Hammer Dropping on Sunnyvale Town Center

Hopefully arrogant Sunnyvale sellers will respond to SV “wife-very-on-education” Shopper’s lowball offers this time.

What constitutes “slight growth”? If you look at Prestige chart provided by Steve, its 2003-2007 growth is not “slight” by any means. 99-00 price increase in understandable, but how much money do you think came to valley after 2003?

http://www.firstrepublic.com/lend/residential/prestigeindex/sanfrancisco.html

should interest you. For an extended discussion of similar points regarding RBA and intrinsic value, you should check this:

http://www.burbed.com/2009/06/19/palo-alto-is-now-value-alto-house-on-university-ave-for-sale/#comment-47605

I think you’ll find our thoughts aligned.

Saratoga:
99: about 950k, there’s graph but no table.
00: 1.836 m. Roughly double
08: 1.790 m flat since 00.

Cupertino:
99: 699k
00: 984k. 41%
08: 1.238 m. 26% since 00.

She plays fast and loose with “average” vs “median” but the trend is there.

So basically there was a huge jump in 99->00 (driven by dot com of course) then slight growth since then. Sure, the dot com was a bubble, but there’s no denying that it brought a lot of money into this area, which accounts for this spike.

There’s something for everyone here:
- Can’t rely on doubling every 10 years. the price increases depend on a spike which can’t be predicted.

- OTOH – the generally accepted reason for RE prices rising is loose lending starting in 2001. But these RBA places did not see much increase between 00 and 08, so what loose lending may have existed didn’t do much there. Meaning that stopping the loose lending would also have less effect. Now, surely the general downturn will have an effect. And if we devolve to a Mad Max existence then none of this matters. But this can explain why RBA is not seeing the 50% declines that other places are seeing – there was not a doubling due to loose lending. So if prices revert to pre-loose lending levels, they are still higher than in 99, and not down that much. (e.g. 24% in Los Altos)

But a lot of buyers (particularly in RBA) are not looking to be landlords. They are looking to live in the house, and want to buy it. So they look at what they can afford to buy, not looking much at what a house “should” cost based on median income or rent.

(sure, if rent was $500/mo for a house listed at $1.5m then the annoyance of frequent moving could be tolerated. but that’s not the case).

So these are the buyers who are actually getting these houses. If someone won’t buy until houses reach some desired mathematical ratio, well, they may enjoy the fact that renting is relatively inexpensive here compared to buying.

Also, consider what some of the buyers are used to in terms of income vs home price. Beijing: median income in 2006 was $4660. http://english.sina.com/china/1/2007/0327/107816.html
Housing price was $842 per sq m. http://www.btmbeijing.com/contents/en/business/2006-04/coverstory/houseprice
(for some reason that’s how it’s shown there). A typical apartment might be 60 sq m. (650 sq ft) Some bigger, some smaller. So, 60* 842= $50,520. Price / income = $50,520/$4660 = 10.8. Even if you consider that 2 income couples are common, thereby doubling the income, it’s 5.4. And prices have gone up since 2006 – Shanghai is about $2200/sq meter now! (Driven by increasing incomes). The data is a little sketchy (if anything the prices seem a bit low based on what I’ve seen) but you get the point.

My point is that certain buyers are willing to pay more than mathematical metrics may indicate. So waiting for housing to go to 3x income, or 100x monthly rent, will be a long wait.

Having said this, it’s undeniable that RBA prices have fallen since 2007, perhaps 15%. I don’t think they’ll go to 3x median (which would be around $450k in places like Palo Alto) but there’s likely some more downside. And it doesn’t necessarily follow that RBA is a great investment either. Renting it out is a money loser on a monthly basis. Perhaps in the very long term it could pay off but that’s not clear.

Your comparison in #9 is ridiculous too. Comparing RBA housing to the stock market isn’t even apples & oranges. More like apples & french fries.