the primary issue, I guess unintentionally. That is lower end homes losing value. Secondly, when you say “10-15 years”, that re-enforces my earlier argument that people tend to make this theory based on experience of last one and half decade only. This is the period when RE price saw massive run up – if you compare it with median income. What are the economic factors which would replicate similar behavior in next decade? Care to elaborate? Or do you want to repeat RealEstater like argument “home price doubled in last 10 years, hence it will double in next 10 years“?

    Yes, there will always be cases of move-ups. But they are tied to economic fundamentals. For example, increase in income or as you mentioned “income bump”. But don’t tell me it applies to every homeowner in every economic condition.

  26. Pralay Says:

    Credit and house appreciation conditions change, but in my opinion nowhere near enough to tip the RBA balance of offer vs demand.
    —–

    Oh, couple of months back met a homeowner in “Real Gray Area” (Santa Clara to be precise) who is hesitant to put his home in market because he thinks “market is not good now”. So, he is not “offering” his home to someone else, hoping that market will get better in future. Anecdotal, but provides a good insight how homeowners perceive the market without understanding the basic economic driving factors underneath.

    So, this “offer vs demand” could be skewed for a while , until homeowners are convinced that waiting for future is not necessarily gives them better market or better price.

  27. DreamT Says:

    Pralay, the loss in value is real but relative – for many, they merely ended up gaining less than a huge amount. I traded up after only three years in a condo, one layoff and one raise, so I meant to be very conservative with my 10-15 years estimate. My point is that we’re not starting with a clean slate, right now. In the coming years, lots of move-up purchases are leveraging past and still current increases in both wealth, income and equity. In other words, I am talking about economic inertia rather than factors. Inertia is sufficient as long as demand for RBA properties vastly outnumbers vacancies.

  28. Pralay Says:

    As a job seeker in the software field, I am amazed at how many semiconductor companies still remain in the valley.
    ——-

    Ha ha! :) My hardware friends think just opposite. I guess the pasture in distance is always greener.

  29. DreamT Says:

    Pralay – Market is definitely not good right now. You see houses getting multiple offers only to be back on the market because the top buyer couldn’t secure credit. That’s happening much more this year. Then the house is cursed – nobody bids for it anymore and it languishes on the market. Your contact may have meant more than just “getting top $$” when he described the market.
    In any case, these recent months my area of Santa Clara has seen renewed activity, none of them short sales or foreclosures. I suspect lots of long-time locals figured they’re not going to get as good of a price for quite a while now.

  30. Pralay Says:

    Inertia is sufficient as long as demand for RBA properties vastly outnumbers vacancies.
    ——–

    DreamT,
    I don’t think I know and I don’t think you know how things will play out in next few years, considering all the economic uncertainties. So it would be premature to assume that somehow “the inertia” will save RBA home value.
    But all I can say that people tend to have more optimistic – willfully or due to ignorance or for their own vested interests. I do remember two years back even Stockton people refused to see what is coming due to the fact “foreclosure rate was historically low (atleast at that time)”.

  31. DreamT Says:

    Pralay – I grant you that, it’s my opinion, nothing more, nothing less. I also don’t claim this will “save RBA values”. I claim this will keep bids coming for RBA houses, in response to
    “And if you don’t have that money from starter homes, who is going to pay for RBA?” My response is: plenty of people except those who purchased a starter home these past few years. And yes, it’s on the optimistic side, although reasonably, not wildly.

  32. Pralay Says:

    Correction in last sentence of post #26:

    So, this “offer vs demand” could be skewed for a while, until homeowners are convinced that waiting for future is not necessarily gives them better market or better price.

  33. Pralay Says:

    Pralay – I grant you that, it’s my opinion, nothing more, nothing less.
    —–

    Fair enough. It’s Friday evening. Gotta go.

  34. DreamT Says:

    Pralay – Stockton isn’t a fair comparison.
    1. The RBA is more or less a destination location, Stockton is not. If you can upgrade out of it, you do.
    2. During the bubble in Stockton, the barrier of entry was generally lowered. During the bubble in the RBA, the barrier of entry was raised. The cause (easy credit) was the same, but suddenly in Stockton strawberry-pickers could purchase a house next to a technician, whereas suddenly in Sunnyvale only mid-level managers could purchase a house next to a technician. I’m simplifying but you get the jist.
    In any case I agree with the vested optimism that comes with home ownership.

  35. DreamT Says:

    I meant the gist of course…

  36. Mole Man Says:

    As I recall this is boldly visible from the northbound lanes of 880. Being near the freeway isn’t so bad because it is a parking lot so much of the time. Being near Fruitvale is the greater concern. Prices in Oakland are dropping hard, so no matter what numbers you see it might be worth talking to the owner or agent if something desirable becomes available. This one probably isn’t going to get anyone on the phone.

  37. sonarrat Says:

    I work right next door to Highway 101. The noise isn’t so bad, except for the truck horns. The pollution is more worrying. I feel physically drained after a day at work.

  38. DreamT Says:

    The rule is, esp. with kids, don’t live closer than 1/2 mile from the nearest freeway.
    Isn’t 880 suspended above ground around that area? Plus 880 gets way more truck traffic than 101 does, and since it’s swirving so much, no doubt more accidents as well…

  39. sonarrat Says:

    It’s pretty hard to live more than 1/2 mile from a freeway in that part of Oakland. It’s only 1.5 miles from 880 to 580 on 14th Avenue, though it widens a bit if you continue going east.

    I live about a mile from either 280 or 380. I doubt the pollution from El Camino Real is anything significant.

  40. Name Says:

    DreamT,

    You said:

    During the bubble in the RBA, the barrier of entry was raised. The cause (easy credit) was the same, but suddenly in Stockton strawberry-pickers could purchase a house next to a technician, whereas suddenly in Sunnyvale only mid-level managers could purchase a house next to a technician.

    Why do you believe this to be the case? Roughly 2/3 of the buyers in the RBA used stated income/no documentation/interest only loans. Many refinanced and extracted equity to cover their housing costs, which worked fine as long as home prices were rising. Prime jumbo loans, primarily used in the RBA and Manhattan, are now defaulting at rapidly increasing rates (see S&P date for June-July 2008).

    There’s a credit crunch in progress. A huge amount of wealth was loaned to folks who didn’t have the income to repay it. As they default on their debts, cash is scarce. Since the financial institutions don’t have the capital to mark down their assets to their true value, they keep most assets off their balance sheets (in SIVs, QSPEs etc) and slowly bring some on each quarter when they have some earnings to write down. The process is going to be long and excruciating. As the financial institutions are starved for capital they can’t make loans, so many commercial sectors will be unable to grow. This will cause the economy to contract (and produce a recession with accompanying job losses). As corporate earnings drop, equity prices will decline.

    Without the options engine, there will be a significant drop in demand for RBA localities, with an accompanying drop in prices. The equity built up across the spectrum of homes, from starters to high end, will deflate as the virtuous cycle on the upside turns into a vicious one on the downside. In particular, real estate markets have a ladder effect, where the low end (subprime in recent years) buyers free the previous owners to upgrade to the mid-market, who then are able to buy in the high end. When the low end gets knocked out (as is happening with the credit crunch), demand at the bottom vanishes, which means the folk previously at the low end can’t buy into mid-market, which in turn reduces the demand from mid-market folks interested in the high end. Lower demand at each level results, with commensurate price drops.

    The only reason the RBA is lagging behind the rest of the country is that the majority of loans that are not sustainable long term (because they have low introductory interest rates, or because people are opting to pay only interest until the initial period ends, or because they are paying less than the interest and reach the point where a principal cap is hit) could be serviced as long as home values rose at a sufficiently high rate. When prices stagnate, leave alone drop, these homeowners can’t refinance to extract equity and have their hand forced. In other parts of the country, appreciation rates were lower, which meant that the triggers were reached earlier.

  41. DreamT Says:

    Name – Fair and fine, but incomplete. To your question: “Why do you believe this to be the case?” I’ll repeat: the RBA is a destination place with both high demand, low turnover and almost no new (as opposed to replacement) SFR development as opposed to say Stockton. I don’t doubt defaults and foreclosures will eventually START to materialize in the RBA. But the few distressed properties will sell.
    I’ll also get flamed for this, but I believe RBA homeowners are not only both more resourceful and more connected to try and raise cash, they also have greater wealth to start with. Better education gives them greater potential, and in Palo Alto or Los Altos most properties are still bought with a very large cash downpayment.
    So you’ll forgive me for being a doubter. I’m expressing my opinion, so I’ll also say that what you wrote is merely your opinion, and there’s not an ounce of hard facts in it. I’ll be swayed when I see raw numbers of expected distressed buyers in PA or Los Altos, average effective sales price of foreclosed properties in the RBA versus non-foreclosed, graphs of delinquency ratios in RBA cities, graph of average # of bids per purchase in RBA citis, etc.
    As fpr “demand at the bottom vanishes, which means the folk previously at the low end can’t buy into mid-market” I heartily disagreed and documented why earlier in this thread. Accumulated wealth & equity and rise in income (what I called economic inertia) for mid-term “low-end” residents, and rapidly shrinking available housing stock as you move upmarket, show why this statement is simplistic i.e. plain wrong.

  42. Pralay Says:

    Pralay – Stockton isn’t a fair comparison.
    ——–

    Heck, I never compared these two places – RBA and Stockton. I just showed example how people ignore all the warning signs before bricks start falling over heads. RBA and Stockton are different. But I don’t think basic human psychology is different between Stockton people and RBA people.

    ———-
    1. The RBA is more or less a destination location, Stockton is not. If you can upgrade out of it, you do.
    ———-

    Hmmm, “destination location” – familiar word. Let me try to guess who used it before. Some real estate agent? Or many someone with name RealEstater?
    Actually I never understood what it means. Is whole America is migrating to RBA and trying to own a piece of land here? Last time I checked RBA population did not increase that much in last eight years. In that case it got to be “destination location” for some people and “abandoned location” for other people.

    RBA is desirable locations for local people here. Every area has such kind of pockets – better area, better schools, worse area, worse schools etc. And yes, even Stockton has such kind of pockets. That does not make it “destination location”.

    ———–
    2. During the bubble in Stockton, the barrier of entry was generally lowered. During the bubble in the RBA, the barrier of entry was raised.
    ———–

    I disagree. Barrier wasn’t lower or raised anywhere. What happened is that there were easy and cheap credits.

    ———
    The cause (easy credit) was the same, but suddenly in Stockton strawberry-pickers could purchase a house next to a technician, whereas suddenly in Sunnyvale only mid-level managers could purchase a house next to a technician.
    ———-

    RBA does not have strawberry-pickers, but it indeed have people who could not afford their homes without easy credits. My wife was telling about her colleague who wants to take unpaid leave after her second child was born, but cannot because they both have to work to pay their mortgage. Now RBA can hope only one thing – there are not many families like that and even if there are, at least they will be able to keep their homes.

  43. Pralay Says:

    the RBA is a destination place with both high demand, low turnover and almost no new (as opposed to replacement) SFR development as opposed to say Stockton.
    ———

    Period 1: pre-2003
    Period 2: 2003-2007

    What created higher demand in period 2 than period 1? Were more housing development in period 1? Population grew in period 2? Income increased in period 2?

    Something does not add up.

  44. Pralay Says:

    I’ll also get flamed for this, but I believe RBA homeowners are not only both more resourceful and more connected to try and raise cash, they also have greater wealth to start with.
    ——-

    Wealthier people, wealthier neighborhood = less depreciation of real estate, smaller window of depreciation.

    Good test case is San Diego (which is two year ahead of bay area) where price fell less and for shorter duration in better neighborhoods.

  45. Name Says:

    DreamT said:

    but I believe RBA homeowners are not only both more resourceful and more connected to try and raise cash, they also have greater wealth to start with.

    As long as we’re speaking anecdotally, I’ll counter that with the observation that those who are more resourceful often are also more ambitious and more heavily extended. One artifact is that they have extracted equity from their RBA homes and invested in property elsewhere and stocks, tying their fortunes to other, currently depreciating areas and assets. Just covering their losses elsewhere removes alot of their wriggle room.

    DreamT said:

    Better education gives them greater potential, and in Palo Alto or Los Altos most properties are still bought with a very large cash downpayment.

    That’s interesting. Do you have access to data regarding this? Thanks in advance for any pointers you choose to share.

    DreamT said:

    I’ll also say that what you wrote is merely your opinion, and there’s not an ounce of hard facts in it.

    The absence of data was for brevity not because it’s unavailable. Read the text of Bernanke’s remarks at Jackson Hole yesterday – it’s filled with all the data needed.

    DreamT said:

    I’ll be swayed when I see raw numbers of expected distressed buyers in PA or Los Altos, average effective sales price of foreclosed properties in the RBA versus non-foreclosed, graphs of delinquency ratios in RBA cities, graph of average # of bids per purchase in RBA citis, etc.

    Fair enough. I agree that the proof, at the end of the day, is in the pudding. However, at the point that you have such high certainty, you’ll have lost the opportunity to arbitrage – the market will already have priced in the information.

    DreamT said:

    Accumulated wealth & equity and rise in income (what I called economic inertia) for mid-term “low-end” residents, and rapidly shrinking available housing stock as you move upmarket, show why this statement is simplistic i.e. plain wrong.

    Real estate prices are set at the margin. All it takes is the last few sales at lower prices to reset the comps in an area, after which banks will not issue mortgages where the collateral is appraised over the lowest comps.

    The beauty of the markets is that we are free to take opposite sides of a trade and the one who is right will be rewarded. My bets on how the last year would play out have been close enough to what happened that my options trades over the last 18 months have made me enough to buy a home outright. Now we’ll see what the next couple of years brings.

    Cheers!

  46. DreamT Says:

    Pralay,
    1. As stated, I agreed with your human psychology premise.
    2. Destination location understood to be a place most residents don’t wish to upgrade out of, even if money was no object. Not meant as place everywhere wants to live. So, exceedingly low turnover rather than high demand (albeit one doesn’t exclude the other)
    3. Easier access to credit lowers barrier of entry. Sorry but that’s a fact. Now, combined with unexpandable housing stock, which isn’t Stockton’s case, brings the prices higher, which in turn raises barrier of entry. CQFD.
    As for your post #43, you know my answers from several weeks ago and they’re in line with our thinking. My opinion posted in this very thread is that lower demand in the current period due to hardening of credit access requirements will not be sufficient to make the RBA a buyer’s market, where the average # of bids is less than 1. Probably not even an earthquake would achieve that.
    Hey it’s not every day I post a clear, black and white opinion of mine rather than deconstructing other folks’ posts!

  47. nomadic Says:

    DreamT, this is totally anecdotal but you could look for yourself. I was browsing my “wish list” for fun on Redfin a couple hours ago. Los Altos/Los Altos Hills area, minimum 3BR/2BA under $2M. I saw at LEAST 3-4 houses that were purchased 12 months ago that were listed within $100k of the purchase price. They may not be short sales, but the small appreciation MIGHT barely cover the realtor fees. To me, this indicates weakness in the market and sellers in some distress.

    Now maybe they are realizing early that they aren’t going to be able to maintain payments are are electing to lose equity to unburden themselves, but that’s still distress to me. The lowest price in the area might have been $1.35M; many others were close to $1.8M. I was surprised to see this.

  48. DreamT Says:

    Name – As you state, my opinion is anecdotal (esp. cash downpayments), and I’m not looking to be persuasive, only to post food for thought. I agree with your point about ambition, would actually add that I know folks in Los Altos who mortgaged their house to finance a business. We all know the success rate of private enterprises. Still I’ll venture we’re talking about measured risk, not outright stupidity as in signing a $700k debt on a $30k income. So I’ll still place my bet on the RBA for this one.
    You’re right about the dynamics for the comps of course. The RE market is very fluid. That tells us nothing about future price movements, though.
    Could you post a link to the Bernanke speech?
    Thanks for the post and good luck with your future bets. I’m not taking any myself, only looking to secure employment at this time:D

  49. DreamT Says:

    nomadic – in my non-professional opinion, weakness in a market is well captured in the evolution of the average # of bids, i.e. the balance of offer vs demand, seller vs buyer market. Since asking prices are arbitrary, comparing asking vs selling price is less relevant. Comparing present vs past prices is relevant only with a relatively large volume of transactions, adjusted to comps, with the extreme shaven off. There is certainly anecdotal distress everywhere (all it takes is losing one’s job or having to relocate), but they don’t make a market. I’m only talking based on first-hand observation of a couple of micro-neighborhoods.
    Also I’m not familiar with ultra-wealthy neighborhoods but I wonder to which extent comps are pertinent when every house and location is unique. Comps are great with tract housing…

  50. Pralay Says:

    3. Easier access to credit lowers barrier of entry. Sorry but that’s a fact. Now, combined with unexpandable housing stock, which isn’t Stockton’s case, brings the prices higher, which in turn raises barrier of entry. CQFD.
    ——

    I am sorry so that it is an absurd logic. RBA won’t be affected because it is not expandable? I wonder if this restriction applied only in last five years and as a result home price doubled. Or am I missing something here?

    Expansion of housing stocks in Central Valley was in response to demand (and demand was due to easy credit). It is not other way around.

  51. Pralay Says:

    My opinion posted in this very thread is that lower demand in the current period due to hardening of credit access requirements will not be sufficient to make the RBA a buyer’s market, where the average # of bids is less than 1. Probably not even an earthquake would achieve that.
    ——-

    Not really. In good days of housing market, the sellers used to price $50K higher than the last sold price of comp. In bad days of housing market, the buyers does not pay more than the last sold price for comp. Either way it just takes one home.

  52. DreamT Says:

    Pralay, Pralay, you keep trying to put words in my mouth (or hand). I show you how a combination of variables has decreased or increased barrier of entry to a local real estate market, and you state in the future tense “RBA won’t be affected”. But I was not making predictions: now we have harsher access to credit and that’s a new combination of variables again, and I haven’t spoken on this in point #3 (and I won’t because I don’t know if it will tilt back).
    As for expansion of housing stock, it was in response to speculation more than demand, as you know the population didn’t suddenly explode. In any case, here’s my point: it was very easy to speculate with new housing development in Stockton, Las Vegas, Sacramento, Tracy, whatnot. Somewhat easy to speculate with new condos in Sunnyvale. But RBA SFRs? I’d love to see numbers on this, but I bet the ratio legit primary residents vs speculators has been much higher in the RBA than elsewhere.

  53. DreamT Says:

    Pralay #51 – No. An isolated home sale does not make a market. Also I’m talking average # of bids (market health) and you keep speaking about prices (homeowner’s happiness and homebuyer’s dread). We’re not on the same wavelength.

  54. anon Says:

    DreamT, I am obliging your request to continue posting to ‘remind’ you that you are so ‘special’ that you deserve the bay area. Good luck with your job search.

    Perhaps if you continue posting more, people like Name and Pralay will help you learn.

    I, for one, am going to visit RE on “vacation.” Fare well.

  55. WillowGlenner Says:

    Pralay,

    Period 1: pre-2003
    Period 2: 2003-2007

    What created higher demand in period 2 than period 1? Were more housing development in period 1? Population grew in period 2? Income increased in period 2?

    The bay area suffered a pretty massive recession in 2001-2003, I used to hear if you weren’t working at google then, you weren’t working. I know a lot of people lost their jobs.

  56. DreamT Says:

    anon – Name and Pralay deserve respectful responses because they put some thought in their posts. You sir are just littering as usual. Perhaps if you reflect on their posts, people like them will help you learn.

  57. burbed Says:

    That was so not a major recession compared to what has happened historically in other areas during recessions. Sure a lot of startups fail, but a lot of startups always fail – and a lot of the ones that failed were stupid anyway. A true recession is marked in my opinion by the collapse of a significant well known organization. Bear Stearns perhaps.

    But let’s say that it was a major recession – in that case, it’s rather interesting to observe that house prices continued to soar YoY starting in 2004…

  58. Rocket Says:

    Burbed – I think a Santa Clara County unemployment rate of 8% to 9% during 2002 and 2003 qualifies as a recession for this area.

    From the View from Silicon Valley web site statistics area:

    http://www.calmis.cahwnet.gov/file/lfhist/santchlf.xls

  59. nomadic Says:

    burbed @ 57 – the Wall Street types always explained this as money’s “flight to quality.” There wasn’t much in quality stocks, so people wanted to invest in real estate. Those who weren’t buying properties themselves were investing in REITs or the now-dreaded mortgage-backed securities. And I’m sure we all know that seemingly insatiable appetite for those securities caused the banks to continue to loosen lending standards to find more of them to sell.

    DreamT @ 49 – you missed my point. You stated yourself (if I remember correctly) that the RBA has low turnover. Then why suddenly are we seeing several homes turning over in 1-2 years at prices that would create a loss? Saying those comps aren’t relevant (when it is a before/after comparison of the SAME house) is like saying a foreclosure isn’t relevant. (Or re-reading just before posting, perhaps I misunderstood and you’re just saying it isn’t relevant because we don’t know HOW MANY cases there are lurking out there compared with the past.)

    The prices they have set certainly aren’t “wishful thinking” since they have a loss factored into them. And they aren’t set artifically low to try to create a multiple-bid situation; these have been on the market for weeks. One example: 1355 Arbor Ave., LA purchased 1/07 for $3.4M. Now for sale at $3.495M – a sale at full asking price and a 5% commission gives a $170k loss. Ouch.

    Just wondering – are you arguing against a large drop in prices, or against ANY drop in prices? Either way I hope you’re right but am not quite as optimistic.

  60. DreamT Says:

    nomadic – I’m of the same mind as madhaus and Pralay with regards to prices. It’ll drop everywhere eventually because real estate is a cycle, and the RBA shrinks month after month. But the wealthier neighborhoods will be more resilient. There are deals to be found now as always for whomever does his/her homework.
    I doubt anybody disagrees with this consensus on this board.
    I was not tossing away your research. I was cautioning against extrapolating market health based on two or three anecdotal offer prices: based on what you reported, I wouldn’t be able to draw a single conclusion on how the RE market’s doing in Los Altos.

  61. zanon Says:

    NAME: How do you know 2/3 of RBA homes had some flavor of Alt-A mortgage (stated income, no doc, low doc, neg-am, etc.)?

    I’d love to see a source

    -zanon

  62. madhaus Says:

    zanon, only public source I know of for this is the maps the Federal Reserve of NY did. The original stats were also on the site but the provider asked them to remove it. Anyway the maps are at the zip level. LOTS of Alt-A. Whether it’s poisonous Alt-A (as opposed to just self-employed) is another story.

  63. zanon Says:

    Yeah–i just got a whole lot of “information not available” when I try to zoom in on RBA.

    And Alt-A is such a mixed bag, it’s hard to say if it portends problems. If there was almost *NO* Alt-A, then I would say the RBA is safe. Given that it’s filled with Alt-A, I say it can go either way.

    -zanon

  64. bob Says:

    I have question that is somewhat similar to Gavin’s. Why haven’t all the companies left for cheaper environments? Is it really necessary for the Silicon Valley 100 to be here?

    Is it necessary for them to be here? No. Why are so many still here? Large pool of qualified employees and access to large startup capital/angel firms.

    But… As someone who infrequently peruses the job situation in other cities, I have to say that there’s a lot more available than there was even a few years ago. I used to look in Austin,Atlanta, and other larger cities and find maybe 1-2 jobs per week in my field. Now there are sometimes 15-20. Additionally, there are also many new localized startups in those cities too. 3 of the 4 competitors of my company are from Austin alone. I don’t feel that I’d have much of a problem finding work in either of these cities. Once more people like me start realizing that, then SV is going to have some problems keeping experienced staff.

  65. madhaus Says:

    As someone who infrequently peruses the job situation in other cities, I have to say that there’s a lot more available than there was even a few years ago. I used to look in Austin,Atlanta, and other larger cities and find maybe 1-2 jobs per week in my field. Now there are sometimes 15-20. Additionally, there are also many new localized startups in those cities too. 3 of the 4 competitors of my company are from Austin alone. I don’t feel that I’d have much of a problem finding work in either of these cities. Once more people like me start realizing that, then SV is going to have some problems keeping experienced staff.

    And yet, here you are.

  66. bob Says:

    Madhaus,
    You already know what my plan is.No mystery there…

  67. madhaus Says:

    If that really were your plan, why would you feel the need to let everyone else know about it every single bloody post? It almost sounds like you have to convince yourself of the merits as you drive 43 miles to work and back, again.

    Did I ever tell you I refused a job interview when I found out the place was 12 miles, and 25 commute minutes, away?

  68. zanon Says:

    MADHAUS: Bob has a point. While the RBA is still special, it is less special than it was in 98 when this really was the only game in town from a tech. perspective. It still is the *best* game in town, but it no longer has a monopoly on good engineers that it once did.

    It’s not secret that if Silicon Valley loses its mojo, it will be because its infrastructure could not keep up.

    -zanon

  69. anon Says:

    Yeah! WTF Bob! You’re obviously here on a crusade to devalue RBA property so you can buy your own slice of the American dream in this dumpster called the bay area. How selfish is that?!

    Myself, I live .4 miles from work. It’s the only way to roll.

  70. madhaus Says:

    WTF, the RBA isn’t special anymore? Soon we’re going to be just like Irvine with more interesting jobs.

    You guys really have to read IHB today. The graph of prices overlaid with the real price drops (they were even steeper than IR forecast) is incredible.

  71. anon Says:

    Yeah, that really was a good read. I especially enjoyed the juxtaposition of such a happy song with such bleak predictions.

    I love this quote: With 100% financing available in the Great Housing Bubble, it is a wonder all the Y.M.C.As didn’t close down. If you are down and out, all you needed to do was fill out a liar loan application and move into your new house. Wait a few months, and you could open a HELOC and start spending all that free money. What could be better?

    Indeed – what could be better than counting chickens before they hatch?


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