$400k house in Santa Clara – moving fast!
In light of Sunday’s post on houses for $400,000 across the nation, this week Burbed is featuring a selection of Bay Area houses for the same price.
2631 MONTICELLO Way, Santa Clara, CA 95051 | MLS# 80921648
2631 MONTICELLO Way Santa Clara, CA 95051
Price: $399,000
Beds: 3
Baths: 2
Sq. Ft.: 1,095
$/Sq. Ft.: $364
Lot Size: 6,300 Sq. Ft.
Property Type: Detached Single Family
Stories: 1
Year Built: 1960
Community: Santa Clara
County: Santa Clara
MLS#: 80921648
Source: MLSListings
Status: Active
On Redfin: 59 days
NICE HOUSE IN A GOOD AREA CLOSE TO SCHOOLS AND STORES, PARKS, 3 BED ROOMS 2 BATHS, COME TO SEE IT AND MAKE YOUR BEST OFFER.
I know what you’re thinking – wow… why get a mansion everywhere else when you can get this house in Santa Clara!
But wait, there’s more! Let’s look at the 2 interior pics:
Let’s ignore the fact that the fridge seems to be modified so that it can be padlocked for a moment. The fact is that this house is moving so fast that the realtor can’t take any non-motion blurred pics!
While he was standing there, offers started to pour in, and interest in the house shot off.
Look, one of the exterior photos even includes prospective buyers. Hey, guess what? They’re from Moscow. They’re here with their oil money. In Santa Clara. Competing with all the other foreigners who are trying to invest in the Best.
They’re thinking “$400k! This is a steal!”. And it is!
July 13th, 2009 at 8:50 am
Still overpriced by $100k. Last sold for $220k in ’96.
July 13th, 2009 at 10:27 am
Incomes in the Bay Area have doubled since 1995. This is an increase of about 5% a year. A price of $400k is reasonable as it is less than double the 1996 price.
Also the mid-1990s was the bottom of the last housing bubble and if house prices keep up with income you would expect the bottom of this housing bubble to have prices about twice the last housing bubble.
July 13th, 2009 at 11:00 am
Pending with release, but it’s a short sale so it is unlikely to close.
July 13th, 2009 at 12:05 pm
Refi 12/06 for $576,000 per PropertyShark.
July 13th, 2009 at 12:10 pm
Wow, it’s going to be YEARS before theft like that is legal again. Damn, I missed out.
July 13th, 2009 at 12:26 pm
Gavin,
I have to disagree with you.
In San Jose, CA US Census Data for Median Household Income:
1989 $46,206
2000 $70,243
2007 $76,963
From ’89 to ’00 median incomes only rose 52% in 11 years. From ’00 to ’07 median incomes only rose 9.6% during the bubble.
As a quick back of the napkin exercise, if you take these percentage increases and apply them to the featured home you get the following:
1996 $222,000
2000 $264,002 (18.9% increase from ’96, not compounded)
2009 $296,474 (12.3% increase from ’00, not compounded)
San Jose median incomes have not doubled in 10 years and correspondingly I think $300k is a fair valuation for this home.
These rancher homes are a dime a dozen in the Bay Area and will retrace back to pre-bubble levels IMO, especially when all the babyboomers offload these over the next 15 years.
July 13th, 2009 at 2:01 pm
Joe,
Thank you for your data and analysis.
Your numbers are different than the ones I am using. I looked at http://www.bea.gov (Bureau of Economic Analysis) for per-capita personal income in the San Jose-San Francisco-Oakland, CA area. I would prefer to look at the larger area as San Jose city may have done worse than the metropolitan region. There may also be some issues with changes in the size of a household so household median income growth may not match per-capita personal income growth.
Here are my numbers
1989 $24,448
2000 $47,139
2007 $57,687
From 1989 to 2007 per-capita personal income increased by 136%.
To apply this to house prices I would prefer to start around the same phase in the housing cycle. If the bottom of the last housing cycle was in 1996 and the new bottom is either this year or the next couple of years we would have
1996 $222,000
2000 $320,811 (44.5% increase from ’96 not compounded)
2009 $412,925 (28.7% increase from ’00 not compounded)
July 13th, 2009 at 2:09 pm
Jeo,
Don’t forget that interest rates were 8.5% in 1996 and are now 5.25%.
A quick back of the napkin exercise:
1996- ($222k w/ 20% down) P&I payment of $1,365/mo or 26% of a $63k median income, adjusted for inflation at approx 3%.
2009- ($400k w/ 20% down) P&I pmt of $1,767/mo or 27.5% of the 2007 median income you referenced and assuming median income has not gone up since 2007 (maybe true)
Not that far off on % of income terms, plus it looks like the house is pending, so the $300k, at least now, seems to be low…I think getting back to 2001-2003 prices is much more reasonable than 1996 prices.
July 13th, 2009 at 2:34 pm
Nice post, burbed.
I think you’re one of the few people that really “get it” when it comes to bay area real estate.
Very few people know that everyone wants to live here!
heh heh heh…
July 13th, 2009 at 2:38 pm
MV_Bound,
Absolutely interest rates have a big impact on the selling price of a home as we all know. My analysis was “all things being equal”.
I think what my analysis also shows is the big downside risk to buying with historically low interest rates; when rates go back up to more historical levels, you can see where your home value will go.
An individual making $100k will qualify for ~$75k less at 8.5% as compared to 5.25%.
The other point is that if the featured home sells for close to asking now, at this point in the housing correction, one can image where it will be in 3 – 4 years after the wave of foreclosures from alt-a, option-arm recasts, and rising interest rates…
Would any burbed reader want to buy this place to live or rent out at $400k?
July 13th, 2009 at 2:40 pm
Gavin,
Nice analysis. Not really sure what approach is more meaniful, per capita vs. household income?
July 13th, 2009 at 2:48 pm
#10 – Unlikely anybody would. It’s located one block from the freight train rails. This house would be a steal in some other parts of Santa Clara, but I would not even _rent_ there at a discount.
July 13th, 2009 at 3:17 pm
Joe,
Both your analysis and mine are much closer than what really happened. Based on your numbers prices should be about 35% above mid-1990s price. Based on my numbers prices should be about 100% above the mid-1990s price.
A house down the street (2602 Monticello Way) from this one with the same square feet and built in the same year sold for $650,000 in 2007. If this house (2631 Monticello) were worth the same amount it would have increased by 200% over the mid-1990s price. This demonstrates how ridiculous prices were relative to incomes.
How do we reconcile our two estimates? Should prices be 35% or 100% above the prices in the middle of the last decade? We should use another measure: rents. Based on estimates of rental increases over the last 14 years, I would says rents have increased closer to 35% than 100%.
July 13th, 2009 at 3:20 pm
“Would any burbed reader want to buy this place to live or rent out at $400k?”
Not a chance. I’d rather throw it away then give it to the bank or bail out this bag holder.
July 13th, 2009 at 3:44 pm
#10 – No way. I’m spooked by that part of Santa Clara.
July 13th, 2009 at 4:10 pm
Gavin your mention of rents is a good one because they tend to increase with salaries and aren’t impacted by factors like criminal lending practices, which can greatly skew prices as we all have seen. They also of course reflect the income producing ability of a property, which is ultimately what gives a home its value. After all, if one could rent a house for free in an area, the houses in the area would have little value.
You’ll know the market is close to bottom when the rent v. own equation falls back in line with the historical norm in an area. Right now, we aren’t close, and given the state of the economy, rents seem to be falling as one would expect.
July 13th, 2009 at 5:10 pm
It’s a pity willowglenner is no longer on this board. he would tell us that rents are RED HOT.
My rent went up this year — 2.5%. I’m in pain, I can no longer say I rent a $2K house. It’s now a $2.05K house. These red hot rents are BURNING ME UP!
of course, rents in San Jose may be climbing more rapidly than rents in Palo Alto, which would mean a dramatic inversion in RBA, and possibly the imminent collapse of the universe.
July 13th, 2009 at 5:15 pm
Perhaps Willow Glenner has left because its easier to disappear than it is to admit you are a fool and you were wrong…
Rents are taking a dump, I’m currently negotiating 20% off mine…
And the owner was already pissing away $1600 a month before it gets lowered.
Ahh, the joys of homeownership!
July 13th, 2009 at 5:16 pm
Psst….
1600 bucks will buy a pretty decent flat screen…
July 13th, 2009 at 5:22 pm
yep, and 2x that will get you a really nice LCD flat screen.
July 13th, 2009 at 5:53 pm
ANON: Where are you renting? 20% down is much better than my 5% up.
I liked WG, but he kept talking about cash flow positive properties when we’re talking about the RBA, which, by definition, is massively cash flow negative and will only become increasingly so (as per RE)
July 13th, 2009 at 5:59 pm
I’m still bearish on housing as an investment. there is growing inventory (actual and shadow) to clear and no obvious engine for wealth creation of the next 2-3 years. M&A activity is down, VC investment is down, the public markets are closed. some sellers will panic in the fall and most smart buyers know this. however, there are a few things that have surprised me in my RBA search:
1) every market is micro and insulated. price changes in one area don’t have significant impacts on others. buyers are very focused on specific neighborhoods and pay irrational premiums for them verses reasonable substitutes
2) good houses move and move quickly, still.
3) median income is irrelevant. what you want to look at is the rate of increase for the top 5 or 10%. these are the homebuyers and I’m pretty sure that rate of increase was staggering
4) despite record RBA inventory, supply remains tight. remember, the average PA house sells once every 32 years
5) rental income valuation is also irrelevant for SFHs — prop 13 has made it so. until the carry costs adjust to market (which might not ever happen), rents for RBA SFH will be artifically low (and supply will be artifically tight, inflating prices)
6) loose credit explains the east bay but not the RBA. bidding for houses was just too competitive and, so far, I have seen no evidence that folks used their houses as ATM machines Irvine style. at this point I am convinced that LTV rations are solid in the green zone and beyond
7) tight credit isn’t an issue either — have a job and some cash, you’ll get a loan at a historically excellent rate.
now, the collapse of the move-up market has hurt certain areas (los altos) and the high interest rates that seem certain sometime in the future (3 years? 5 years? 10 years?) will kill whatever state of recovery the market is in. but, I have to admit that the market is doing better than expected.
my best guess as to why? too many people have too much money. a house purchase is now consumption. time to get engaged? buy a diamond. time to have kids? buy a house.
July 13th, 2009 at 7:07 pm
steve, you make some interesting points (you sound pretty bullish in spite of it all!) but actual inventory is decreasing – at least at the Santa Clara County level. I totally agree there is significant shadow inventory out there, but I just got data for Santa Clara county today.
The number of properties for sale has fallen every month since March – 24% in 3 months. Spring mini-bounce? Last year, March to June saw an inventory increase of 13%.
July 13th, 2009 at 8:03 pm
it’s not that rosey. many good homes are down 20%+ from their well-timed sale value — and I suspect even the best have another 10%+ to go. moreover, I think values will stagnate for a long time.
still, if you *need* to own a house, now’s not a bad time to start looking. just don’t do it thinking you are going to make money.
July 13th, 2009 at 8:26 pm
STEVE: RBA is still strong, no question. Just keeps getting smaller. I mean, who thought Los Altos would be throw out?!
I don’t agree that rental incomes are irrelevant. Remember, Prop 13 applies to all of California, not just RBA, and rents are VERY important everywhere else in the state.
Prices will not fall until sales slow further. Give it time.
July 13th, 2009 at 9:34 pm
I can just sense the disappointment in Steve’s post. Virtually everything he’s saying now is what I’ve been saying all along. You can’t deny the facts that as far as the RBA market goes:
- The buyers are out there
- Prices are holding firm
- Homes are selling
- Inventory never got out of hand and is now decreasing
In a word, RBA is SPECIAL.
July 13th, 2009 at 9:53 pm
then why haven’t you bought your investment property yet? Interest rates are back down again.
July 13th, 2009 at 10:20 pm
Not going to answer a troll question that’s been answered multiple times already.
July 13th, 2009 at 10:42 pm
RE: there’s no disappointment. more importantly, by not following the advice you have been giving all along I have saved hundreds of thousands of dollars.
while some of my conclusions support things you have been saying, your central thesis has been and remains that RE is a great investment. mine is the opposite – that you should treat a house as consumption and not as a retirement vehicle.
July 13th, 2009 at 10:44 pm
The same reason the drug dealer is rarely a user; he just sells it, he’s smart enough not to do it himself.
July 13th, 2009 at 11:00 pm
lol – first it was the holiday season, then interest rates (4.5-5.5%) were too high, then… don’t remember, then interest rates (~6% were too high), whatever. No one believed the “buy now” troll anyway.
July 13th, 2009 at 11:07 pm
R,
Except I already own a home that’s equivalent to 3 median priced homes. You’re criticizing me for not picking up a 4th home?
July 13th, 2009 at 11:14 pm
Now we know what’s wrong with RE’s brain: he struggles with basic arithmetics!
July 13th, 2009 at 11:15 pm
R: you realize you were paying RE undue compliment by comparing him to a drug dealer? If a drug dealer cannot add properly, he’s dead.
July 13th, 2009 at 11:21 pm
I think the realtor was trying to entice the stoner crowd with that stoner vision image.
July 13th, 2009 at 11:29 pm
No one believed the “buy now” troll anyway.
nomadic,
—-
You don’t understand. His paystub is stuck in employer’s printer. So he cannot get a mortgage. Due to this reason it is right time to buy……for everybody ELSE. Or it’s perfect time to buy for everybody else. Or may be it is BEST time to buy everybody else. But not for him, because his paystub is stuck in printer.
July 13th, 2009 at 11:37 pm
Why do you guys force me to address the same question over and over? As I mentioned previously, buying an investment home is a different ball game with a different interest rate.
Pralay is not buying a primary residence for what reason exactly? As far as I can tell, he cannot come up with one.
July 13th, 2009 at 11:38 pm
I already own a home that’s equivalent to 3 median priced homes.
Too bad the squatters living in it aren’t paying rent!
July 13th, 2009 at 11:41 pm
- Inventory never got out of hand and is now decreasing
—–
I thought RealEstater would be taking about “velocity of buyable inventory”. I guess that metric is no longer required, because inventory is going down.
Not yet, but pretty soon RealEstater will start talking about SP/LP………….again, once it goes above 100 (may be very soon Cupertino SP/LP will become 106%).
July 13th, 2009 at 11:43 pm
Why do you guys force me to address the same question over and over?
—-
Because, although RealEstater’s excuses are not believable, but they are definitely entertaining.
July 13th, 2009 at 11:57 pm
Except I already own a home that’s equivalent to 3 median priced homes. You’re criticizing me for not picking up a 4th home?
—-
So did the strawberry picker in Hollister. We shouldn’t criticize him for picking up his 4th home either.
July 14th, 2009 at 2:05 am
“that you should treat a house as consumption and not as a retirement vehicle.”
I’ve been trying to explain this to excreter for nearly a year now. He just doesn’t seem to get that you have to sell it in the end.
He’ll learn.
July 14th, 2009 at 2:12 am
“Why do you guys force me to address the same question over and over?
Because you make the same incorrect statements over and over.
July 14th, 2009 at 6:46 am
>>“that you should treat a house as consumption and not as a retirement vehicle.”
The beauty of a house is that it is both. When you retire, you can still ride in this “vehicle”. Retirement is something a homeowner can look forward to, not something to fear.
July 14th, 2009 at 7:56 am
Retirement is something a homeowner can look forward to, not something to fear
sure, unless finding a way to pay your large mortgage — or facing the prospect that your vehicle is worth less than your paid for it — qualify as fear.
the current group of retirees bought house they planned to pay off. have the boomers made their purchases with similar foresight?
July 14th, 2009 at 1:42 pm
Steve,
Your overview is good. However, one thing I would comment on is the current so-called ‘immunity’ of RBA property.
As other posters alluded to, part of the reason for this perceived immunity stems from the constant re-definitions of what the RBA is. Real Excreter has moved the goal posts on that so many times that is is beyond laughable at this point. Now we are at the point whereby only a few small sectors of the current housing demographic qualify as ‘RBA’. Los Altos is now sliding. Los Gatos as well. Many areas of San Francisco are also caving.
But as another poster indicated, part of the reason for the perceived lag in areas like Palo Alto, the Presidio area of San Fran, etc is due to the less frequent transactions that occur in those regions. Furthermore, as the Real Bay Area strank, those with money began to focus more and more on a very small set of locations where they felt their investment was ‘secure’.
The exact same trend appears in numerous other booms and busts, even outside of real estate. A great example is the dot com boom and bust. When many of the dot coms with no business models went under, money shifted to companies like Cisco and Oracle and they held up much longer than those smaller contemporaries. But in the end, valuations and gravity took hold and EVERYTHING corrected.
The same will happen with RBA real estate. It will simply be the last to correct.
Another poster showed this graph a while back which demonstrated how quickly certain regions were correcting in SV versus others:
http://www.housingbubblebust.com/OFHEO/Major/NorCal.html
But being that they all follow the same trend lines, the end result will still be the same.
July 14th, 2009 at 3:39 pm
BAI, I’m not sure that I disagree, but two thoughts:
1) the market CSCO is much more liquid than for central menlo or prime parts of PA
2) I’d like to see C-S “prestige” index data for other MSAs. I’ve heard that the best properties in cities that were well-ahead of the real estate disaster curve are still hanging in there. I’m thinking San Diego right now, but I would love to see evidence one way or another.
are there safe harbors or does the falling tide ground all boats?
July 14th, 2009 at 3:54 pm
Here’s the prestige index for San Diego:
http://www.firstrepublic.com/lend/residential/prestigeindex/realtor/sandiego.html
Looks like prices have fallen to 2004 levels.
LA isn’t quite as bad – looks like 2005; comparable to San Francisco:
http://www.firstrepublic.com/lend/residential/prestigeindex/realtor/losangeles.html
Here’s their summary as of a month ago:
http://www.firstrepublic.com/lend/residential/prestigeindex/index.html
July 14th, 2009 at 8:48 pm
great graphs! thanks.
July 14th, 2009 at 9:25 pm
>>The same will happen with RBA real estate. It will simply be the last to correct.
I know. Downturn is always in the future. You can keep hoping!
July 14th, 2009 at 10:45 pm
Let’s see who was hoping what. This guy was hoping that lower price would never come to RBA. After 11 months same guy is admitting 20% “real drop”. Anybody wants to guess what he is hoping now?
July 14th, 2009 at 10:58 pm
Same old troll post.
Next.
July 14th, 2009 at 11:08 pm
We all are waiting for an entertaining answer to #27…eagerly.
July 14th, 2009 at 11:09 pm
> Anybody wants to guess what he is hoping now?
Abolition of orthography?
July 14th, 2009 at 11:11 pm
Pralay,
We are still waiting for your entertaining answer to this post.
July 14th, 2009 at 11:13 pm
Abolition of orthography?
——
LOL! That would be Prop 1313. Just wait for next ballot.
July 14th, 2009 at 11:16 pm
We are still waiting for your entertaining answer to this post.
—
Well, used car salesman ask questions for commissions (not for entertainment).
July 14th, 2009 at 11:22 pm
Downturn is always in the future.
—-
$-50000.00 upturn for a RBA property that must not have “downturn pricing”.
July 14th, 2009 at 11:24 pm
Abolition of orthography?
Perfect!
July 15th, 2009 at 12:17 am
Remember RBA bottomed in January? Evidence is everywhere. SF is taking the lead. Silicon Valley is not far behind.
July 15th, 2009 at 1:38 am
LOL! Mansion glut? What does that have to do with you, Pralay? I’m sure those Pacific Heights dwellers are begging you to buy their homes now!
July 15th, 2009 at 1:40 am
Foreclosures in “Silicon Valley”? Sounds dramatic, except it’s really about foreclosures in San Jose and East palo Alto. How many foreclosures are you finding in 94087 or 94301?
July 15th, 2009 at 2:37 am
“(…) and East palo Alto.”
abolition of orthography is indeed well under way
July 15th, 2009 at 7:55 am
. How many foreclosures are you finding in 94087 or 94301?
—–
Good to know that RBA is not confined to only TWO zipcodes.
July 15th, 2009 at 8:34 am
As RealEstater asking for foreclosure info, let’s look at his own track record (or denial, to be precise) in this topic.
Do you remember “there is no such thing as foreclosure in Palo Alto”? He even went on saying this:
He even provided data from SF chronicle:
Damn! That’s looks likes so picture perfect! Let’s use same database provided in RealEstater:
Sunnyvale 94087 –
37Mountain View 94041 –
14Cupertino 95014 –
110Los Altos 94024 –
01Palo Alto 94301 –
01Palo Alto 94306 –
02Atherton 94027 –
01Woodside 94062 –
01Menlo Park 94028 –
00Burlingame 94010 –
18San Carlos 94070 –
212Looks like “car accident” is increasing – in some zipcodes it is increasing in slow pace and in some zipcodes faster. Remember we bottomed in January? So this is is the evidence of bottom that trend is now in positive direction.
I know what RealEstater would say now!
“No such thing as foreclosure in Palo Alto”One foreclosure in 94301 (the one of the two zipcodes of the remnant of RBA) – big deal!:)July 15th, 2009 at 8:49 am
Ah numbers, the kryptonite of all salespersons.
July 15th, 2009 at 9:11 am
You can add 2 in 94303:
1023 Oregon Avenue
2375 Sierra Court
5,850 foreclosures in Santa Clara County…