March 27, 2009

Where to buy? What to buy? When to buy?

Personally, I warms my heart when I see people helping each other out on Burbed. Those are the comments I love to see. It’s the powerful community in action.

In case you missed it… or you want to chime in… here is yesterday’s moment:

First, a question:

SoonToBeDad Says:
March 26th, 2009 at 2:25 pm

Long time listener, first time caller here.

I’m going to be a dad soon. The “host” is demanding we buy a place.

The 2br rentals in Mountain View and Sunnyvale are all about 1800 and they suxxors.

I think I can spend up $3500 in PITIZKLMUOK8J (everything all in) at most.

Downpayment is a mixed story.
I put it all in the stock market. Stooooooooooooopid me.
I think have $100k left.

What should I do? I’m thinking of a 2br /1ba . You guys have scared me away from condos and townhouses with HOAs.

Where should I buy? What should I buy?

Will it go up in value? (Just kidding. If it is RBA, I know it will. lolz!)

The first piece of advice?

nomadic Says:
March 26th, 2009 at 2:45 pm

The “host.” LOL. The kid isn’t even born and it’s already a parasite? ;-)

2BR/1BA? With all due respect, why bother buying? Save up some more, wait until next year.

Wait until next year. Ok. Next piece of advice?

smart dads rent Says:
March 26th, 2009 at 3:05 pm

Hi new Dad, I’m in the same boat. We sold our house in 2006 to move to CA and are we are renting a house. Equity was put in the stock market (it seemed less likely to loose money than the housing market!).

We are now renting, and will rent at least until the kids are school age. My current rent is less than the interest payment would be to buy a similar house.

Unlike the inefficient housing market, the stock market is much quicker to correct to economic reality. At this point, stocks are much more likely to appreciate while housing prices may continue to decline (except the RBA!).

My advice is to move to a rental house and let your landlord eat the depreciation. I know it is hard for aspiring homeowners to understand, but owning a house (and the headaches of ownership) is overrated.

Then, some clarification:

SoonToBeDad Says:
March 26th, 2009 at 3:34 pm

To Madhaus: Have I considered school districts? Yes. Anywhere in the RBA.

To nomaidc: 2br/1ba is the minimum. Ideally I’d like to see 3br/2ba. Or more!

Is $3500 and $100k for downpay not enough? Is that what people are saying?

To: Smart Dads Rent
Interest rates. So low. Cannot resist. They’re goin go back up.

I don’t have an MBA. How can I calculate/justify renting a $3500 a month house versus paying a $3500 all-inclusive payment mathematically? How do I justify it to “the host”?

Followed by this referral:

nomadic Says:
March 26th, 2009 at 3:47 pm

dad – I think steve originally posted this link. It’s a pretty good calculator to play with:

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=2

Figure about 1.1% for property taxes.

Some encouragement to buy ASAP:

Real Estater Says:
March 26th, 2009 at 3:54 pm

SoonToBeDad,

I think you’re making the right move. You’re planning for the future, instead of living day to day. You really can’t argue with the fact that now is a great time to buy a home. Interest rates are at historic lows, and home prices in the BA are about as low as you’re likely to see. You may not catch the absolute bottom, but the upside is way bigger than the downside at this point. Most importantly, you can’t put a price tag on raising your kids in a home of your own.

But then there was a difference of opinion:

smart dads rent Says:
March 26th, 2009 at 4:41 pm

To Realeater: Actually, my returns would have been much worse than the stock market if I had bought another house in 2006: I would have negative equity right now. Leverage works both ways you know.

To Dad: the point is that I can rent a much nicer house than it would cost me to own. Home ownership in the Bay Area only makes sense if you have substantial price appreciation (which we are not likely to see for years

Some disheartening advice:

DreamT Says:
March 26th, 2009 at 5:03 pm

“Is $3500 and $100k for downpay not enough? Is that what people are saying?”
Not enough for RBA cigars. In fact, not enough for grey area either. Unless you land a foreclosure or a fixer-upper, and you’re prepared to beat 50 other offers.

The city of Santa Clara’s housing plan – 1st draft – is out today at http://www.santaclaragp.com/pdfs/Santa_Clara_Draft_Housing_Element_032409.pdf
check p. 11 and p. 111 for population growth figures, p.119 for income figures, p.120 for rent figures, etc.

.. and SoonToBeDad – you can buy a condo with $20k down and be in a good school district. Considering your budget, if education is a priority, you should definitely consider this alternative.

But wait… then Karen steps in and says:

karen Says:
March 26th, 2009 at 7:54 pm

SoonToBeDad – please don’t buy yet!!! somehow convince the mom-to-be that renting is okay. I have incredibly fond memories of the rental places that we lived in when I was little (grad student housing and then a place very near to the beach that my parents could never have afforded to buy). my parents bought when I was about six, when they could genuinely *afford* to. this reduces stress!!!

why not rent in a nice apartment complex with lots of other families with little kids? It’s really fun for little kids to have loads of other little kids around. and while your kid is a baby, there will be plenty of other moms around for your wife to commiserate with.
Prices are going to keep going down, because the job market is going to get worse, and the resets are coming. better to invest now in loads of ice cream and milk shakes (mom bribes) and buy a house or apartment later.

p.s. have you looked at rentals in Redwood City? my impression is that the schools are not so good (I don’t have kids, so ask someone else), but that ought to mean that you can get a better rental deal while your kid is too young for school. you can then move to a rental (or buy) in three years or so, in a better school area.

Finally, some more advice:

smart dads rent Says:
March 27th, 2009 at 12:01 am

New dad, the best thing to do is to compare rentals to the interest expense of owning. If you buy, remember that moving will cost you 6% in realty fees and you will pay 1% a year in property tax.

There is no need to live in a good school district until your child is old enough for school. Until then you can rent more cheaply and invest the difference.

Wow. I love it when the community steps in to help.

Agree? Disagree? Chime in!

Actually, if you look carefully, one of the original questions is never answered: “where to buy?” – this is your chance to jump in with your favorite microneighborhood…. like WOEISME (West Of El Camino, Intersection of  Stanley & Miramonte Ave)

Let’s help a fello Burbian out!

Comments (154) -- Posted by: burbed @ 6:17 am

154 Responses to “Where to buy? What to buy? When to buy?”

  1. SiO2 Says:

    If you want to buy in the $600k-$700k range, I’d look at Cambrian. You can get a nice 3/2 there for that $. Union and Cambrian school districts are pretty good. Not Cupertino/Los Altos/Palo Alto but pretty reasonable, both for API and for activities like art and music. I know parents living there who like it. You might even be able to get a reasonable but smaller place in the $500s. This might work for $3500 + $100k. However if $100k is all of your money, I would definitely not put it all into the down payment. Having reserves of 6 months or more is extremely comforting in the event of job loss. Plus with a little one on the way, your expenses will probably go up. Diapers, baby stuff, etc etc.

    From Cambrian, commute to North San Jose or Sunnyvale is ok, 25 min. Commute to Mtn View or Palo Alto is not that good, 45 min or so.

    A similar neighborhood in Sunnyvale will be more $. You can get similar prices in Sunnyvale but the neighborhood is not as good. Tradeoff with commute I suppose.

  2. DreamT Says:

    Wait, that was disheartening? :)
    Santa Clara CUSD offers some the best value in the BA – good schools, proximity to everything, no traffic whatsoever on side streets, no crime to speak of, excellent neighbors, very well maintained houses and yards generally. Prices vary from $650k to $1M. Also the prices followed a steadier trend in the 90s and 00s so there’s been relatively less of a bubble. Downsides? Boring tract housing that could use more trees. Not walking distance to Santa Clara’s downtown-in-the-plans. And possibly going to be impacted by recent layoffs, although it’s too early to say and inventory remains exceedingly low.

  3. Joe Says:

    Patience. All indicators are showing lower prices in the foreseeable future. Why throw your hard-earner money away in a downpayment, when you can possibly lose that equity over the next couple of years? Read the blogs on the right side of the Burbed page and become educated about the housing bubble.

  4. Burbdog Says:

    In terms of where to buy, you should put some consideration into your commute. Your kid will be most active from 6:30am-8:00pm. If you want to spend quality time with your familly, you won’t want to spend more than an hour on the road. Next point, the API scores help with determining if a school district is good, but you should also look at the availability of ellectives (pe, music and art). Also find out how involved the parent community is in the school (better parents mean better kids that means less negative peer presure for your kid). Also male sure that if you are buying close to an elementary school they give enrollment preference based on proximity. I believe there is a battle brewing on this in Burlingame and Pacifica. Apparently some communities bought into the idea that neighborhood schools are elitest.
    You should start going to open houses now. You will enjoy them much less when you have a newborn. Even if you choose not to buy for the year, your efforts will pay off by figuring out where you would like to live. Think neighborhood, not just the house when looking, take the time to walk around the block at all of the open houses you visit, look at the schools and near by parks and playgrounds too.

  5. CB Says:

    I don’t understand this statement:

    If you buy, remember that moving will cost you 6% in realty fees and you will pay 1% a year in property tax

  6. steve Says:

    CB, smartdad may have been able to phrase it better, but the point is that there are all sorts of costs owners incur that renters do not that are easy to overlook. Examples are 1.1%/year property tax, repairs, homeowners insurance, (possibly) earthquake insurance, and, depending on the rental situation, warter, sewer, garbage and yardwork.

    On top of this are the costs associated with selling your home. Expect $10K or more in pre-sale sprucing up (painting, etc) and 5-6% of the final sale price in fees to real estate agents. The seller pays both the listing agent and the buyer’s agent. Staging is not included in your 5-6%, so that’s another $10K or more.

  7. SanMatean Says:

    CB- the home seller typically pays 3% comissions to each of the buying and selling agents.

    Don’t forget the closing costs on the buyer’s end, they can often add up to 1-2% of the home cost- think title insurance, mortgage points, inspection fees, etc.

    Then you have the wife fees: Must have new furniture to complement room layout, drapes, blinds, that shade of green just won’t do, why isn’t there an extra outlet here, etc.

    All in all, the total cost per transaction ends up in the 8-10% range.

  8. DreamT Says:

    Staging can be had for 1/3 of $10k. On the other hand, SanMatean is absolutely correct that if you move from an apartment/condo to a house, better budget for furniture, carpets, curtains, sofas, appliances and whatnot – not to mention replacing that linoleum or fixing that roof so that the insurance agent’s happy and willing to insure you. All of these dwarfed by far our sprucing up of the condo we’d put for sale.

  9. steve Says:

    If you want to have some fun with the NYT calculator, here are some numbers to try. Last month you could have purchased: 207 Ferne Ave., Palo Alto 94306.

    List: $1.299M Sold for: $1.375M COE date: 3/4/2009

    Or, today you could rent 461 Ferne (94306) for no more than $2950/month – gardener included

    Same schools, same street (edge to the rental, though, on distance from the train), same house, similar original condition (edge to the sale property here, though).

  10. CB Says:

    I understand the commission fees, but they are paid on the sellers end. They can be considered embedded in the price of the home but commission is not an add-on fee as implied.

  11. CB Says:

    D’oh, I get it. If you sell the home you’re buying.

    Though I’d say considering the fees associated with selling the home many years into the future is the renters equivalent of costs associated with breaking the lease. Be aware of that cost, but they can be avoided, mainly by stating where you are if need be.

  12. steve Says:

    CB, given that all that matters is the *net* to the seller (SM – good call on closing costs although the tradition varies by county — oddly. SM and SC are different), I’m not sure I understand your point.

    Whether the seller hands me $1M and I then pay $25K to agent 1 and $25K for agent 2 or the escrow agent does it for me, at the end of the day I only have $950K to show for me $1M sale. In fact, if I were paying 5% on top of the 950 I would be better off by $2500.

  13. CB Says:

    Steve, My mistake – I thought ‘smart dads rent’s’ implication was that the buyer pays commission fees when they buy a home. I should read and not skim.

    Though I think #6 exaggerates selling costs a bit. I’ve sold two primary residents and never had to pay for staging nor had much cost toward touching up the home before market.

    Though I live a very sophisticated and tidy home life to begin with. In fact one so sophisticated, professional staging experts should pay me to consult [/sarcasm].

  14. SoonToBeDad Says:

    Wow I got featured. Cool. And lots of advice. I never thought about going to open houses a year before I wanted to buy.

    I work in Mountain View/Palo Alto, so that’s why I was looking to live in the RBA.

    @DreamT: What areas in Santa Clara CUSD are good? Could you name a few streets? There’s a downtown in Santa Clara?

    By the way, just to make triple sure, no one here suggests buying a condo/townhouse. Am I right?

  15. BuyersAreIdiots Says:

    What this conversation basically demonstrates to me is that we are still no where near the bottom. If people can still rationally consider a purchase in this economic climate and with all the evidence in the world pointing to the fact that real estate is still poised to go lower, then it is obvious we have not reached capitulation yet.

    My advice to ‘SoonToBeDad':

    You don’t need an MBA to do elementary math. In fact, based on what I have seen from the wall street idiots thus far, I doubt it is even a requirement for them.

    Simple math is this:

    If the cost to rent an equivalent property equals the combined monthly mortgage cost on a traditional loan including property taxes, then you are likely in a better position to justify a purchase.

    If however, there is a massive disparity in what it costs to rent a property in an area versus purchasing it at a huge premium, then the math simply does not compute.

    In the end, remember this: every asset bubble in history and I mean EVERY ONE has ALWAYS returned to trend line. Always. And we are still no where near that yet. So as another poster indicated: be patient. Don’t let the current minor pop in stocks make you think all is well. Remember how many head fakes the Nasdaq had after the dot com bubble burst? Remember how many bottoms where called?

    My two cents…

  16. UnrealAlex Says:

    So ya lost all but $100k in the stock market? Well, the RE market will help you Bunky, you’ll lose that last pesky $100k in 6 months, a year at most, “guarans ball bearins'” as they say in the Sandwich Isles.

    1% property tax …. sheesh…. and some might think my simple desire for a nice used Harley Sportster, a $4k (used) to $9k (new 883 Iron) is an expensive proposition. That’s paid for once then kept for years and costs 1/5th the cost of a car for gas, and upkeep, insurance, etc. Plus the chick factor heh heh! And how does someone admittedly on the skids afford this? Easy, no insane BA living expenses, when I’m hoe’ing (not to be confused with ho’ing) for a living. It’s not writen in stone that money has to go through your systems like grease through a goose you know.

  17. smart dads rent Says:

    Wow what an honor. My first post gets profiled on burbed! I should take the real estate license exam and start a new fabulous career. As my local realtor advertises, now is an even better time to buy!

  18. DreamT Says:

    @DreamT: What areas in Santa Clara CUSD are good?

    SC CUSD is pretty small – south of Pruneridge, north of Stevens Creek, west of Kiely. Check especially the 50s rancher between Lawrence and Maywood Park. The flattop closer to Stevens Creek are somewhat less maintained, and the houses east of Maywood Park are larger and more expensive. It’s annual cleanup week by the way, so this weekend there’ll be lots of junk accumulated for pickup at the curb (and lots of folks driving by to pick it up before the garbage company). North of Pruneridge is Santa Clara schools with discounts by ~ 50k or so. South of Stevens Creek is San Jose. South West is Cupertino. 280 is in the middle, but still 1/2 mile from the houses nearby the school.

    > There’s a downtown in Santa Clara?
    Yes a postage stamp one, consisting of a parking lot, 2 or 3 restaurants, 2 night clubs and a liquor store. There are downtown events too – concerts and fairs, but really not advertised outside the city. And if downtown’s your thing, you’re better off in Mountain View or Palo Alto – it’ll be ten years before Santa Clara completes a revamp that’s not even started. We hope it goes MView’s way rather than Sunnyvale’s way. :D

    > By the way, just to make triple sure, no one here suggests buying a condo/townhouse. Am I right?

    If that’s what’s in your budget and you’re willing to suffer the restrictions and the risks, why not a condo. I’m less convinced that a townhouse is worth it, though, since you can find SFRs for the same price. There was more bubble speculation on condos and townhouses than on houses BTW.

  19. A. Lewis Says:

    SoonToBeDad:

    I would summarize it this way: with the money you’re talking about, you COULD purchase something on the peninsula. Probably smaller than you’d like.

    BAI’s point is there is huge evidence prices are going to continue to drop – because you’re not looking in the really bad parts of the BA where prices might have cliff-dived so hard they’re already at bottom.

    So if you care about what the property’s going to be worth on anything short of a 15 year timescale, it’s crazy to consider buying.

    HOWEVER, I think we all know about the desire to own a home and the pressure from your baby-momma (what kind of Star Trek fanatic are you to call her the ‘host’?) to own the nest.

    If you just want to own – you can go ahead and own now. But it should be because you’re that desperate to be an owner (and not a renter). As an investment, I think it’s crazy right now. But if you can afford it (don’t stretch on your PITI, get a 30-yr fixed, have cash reserves after closing and buying furniture, don’t buy a fixer-upper), then go ahead, and just don’t read this blog for the next 15 years. Don’t sell the place, and pray you don’t lose your job.

    That last point makes we say I would seriously consider renting in a neighborhood you’d like to buy in for a while. Why don’t you see how the recession and economy play out for another 6-18 months – just how secure do you feel in your job?

    My neighbor just found out the small company he works for will close in 2011, b/c the boss has announced his retirement. He’s 12 months into his 30-yr mortgage, and his wife is looking for work. He is not underwater, if he finds another job it’ll be OK, but he’s under immense pressure right now to handle that gigantic debt he took on. He’d much rather be renting right now with no pressure. With the flexibility to move to a cheaper rental if he had to, or to follow a new job prospect.

    If he’s forced to sell in 2011, he’ll almost certainly take a loss on the property.

    Having said all that, I would go looking at properties, tell all this to your ‘host’, and then if she still feels as strongly, go make low bids on houses you love. If they sell it to you low enough, it’s worth it (but I seriously doubt the peninsula prices have dropped far enough compared to rents – YET).

  20. Burbdog Says:

    In terms of a broker commision 10 years down the road, won’t RE follow the same transaction fee structure that has happened with stocks? I hope that 4.5%-6% commisions should begin to evaporate since we all can access the MLS now on our computers and cell phones.

  21. A. Lewis Says:

    #20 – we can hope, but the RE industry hasn’t shown much sign of weakness yet. It’s only on ‘the fringes’ that people make a house transaction without paying these commissions. I think they’re outrageous – only because house prices are so high in relation to incomes.

  22. Herve Says:

    > I would summarize [...]

    A. Lewis, a summary is supposed to be shorter ;-)

  23. DreamT Says:

    Herve, just be glad you got the excerpt (or is it exercerpet?)

  24. burbed Says:

    If the cost to rent an equivalent property equals the combined monthly mortgage cost on a traditional loan including property taxes, then you are likely in a better position to justify a purchase.

    Someone once told me that has never been the case here in Silicon Valley. But there’s no data to support or refute this.

  25. steve Says:

    when I bought at the beginning of 96 in mtn view it was the same cost as renting. many palo alto places 91-94 fell into this category too.

  26. A. Lewis Says:

    #22 – I have a reputation to uphold, you know ;-)

  27. A. Lewis Says:

    #24 – ‘someone’ doesn’t have a very long memory. I promise you the rent/own ratio was quite ‘normal’ in the distant past around here.

    “Back in the day” (50s, 60s, maybe even 70s), ordinary assistant professors at UC Berkeley and Stanford used to buy homes walking distance to campus. You know, modest SFH, 2 or 3 bedrooms, with a little yard. Those were modestly priced homes for people with modest middle class incomes.

    Things started to get heated up more during the 80s, gradually morphing into the crazed situation we find ourselves in now.

  28. BuyersAreIdiots Says:

    #24 (burbed)

    In actuality, I came across a site many years ago that provided a good overview of how prices in the Bay Area (real or otherwise) matched up with equivalent rents. Despite what folks at the NAR might try and state, the data indicated that the concept of rents and mortgages being equivalent was a true notion until around the late 90s. It was then when the gap started to appear.

    I heard the exact same statement from a former colleague of mine who has lived in this area all his life. Basically, he said while housing was pricier here than other areas of the country, it still matched to salaries. He actually went so far as to say that generally, the slight premium of median house price to median salary for the more prime areas of the Bay Area hovered around the 4 to 1 ratio for the longest time and did not deviate from this until the late 90s when the dot com mania began to really take hold.

    The point in the end is that the dot com bubble was the initial catalyst. It created wealth in the system that should otherwise not have existed. Basically, fictitious growth based more on exuberance than fundamentals. (Remember that Greenspan’s famous remark about irrational exuberance was made in 1996) So the mania was already obvious at that point.

    When the dot com bubble burst, the fictitious wealth evaporated and we SHOULD have returned to normality. In fact, this very telling chart from Dataquick demonstrates this in regards to housing:

    http://mysite.verizon.net/vodkajim/housingbubble/san_francisco.html

    That little dip in 2001 should have been deeper and returned us to trend line. Unfortunately, what actually occurred was a secondary inflation of a bubble fueled entirely by debt and low interest rates.

    But I digress. In the end, don’t believe the hype that the Bay Area is ‘different’ or is somehow immune to the notion of prices matching with economic fundamentals. Such a place only exists in RE’s head. :-)

  29. Real Estater Says:

    A. Lewis,

    Why do you advise against buying when you were thinking about buying yourself?

  30. CB Says:

    the slight premium of median house price to median salary for the more prime areas of the Bay Area hovered around the 4 to 1 ratio for the longest time

    Check out this prior burbed post

    Price to income ratios for Santa Clara county hovered around 3.5-4 to 1 in the 90’s while San Mateo and SF counties were higher, ~5 to 1. National averages are closer to 3 to 1.

    I’m not saying this place is special, but those expecting prices to drop well below 4 to 1 may be a bit exuberant on the down side.

    I think it’s good advice to present the cost of renting vs buying as a sterile quantifier, but for many there is an emotional element to purchasing. Following fundamentals means keeping the $ value of this emotion in check.

    Obviously ‘BuyersAreIdiots’ is fortunate, or content, to consider a home as just a place to live, like any.

    On the flip side, ‘real estater’ advocates irrationally that home ownership is generally a wealth building device.

    There is a place in between those positions.

  31. SanMatean Says:

    Totally off-topic, but can anyone recommend a contractor for a medium-scale project on the SF Peninsula? My wife has decided that she wants to add a bathroom while labor is abundant/cheap!

  32. burbed Says:

    There is a place in between those positions.

    How zen!

  33. rick Says:

    I think that someone is WG, who seems to be missing for a while. The rental market is going down as people predicted, I wonder whether he has a different opinion. I also did not believe him, I remember in 96 pretty decent houses were selling for 300k+ in decent areas like Sunnyvale (not the premium part) and Milpitas, though that was the trough of the 90 downturn.

    BuyerAre…, your analysis is quite good, just your id is kind of annoying. So from your chart housing cost is already in par with historic value now? It is kind of hard to believe, definitely not yet in RBA. In bad areas northeast bay prices do seem to be back to 2001 already.

  34. rick Says:

    “home ownership is generally a wealth building device. ”

    This guy always bings up conventional wisdom, it is true, I do believe that home ownership IS, however, there is a second part – IF the price is right. Conventional wisdom does not apply to every situation, just like buy and hold stock for a very old time is a tried and true wisdom, but buying Cisco at $80 was a stupid idea. Everything has a price in investment, if one is so blind then his only qualification to give advice is hiding money in his mattress, at least he can brag about not losing money.

  35. Pralay Says:

    Conventional wisdom does not apply to every situation, just like buy and hold stock for a very old time is a tried and true wisdom, but buying Cisco at $80 was a stupid idea.
    ——-

    But, RBA real estate is such a super-duper extraordinary investment that conventional wisdom does apply to every situation.

  36. anon Says:

    “Why do you advise against buying when you were thinking about buying yourself?”

    This is not obvious to you?

    He decided it was a bad idea to buy.

  37. Pralay Says:

    This is not obvious to you?

    He decided it was a bad idea to buy.
    —-

    Anon,
    RealEstater is like a binary bit which has only two setting:
    1 – buy home NOW
    0 – be renter FOREVER

  38. SoonToBeDad Says:

    Thanks everyone for your input. I’ve certainly got a lot to think about.

    I just can’t help shake this feeling that I’m failing my family by not buying a house.

    I just Redfin’ed the area Santa Clara CUSD area mentioned above. The results were downright depressing.

    http://snurl.com/eptyx

    Wow. 6 houses. The cheapest of which was $799k which was a short sale.

    Good thing my trill (another Star Trek reference?) is sleeping so she doesn’t see the tears…

  39. DreamT Says:

    SoonToBeDad, there’s actually a foreclosure coming up on Tracy Dr. close to Pruneridge (the sign is already up). Prices haven’t really decreased yet in this area but if semiconductors layoffs continue, maybe you’ll see more opportunities.
    The reason I recommended SC CUSD is that Sunnyvale CUSD, Cupertino and West San Jose are all more expensive for same lot & house size, same school quality… :)

  40. Real Estater Says:

    SoonToBeDad,

    For that kind of price, you might as well just buy into Cupertino. For example, something like this:

    http://www.movoto.com/real-estate/homes-for-sale/CA/Cupertino/10721-Gascoigne-Dr-100_80841290.htm

  41. DreamT Says:

    He just wrote he can’t or won’t afford that “kind of price.” Reading comprehension problems again?

  42. anon Says:

    Soon to be dad,

    Please do not succumb to the societal pressure to buy a home. Your success does not depend on it, and you will only bail out someone who was has helped contribute to the ridiculous housing situation.

    -nobody

  43. Real Estater Says:

    SoonToBeDad,

    Don’t let low achievers distract you from doing the right thing. Recession is the best time to buy a home. If you lock in the interest rate now, you’ll enjoy the fruits of your decision for decades to come. Buying a home is also a good way to enforce the discipline of saving money. Think of your home as your piggy bank. Instead of throwing money away in rent and taxes, you are saving it into your home.

    With a kid coming, you want to get settled before the baby is born. After your child is born, you will be spending more time at home, and your whole life revolves around where you live. You don’t want to feel like a floater. Even without my wife asking, I would not want to give her a life of raising kids in a rental apartment.
    So far, the only reason the anti-RE camp has come up with is that renting is cheaper. That is only true in the short term, and it’s always been that way. Virtually all the RBA homeowners I know who have owned their homes for 5 years or more are paying less for their mortgage than it would cost to rent an equivalent place.

  44. DreamT Says:

    To each low achiever his auln. RealEstater’s take is that – unless your achievements are meant to impress your coworkers, don’t even bother. SoonToBeDad will quickly figure out by himself if he’s found a soulmate.

  45. karen Says:

    Soontobedad – you are *not* failing your family by not buying now. you are doing them a favor by waiting for the right time. being house poor is extremely stressful. by humoring your wife now, you could get your family into a very uncomfortable situation, and totally needlessly. I actually agree that there are benefits to raising a kid (ultimately! not from birth!) in an owned place. but between now and when your child starts school is actually a great time to save money (in CDs!) for a bigger downpayment, and get to know more neighborhoods.

    riddle: if a man is alone in a forest, far, far from the hearing of his wife, is he still wrong?

  46. Real Estater Says:

    karen says,
    >>between now and when your child starts school is actually a great time to save money (in CDs!) for a bigger downpayment

    Now is the worst time to be in CDs. CDs are returning historically low rates. One will benefit far more by capturing the historic opportunity in housing than to save a few extra dimes at precisely the wrong time. If you want to save, save into your home.

  47. Lionel Says:

    Soontobedad, we are cresting what is the largest credit bubble in the history of this country. Buying now is financial suicide only contemplated by people who are ignorant of both history and economics. Wait for three years and buy at a severe discount. Your child until he or she is five or six will have only fleeting memories of their life; they won’t care whether or not you’re in a rental. They only care that you love them and are both physically and emotionally available to them.

  48. Pralay (@Changi) Says:

    With a kid coming, you want to get settled before the baby is born.
    ——

    Only a real estate agent with screename RealEstater and constant-right-time-to-buy sales pitch can give such a reckless advise. New born brings additional expenses – medical, mother’s health issues (especially postpartum depression). You definitely have 100 things to worry about once baby arrives. Same way a newly purchased home have additional expenses. You don’t want to deal with two babies same time, unless they are twins. One at a time.

    However, in his statement of settling before the baby is born, there is a truth in it. It is good to settle when you have enough timegap between home purchase and baby’s arrival. But as you can see an real estate agent don’t care about this timegap. He just want to sell his home as soon as possible.

    Soontobedad, ask within your friends’ circle who have babies, and who purchased home. You will get better idea.

    ———–
    Recession is the best time to buy a home.
    ———

    LOL! One more right/best/perfect time to buy. :)

  49. Real Estater Says:

    Let’s understanding something here… Pralay does not have a child, and has never owned a house. Yet, he’s offering advice regarding babies and real estate?

  50. Real Estater Says:

    >>Soontobedad, we are cresting what is the largest credit bubble in the history of this country. Buying now is financial suicide

    >>You definitely have 100 things to worry about once baby arrives.

    I see a lot of scare tactics being used here. When I moved into my current house, I switched job as the escrow was closing, and I had a baby on the way. It was also in the wake of the dot-com collapse, when many people were worried about jobs. Interest rate was higher then than it is today.

    In hindsight, it was one of the best moves I’ve ever made. When it’s time to act, it’s time to act. No more procrastination, delays, or girly man excuses.

  51. madhaus Says:

    SoonToBeDad:

    I don’t agree with DreamT that Santa Clara/CUSD is the equivalent of Sunnyvale/CUSD, and I say that as someone living in the latter area. I do agree that SC/CUSD is an excellent place to look for a home. Your commute will be longer, most of the schools score lower, and the city services aren’t quite as good in SC. But heck, it beats San Jose! By the way, 95129 SJ (Westside) is mostly CUSD as well.

    The property RE suggested is in Rancho Rinconada, or as I disparage it, Rancho Rinkydinky. It’s an area of small lots with crapshacks with some of the lowest scores in the whole Cupertino School District. Parts of RR are being improved by tearing down the crapshacks and putting up minimansions on the tiny lots. That house on Gascoigne is in the area that hasn’t had much improvement yet.

    Another problem I’m seeing with your payment numbers is that you may have trouble qualifying for a loan that matches what you can pay monthly, if you only have $100K as a down payment. A lot of places want 20% down again. You’ll be paying PMI with 10% down. $3500 a month at 5% will give you a $600K loan, but you’ve already noted you need room for taxes, insurance, PMI, repairs, and surprises.

    I would actually recommend you look into townhomes or even condos in the good school districts for your situation. The places in CUSD with good locations have held their value reasonably well. Same rules apply as in looking at a house: away from busy streets, freeway noise, power lines, and the like. I actually did find some condos in 94087/CUSD/Homestead for under $500K… yeah, they’re not in the best parts of town, but you can’t have everything.

    I had a friend who owned in the Northwoods tract and she ended up doing well when she sold her place and moved to Michigan. And I didn’t get that not-enough-space feeling there I’ve had in other attached housing. All I can say is get on Redfin, look at the prices, and then drive around and look and see if you could stand living there.

    But I’m going to join BuyersAreIdiots and tell you not to buy now, especially since there’s no way you’d stay in this place for 15 years. Pick a neighborhood you like, rent, and look to buy in 2-4 years. Prices are not going to shoot up this year with so many jobs disappearing.

  52. Pralay(@Changi) Says:

    Let’s understanding something here… Pralay does not have a child, and has never owned a house. Yet, he’s offering advice regarding babies and real estate?
    —–

    :) Thanks a lot for showing the contrast (and I knew it was coming). Without being homeowners and father, I am asking him to be cautious. Because both things (newborn and home purchase) are big things in life. On other hand, being father of two (at least you claim so), you are giving reckless advise. I guess that’s why people like you are called “Realtard”.

  53. Pralay(@Changi) Says:

    When I moved into my current house, I switched job as the escrow was closing, and I had a baby on the way. It was also in the wake of the dot-com collapse, when many people were worried about jobs. Interest rate was higher then than it is today.
    —-

    Aha, personal example. Well, who wants personal example from a proven pathological liar?

    :) And even his current statements are full inconsistency. 2003 was not a “wake of the dot-com collapse”. It was post dot-com bust.

  54. madhaus Says:

    2003 was also beginning, very beginning, of the bubble. Buying a house in Palo Alto in 2003 was like joining Cisco in 1992 and quitting in summer of 2000, and then saying joining a networking company will always make you rich.

  55. DreamT Says:

    “I don’t agree with DreamT that Santa Clara/CUSD is the equivalent of Sunnyvale/CUSD, ”
    Wait, I never made that assertion. I said that for equivalent lot size, house lot, and school score, SC CUSD is cheaper – as a comparison basis. Generally lots are smaller in SC, houses are smaller and school scores a bit lower. Just like I’d say for same equivalence, Sunnyvale is cheaper than Los Altos or Cupertino.

  56. Real Estater Says:

    madhaus says,
    >>The property RE suggested is in Rancho Rinconada, or as I disparage it, Rancho Rinkydinky. It’s an area of small lots with crapshacks with some of the lowest scores in the whole Cupertino School District.

    Staying on topic, the test score comparison should be with Santa Clara CUSD.

    The area originally has many “crapshacks”, but many homes have been rebuilt into million dollar mansions. Thus, you’re not just buying the home, but also buying the potential.

  57. madhaus Says:

    #55 – DreamT, okay I’ll accept that. Yeah, Sunnyvale/CUSD is less expensive than Cupertino/non-RR. And I did say it’s a great neighborhood. We would definitely have looked there if we couldn’t have afforded moving 5 miles west.

    #56 – But as I said, Gascoigne hasn’t had enough crapshacks turning into lipstick-on-a-pig-shacks. Those “million dollar mansions” are all crowded into tiny lots, too. Only in the RBA could “million dollar mansion” mean substandard housing.

  58. Real Estater Says:

    madhaus says,
    >>Buying a house in Palo Alto in 2003 was like joining Cisco in 1992 and quitting in summer of 2000

    If you look at how things stand now, with the credit crisis, recession and all, a few years down the road you’re going to be saying the same thing about this year as what you said above.

  59. karen Says:

    there is a special circle in hell for realtors who browbeat emotionally susceptible folks – especially parents-to-be – into financially hazardous purchases

  60. anon Says:

    “In hindsight, it was one of the best moves I’ve ever made. When it’s time to act, it’s time to act. No more procrastination, delays, or girly man excuses.”

    You would know. Let me assert something:

    Real men create value by effort of will. Little boys suck the tit of a mega project waiting for their bonus…

  61. Pralay(@Changi) Says:

    there is a special circle in hell for realtors who browbeat emotionally susceptible folks – especially parents-to-be – into financially hazardous purchases
    —–

    Couldn’t agree more.
    And our RealEstater is going to have his own special zipcode there, so that he can earn respect from his co-workers – even in hell. :)

  62. Pralay(@Changi) Says:

    Prices are not going to shoot up this year with so many jobs disappearing.
    —–

    That’s the bottomline. Even Palo Alto is getting 20% “real” haircut. Price is not going anywhere but down.

  63. DreamT Says:

    #61 – Ah, that famous quote where he managed to insult every one of his coworker by inferring they’re as shallow as he is

  64. A. Lewis Says:

    #29 – I continue to watch and wait. I am interested in 3 different neighborhoods, all in the East Bay. They have their own special issues and pricing different than the Peninsula neighborhoods SoonToBeDad is interested in.

    My advice, as always, is relative to what’s relevant. If the prices were right in those neighborhoods, I’d advise him to buy. They’re not there yet. SOME parts of the East Bay I’m interested in show signs that their prices are dropping fast, so I’m getting more serious about my shopping. I have price points in mind. If they’re met – I’ll buy. If not, I rent.

    SoonToBeDad – have faith in the wisdom of the Angry Renter :-) ! Trust me, those neighborhoods are going to get cheaper. Finally, after years of waiting, you are going to be GAINING on the housing market throughout 2009, 2010, and probably for another 5 years after that.

    Those places going for $799k are unsustainable. Make your own price points, and I think that if you rent for a little while longer, it will pay off. And definitely, your kids won’t remember virtually anything before age 4 – I would certainly want to be settled, too, in a place I could live in ‘forever’, but don’t screw yourself to get that.

    Many happy homeowners move for one reason or another, too (avg. is 7 yrs, right?) – are the children of those folks less affected by the move than a family that rented a SFH for the same duration? I don’t think so…

    As a renter, let me tell you I have the best feeling renting yet this year. I have gained SO much on the market this year – with what I’m saving up, with prices dropping, with inventory high and sellers becoming desperate, it is great to be renting. I also am not even slightly worried about the value of my home, or the threat of an earthquake on my finances – my renter’s insurance will cover me for a pittance.

  65. DreamT Says:

    “Those places going for $799k are unsustainable.”
    How are they any less, or more, sustainable than the places going for $350k, or $1.5M? I’m not saying you’re wrong or right, simply that you seem to be throwing a judgment call on a very specific pricing in a specific neighborhood without any research or knowledge of it. If you inferred that because, well not a single pricing at the moment is sustainable in the peninsula & south bay, explain why we still can observe 50 offers on a Santa Clara house in March 09, for a place on a busy street which is neither foreclosed nor a short sale, in the middle of a recession accompanied with dismal real estate news? Does that make it 50 idiots and you the sole wise man? Or maybe they did their homework and drew some (right or wrong) conclusions while you simplified the situation to “unsustainable”?

  66. Real Estater Says:

    DreamT,

    Looks like you cannot make up your mind what your position is.

  67. DreamT Says:

    Troll,
    This was a legitimate question, not a statement of a position. As I made clear, I have no opinions whether these folks are right or wrong to decide to make an offer now on that specific property. But I am of the opinion that A.’s blanket statement is unsubstantiated and therefore necessarily incorrect.
    If you want to know, my position on real estate in the bay area is closest to madhaus’, and closer to yours than folks who expect to see prices shrink by half in the coming years. However I don’t believe that current Palo Alto prices or 95051’s are at their bottom – but folks who plan to eventually buy should be looking right now, and finally I believe in giving advice on properties and neighborhoods, but not on financial decisions like the bulk of the posters here including you seem to enjoy doing. Clear enough?

  68. madhaus Says:

    If you want to know, my position on real estate in the bay area is closest to madhaus’, and closer to yours than folks who expect to see prices shrink by half in the coming years.

    Wow, DreamT agrees with me. And I had predicted 20-25% haircuts back last summer. People calling for half-off at THIS POINT are being, um, alarmist.

    Take a look at what home prices did during the early years of the Depression. Hmmmmm. Similarly priced to the early 1920s!

  69. Real Estater Says:

    >>there is a special circle in hell for realtors who browbeat emotionally susceptible folks – especially parents-to-be – into financially hazardous purchases

    There’s a cicle in heaven for those who help themselves succeed. A lot of people are doing just that:

    Despite a tattered economy and grim real estate market, every month more than 5,000 people buy a house in the Bay Area.

    Are they fools to invest in homes that could plunge in value, or are they fortunate folks taking advantage of bargains?

    “You hear all this talk about how nobody wants to catch a falling knife,” said MDA DataQuick analyst Andrew LePage, referring to the expression for investing in a plunging market. “Despite that, there are plenty of people who have decided that it is time to buy. They are bargain hunters buying because they perceive a lot of these homes as good deals.”

    A Chronicle analysis of sales data from MDA DataQuick, a San Diego real estate research firm, indicates that the majority of local buyers are either first-time homeowners or investors taking advantage of the huge glut of fire-sale-priced distressed properties – bank-owned foreclosures, short sales and homes surrounded by foreclosures and short sales.

    “At least two-thirds of the market is split between investors and first-time buyers,” said LePage. “The balance is mainly the people who have to buy because of a new job or other life events.”

    Many homes here have returned to the realm of reasonable prices, with the median sale price hovering below $300,000. That means that even people with incomes around the Bay Area’s median of $80,000 or so can find properties within their price range.

    “They are able to get a toehold because things are becoming so much more affordable,” said Stephen Bloom, a Realtor with Lawton Associates in Berkeley.

    An increasingly larger share of the buyers are investors. They’ve either made the calculation that, for the first time in years, they can make money by renting out the properties, or they think they can re-sell them at a profit.

    Financing is the other element of affordability. Despite the overall tightening of mortgage credit, Bay Area buyers are able to take advantage of government-insured Federal Home Administration loans, which allow buyers to make down payments as low as 3.5 percent, and to have some blemishes on their credit score. FHA requires lenders to be scrupulous about income verification, unlike the notorious no-documentation subprime loans.

    Underlying all the market changes is the prevalence of bank-owned foreclosures being unloaded at a discount. Two years ago, only 2.6 percent of all existing homes that changed hands had been foreclosed on in the prior months. This year, more than half of the existing homes that sold in January and February were foreclosures.

    Here is a look at key market elements that have been radically altered over the past two years:

    — Pricing. The Bay Area reached a peak median sales price of $720,000 in spring 2007. In February, the median was $295,000. That doesn’t mean that all homes lost half their value – although many did see appreciation erode significantly – but it does show a major shift in the composition of homes being sold.

    “There has been a huge shift toward more sales in more-affordable neighborhoods, especially inland areas and especially foreclosures,” LePage said.

    Two years ago, only 9.4 percent of all homes changing hands went for less than $300,000. Last summer, about a quarter of all Bay Area sales were for less than $300,000. That percentage doubled within a few months, reaching 51.7 percent by February.

    — FHA-backed financing. Mortgages insured by the Federal Home Administration came into being during the Great Depression as a government program to extend home ownership to low- and moderate-income people who otherwise would not have qualified. But because FHA loans were limited to small mortgage balances that didn’t go far in pricey regions, they barely existed in the Bay Area. Two years ago, only 0.1 percent of all transactions here involved an FHA loan.

    How times have changed.

    FHA limits are now up to $729,250 in high-cost areas, and at the same time, many homes here have become much more affordable. Now FHA loans account for almost a quarter of all transactions in the Bay Area.

    FHA is heavily skewed toward first-time home buyers – in fact, nationwide 80 percent of FHA loans go to people buying their first house. For people who don’t have deep pockets to plunk down 20 percent, FHA is pretty much the best game in town these days, now that the subprime market has vanished.

    “Now that there are houses in the low $200,000s, there are a lot of FHA buyers,” said Peter Harris, a Realtor with Bradley Real Estate in Novato. “It’s a low down payment, you don’t have to have excellent credit. You’ve just got to be able to document your income. It seems like everybody can get approved right around the quarter-million dollar mark.”

    LePage said FHA’s low entry bar makes it a vital force. “FHA is so key to fueling the first-time homeowner market, and that first-time buyer is so key to burning off the inventory of foreclosures, which is critical for stabilizing the market,” he said.

    There still are plenty of first-time buyers who are able to qualify for non-FHA loans. The incidence of first-timers in the market might be as much as half, according to some national surveys. The $8,000 tax credit for first-time home buyers is likely to bring out even more.

    — Investors. People who buy homes without planning to live in them remain a steady and increasing force in the market. While it’s difficult to pin down exactly which buyers are investors, one sign is the address to which new buyers have their property tax bill sent. Two years ago, about 10 percent of home buyers had tax bills sent to an address other than the newly purchased house. By February that was up to 18.7 percent.

    Most of those investors appear to be in it for a while, planning to rent out their properties either long term or until the still-far-off day when the market turns.

    But remarkably, there is still flipping going on even as prices plunge. From January 2007 through February, DataQuick’s numbers show that 2.9 percent of all homes sold had changed hands in the prior 12 months, indicating that they were being flipped (being repossessed by a bank as a foreclosure was not counted as a prior sales event).

    Here’s a part of the story similar to mine about getting things done:

    In a whirlwind of commitment, Dillon Westbrook and Cori Belew are buying their first house and getting married within a two-week span.

    Another story demonstrating my point regarding why buying now makes financial sense, and why there’s nothing to worry about:

    As they unpacked boxes and tended to Seco, their Russian dry tortoise, the two 27-year-olds said they are jazzed about becoming homeowners before they turn 30.

    “Where we lived before was all apartment buildings,” Belew said. “This is so much more of a neighborhood; there are people sitting on their front steps and eating ice cream.”

    Their monthly payments of $1,900 (for mortgage, taxes and insurance) are about $600 more than they paid in rent, but the tax savings from mortgage interest will make up most of the difference.

    Do they worry that home prices might go still lower?

    “It doesn’t matter,” Westbrook said. “Unless we pop out 10 kids, we’ll be here for years.”

  70. madhaus Says:

    Wow. Someone never heard of the terms “copyright” and “fair use.” Way to go.

  71. anon Says:

    Excreter, this is exactly what the government is trying to enable. Look at the title of the article: “Bargain home prices attract investors, novices

    These people are willingly helping the government prop up the banking system. They will lose their down payments and then some.

  72. anon Says:

    And, all it takes if 5,000 suckers.

  73. anon Says:

    is

  74. Teich Says:

    See http://www.viewfromsiliconvalley.com/id491.html :

    “Across our eight years of data, 2009 was the first time February(‘s median price changes) was EVER negative.”

    “…despite headlines proclaiming a sales increase, we find February, 2009 net resales were actually down -9.5%. This is on top of a -$20K median price decline for those resales.”

    One can argue that the median price can be distorted as the sample changes, but the Case-Shiller index, which tracks the prices of the _same_ houses over time, shows a similar trend.

    Real Estater is just talking his book. I think the market bottoms on the very day he capitulates. Since market tops are noisy while bottoms are quiet, we’ll need the usual perma-bulls to give up their bottom-calling and show apathy towards the market.

  75. bob Says:

    … and as my reliable advice per the people who know me on this forum, my advice is to not buy a house in California period. Save up your California dollars and move somewhere that has a lower cost of living. My Wife and I did it, rented cheap, saved 60% of our incomes, and will be able to move just about anywhere and buy a house for cash with enough leftover for a decent retirement assuming stocks will continue on their historic projection. It has only taken us 6 years to get to this point, so we’re not talking a long term situation. By the time your kids are 10, you could be living a lot better quality of life elsewhere and still be better off than trying to run the rat race in the BA. Plus its probably better for your kid’s health anyway per the crappy pollution here. Good luck.

  76. burbed Says:

    Testing – please ignore. Just made a change to timezones.

  77. Real Estater Says:

    Bob,

    Your advice has been wrong over and over again. When Dow bottomed at 6500, you called for it to go lower, and missed out the rebound completely. Same thing will surely happen with real estate. Instead of buying at the bottom, you’re choosing to leave the scene. This is the biggest mistake anyone can make at this time. There are places you can afford in the Bay Area right now. There’s absolutely no case for leaving anymore.

  78. A. Lewis Says:

    DreamT – I get you – I hear you, but I can generalize if I feel like it. $799k 3BD ‘typical’ homes in peninsula neighborhoods are overpriced – period. I think all such homes will fall significantly in value during this correction period. I advise following that premise. I could be wrong – we’ll see.

    I just think you find it hard to believe the price drops I’m talking about are really really possible in these huge swaths of neighborhoods. I’m saying it is likely. And yes, I think all 50 of those people are wrong, and I (and a bunch of other people) are smarter. I think everyone who set a new highest comp on their block throughout Northern California during the period 2006 to 2008 overpaid for their homes. ALL OF THEM. We’re talking thousands and thousands of people – all of whom I think overpaid and were wrong to buy.

    So I don’t want you to think I don’t understand the kind of grand sweeping generalizations I’m making. I get it. I’m making big, whopping ones. But I’m entitled to my opinion.

    I think the house-buying population of half the damned globe got caught up in a real estate frenzy – believing in continuous, unending, inflation-and-income-beating appreciation.

    They were all wrong.

    Just because lots and lots of people participated in a Ponzi scheme doesn’t mean it wasn’t a Ponzi scheme. Just because parts of Santa Clara still want to believe ‘it can’t happen here!’, or that a 5% price reduction means they’ve found bottom in a nice neighborhood, doesn’t mean they aren’t wrong.

    You can call it a bull-trap if you want. But those neighborhoods that haven’t fallen much can either fall or stagnate for a long long time – but they aren’t going to command a new super-premium over the next slightly-worse neighborhood (that has had a big price drop) even higher than they did in 2007.

    I see the gap widening on these homes – and it’s just because enough people haven’t capitulated yet. They will.

    Peace out.

  79. steve Says:

    RE, your own posts suggested you bought in at 8500, 7500 and 6500. Furthermore you said you were saving more for 5500 and even 4500 if it came to that. Seems odd that you would critize Bob.

  80. DreamT Says:

    A. Thanks for clarifying your meaning. You seem to be saying two things – first, that all people who bought recently are wrong. And second, “those neighborhoods that haven’t fallen much can either fall or stagnate for a long long time – but they aren’t going to command a new super-premium”. IMO these are vastly different statements. If one’s property stagnates for 10 years then sells in 20, that’s 10 extra years of homeownership, building a neighborhood presence, growing plants and trees, being stable, etc, in addition of building equity. Most folks who purchase a primary home value this and would buy now rather than in 10 years, with the assumption that prices will be about the same then. So, no these folks are not wrong. And yes, you’re wrong to assume that people buy houses because they bank on “continuous, unending, inflation-and-income-beating appreciation.” But as you pointed out, you’re entitled to be.

  81. nomadic Says:

    Seems odd that you would criticize Bob.

    LOL – you’re a comedian today, steve!

  82. DreamT Says:

    Also, an item you didn’t pick up in my original post: a “3BD ‘typical’ home in peninsula neighborhoods” can be priced $350k, $799k, $1.5M depending on the neighborhood. So I interpreted your blanket statement to mean that the $1.5M ones can lose 50% in value and still be overpriced at $799k – which I definitely disagree with. But you don’t actually seem to have a precise opinion on the subject – madhaus and I see a 20% trough in our respective neighborhoods, so when you say prices might stagnate for a long time, you’re actually comparatively bullish. In fact, your reasoning that a set # of bedrooms cannot command a $ amount seems surprising simplistic to me considering your previous posts. Maybe you’re a different A. Can I call you B.?

  83. madhaus Says:

    Wow, A Lewis, can you clarify what you mean by “fall significantly in value”? Do you remember when the permabulls laughed at my predictions of 20-25% adjustments downward? And you’re saying there’s more to come than that?

    We’re seeing pricing in many neighborhoods roll back to 2003, even 2000, so your claim that everyone who bought in 2006 or later overpaid… not sure I disagree with that. After all, there was a bubble. Prices go out of whack during bubbles, and readjust when they pop.

    Believe me, I watched this in the late 1980s and watched prices drop… 25%. That’s why I made the call I did… last spring… when I said Palo Alto prices will crash a year from [last May].

    Looks like I was a mite optimistic.

    I almost wonder, A, (I can still call you A, can’t I?) if you’re channeling bob. Because Silicon Valley homes cost more than the equivalent in the East Bay, by definition they’re overpriced? Please tell me I am misunderstanding you.

  84. A. Lewis Says:

    Well, we all have permission to change gears a little bit, don’t we? Maybe I am using a little bob-style grandstanding, but I got a little tired of making every possible caveat for every declarative statement, just to fully differentiate myself from our favorite troll’s style of absolutism. So you can call this part of my psyche B if that helps :-).

    If we had some kind of prototypical 3BD SFH, it’ll be priced differently in different parts of the BA/RBA. Like DreamT says – $350k, $799k, and $1.5M are all prices you could probably find on the MLS today within a 20 mile radius of each other.

    I’m guessing the three of us could paint a rough water color map of where it costs $799k – and the other two price points as well. Imagine a 3-color-map, this is the highly simplified RBA/MRBA/BA map, right? (MRBA = Marginal Real Bay Area, for those not slavishly following this blog every day).

    I’m saying, with a broad brush, the $799k MRBA swath of the peninsula, variously defined by people on this blog, is still overpriced. And it’s price correction can come short and fast or long and slow, I still won’t say which.

    If the price of $799k literally holds flat for 10 years, and I predict inflation to be positive during those 10 years, including income and wages and rents – it will be dropping in value.

    Now when use harsh words to say ‘all those buyers were wrong’ – I do just mean as in investment.

    I hope that many/most/all of them can AFFORD their homes, even if values plummet, and they’re underwater or whatever. If they can afford it, and can live peacefully within their means, enjoying their neighborhood, their home, etc., then more power to them. Many people will be fine. They just need to ignore this blog, Zillow, and not lose their jobs. Enjoy life – don’t worry about the damned RE market! I think we’re all on the same page there.

    But because we know that price/income ratios are quite high, I’m very confident that a LOT of people who bought in ’06-08 cannot ‘afford’ their homes in a traditional sense, and they’ll be in trouble, and so they were ‘wrong’ to buy even as long term homeowners and not flippers. This has already been shown in the thousands of foreclosures in the BA, and it will be true in the MRBA as well, over time (is my prediction).

    As to Madhaus’ points – OK, I don’t want to be pinned down on the actual price I predict in the MRBA for our prototypical 3BD home. I’m not that much of a smartypants. And like I said I’m not sure if it’s b/c of a sharp drop or long stagnation. But I’d be looking for price/rent and price/income to come back to earth (levels like I don’t know the year 2000, or 1985?). I also wouldn’t be surprised to see overshooting below those levels, but I like to think at that point I’d be calling out ‘bargain pricing’ in the MRBA (which couldn’t be defined as MRBA anymore in that eventuality).

    And finally, on Silicon Valley vs. the East Bay – it’s not true that SV costs more than EB as a generality. We’d have to name our neighborhoods! Kensington and Piedmont and the Berkeley Hills are holding their prices as well as some of the best of 94301. El Sobrante and worse parts of Oakland aren’t quite so pretty. Castro Valley is probably somewhere in between.

    We haven’t defined the 3-color map of the EB hardly at all on this blog – but you could go by pricing of 3BD SFH, and so you can find all the ranges of neighborhoods in the EB you do on the peninsula – and I would say the same things about all 3.

    I would say I am shopping in the MRBA of the EB, and I’m saying the prices aren’t low enough yet. Maybe it’s a little closer to RBA of the EB, b/c some places haven’t even seen the 20% drops yet Madhaus is talking about.

    It sounded to me like SoonToBeDad was shopping in a range not too far removed from my range (I’m trying to avoid telling you if I’m looking for cheaper or costlier housing than he is – for anonymity’s sake), and I say wait and rent.

  85. nomadic Says:

    Sorry, A., you can’t change gears without a permit. Fill out the applications in triplicate and we’ll see. ;-)

    I disagree with you on this specifically: And finally, on Silicon Valley vs. the East Bay – it’s not true that SV costs more than EB as a generality.

    I didn’t pull data but I think it would be safe to say the median price for San Mateo or Santa Clara counties has always been higher than Alameda or Contra Costa counties. Of course, that’s on a useless aggregate basis and specific places will (by mathematical necessity) have higher valuations. Still, we are talking “silicon valley” vs. “east bay” in general.

  86. A. Lewis Says:

    Maybe I still didn’t cover DreamT’s point about the 3 prices – what am I saying about the $1.5M 3BD SFH?

    I’m NOT saying I expect an RBA home to drop to the same price as an MRBA home. I recognize impenetrable real estate reality – LOCATION LOCATION LOCATION.

    An RBA location should be, and is, higher priced than MRBA, always has been. Always will be.

    But I’ve always felt it should be in some ratio – that can slowly move over time (as an RBA’s walkability and school district improves relative to it’s MRBA neighbor, or vice versa, relative prices should shift, too).

    If the MRBA home drops 20% because of ‘larger market forces’ (i.e., not the school district or other basic of the location) – that affects the nearby RBA ‘hood, as well.

    If MRBA drops 20%, can RBA just hold steady? No way. The market ‘agrees’ on some equilibrium price differential between RBA/MRBA/BA/craptastica homes. In the aggregate, given some time, they all move together.

    So to answer DreamT – my position on the $1.5M home depends on where the prices started and what incomes and rents are doing around there – all the damn caveats I didn’t feel like giving in the first place. Can you just take all those caveats implied? (for you math geeks out there – it’s like Eulerian notation – the summation is implied – saves a lot of ink – or electrons).

    So fine, if the $799k home you want to point out WAS a $1.2M home – maybe it HAS bottomed, but now it must have been in an RBA neighborhood to start. Maybe it is a good buy now. Sigh. I have no point left.

    So I’ll repeat myself – if the price/rent and price/income ratios haven’t dropped enough in whatever zipcode we’re talking about, I’m saying they will drop. If they have – then now is a good time to buy. If not, anyone who bought at high ratios was ‘wrong’.

    I should stick to ratios and acceleration of percentages, when I throw out declaratives on prices, it’s just too hard to be specific. Only things with two or more dots over the variable, to stick to math-geekiness.

    May the next inflection point your portfolio crosses be in accordance with your long or short position weighting.

  87. A. Lewis Says:

    #85 – right – but I’m still right too. We do have to define some EB and SV zipcode boundaries, but I think the rough ones we all have in mind back you up (medians are higher in SV as a whole), which is meaningless when you consider the range of neighborhoods to be found.

    Compare these two intersections in Oakland, CA:

    Broadway Terrace @ Florence Ave (94618)

    56th Ave. @ Martin Luther King Way (94609)

    They’re not far apart in miles, but the prices are probably off by a factor of 10.

  88. madhaus Says:

    #87: Sure, and we have Palo Alto vs East Palo Alto. Nothing is new under the sun.

    I just checked the value of one house in Piedmont and it looks like it dropped 40% from 2006 to now (as has the entire town as a whole). Has Palo Alto dropped 40% yet? Looks like Palo Alto peaked more recently than Piedmont, but prices are actually trending up again in Dead Cat Bounce and only fell 10% in 94301.

    So do you call 40% drastic? Do you see a 40% correction in Palo Alto as well? Remember, that’s the inner keep of the RBA castle!

  89. Real Estater Says:

    In my opinion, there are two kinds of markets that will give you the best return when the current recession is over:

    1. Areas that have had dramatic fall in prices (40% or more)
    2. Areas that have have been least affected in prices

    These two markets are at the extremes ends of the spectrum. The case for #1 is obvious, but why #2? Because it implies that these are the most desirable, most resilient markets, usually with the most pent-up demand.

    I would not go for markets that were originally cheap, never rose much during the past few years, and haven’t fallen much now. Despite the stability, these markets have less potential for upside, and probably are at risk for further decline (e.g. Santa Clara CUSD). Just think about it, if these markets didn’t generate much interest during the housing boom, what’s going to propell it in the future?

  90. DreamT Says:

    Ok B+/A-,
    I’m afraid I disagree once more. The bubble flattened the ratios rather than exacerbate them. A badly located house could be bought for a price closer to a nearby well-located house than was warranted, and sprucing up a house wasn’t that important to get it sold. Also scruffy areas increased in value more than wealthy areas in average. So I don’t buy your ratio-trending theory. In fact, what I observe is that well-located houses haven’t really lost much in value yet, but not so well located houses have been hurting quite a bit now unless aggressive pricing was used. And scruffy areas crashed _back_ down. In other words, your blanket statements about pricing (which I understand you withdrew) were probably more appropriate during bubble time, but much less so now that the condition and micro-location of houses is paramount. A normal real estate market sees more divergences in the price of neighboring houses. And as a result, for two houses priced the same four years ago, in the same neighborhood, one may have gone down 25% in value and the other one stayed flat.

  91. DreamT Says:

    RE – I recall you stating the exact opposite, but I don’t have Pralay’s skill in find year-old posts. In any case I agree that #1 and #2 are the best investment vehicles, and Santa Clara CUSD is too close to the area in between to be much propelled in prices – although if you do your homework you’ll find interest has not been tame these past few years.

  92. Real Estater Says:

    I agree with #90. Now, more than ever, you can distinguish the real solid areas from the “pretenders”. During the boom, everybody got qualified for loans and everything went up, so it was difficult for the amateurs to tell which areas hold real values.

  93. SoonToBeDad Says:

    “Despite the stability, these markets have less potential for upside, and probably are at risk for further decline (e.g. Santa Clara CUSD). Just think about it, if these markets didn’t generate much interest during the housing boom, what’s going to propell it in the future?”

    Ok. I’ve been here long enough to know that the answer to any question is “Buy a house in Palo Alto.”

    Q: I only have $4.25, what and where should I buy?
    RE Answer: Buy a house in Palo Alto.

    Q: I have a fever, and when I tilt my head down, my neck hurts.
    RE Answer: Buy a house in Palo Alto.

    Q: My car idles rough in cold mornings.
    RE Answer: Buy a house in Palo Alto.

    Do you have no advice that is relevant to my situation?

  94. Real Estater Says:

    SoonToBeDad,

    Didn’t you read #1 in post 89?

  95. nomadic Says:

    Dad – you sound like a smart guy. Go to some open houses, see what you can afford with 20% down, then decide what’s best for your family. Prices won’t be skyrocketing up in the next 3-4 years; you have time to weigh your options and make an informed choice (even if you decide to buy next month or next year). Good luck! We’ll be here if you want to ask our opinion on sample houses. :-)

  96. anon Says:

    “Do you have no advice that is relevant to my situation?”

    He doesn’t. You will notice that everyone on here is saying the same thing: Don’t buy. Everyone except the one idiot who doesn’t know anything other than ‘palo alto good.’

    Please feel free to decide whose opinion is more valuable.

  97. sv_newbie Says:

    I’ll suggest you look at SFR in nicer neighborhood with bad schools (yes they exist – 94086/94085 (part of)).
    And, pay for private schools. The way things are going, all public schools may be dicey bet anyway!

  98. DreamT Says:

    SoonToBeDad – actually a more important criteria for you is probably knowing when you plan to sell, if at all (just like when you get ARM loans). If you will sell in a buyer’s market, you’re at an advantage in a well-maintained, well-located house, because your house value is more stable. If you will sell in a seller’s market, you’re at an advantage with a lower-value house because it would have comparatively gained more in value. So as with most investments, your investment time horizon determines which one is better for you. As everybody agrees on anyway, if your time horizon is less than five years, and maybe more than that taking the 6% hit at selling time, you’re likely to be better off renting.

  99. A. Lewis Says:

    #90 DreamT – ok this is interesting – I’m not sure if I’ve observed the same ratio flattening in RBA/MRBA EB.

    If I take your observations about SV as given, then I would be willing to give ground on some of what I said – if the crappy thing appreciated from $500k to $800k during the boom, and the RBA home went from $800k to $900k, the ratio flattened, and it is reasonable to expect it to re-expand, and the RBA homes to drop less.

    So I agree with your logic and I once again want to appreciate you for raising the level of the debate around here. I’m just not quite sure I agree with the ratio flattening.

    I mean, there’s been a lot of listings the last 24 months in Palo Alto and Los Altos at $1,000 and $1,200/sqft. That’s pretty crazy pricing. I think it inflated quite high during the bubble.

    I guess I’m not super-sure how expensive the MRBA homes in Sunnyvale, Mt. View, and other places were in say the year 2000. So it’s not like I have hard data to contradict you, but I feel like RBA prices were awfully high, especially in price/rent and price/income.

    But I’m willing to admit I could be wrong about how the ratios have been. You might have to prove it to me, though :-)

    Here’s a data point for you – in the MRBA EB town of Albany, my family bought a 3BD/2BA SFH, 1600 sqft in the late 1970s for I think $60-80k. That house is today worth approximately $700k. Zillow thinks the peak was $850k around the end of 2008. It’s on a nice quiet street, near a park, walk to elementary school with API of 900+, close to shops and restaurants, walkability score = 74.

    I think of houses like this that SoonToBeDad would want to buy in the peninsula for his family. This house is meant for middle class folks with regular incomes. I think my family’s income was about $40k in 1977, and of course they got a ‘normal’ loan, with some insane 12% interest rate they were able to re-fi later in the early 80s.

    But anyways, this house is severely overpriced. The middle class families today are earning what, $80-$120k (two incomes)? You can rent one like it for $2200-2700/month. The house should be $300-400k. It hasn’t seen major renovation since 1960. It was built in 1930. Maybe I give Albany a premium, b/c of the schools, to $500 or $600k. But $700? $850k? There’s still tons of room to fall. And there could be overshoot with the unemployment rate and economic fear. I think lots of descriptions like this could be given for MRBA all across the peninsula. Hence my generalizations to SoonToBeDad. This is the type of property I want to be arguing over.

    #88 madhaus – this is fun – now I get to play the role of saying ‘you cherry-picked that house!’ ‘show me the listing!’. I didn’t think the general Piedmont market had crashed 40%. I’ve talked to confident homeowners there and in the best parts of Oakland (there’s like 2 good elementary schools with 950 API scores up there) who say “yeah, other parts of Oakland have gotten hit, but I don’t see it around here. No foreclosures, no short sales – I think maybe my house was flat in appreciation this year, but it hasn’t gone DOWN.”.

    You know the story – everyone else’s house has depreciated but theirs. I thought that sounded a lot like the 94301 talk a few months ago.

    I admit, I’m not shopping in Piedmont, so I haven’t analyzed prices in detail lately – do you have some hard data to indicate real crashes there? A bunch of Piedmont is indeed the $2M+ super-market which we’ve discussed has taken big hits in other areas…maybe that’s true, too – so we’re left with a thin slice of RBA EB that’s the $1.0M Goldilocks homes – not to big, not too small, just right school district. I just looked at the Zillow analysis of Piedmont – they say the floor dropped out in Jan-Feb by 20%! And another 20% cumulative for the year, so I see what you’re talking about. Hmmm – maybe I SHOULD be shopping in Piedmont with that kind of fear.

    The Altos Research shows median price going UP since Jan. 09, so who knows. DOM doubling, inventory doubling or tripling – $/sqft down 10% or something – it’s hard to say.

    I found a Piedmont house on Zillow that sold Feb. 20th 4/3 1611 sqft, 126 Dracena Ave:
    Sale History
    02/20/2009: $1,450,000
    06/04/1999: $820,000 *
    05/31/1996: $539,000 *

    So I think they’d say they’re holding up. I’m not sure what it listed at or what kind of comp this meant…

    You see, what we really need are apple-to-apples prices over time in various zipcodes – it’s just so hard to come by this data.

    Give me SFH that look normal (no bizarre architecture), between 1200-2000 sqft, 2-4BD, without major additions or teardowns, all arms-length transactions. And at least 2 sales to compare by over the last 20 years. Plot all the points on a graph and we can say how prices have gone in some neighborhood.

    It’s a version of the Case-Schiller work, but super-fine-grained so we can analyze at better than the damned MSA level.

  100. A. Lewis Says:

    Btw, DreamT, I have a cat at home that looks a lot like your avatar. He’s a big fat tortoise-shell with a white belly and paws who can never be petted or fed enough.

  101. Real Estater Says:

    >>Here’s a data point for you – in the MRBA EB town of Albany, my family bought a 3BD/2BA SFH, 1600 sqft in the late 1970s for I think $60-80k. That house is today worth approximately $700k. Zillow thinks the peak was $850k around the end of 2008.

    Just another example of BA homes doubling in price every 10 years on the average.

  102. A. Lewis Says:

    Well, RE MUST be reading what I wrote to pick that gem of a data point out of the middle of that long posting.

    Thanks for reading, RE!

  103. DreamT Says:

    A. – What I observed during 2003-2006 was that prices accelerated in Mountain View, then in Sunnyvale, then finally in south Santa Clara. It didn’t all happen at the same time, but buyers like us (which I venture were rather typical SV buyers) were being pushed more and more south every passing month.
    You’re asking for data… I don’t have the time really to compile high-quality data myself at the moment:) so I’ll throw some Zillow numbers just as you did – I trust Zillow for price movements at the neighborhood level. Zillow claims my neighborhood went from 400k in 1995 to 700k in 2001 to 800k in 2005 and remains around 800k – steady increase then flat, what you’d call measured increase, resilient to crisis. I picked a few 3/2 in the famed Story & King area. What I observed was about 100k in 1995, 300k in 2001, 640k in 2007 and 250k right now – exuberant increase until 2007 (sixfold!) then major crash. Finally I picked a few Los Altos 3/2 and found again a completely different graph, as those familiar with the 2001 crash know. 500k in 1995, 1.6M in 2001, 1.6M in 2005 and 1.7M now – with a couple of drops to 0.8M in 2002 and 1.5M in 2007 – what you’d call speculative and still frothy environment, with ratios changing not as much in absolute terms, but way more quickly. So there you have it, as RE said in #89, the extremes have much higher potential for gains but also for crash and are highly speculative. The middle is safe bet but not for get-rich scheme. And therefore I thought that your statement that 3/2s are all overpriced needed to be moderated at least based on the neighborhood.

  104. A. Lewis Says:

    Great, DreamT.

    So the ratios, if I’m reading you right are:

    Year – BA/MRBA/RBA
    1995 – 100k/400k/500k
    2001 – 300k/700k/1.6M
    2007 – 640k/800k/1.5M
    Now – 250k/800k/1.7M

    I’m skipping a couple of your data points.

    I just didn’t think the RBA hit it’s peak in 2001 and only moved a little since then…am I reading you right?

  105. DreamT Says:

    Los Altos crashed dramatically in 2001 (and recovered quickly) because a lot of the purchases were fueled by IPO & buyout money, while subprime areas increased during that same period. Different neighborhoods of Palo Alto followed a different graph than Los Altos especially south PA, so while you may want to include them both under the RBA label, you would have to study them separately.
    You can look for peaks and draw conclusions but I think the overall trend and stability, much more than the peaks and troughs, are better gauges of investment quality and bubble status. If anything I’d be wary of high variations.
    The data tells you that you cannot generalize predictions to the bay area level, to the RBA level, to the city level, to the neighborhood level, to the block even. But even if you do and happen to be correct with your generalization, if you THEN draw conclusions on single, isolated purchases (“any 3/2″), you still end up being wrong because of the vast range of pricing within the same neighborhood, be it in East Side SJ or Los Altos. Plenty of properties are rightly priced right now, and plenty of sellers are desperate. You just need to be discriminating and open-minded.

  106. DreamT Says:

    trying to post this again…

    Los Altos crashed dramatically in 2001 (and recovered quickly) because a lot of the purchases were fueled by IPO & buyout money, while subprime areas increased during that same period. Different neighborhoods of Palo Alto followed a different graph than Los Altos especially south PA, so while you may want to include them both under the RBA label, you would have to study them separately.
    You can look for peaks and draw conclusions but I think the overall trend and stability, much more than the peaks and troughs, are better gauges of investment quality and bubble status. If anything I’d be wary of high variations.
    The data tells you that you cannot generalize predictions to the bay area level, to the RBA level, to the city level, to the neighborhood level, to the block even. But even if you do and happen to be correct with your generalization, if you THEN draw conclusions on single, isolated purchases (“any 3/2″), you still end up being wrong because of the vast range of pricing within the same neighborhood, be it in East Side SJ or Los Altos. Plenty of properties are rightly priced right now, and plenty of sellers are desperate. You just need to be discriminating and open-minded.

  107. Real Estater Says:

    The last few posts by DreamT are pretty good. These bring home the point that all real estate is local, and aggregate data is generally useless.

    I believe one will have greater success by focusing on areas that one is familiar with. As an example, if I were to go shop the East Bay, I would not have the background on specific neighborhoods or price history to make an accurate call on current and future values. I can do a lot of homework, but I would still need to depend on second hand information.

  108. SoonToBeDad Says:

    “Different neighborhoods of Palo Alto followed a different graph than Los Altos especially south PA, so while you may want to include them both under the RBA label, you would have to study them separately.”

    Holy kaw! How do you know so much? Is it just from living here? Are there journals?

  109. DreamT Says:

    SoonToBeDad, the hard data itself available everywhere – on the SJ Mercury News and SF Chronicle, on this site, on some realtors’ blogs, on zillow, etc. I purchased twice and moved five times in the past 10 years so I’ve had to get familiar with the area. The rest is common sense, first-hand observation and being wary of any sweeping statement.
    Incidentally, the reason I (accidentally) entered the RE market was that for a short time in 2001 it was cheaper for us to buy than to rent. :) If not for 2001 rent prices, I’d still be renting and would not think twice about it.

  110. A. Lewis Says:

    Your local knowledge is very valuable, DreamT, and I wouldn’t want to pretend I knew any of these neighborhoods half as well at the detail level.

    I’m still quite tempted to say I think you are overly optimistic that whole SV ‘system’ together can’t undergo a net price drop where everyone in the market collectively revalues things at much lower prices. In effect, they ‘wake up’ and say ‘things have gotten out of hand’, and people just pay less for housing.

    Because after long discussion we’ve established that these prices are far in excess of building costs, and they’re out of whack with rents, so it’s only left to what is notionally agreed upon.

    But hey, that’s TOTALLY arguable, and we can agree to disagree on what some ‘fundamental’ value should be in neighborhoods of desirability X, Y, and Z.

    Thanks for the discussion on this thread. I’ll try to reign the ‘B’ version of myself in, but you know how it gets.

  111. DreamT Says:

    “you are overly optimistic that whole SV ’system’ together can’t undergo a net price drop”

    A. – I already stated that I agreed with madhaus on a net drop of about 20% in our respective neighborhoods – not less mostly because of job losses, not more mostly because these are good neighborhoods which are centrally located. IMO Palo Alto will suffer because the flight to perceived quality is a bubble in itself, just like Cupertino a couple of years ago. On the other hand, the neighborhoods most attractive to Asian immigrants are safer bets (sorry to say) – including Indians, Pakistani etc.

    “we’ve established that these prices are far in excess of building costs, and they’re out of whack with rents”

    The former doesn’t matter as much as you’d think since 3/4th of the value is typically in the land (per the property tax valuation). As for the latter, I’ve posted a few times why the wealthier the area, the more misleading rent is as a criterion for rent/price ratio.

  112. zanon Says:

    STBD: If your wife wants a house, but a house. Job #1 is keeping the wife happy!

    EVERYONE ELSE: Had a good talk with my tax accountant recently. He sees more personal finances than most people. He says 2009 is going to be the year the “good people” go into foreclosure. We shall see.

  113. nomadic Says:

    In effect, they ‘wake up’ and say ‘things have gotten out of hand’, and people just pay less for housing.

    A., I think you give the masses too much credit. ;-)

  114. A. Lewis Says:

    #111- “As for the latter, I’ve posted a few times why the wealthier the area, the more misleading rent is as a criterion for rent/price ratio.”

    This is a great topic. I would agree with you when talking about housing that looks more like 5/4, 3,000+ sqft, a half an acre – you know, rich-people homes. Hillsborough type stuff. The rents aren’t so meaningful.

    But when you get down to a 1200 sqft 3/1, and people are pretending like it’s a rich person’s home by valuing it at 1000 sqft., I think there’s a lot of delusion going on about how disconnected rents can become b/c of the ‘wealth’ of the area. The 5/4 almost-mansion takes wealth to build and maintain.

    The 3/1 home is a middle class home – so when it gets valued over $1M, it suddenly represents wealth, and the person who owns it is wealthy, but I’m questioning how ‘real’ that wealth is in some way.

    Obviously there is a slippery slope on this range of housing (the 4/2, 1800 sqft, modest sized lot, a little too near a busy street? how fancy is the interior design?), but I want to dig into this idea: what makes a wealthy area wealthy?

    Because if the answer is just the price of houses, and not say, income, (and the price of houses often means the underlying price of land, as DreamT says), I have a bunch of opinions on that.

    It probably devolves into an argument about how ‘special’ this or that zipcode/neighborhood really is.

    And probably, I’m trying to flesh out some idea I have that most of SV (MRBA&RBA) is not ‘special’ enough to merit the premium it has to date commanded over other parts of the BA.

    That’s heresy on Burbed! The RBA not special enough!

    I’ve always though it was nice down there, just not THAT nice. Not $1,000/sqft nice. I mean you still have traffic and crowding and high taxes and no beach or mountains on your doorstep. Your restaurants aren’t as good as SF (or Berkeley, IMHO), and there’s a bit too much of the strip-mall and brand name store thing going on – you know, the Orange County type look of things in lieu of ‘real culture’.

    I understand about the jobs, a shorter commute (hopefully) and some of the best schools around, and low crime in the nice spots, and most certainly the weather – it’s even nicer than East Bay weather, which is pretty damned great.

    But I’ve translated that in my head as worth some premium over other BA spots, but just not quite that much of a premium. You know – isn’t 20% more expensive enough? Does it have to be 60% or 100% more? (I’m not trying to throw out real ratios to some other place – just notional ideas).

    So let me just ask – what makes it SO SO great you’re willing to pay that much more in the MRBA? Because it seems like there is so much choice – just go 2 miles farther away from RBA and save a lot of money but have nearly all the benefits, etc…

    And again, I’ve said this before – a short commute or a good school for your kids is certainly worth some amount of extra money (well spent), but it’s not worth infinity dollars. If it cost an extra $1M to buy the same house, people would use private school instead.

    So I think there should be an upper limit to the ‘spreads’ without something like a unique beachfront piece of land, or a view of the Golden Gate bridge.

    Most of SV we talk about doesn’t have any kind of interesting view, right? At least those crazed Berkeley and Oakland hill people can point to a ‘3-bridge’ view and the like for why their property is so ‘special’.

  115. madhaus Says:

    A. – What I observed during 2003-2006 was that prices accelerated in Mountain View, then in Sunnyvale, then finally in south Santa Clara. It didn’t all happen at the same time, but buyers like us (which I venture were rather typical SV buyers) were being pushed more and more south every passing month.

    You mean east, DreamT. You gotta look at the map. You see, this is the answer to A Lewis’ question above, why are homes down here commanding such a premium over homes in the East Bay.

    The answer is everyone down here cannot tell what direction anything is moving in because of the danged freeways.

    101: North-South freeway. Once you hit Mountain View, you are, I am sorry, moving east.

    280: North-South freeway. Once you hit Los Altos Hills, you are, again, moving east.

    880/17: A North-South route that actually goes north and south. Oh oh.

    Central Expressway: An east-west route that is completely parallel to 101 that is labeled… East and West. Drivers have absolutely no way which entrance to use.

    Now do you understand why prices got so ridiculous high down here? Nobody knows whether they were going up or down!!!!

  116. nomadic Says:

    And don’t forget 85! Labeled North/South, 2/3 of it runs East/West. Once you get to Saratoga, you’re going east again.

  117. Real Estater Says:

    Wall Street set for best month in 6 years

  118. nomadic Says:

    tower…. we are cleared for take-off!

    .
    LOL

  119. zanon Says:

    RE: Great! We need about 20 months like that and we’re back to where we were in 2005! Woot!

  120. DreamT Says:

    #115 – Right, and 280 South is going North before it becomes 680.
    I’ll freely admit I used interchangeably North and West, South and East, when all along I really meant North-West and South-East.

    #114 –
    “The 3/1 home is a middle class home – so when it gets valued over $1M, it suddenly represents wealth, and the person who owns it is wealthy, but I’m questioning how ‘real’ that wealth is in some way.”

    I was referring to the wealth of the presumptive buyers, not of the current owners. In my opinion, disagreeing with most folks here, house prices are correlated with the wealth of the folks looking to buy in that neighborhood, rather than with the wealth of the folks _already_ living in that neighborhood. Since in wealthier areas (and to a lesser degree, established neighborhoods), turnover is much slower, inventory much smaller, and owner/renter ratio much higher, house prices are less correlated to rents as a result. In most places in America, the difference is not so drastic, but to take Palo Alto as an example, the saying goes (quoting approximately): to buy in the 70 you could be a teacher, to buy in the 80s you had to be an engineer, to buy in the 90s you had to be a doctor or a laywer, and to buy in the last decade you had to be a CEO. Someone can probably correct me on the actual quote. So local income would always be a lagging indicator and due to increasing local wealth, the rent/price ratio was destined to stray for good from his initial value.

  121. A. Lewis Says:

    #120 – that’s awesome, but don’t you see where my sustainability argument comes in? There aren’t enough CEOs to keep an area as large as the good parts of Palo Alto going.

    If it kept appreciating on 10-year timescales, and didn’t undergo some correction more than the 20% you talk about, it’ll be required that in 2020, only sovereign wealth funds could buy in Palo Alto. I don’t believe in that scenario.

    I think we need to go back to the 80s/engineer set-up to have a reasonably functioning housing market.

  122. DreamT Says:

    Well, what we need and what the reality can buy is different. As long as wealth, absolute or relative, buys in the bay area – which it does in good times just as much as in bad times, we won’t go back to the 80s set-up. We should probably just be glad that the prices aren’t as high as in London, Paris or New York, places I’d shun for the bay area any day both for renting, buying and working (but not for dining). I do think your sovereign fund scenario is extreme, though. Sustainability? We can own land in the bay area! SFRs with gardens! Certainly not as much as where I’m from, but there’s plenty of room for sustainability to decrease, not that I wish that upon us.

  123. DreamT Says:

    Let me characterize “wealth” – not CEO-level cash flow, but enough cash on the side to acquire BA property. To take a local example, a lady from a middle-eastern country who sold her house in Spain a few years ago bought a house a couple of blocks from my place last month, for her children. Neither local income nor local rent were a consideration in her purchase, just perception of long-term value. Several people I personally know bought multiple properties (houses or converted condos) in the 70s and 80s, and still own them – if you were a nurse for example, or a small business owner, it wasn’t very hard to pull off. The “wealth” or absence thereof (“credit”) that sustains the housing market in the 250k range in East Side is from a different origin than what sustains the 700k range, and different again than what propelled (and now fails to) the 2M-3M range. The perception of areas holding the better values shifts every year. For a foreigner or immigrant with some cash on the side, what makes the best long-term investment right now? A place in the pricey Los Altos Hills? Frothy Cupertino or Palo Alto? A place in foreclosure & crime central McKee & Capitol? or a place in a boring mid-range neighborhood close to jobs? You may answer none, but folks are still buying and they’re the ones making the decisions with their own cash.

  124. DreamT Says:

    Bay Area is #1 after all!
    The Bay Area is by far the furthest rewound market of those that Redfin serves.

  125. nomadic Says:

    That’s terrific! As I said earlier today, we’re clear for take-off!!!!!!!!!!!!!!!!!

    ;-)

  126. madhaus Says:

    #124 – Awesome, DreamT! We’re back to 2000 pricing in SF/Alameda/Contra Costa/Marin!

    #123 – Are you actually claiming there are foreigners with cash on the sidelines? Clearly if they’re foreigners those sidelines are on a soccer pitch.

  127. madhaus Says:

    Clear for take-off? We’re clear for takedown! Or maybe take out. Some kind of TKO anyway.

  128. A. Lewis Says:

    I like your definition of wealth, it makes sense to me.

    I’d like to suggest there’s a lot less wealthy people around then there were 24 months ago. So this would reduce demand.

    And I don’t feel like very many people are building wealth right now compared to how many are losing wealth. I know a LOT of people who are less wealthy because the value of their home and their stock portfolio is much lower than in 2007.

    I’d look for a turnaround in the unemployment figures before I felt wealth was building, and we might expect an upturn in home prices.

    So I just want to predict more movement downwards in housing prices.

    The Case-Schiller data represent a broad aggregate look at the bay area. If you check out the 3-tier data you can better segment the area, and see exactly what DreamT always mentions – low tier properties increased much more (as a ratio) than high tier properties, and have already fallen farther back down (the lines crossed twice).

    But the high tier is still very high, and is on a downward trajectory. Somewhere in the C-S numbers is a subset of RBA homes – probably holding UP the average at this point – and I just think the upper tier has more correction to come, especially because it hasn’t fallen as hard as the low tier. But that’s just idle speculation on my part.

    DreamT and I probably disagree on our estimates of pent-up demand for RBA housing, which is totally reasonable.

    If you believe in more demand, that supports prices. If not…

  129. A. Lewis Says:

    OK, I want to share with you all an Excel file I’ve been keeping with charts and analysis of the C-S data – but I want to do it anonymously.

    How can we share this?

  130. madhaus Says:

    Ask burbed to post it for you?

  131. sv_newbie Says:

    A, try http://www.2shared.com/ and give us the link

  132. nomadic Says:

    Google Docs?
    http://docs.google.com/

  133. Real Estater Says:

    A. Lewis says,
    >>There aren’t enough CEOs to keep an area as large as the good parts of Palo Alto going

    The best part of Palo Alto is not that large, and not everyone is a CEO. On my street, we have a mix of Doctors, lawyers, business owners, retired folks, a few Sr. VP to CEO types, and an average tech guy.

  134. sv_newbie Says:

    Try 2shared and post us the link

  135. sv_newbie Says:

    you need to add usual www and com around the site
    (for some reaosn when i specify full address ny post doesnt go through)

  136. DreamT Says:

    “On my street, we have [irrelevant content, see below]”

    What does a roster of local residents in a low turnover neighborhood have to do with the typical recent and future buyer? I just posted in #120 why that’s irrelevant.

  137. nomadic Says:

    Here’s a sobering statistic for the RBA:

    before August 2007, 62% of all purchase mortgages in the Bay Area were jumbos.

    last month, just 17.5% were.

    I think that explains what steve has been pointing out in places like Los Altos. People are really having problems getting jumbo loans.

  138. anon Says:

    Home ‘values’ are hovering in the air gazing down at a gaping hole left by a void of credit.

    Buy now and be locked in…forever.

  139. A. Lewis Says:

    #136 – but a big part of it is how many homes dropped in value enough to go below the Jumbo line (especially after Down Payment) – that it is a big effect.

  140. A. Lewis Says:

    OK, here’s the 2shared link:

    http://www.2shared.com/file/5231575/f2e40c9d/Case_Schiller_Graphs_v12_new_CPI_less_shelter_with_prestige.html

    I’ve taken the 3-tier SF area C-S data, added in that “Prestige” data someone posted a while back as another tier, and corrected the numbers for inflation (using the BLS data for SF area, CPI less shelter, following CalculatedRisk’s method), and then made a bunch of graphs and statistics.

    Including internal rate of return under various scenarios.

    The C-S methodology sets all 3 tiers = 100 in Jan. 200. This doesn’t mean house prices were the same for the 3 tiers, it means whatever ratio they had then we arbitrarily set to 1, and then you can see what’s happened since (and back to 1987).

    The main thing is to notice how close the 3 lines have been since 1987, compared with the Post 2000 period.

    And then the super-obvious signal DreamT points out – the Low Tier (I use blue) shot highest fastest, and has now fallen farthest fastest.

    The thing is – for the High Tier it suggests a peak of 160 or so and a current value closer to 115. That’s a 28% drop. I think there are plenty of neighborhoods that have not yet experienced 28% drops (are there RBA spots anyone is arguing have yet to fall at all? I can name some East Bay folks who think their home is not less yet..).

    And I think they WILL experience drops. They have to fall back to earth along with everyone else. And go back to some ratio closer to Jan. 2000, which was also the ratio in 1997, and 1987, as seen on the graph.

    If you believe some neighborhood you peak went up as much as the averages shown in the C-S graphs, you should believe it’ll come back down, too.

    Feedback welcome.

  141. A. Lewis Says:

    Gah! I think it ate my comment. Trying again?

    http://www.2shared.com/file/5231575/f2e40c9d/Case_Schiller_Graphs_v12_new_CPI_less_shelter_with_prestige.html

  142. A. Lewis Says:

    D’oh! Spam filter.

    Let’s try this: it’s a at

    www 2shared com

    Followed by:

    /file/5231575/f2e40c9d/Case_Schiller_Graphs_v12_new_CPI_less_shelter_with_prestige.html

  143. A. Lewis Says:

    Too bad, I wrote up a nice summary and it’s gone gone gone.

    Well, It’s inflation-corrected C-S data. You can see how the low tier outperformed crazily since 2001. You can see how insane things are compared to all data since 1987.

    The C-S method sets the value to 100 in Jan. 2000, which means the ratio of home prices in 3 tiers (I added a 4th tier with that ‘prestige’ data someone pointed me to earlier this year) are just set to 1.0 then (doesn’t mean the houses cost the same).

    So whenever the lines cross, that means things are in the ratios they were in Jan. 2000. They were like that in 1997, and in 1987, and were the most spread out in 1991, until the modern era (post 2000).

    Things have been absolutely insane since 2000.

    Note about the Price Tiers – for this month’s data, the “high” tier means over $527k. In Aug. 2007 the high tier meant over $851k. That may help you realize what kind of houses high tier means, in case you don’t believe the 28% from peak for high tier has really happened in your neighborhood.

    The other graphs show Internal Rate of Return in various scenarios, so you can judge it as an investment, as well as year over year change, and price/rent ratio, using owner’s equivalent rent from the BLS.

    Feedback welcome!

  144. madhaus Says:

    A, (I can still call you A, right?), your Excel chart is like your writing here. Just as a concise sentence is worth a thousand paragraphs, a few graphs (not paragraphs but number pictures) would really help. Especially since I’m trying to look at this thing on my seven inch screen. Not going to happen!

    Here’s the link for A’s worksheet.

    #136 — nomadic, that’s a fascinating statistic, and does explain why LA/LAH seems to have imploded. So who can explain Polo Alot? Does every CEO have to buy in the same six blocks of 94301? And haven’t they passed a law yet that says real estate cheerleaders masquerading as average tech guys are a neighborhood blight?

  145. DreamT Says:

    #138 – Well observed.
    #140 – Thanks A. for sharing this data. Unfortunately the high-tier ought to be split 2-3 times again in the bay area to really reflect different dynamics (see the 2001-2002 numbers that represent nothing like the actual reality on the field), and it would be so much better if the low tier for ex. was the low third of house stock rather than an arbitrary price point or the low third of house sales. Then we could really evaluate the true changes in value. Or am I misinterpreting? :)

  146. nomadic Says:

    The other disappointing aspect of the hard work A. put into his C-S data is that it’s for the SF MSA. Doesn’t even include Santa Clara county at all. Gets muddied by the apocalypse in Contra Costa county too.

  147. burbed Says:

    I think if you TinyURL the links, the spam filter won’t eat them. Or it may.

  148. A. Lewis Says:

    Actually, it looks like the links never got eaten, I just didn’t see they were working. When I hit submit comment, it refreshed the page, but didn’t show my comment, so I thought it was gone. That’s why I basically posted 3 times.

    I should have just waited 10 minutes to see if it worked or not, I guess.

    I don’t mean to suggest the C-S data in some way is a proxy for specific parts of the RBA/MRBA, etc., especially since it doesn’t include Santa Clara County!

    But it does include lots of high end parts of lots of the BA, many of which have similar dynamics.

    And I think the price RISES from 2001-2007 look very familiar to a lot of us, right?

    So while it may be more of a picture of the BA/MRBA at best, it’s still important data that show the size of the bubble, and also give an INDICATION (if not a detailed picture), of the variation around it that occurred in different price tiers.

    So you can post your own curve in for a particular house if you have 2 or 3 price points, and decide for yourself have inflated it is relative to historical trends, and guess for yourself if and how far it might drop.

    Keep in mind – this is AFTER I correct for inflation.

    I update it once a month as the C-S data comes out. I tend to watch the high tier, which I think is sort of like MRBA properties.

  149. A. Lewis Says:

    #144 – um – could you clarify your advice? I may have saved the excel file on a different tab, so maybe it wasn’t obvious when you opened it – but I meant you to look at the Charts tab (and not a table of numbers).

    And the first chart in the upper left corner summarizes most everything – the others are calculations or variants of the same data in that chart.

    Are you complaining there are too many charts? OK…

    But what on earth kind of 7 inch screen are you stuck with? Can you not check it out later when you get home on something decent?

  150. nomadic Says:

    Yes, A., the trends are generally valid all over the area. At least in my useless opinion. ;-) I suspect that they aren’t quite as steep in our main areas of interest because we don’t have the distorting effects of places like CoCo county or East San Jose.

    BTW, your links may have been eaten. Burbed posted in another thread that he liberated some from spam purgatory.

  151. madhaus Says:

    A, I didn’t see any charts anywhere, and I looked at all the tabs. You’re saying there’s a tab called charts? Where is it? I did not see a single graph.

    No I am not complaining about too many charts, but about no charts.

    7 inch screen? It’s my netbook. I have a bigger screen on my desk but I’m not on that one now. And I’m on my netbook because I do all my writing on it.

  152. A. Lewis Says:

    #151 – bizarre – the 1st tab is called “Charts”. Anybody else having this problem or can you see what I’m talking.

    What version of Excel are you using to view it? I created it in Excel 2003 (windows).

    If you are viewing it in something besides Excel, it’s possible the charts are getting mangled (M$ software doesn’t always play well with others)…I could make screenshots or something for you, but that sounds tiring…

  153. A. Lewis Says:

    And I forgive you for having a 7″ screen b/c netbooks are cool.

  154. nomadic Says:

    I saw the charts. First tab. Those tabs must’ve been mighty small on a 7″ screen.


Leave a Reply

Please be nice. No name calling, no personal attacks, no racist stuff, no baiting, etc. Let's be nice to each other in the true Bay Area spirit! (Comments may be edited/removed without notice.)