patrick.net

which all really makes my point that it's apparently OK to invest in 'passive income' earners where you have to do little or no work for a return, as long as you're 'respectable folks'. altho 'investment properties' do require some work and monitoring, no-one would do it if it provided the same sweat equity return as a regular paid job working for someone else.
some people find out the hard way it's more work than they bargained for, which the RE guru never warned them about in the seminar. the other thing they hope for these days is massive, unearned capital gains on said properties, of course. but, now i think of it, 'investment properties' are being spruiked all the time in other states, using a property management model, so you simply hand over all the work to a remote RE agent for a fee...

more on this later, i'm going out the door...

skibum,

I was at Miyake when you were strolling the downtown on Friday. We noticed the same thing.

Why was it full at Miyake? PRICE.

I can probably speculate on why Stanford Shopping Center was full. In the last couple of months, I have already received 3 visiting pals from Asia who were doing last-minute shopping at SSC before they returned. It is to me more of a touristy place for out-of-town consumers.

Miyake? I need my noise-canceling heat-set. :)

It seems like the 'selling season' ended a couple months early this year. Normally Oct is the end of the main inventory turnover.

August 2007 will live forever as the 'end' of the credit bubble IMO.

So since we are only 1 month away from the end of ez cheap money....we got a loooong way to go to bottom.

iTulip.com predicted 15 (fifteen!) years from 2005 as the bottom nationally. Thats the longest time period I've seen predicted. They back it up with logic an graphs and data too, check them out.

Also dont forget in CA it takes 11-12 months to foreclose from when mortgage payment is stopped. Then add 1 to 3 months for the lender to put the REO on the market (it may not even hit the mls but sell to insiders-i saw this recently).

So if an FB stops making payments TODAY then you won't see the house for sale as an REO until 12 to 15 months from now, possibly longer if they do some 'workout' or crummy gov bailout delays the inevitable foreclosure.

The recession will eliminate a large number of jobs, plus boomers retiring=less demand and more inventory. In los angeles the countrywide layoffs should add some inventory very soon.

OO,

That's funny re: Miyake. I haven't been there since I was in school. I have to admit, we've become too snobby about good sushi, so we don't go there. The place makes me feel old anyway. ;)

It's not just price there - it's a hangout for those twenty-something, moved here from out of town, working at a startup, single, worker bees.

I have only been there once. Dragged by a friend.

Let's say there are many better places for sushi. And there aren't that many good sushi places around.

Randy,

Interesting thread and initial post – and I think you provided a great overview of the market conditions and likely outcomes. Consistent with this blog’s makeup, your comments are weighted more towards the SF bay area.

I am not very informed about the bay area markets (this blog helps me in that regard). However, many (most?) other areas peaked in the summer of 2005, some later, and a few (like Manhattan) are still rising.

I have been closely following and investing in the real estate markets for three decades. I have had the good fortune to buy and sell with very good timing through three cycles now. I think it is still a bad time to buy, and that the time to wait will linger for a while.

Those who buy before the prices stop falling will pay more than necessary. Why buy today when it will be cheaper tomorrow? The best bargains are yet to be seen.

I do not think there is anyplace in the US where it is a good time to buy today. However, when we reach the bottom of the cycle it will be a great time to buy (and I will). However, most people fall prey to excessive pessimism as the market reaches its bottom, and they foolishly think the doom and gloom will never end. So they continue to wait – frozen in fear. I think the bottom for prices will come in 2009 for those markets that peaked in 2005.

Real estate price always recover slowly at first. So people should wait for the prices to start rising before buying.

skibum and Peter P,

well, the price is good at Miyake, that's what I have to say re: that place. Actually I know the owner too, who also owns Yoshida in Cupertino, which serves much better food, but was shut down due to sashimi embezzlement (no kidding, they were having inventory problems with fresh fish because the cook took them home). I heard it was re-opened but didn't get a chance to visit.

Fukisushi is the place to go if you want quality sushi in Palo Alto. Sorry for attempting to morph this thread into a food discussion.

Fukisushi is the place to go if you want quality sushi in Palo Alto. Sorry for attempting to morph this thread into a food discussion.

There is also that place in Menlo Park that I am not allowed to talk about. ;)

I was technically a knife catcher in 1994. The prices bottomed out in 1995. I found the place I wanted at the price I was comfortable with, so provided prices have come down enough (which I don't think will be by next spring) being a knife catcher isn't all bad.

As to the landlord thing, they are providing a service. My father rents despite being affluent because he thinks it's easy. I have friends who are small landlords who have had to leave dinner parties to unclog toilets. The smaller landlords seem to do a fair amount of work/maintenance. The larger landlords with maintenance companies/etc. may not labor, but they are selling convenience to some, and shelter to others who may never have the wherewithall to own a property for some reason or another.

I think Peter P. may feel that the welfare recipients are parasites because he feels he doesn't have a choice in paying tax dollars that he believes go to them. I do feel that way sometimes, when I see an idle young able bodied man in the projects in particular, but I feel much more strongly that way about the Halliburtons, KBRs and Blackwaters than I do some single mother trying to feed her kid on WIC..

I think Peter P. may feel that the welfare recipients are parasites because he feels he doesn’t have a choice in paying tax dollars that he believes go to them.

Exactly. :)

Peter P,
Yes, do not mention the place in Menlo Park. Unfortunately, it's already gotten a lot of press. I'm not a big fan of Fuki Sushi. I like Naomi better.

Yes, do not mention the place in Menlo Park. Unfortunately, it’s already gotten a lot of press. I’m not a big fan of Fuki Sushi. I like Naomi better.

Also try Nami Nami on Castro in Mountain View. The food is pretty good. And I like their low-density layout. I need breathing room. :)

To all those silly middle-class dimwits (including CEOs, entrepreneurs, managers, and whoever strives hard to make a dime or two):

It's better that we the welfare recipients live out our meagre but carefree existence; for therwise, there will blood on the streets. Keep us fed and we'll leave you (the pencil-necked, the pale-faced, the chubby-tummied, the grey-haired-over-stressed-youth-wannabe-american-CEO-that-is-Larry-Ellison) alone.

BTW, you forgot that the largest welfare system in any country is the armed force. They are our brothers, although I admit they take more risks.

Now, pale-assed monkeys, go back to work and pay us the food stamps.

I think people like David Ranson should be taken out and shot for sake of raising our national average IQ. I pity those poor souls who put money in his company.

http://www.cnbc.com/id/15840232?video=510787951&play=1

Is he trying to say something outrageous to attract eyeballs?

In my neighborhood there seems to be plenty of 200K household income, but holding a 600 - 1M mortgage (depending on when they purchased their homes). I think these people will stand to lose the most if anything happens and there are a lot of them.

Before Syrib chimes in :) I'll have to qualify that I don't live in Cupertino. I do look up people's mortgage in propertyshark, especially those parents of my kids pre-school class who come up to me telling me that their kids are going to private school for a better education. Looking at the propertyshark data, some of these parents are not very good at retirement planning.

Gentle Cheetah,

This is your first and last warning. You know where you stand with me.

His graph shows relationship between gold and housing starting from 1975! Ah Ha, showing such a relationship just before gold peaked in the last cycle? What about from 1929 to 2007? what about going back a hundred years?

That is what people call "lying with statistics". Well, I certainly hope all his clients are going to pick up a few more houses based on his advice. Fewer bidders to compete with 5 years down the road.

@Randy,

I can understand your frustration on these sellers that would not lower their price. For me, it is somewhat akin to buying a car, the salesperson will pull all kinds of BS, but then when I say "you have 20 cars on the lot, what do you mean you can come down a thousand dollars", they usally go ballistic, so now I don't even do that anymore, I would just tell them how much I am willing to pay. Luckily the internet changes the dynamics of car buying much to the car-buyers' advantage.

Randly, please call me GC. You're acting as if we are strangers, for God's sake.

I think Cheetah's comment was intended ironically (hard to tell).

But there is a grain of truth to the theory that a certain amount of income redistribution is socially optimal. (We can debate about what that level should be.) Others (even if they are not very bright or motivated) should not starve so that we can gorge on premium sushi every night.

But I agree with SFWoman. "Temporary Aid to Needy Famlies" (formerly AFDC) spending was $20 billion in '06. War spending on Iraq and Afghanistan was roughly $120 billion in '06. Total defense spending was $439 Billion in '06 and is scheduled to increase to $532 billion in '07.

That's a lot of sushi. To put it in perspective, TANF is around $70 for every man, woman and child in the US (or around $210 per household of 3). Defense spending in '07 is around $1750 for every man woman and child in the US (or about $5,250 per household of 3).

That is just ridiculous. I wouldn't mind getting some of that back.

It was hard to tell, because I meant both the grain of truth and the irony. Doing either alone would be too boring and I am bored.

Randy,

Let me be the first one to admit that I was one of the people here arguing with you against the stickiness. And I was wrong.

I agree with you, that the downward moves can be substantial. I have already seen evidence in the asking prices being slashed by 10%. I also see the change of mood in discussions with sheeple. I mean everyone, even in BA knows that it's no longer a sellers market. The change is amazing. It seemed so slow while happening, now in retrospect it seems very sudden.

Not sure about 2008 spring. BA is little bit behind the curve. But on the other hand it is far more dependent on JUMBO mortgages than many other parts. I was at least correct on that part. Without any job problems, just the magic number going over 8 has put a serious chill in the market.

Personally, I will buy when I get a house I like at a price I am comfortable with. 2008 or 2009, it's fine with me.

I think we should all wait for Aug number first before we make our forecast.

Aug07 was the month in which JUMBO was yanked. Let's see how the BA market dealt with that shock.

OO,

Wouldn't the real effect be visible in the number that get reported in October ? Whatever god sold in August will close in September and be reported in October.

I hear that August sales are way down vs. July 2007, and vs. Aug of 2006.

You will have to wait for a while to see what actually closes. However, the NAR does also track homes that go under contract. These numbers are way down.

FYI: Bubble-bailout anger has gone mainstream. If even Tom Tomorrow is anti-bailout, we're in pretty good shape, public opinion-wise:

http://www.salon.com/comics/tomo/2007/09/10/tomo/

Oh my. This is priceless. Simple, straight and spin-less. From a Realtor.

From http://www.rereport.com/scc/

For sellers, pristine homes in the best neighborhoods are still getting multiple offers, but that is now the exception rather than the rule. Over-priced listings are not even getting offers. If you get an offer, a rarity in this market, work it. Do not reject any offers out of hand. You may not get another.

I couldn't figure out which parts to make bold :-)

Those RE report guys are real Doom-n-gloomers. Everyone know a lowball offer is an insult and the surest way to upset seller's delicate feelings. You can't expect them to just "give it way"! Their house is their identity, lowballing is "like calling someone's baby ugly". Hell, lowballing is actually *worse* than insulting the baby --most Bay Aryans are too busy flipping condos to have time for children anyway.

The market's all set to rebound this spring, you just wait and see! Those "stupid" lowballers'll be sorry. It's got to come back, right? I mean, it can't stay down forever, right? Sweet Jeebus, it's got to... my NINJA resets this April. Where's that Lereah-flavored Kool-aid? I really need a hit right now. (*cough*, *gasp*...)

The lowballers who will be sorry are the ones who get the deal. Better to wait for a lower price in 2009.

I am not planning to think about looking to buy till fall of '08. At that point, I will make an all cash, low-ball offer to the seller who writes the best essay on why I should choose him to feed me squirrels from the backyard.

SP

I am a realtor, so I have access to daily data here in Phoenix AZ. I have noticed an interesting and unexpected trend I would like to share with this group.

6 years ago, I bought a fixerup home in a nice north scottsdale neighborhood. I paid $200K, though I made the seller pay closing costs and leave 8K in escrow for needed repairs. It was the last sub 200K home in that neighborhood, and in fact needed a fair amount of work and every bit of the 8K even though I did all the work myself, suffice to say it comped around 230K but was in bad shape and months away from foreclosure.

3 years ago, I sold that same home to a Cali investor for 369K. I just couldn't see the basis for those prices, as the home would rent for maybe $1450 at that time. I moved into another home in Tempe I had owned for 10 years as a rental, rehabbed it from the fraternity boy damage it had sustained, paid it and another rental off, and relaxed.

But the truth is, I miss my old neighborhood. Yeah my neighbors were mostly stuck up rude shallow people, but I could mountain bike out of my garage up spectacular desert trails, watch sunsets at night, swim in the heated community lap pool year round and walk back to my house.

So, I have been watching that neighborhood as real estate starts to unravel. So many of the residents there were real estate agents, title agents, mortgage brokers that it seemed to me it should be almost an epicenter for dropping prices.

But it hasn't! While inventory has skyrocketed, prices are holding firm from 400K and up. When I check the records on the owners, most bought years ago with original prices 200K and more lower then todays asking, so it would seem they could just lower the price and sell it now, but that isn't happening. Instead, what is happening is that rental listings are growing by leaps and bounds. In the past, there would be 2 or 3 homes at most for rent at the lower price points, (under 2000 a month) and these would rent quite fast. Today, there are 15 homes there for rent under 2000 a month, and they seem to get rented at about 4 a month on average. While waiting 3 months to sell a home isn't bad, most landlords get ulcers over those kind of things, believe me!

So, it seems many many people are going to try to wait this market out, and rent their homes out, until the market comes back.
If this trend continues, I would predict that at least in this particular neighborhood, rents will be under pressure almost immediately...

I am kinda thinking of writing some lowball rental offers for say a 4 year lease... Heck, that would be almost like owning the home anyways, I only stayed 3 years in the one I bought!

actually, I agreed with GC that time...

iTulip.com predicted 15 (fifteen!) years from 2005 as the bottom nationally. Thats the longest time period I’ve seen predicted. They back it up with logic and graphs and data too, check them out.

thanks for including the link ;)

I am not planning to think about looking to buy till fall of ‘08. At that point, I will make an all cash, low-ball offer to the seller who writes the best essay on why I should choose him to feed me squirrels from the backyard.

Funny you said that, I wrote a letter once (advise from realtor) to the seller asking them to sell us their house. It is the most ridiculous thing ever, who would care about a letter when there many other things to consider (down payment size, days to close, etc.). I swore I will never write such letter even if it means I can never buy in the BA.

Randy,

I also think there's a housing bubble in the anglo world, in the USA, in California, and in the Bay Area.

But Marin County, especially that part where you want to live, is a small and coveted area. Even though I am a lifelong resident of the Bay Area (South Bay), I wouldn't pretend to understand the small area you are interested in. Because I would see it from the perspective of living in Santa Clara County.

Did it occur to you that maybe since you looked at things from your perspective of the midwest and Redwood CIty and elite biz school or whatever, that you didn't really know what you were getting into, and that all of your predictions might come true in the aggregate, but not in the particular area that you are interested it? Because what you write sometimes sounds like you are arguing with or getting frustrated with the facts that you share your share from your observations.

FormerAptBroker Says:
> Aren’t landlords social parasites? Using their control
> over land to exploit others for a passive income?

Since no one needs to rent a place landlords are business people who need to create value for others so they continue to rent from them.

The only thing missing from this is an outline of other variables in Michigan or Ohio such as:
- what is the typical income?
- what is the job market like, particularly with relation to casual or precarious employment/layoffs?
- how large is the rental market there as a % of housing, compared to more in-demand places like CA, given how it's so affordable'n'all? -- if it was just as easy to buy as to rent, there should be very few rentals indeed going in those areas -- you may as well cement equity than keep renting, if you don't intend relocating interstate any time soon.

all of those missing factors above make the supplied comparison suspect and irrelevant (like many of FAB's supplied figures and anecdotes, it grieves me to say).

the usual reason housing is cheap somewhere is simply demand factors: there are no/low paid jobs, or it's rural, or whatever. Even I'm aware of the economic situation in places like Ohio and Michigan, the declining industries, massive residual unemployment, etc...

The 'control over land' aspect means that market conditions have allowed equity and capital-rich people to acquire more and more property in sought after areas, and in doing so keep property prices high and thus maintain the existence of a pool of renters who can never afford to buy at the asking rate.

P.S. With the exception of land leased to long term credit tenant leases owning land does not provide “passive” income (it takes a lot of work to keep the income coming in)…

as per my earlier remarks. A rental manager takes a 7% cut of the earned rent to manage the whole thing for you if you like.

Re the iTulip prediction (Housing Market will Keep Declining for Another Five to Eight Years - iTulip.com Forums), and on topic for a change, I had an interesting discussion with a financial guy last night, comparing housing corrections to stock market corrections -- he pointed out that there could be a point where owner-occupiers who bought at or near the top will have to sell down just to avoid a huge negative equity hit, just like a stop loss on the SE -- so they will not necessarily just hang in there in their own house, unless they are comfortable with their repayments and the 'it doesn't matter what price you paid, as long as you're happy with your home' view. I personally think he may have his head in the financial clouds on that one, as people don't treat their own home impassively like a stock investment to be dumped if it loses value. There are other reasons that people in this position will be a very small volume subset of the market. Any thoughts?

sybrib

Yes I'm getting frustrated with south Marin, I have been quite open about that. Earlier in this thread I also said that if prices north of the "wall of traffic" drop by enough to overcome the commute factor we will very strongly consider moving somewhere like Novato. A million dollars saved pays for a lot of private schooling and commuter comforts (like a Z8 carefully checked for subframe damage).

But not all of south Marin is superprime. The so-called "Mouth of Mill Valley" is entirely outside of our search set. But Tam Valley, Strawberry, a good swath of Corte Madera and parts of Larkspur are certainly not superprime, just good old prime with some average tossed in here and there. There is a school district premium, but nothing significantly more than you have in Santa Clara county's best schools. There are plenty of homes in Tam Valley which I fully expect to lose well over $1mm in value. It's already apparent because comparable things in the superprime areas are now listing for very close to the perma-listings in Tam Valley, so clearly it is due for correction. The question is how much goes to rental, how much to mummy, and how much really clears market to buyers.

By the way, we continually reevaluate moving back to San Mateo Cty, but prices there so far have been exactly on track with here, so there's no advantage as of yet. I'd happily move back to Redwood City (or rather maybe Emerald Hills) if prices commanded it--same analysis as Novato, except maybe in that case I'd want a private chauffeur, so I'd need to save more than just a million bucks.