January 31, 2009

Bay Area rental market prices and trends

Bay Area rental market gives tenants an edge
Bay Area apartment rents will soften and vacancies will edge up in 2009, giving tenants more leverage, according to a forecast from an influential real estate firm.

Still, the rental market here will remain stronger than in most other regions around the country, said Marcus & Millichap Real Estate Investment Services, which issued forecasts for three metropolitan areas in the region: San Francisco, San Jose and Oakland.

Those excess homes and condos, which M&M terms “shadow market rentals,” largely are bank-owned foreclosures purchased by investors who then rent them out. They are concentrated in the East Bay and some parts of San Jose, and are barely a factor in San Francisco.

Thanks to Nomadic for posting this earlier. Note that these problems are mostly limited to parts of San Jose and the East Bay – both of which are clearly not in the Real Bay Area.

For those of you who are looking in the Real Bay Area – how does the rental market seem to you? Gangbusters as usual?

Comments (39) -- Posted by: burbed @ 5:37 am

39 Responses to “Bay Area rental market prices and trends”

  1. Real Estater Says:

    Now is a bad time to rent. There is no “shadow market” in the RBA, because foreclosures are rare.

  2. Herve Says:

    [San Francisco] Proposal: Pay fee, skip condo-conversion line

    http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/01/31/BUM615JQNS.DTL&type=printable

  3. Prof. Bleen Says:

    There is no “shadow market” in the RBA, because foreclosures are rare.

    Of course—because that’s what defines the RBA.

  4. madhaus Says:

    This is amusing. Here’s a little commentary on sfgate quoting a Palo Alto realtard insisting that everything will be great by the end of 2009!

    We’d like to believe Mr. Duval, but given that some economists believe we could be in for the “longest recession since World War II,” while the unemployment rate keeps soaring, we’re somewhat skeptical. Even if Silicon Valley is the so-called “center of innovation”, many of the largest local employers, such as Hewlett Packard, are cutting jobs faster than you can say “$1.7 billion charge,” and that can’t be good for the local real estate biz.

    Here’s a good comment:

    I’ve been tracking the PA market, and we’re definitely in the “sellers in denial” phase in the $2-3M segment of the market (ridiculously enough, this is only mid- or mid/high-end in PA).

    You’ve got a growing glut of houses in that range sitting there for months, despite some multi-hundred thousand $$ price cuts. Now that the banks have severely tightened up their lending, big jumbo mortgages are very hard to get. Combine that with all the economic pain and the plunging stock market, and it’s no wonder that buyers have disappeared.

    Realtors are up to their usual bs: claiming “we just got an offer today”, taking houses off the market and then re-listing them so that the websites don’t reveal how long they’ve remained unsold, and so on.

    Many of these are brand new houses. If you do a little research, you see that would-be developers bought tear-downs for like $1M in 2006 & 2007 at the peak of the market and put down only 20% or so. They figured they’d leverage up, get a loan and build a big new house for another $1M, and then sell the thing for over $3M and make a tidy $1M profit with just $200K down. Some of these guys are realtors themselves and got caught up in the bubble hype.

    Now they’re on the hook for $2M in debt, and hemorrhaging $10-15K a month in interest, property tax, and so on.

    Don’t believe the realtors when they say things aren’t so bad. These sellers are bleeding big time, and it’s going to get worse.

  5. madhaus Says:

    Well said, Professor Bleen! After all, if it’s in the Real Bay Area, then:

    – multiple offers will be made above asking price
    – property is flying through windows
    – rents are climbing
    – sellers can hold out for any price they pull out of their ass because they aren’t ever making any more RBA property
    – all the professionals want to live there
    – all the Realtards will be quoted with rose-tinted news about their region
    – all the meaningless aggregate data does not apply because the RBA isn’t measured by any of the people who track real estate information
    – all the useless anecdotal data doesn’t apply either, because that house is on a busy street, near the train tracks, adjacent to power lines, or in the same high school district as an auto body shop
    – all the residents have gifted, talented, and well-rounded children who will boost your kids’ IQ 20 points just by breathing the same air
    – none of the soccer fields have ever been invaded by 94303 residents

  6. Real Estater Says:

    Prob Bleen,

    If you paid attention, you’d realize that was never my definition, nor Burb’s definition of the RBA.

  7. Real Estater Says:

    LOL! Instead of quoting the actual story out of Palo Alto, madhaus quoted the random opinion of someone who does not know the market. It’s only fair for everyone to read the original news item:

    Palo Alto housing could rebound by end of year

    The dizzying days of rapid sales with competing offers, plentiful loan money and no contingencies are long over, but the housing market is far from dead, panelists agreed at a community forum Tuesday night.

    The slowdown in the Palo Alto-and-environs housing market has not been as severe as the national trend, according to Mark Duval, chief investment officer for Opes Advisors. But local trends tend to parallel the stock market, not the national housing market. He predicted a turnaround could impact the local housing market as early as the end of 2009.

    Inventory is already starting to increase, and more than a hundred potential buyers have been turning up at recent open houses, noted Coldwell Banker Realtor Steve Bellumori.

    The panel of four brokers, a CPA, and a couple of financial analysts had some specific advice for the 50 potential buyers and sellers who attended the meeting at Trader Vic’s in Palo Alto.

    Top of the list was changing expectations.

    Gone are the days of slapping on a coat of fresh paint, setting out some potted plants and offering a home “as is.” Instead, sellers need to assess what work needs to be done and either fix problems before the house goes on the market or be prepared to fully disclose any issues, the panelists said.

    “This is the most difficult real estate market I’ve ever seen,” said Bellumori, a Realtor with more than 30 years’ experience.

    Although the economic fortunes of this area are heavily tied to the stock market, “up to this point we’ve been an island of resiliency,” he said.

    Bellumori pointed to the lack of land, strong entrepreneurial business climate, good public schools and great weather as key selling points for real estate.

    But much of his job today is serving as “a reality versus a realty broker,” he said.

    Although plenty of money is available, the guidelines for lenders have firmed up, Tracie Southerland, financial and mortgage advisor for Opes Advisors, said. “It’s not much different than 15 years ago,” she added.

    Southerland compared housing accessibility in 2003 versus 2009, using a $1.5 million house as an example. In 2003, with 10 percent down, a 4 percent loan on $1.2 million and a second 3.5 percent loan on a $150,000 line of credit, one would need a $143,000 income to qualify.

    Today, with 25 percent down and higher rates on the jumbo loan, one would need to earn $228,000 a year to buy the same house.

    “The buyer pool has shrunk,” she said.

    Panelists spoke to specific issues, including pricing, negotiable terms, conditions and appraisals.

    “Pricing is not an exact science,” Alain Pinel Realtor Nicole Aron said, but the classic issues of location, condition of property, levels of inventory and availability of financing still come into play.

    And it’s always the kiss of death to overprice.

    “Focus on the goal of why you’re on the market,” she said, adding that one could be paying less for a replacement home.

    A home can be made far more desirable with attractive terms, such as the seller paying down interest points that could ultimately save both buyer and seller a bundle, Southerland said.

    Other options include paying six months of homeowners’ association fees, seller financing or accepting a variety of contingencies, such as locking in an interest rate, Alice Nuzzo, a Realtor with Sereno Group, said.

    And when it comes to disclosures, honesty is the only policy, noted Alain Pinel Realtor Carol Carnevale. Even if a seller has replaced the roof, the fact that the roof once leaked must be disclosed, she said.

    Duval, who keeps his eye on economic trends nationwide, suggested taking a longer view. For someone thinking of downsizing in three years, it might make more sense to sell now while prices are still high, he said.

    “Long-term economic growth in the U.S. is positive,” he said, and it “will keep a premium for housing in this area.”

    More real-estate news and home sales data are available at Palo Alto Online’s Real Estate home page.

  8. Prof. Bleen Says:

    If you paid attention, you’d realize that was never my definition, nor Burb’s definition of the RBA.

    You are quite correct; the actual definition is that area in which prices never go down. However, the lack of foreclosures is an easily proven corollary, since the exponential spiral of equity towards infinity, and the ability to sell any home in less time than required to earn a paycheck, counteract any temporary inability to keep up with a mortgage.

  9. madhaus Says:

    Excellent, Roger. You fell right into my trap. Heh, heh, heh.

  10. Prof. Bleen Says:

    LOL! Instead of quoting the actual story out of Palo Alto, madhaus quoted the random opinion of someone who does not know the market. It’s only fair for everyone to read the original news item:

    madhaus noted, correctly, that we have no reason to take the realtor author’s bullish assertions at face value.

  11. Lionel Says:

    Oh my…

    Case Shiller and CAR Analysis January 2009 Release

    California Association of Realtors C.A.R. Data

    “The most extreme bubble city decline is once again San Francisco which is at prices last seen in May 2002.”

    http://globaleconomicanalysis.blogspot.com/2009/01/case-shiller-and-car-analysis-january.html

  12. bob Says:

    Still, the rental market here will remain stronger than in most other regions around the country, said Marcus & Millichap Real Estate Investment Services”

    I stopped after reading the words: “Real Estate Investment Services”. Its absolutely pointless to quote people who work and depend on real estate to make ‘predictions’.

    And RE, there was an article almost just like the one you posted in Alameda’s own newspaper, which I suspect like many papers simply act as a vehicle from real estate sellers and brokers, whom provide the largest amount of ad dollars. The gyst of our report was:

    “Well… despite foreclosures, falling sales, falling prices, tight lending standards, and mounting job losses… it’ll be ok… sometime and we can all be happy again and our houses will appreciate like nothing happened… ho-hum… “

    In other words, more pointless babble that doesn’t mean anything. It is rather clear from reading RE shill pieces that the real estate industry basically has very little to make sound rosy and pretty. Only that it’ll come back… someday.

    I get the funny feeling that the Bay Area is really, really screwed.

  13. nomadic Says:

    aw, shucks, burbed used my stuff two days in a row! I’m so flattered. :-)

    I have great news for everyone too. The recession is over. I tried to go to Santana Row this afternoon and I could not find a parking place anywhere!

    The most telling part of RE’s article I found is this:

    Duval, who keeps his eye on economic trends nationwide, suggested taking a longer view. For someone thinking of downsizing in three years, it might make more sense to sell now while prices are still high, he said.

    He’s saying “sell now before prices fall more.”

  14. anon Says:

    Haven’t I been saying that for at least 6 months?

  15. nomadic Says:

    saying what? recession is over, or sell now?

  16. bob Says:

    I’ll tell you one thing which is that my commute is taking less and less time with each passing month. At the absolute peak in around 2006, getting to work was a nightmare because we were on the freeway with all the early morning contractors on their way to construction sites. The contractors are now gone. They disappeared somewhere around last year. I’d say since December, there is getting to be less and less people on the freeway. It used to take me as long as 1/1/2 hours to get to work. These days, its 45 minutes to an hour.

  17. Real Estater Says:

    Prof Bleen says,
    >>we have no reason to take the realtor author’s bullish assertions at face value.

    I went to see a house in the low one million range in Palo Alto today. The crowd was still there. The swagger of the realtor was still there. Unlike the low end elsewhere, the low end of this market has significant support. Outsiders simply don’t understand what’s going on here.

  18. Real Estater Says:

    Bob says,
    >>Its absolutely pointless to quote people who work and depend on real estate to make ‘predictions’.

    Is it pointless to hear Bill gates talk about the software industry? Is it pointless to hear Steve Jobs talk about innovation? Is it pointless to hear you talk about anything?

  19. bob Says:

    RE,
    Do you ever think that Steve Jobs or Bill Gates will claim that Apple or Microsoft make crappy products? Do you think Bill Gates goes around saying that Vista is disaster? Nope. They’re in the biz to sell stuff, and so too are RE agents. Hence I never trust someone who is basically making a living by selling a products I’m interested in buying because whether they’re a ‘nice’ person or not, the bottom line is that its in their best interest to sell you the item they have, even if that item is faulty, bad, or in the case of Bay Area housing- priced too high for today’s economy.

  20. anon Says:

    Sell now. The midrange homes are poised to take a dump.

  21. anon Says:

    Case in point:
    http://www.burbed.com/2008/09/15/finally-a-real-bay-area-house-in-burlingame-commuters-dream/#comment-26394

  22. Herve Says:

    > The crowd was still there.

    And like many open houses, many were just neighbors who have no interest in buying the house. You were just one of them.

  23. R Says:

    I have been to open houses but don’t intend to purchase until 2011 unless the 30% drop in RBA prices happens faster than I expect. Guess I’m doing my part to encourage knife-catching.

  24. bob Says:

    I have been to open houses but don’t intend to purchase until 2011 unless the 30% drop in RBA prices happens faster than I expect. Guess I’m doing my part to encourage knife-catching.

    You aught to tell the real estate agent how much you love the house and all. Get their hopes up real high. Then walk out and tell em’ you’re waiting until the prices fall even more. Wa-ha ha ha ha!

  25. R Says:

    They’ll hate me because I’ll probably represent myself. Have my broker’s license, just don’t work as a broker.

  26. Real Estater Says:

    Bob says,
    >>Hence I never trust someone who is basically making a living by selling a products I’m interested in buying because whether they’re a ‘nice’ person or not, the bottom line is that its in their best interest to sell you the item they have, even if that item is faulty, bad, or in the case of Bay Area housing- priced too high for today’s economy.

    That sounds just like the profession you were in yourself!

  27. nomadic Says:

    Thanks for the refresher, anon. I figured you hadn’t been saying the recession is over. :-)

    RE – who better to know than a salesperson? I’ve met enough stupid ones I tend not to trust them with anything important, not out of cynicism, but half the time they answer questions off-the-cuff without knowing what they are saying.

  28. Real Estater Says:

    If the salesperson actually staged the home with a crowd of actors, with one of them telling me she plans to make an offer, that must be one heck of a salesperson!

  29. nomadic Says:

    Three words: useless anecdotal data.

  30. madhaus Says:

    Gawd, I have been trying to find a song with the same rhythm as those three words all fracking week! I tell ya, this needs a song!

    You know, I have never heard of salesmen hiring shills, Roger. How cynical of you to suggest such a thing.

    Yep. He fell into my trap a second time.

  31. madhaus Says:

    Dunno about Real Bay Area rents, but in Real New York City, rents are down 10-15%.

  32. Real Estater Says:

    This article from the Chronicle sounds much like what I posted before:

    Putting news of job cuts into perspective

    Despite a healthy earnings report, global software giant SAP said last week it will reduce its worldwide head count by 3,000 jobs or about 6 percent by year end. But the cuts will come mainly from attrition.

    Microsoft said it will eliminate “up to 5,000 jobs,” or 5 percent of its workforce. About 1,400 positions are already gone but the rest will disappear over 18 months.

    Santa Clara’s Intel said it will shed 5,000 to 6,000 jobs, or 6 to 7 percent, but the cuts will take 12 months and more than half will be overseas.

    Home Depot said it will close its Expo Home Center and Yardbirds chains, resulting in 7,000 layoffs by the end of April. That’s terrible, especially if you’re one of the 7,000, but it’s only 2 percent of Home Depot’s workforce.

  33. Real Estater Says:

    Now checking the Mercury News…they put out another hype headline: Mortgage crisis spreads to more affluent areas of Silicon Valley

    Let’s look at some details:

    according to a Mercury News analysis.

    What? The Mercury News is now in the economic analysis business?

    The late-payment problem is creeping across the valley into areas such as Willow Glen, Campbell and Sunnyvale.

    These are “affluent” areas?

    Take, for example, San Jose’s 95125 ZIP code, which includes the picturesque, sought-after Willow Glen neighborhood. The portion of serious delinquencies — loans that were at least 90 days overdue — rose steeply from November 2007 to November 2008, from just 0.3 percent to 1.7 percent.

    Gee, with a headline like that, I wasn’t expecting just 1.7%.

    While the portion of loans in the county that are overdue is still small, the growth trend is troubling

    Basically, there’s no problem now, but let’s hype it!

  34. nomadic Says:

    wow, you’ve been cherry picking again this morning!

    Also from your Chron article:

    At some companies, the layoffs really are swift and severe.

    Caterpillar announced 20,000 layoffs last week including 15,000 that have already taken place. The rest will be done by March 31.
    .
    Given the cascade of layoff announcements, Prakken says the national unemployment rate will keep rising until next year and will surpass 8 or even 9 percent. It was 7.2 percent in December.
    .
    Challenger notes that layoff announcements are growing not just in number but in scope. Unlike last year, when they were concentrated in finance, autos and housing, this year “it’s in heavy equipment, pharmaceuticals, retail. It reached into every corner of the economy.”

    It’s even hitting the corporate-jet market. Last week Cessna announced 2,000 job cuts on top of 2,600 it announced since December. Total reduction: 30 percent.
    .
    Challenger says employment might be nearing a bottom, but he doesn’t think companies will start hiring anytime soon. “We may go into a period of jobless recovery,” he says. After the previous recession ended in November 2001, employment didn’t show sustained growth for 18 months.

    If things don’t improve in the first quarter, we could be in for another round of job massacres in April.

    Wall Street economist Ed Yardeni thinks it could happen sooner. “This has the potential for being ongoing,” he says. Companies “are not going to wait for their next quarterly earnings announcement to actually fire people if things continue to deteriorate.”

  35. bob Says:

    Funny how you RE cheerleaders call negative RE news “hype” and positive news “Great news!!!!”

    Morons…

  36. bob Says:

    That sounds just like the profession you were in yourself!

    WTF are you talking about? Give up RE. You’re grasping at straws.

  37. nomadic Says:

    Gee, with a headline like that, I wasn’t expecting just 1.7%.

    …so, you don’t suppose a 567% increase is an alarming trend? At what point would you say we should start to be concerned? If PA defaults hit 2% you wouldn’t be worried?

  38. anon Says:

    prime willow glen…one rung up from the bottom…knees cut out from under… losing… valuation.

    I knew it would come, but this quickly? Wow…

  39. anon Says:

    Amazing how quickly the market is moving considering how illiquid real estate is.

    I guess that’s what happens when everyone’s overleveraged.


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