patrick.net

Here is what at least one RE agency is working right now. It is a recognized big-name agency in the Peninsula/South Bay area - my friend is an agent.

SP,

You describe classic pocket listing BS.

SP Says:
For sellers who are not very flexible, or for houses that don’t sell privately after a few weeks, the houses either get dumped on MLS

I just realized that this may also explain why everything on the MLS is still priced unrealistically because, well, only the unrealistic sellers are being listed there. I am thinking of tagging along with my friend to see what kind of stuff is available 'privately'. Will post my findings if I decide to go waste some time on this.

I am not sure that prices will drop in all areas to 3x annual household income. In rural areas, certainly. In prime areas, I don’t think so

Even now, 600K can buy a reasonable townhouse in a not-so-bad neighborhood here. But that does not mean that prices cannot go lower.

I don’t care about London/Paris and even to an extent SFO.

I would not want to live in London or Paris. I rather live in Arizona.

Bay Area is nice but it is overrated.

This house does not even cost $1M in Thousand Oaks:

http://realestate.venturacountystar.com/sales_details/1751-500052

Statistics showed that Thousand Oaks is a lot safer than SF.

Peter P,

You can also get a similar sized brand new home in Windmere, San Ramon for a similar price. I know a family who just moved there. If you are willing to go in a different direction then you can get that 30% cheaper in Mountain House. And in Gilroy too. Morgan Hill has a fabulous collection of these "luxury" homes at that range.

The effect of so called "fringe" areas has started to show on BA proper or Fortress or whatever. Don't want to wait for the bottom, fine, just wait for a few months. It will be "cheaper" if not the cheapest.

My broader point was that the _purpose_ of even having a “buyer’s agent” is to get impartial market intelligence on the right circumstances to buy.

When I bought my town house in 1991, my agent had to do a fair bit of work. For example, only she had easy access to all the listings and she drove me to all of the places I wanted to look at. Back then houses were a lot cheaper so the 3% that she splits with her company gets is a lot less than what agents get nowadays.

But even back then her interest was getting the deal to close, she provided me with comps but I remembered she urging me to accept the counter offer from the seller saying that was reasonable. A buyer's agent will almost never negotiate hard for you except if he or she is a personal friend.

Our first Peninsula house was about 3.1x our earnings in 1996. Our second home in 2002 was about 3.3x our earnings.

Inflation adjusting 1996 dollars to 2007 dollars, a couple earning what we were then would have to pay nearly 6x their income to buy that same "starter" home, which now lies in a slightly _less_ desirable area thanks in part due to rapid turnover and flipping.

The whole "not buying today is losing out on buying something that someone else will instead, thus denying you that option" is spurious logic, to the extreme. It presupposes that we can move forward and backward in time exploiting every option at every point of the decision tree. In reality, for those of us lacking time travel superpowers, the best we can do is make decisions in the present and evaluate future options while they're still in the future. By your logic every time I fail to buy a lottery ticket is allowing someone else to win the lottery.

I think in most RE busts this is typical. I remembered when Hong Kong had its bust there was a saying called "price is there, but the market isn't" (literal Chinese transalation of 4 words, maybe OO can attest to that).

There exist a point where prop. are unrealistically priced but with almost no transaction volume. I think after that denial comes the big price drop.

Inflation adjusting 1996 dollars to 2007 dollars, a couple earning what we were then would have to pay nearly 6x their income to buy that same “starter” home, which now lies in a slightly _less_ desirable area thanks in part due to rapid turnover and flipping.

And the Bay Area has not become more desirable than before.

Statistics showed that Thousand Oaks is a lot safer than SF.

What I always remember from my SF trips: hearing about people getting run over by cars in "hit and runs"

Or is BA a rural area ?

Why don't you ask a cow-worker? :)

cb,

you must be referring to "have price, no market" :-)

OK, here is the deal. If you are a college grad, and have an above-average IQ (smarter than Bush that is), you should just consider getting a RE license yourself and bypass the agent entirely. It is very easy, some of my friends have it (their FT jobs cannot be further away from RE). It is different from the broker's license, which takes a lot more effort. If some 51-year old waitress can manage to study for the exam, it should be a piece of cake for everyone here.

I think it is fun to study, particularly when such effort entails a saving of ~$20K or more (raw land's agent fee amounts to 10% to be split by both parties). A friend told me that he finished his RE reading materials on the toilet. You may not even need to get the license, just know enough to be dangerous so that you can draw up your own offer, at least I have a friend who offered to draw up my next offer for a dinner. Listings? In 4 years, there won't be a pocket listing problem, all listings will hit the street in desperation.

I actually wouldn't mind paying the seller's agent if she can pass on some insider info about the seller which helps my negotiation. The buyer's agent is completely useless.

Just watching Barbara Corcoran on CNBC w/ Diana Olick and Steven Moore (WSJ) and Barbara says; “You may say I’m smoking dope"

Yes I saw that as well. The other comment was how sexy San Francisco is!
Many Europeans/Asian are paying big bucks to live in the sexy city.

PS I dont expect BC to come down to Mitchell Brothers and give out lap dances for 5 bux.

Sweet....

“Home sales continued to plummet and prices fell in many San Mateo County cities in December as the worst housing slump in more than 20 years deepened, a new report revealed Tuesday. With buyers being extra cautious, home sales declined 34 percent in December compared to December 2006, according to the County Association of Realtors.”

“‘Sales are almost coming to a grinding halt in some areas,’ said Denise Aquila, broker in San Carlos. ‘People are nervous. Nobody wants to overpay on a home, and many buyers are scared the bottom will come crashing down if they do buy.’”

“There’s a huge sales slowdown on the coast, in places like Half Moon Bay and Pacifica and points in between. There’s also a big sales decline in Daly City, San Bruno and South San Francisco.”

“Cities hit hardest with median price declines included Daly City, East Palo Alto, South San Francisco and San Bruno, where an increasing number of homes are going into foreclosure and banks are taking over properties.”

“The median price of a single-family home countywide in December fell to $875,000, down from $922,500 in November and just over $1 million in October.”

“A year or two ago, home sellers were in the driver’s seat. Two out of three of them received more than their asking price. Now, many are lucky to get 90 or 95 percent of their asking price, the report shows. Some get less than that.”

“‘The trend is increasing toward homes sitting for a longer time on the market,’ said Richard Calhoun, a real estate agent in Santa Clara. ‘This year is going to be a very lean year, and a lot of real estate agents will be leaving the industry.’”

“Calhoun hasn’t seen sales this poor since 1984, and doesn’t expect a recovery until 2009.”

ptiemann Says:

> I am not sure about waiting for the historic averages.
> Waiting for that may mean you lose something that
> you could get now (someone else may buy it).

The historic average sale price of a new car in America is about 95% of sticker price. When the NSX, Miata and Viper were brand new some were selling for over 200% of sticker price. The people that waited got them for about 95% of sticker price…

> I am not sure that prices will drop in all areas to 3x
> annual household income. In rural areas, certainly.
> In prime areas, I don’t think so.

You can never be “sure” that historic averages will come back but it is a good bet even if Realtors are telling you that homes will never drop below 6x the median family income in the area (just like Brokers were telling us in 2000 that tech stock PE ratios would never drop below 50x next years earnings).

> By the way, I don’t consider the peninsula ‘prime’.
> It’s just where _currently_ there are good schools –
> that can change, and _currently_ there are jobs.

If Atherton, Woodside and Hillsborough are not “prime” what is? The free Public Schools in Burlingame and Hillsborough have been good since well before I was born and the odds are good they will remain good at least until anyone that buys today sends their kids to college

> London, Paris, Manhattan, San Francisco, Moscow..
> you will never get anything for 3x the avg household
> income. Not even a 1-BR condo.

In parts of SF (like the Castro with a lot of households with two good incomes) we are not that far away from 3x household income for decent 1 BR condos today. I’m not saying that homes in Atherton will drop to 3x the “statewide” median income I’m just saying that they will drop to about 3x that the average wealthy family in Atherton make. The census.gov site has changed and I have not found a way to dig down to the census track data but around 2003 I looked at 100’s of Bay Area (and dozens nationwide) census tracks going back to the 1940 census and not one ever had average home prices below 2.0x the average income and none had average home prices above 4.0x the average income.

"Atherton will drop to 3x the “statewide” median income I’m just saying that they will drop to about 3x that the average wealthy family in Atherton make. "

Then how do you explain the 3-4x income of the 80s and 90s?

Capital One warns.

http://biz.yahoo.com/ap/080110/capital_one_outlook.html?.v=5

From Bloomberg :
http://tinyurl.com/37lwhj

Japan Stocks Fall After Credit Suisse Sees Real-Estate Sell-off
Jan. 10 (Bloomberg) -- Japanese stocks fell, led by real- estate companies, after Credit Suisse Group said U.S. subprime- mortgage losses may prompt overseas investors to sell their property holdings in Japan.

WTF ? I thought Japanese RE bubble burst happened eons ago. Knew about UK, Spain etc bubble. But wasn't aware of any speculation in Japan.

StuckInBA Says:
Capital One warns.

Someone I met at a new year party works for HSBC's office in Gilroy, or maybe it was in Salinas. He said HSBC was desperately chasing sub-prime credit-card business, in competition with Cap-One. So I would expect HSBC is seeing some pain as well.

OO, if you're there, have a look at this article, re your enquiry about whether the Big 4 banks had significant subprime exposure -- it turns out they do -- and they were quiet about it for some reason! -- mainly exposure to a Coutrywide bailout, tho -- Oz banks went in, but Asian banks did not...

$1 billion hit to (Oz) banks from US
http://www.news.com.au/business/story/0,23636,23029820-462,00.html

AUSTRALIA'S big four banks have a $1 billion direct exposure to the US sub-prime mortgage market, despite months of assurances that they were immune from the deepening financial crisis.

The revelation came as the Commonwealth Bank, Australia's biggest home mortgage lender, raised its variable home loan rate by 10 basis points to 8.67 per cent in response to the global credit crunch and independent of any action by the Reserve Bank. The National Australia Bank last week lifted its rates by 0.12 of a percentage point, and the ANZ followed with a rise of 0.2.

The CBA, NAB, ANZ and Westpac's exposure to the US sub-prime market comes through an almost $1billion investment in troubled US mortgage group Countrywide Financial, which appears close to collapse.

The major players were part of a syndicate of 40 banks around the world that threw the embattled lender an $US11.5billion ($13 billion) financial lifeline last year.

CNBC

Breaking News: Bank of England holds key rate steady at 5.5%

Wow it looks like someone out there is going to fight inflation. Too bad he is not in America. Despite the damage it would do, I think we need another Volker like chairman. Drive those screws into the thumbs of those banksters!

WB Randy, HNY!

"you must be referring to "have price, no market"

(how does when say, "When going after revenge, sometimes you have to dig TWO graves"?)

"the houses get dumped on MLS or just get in the back of the private portfolio"

Could it... Is it... is it just possible buyers have returned to viewing homes as homes... and NOT "investments"!? If that's the case the NAR is in REAL trouble.

"Talk to your prescriber"

You know what you need, who knows your own body better than you? We all know that doctors are just con-artists in white lab coats, so cut out the middle man and deal with us directly! You don't need therapy or counseling! You just need our drugs.

So I guess Tata Motors is delivering a 100,000 rupee ($2,500) auto-mo...thing? I guess environmentalists are up in arms as this means MILLIONS more Indians will be able to afford to drive!

(Not to mention the onset of American-style obesity!) What's the big deal?

In Oregon we have a saying: A logger is a guy that dreams of one day having a "cabin in the woods" (an environmentalist... ALREADY has one!)

Randy, I'm also glad you're back!

Patrick

Thanks DinOR. I'm actually very surprised I haven't heard anyone in the media be disturbed by this new even more blatant marketing of pushing drugs onto our society and trying to undermine the role of a doctor. Trying to get the label 'prescriber' to stick degrades their profession down to just being a legal drug dealer. It is even more sinister because it is 'pull' marketing strategy. Pharma no longer needs to sell the doctors on effectiveness to then prescribe to someone, the idea like you said is to sell directly to the masses who now view the doctor as nothing more than the source. Then after being convinced they just doctor shop. It's disgusting.

If Atherton, Woodside and Hillsborough are not “prime” what is? The free Public Schools in Burlingame and Hillsborough have been good since well before I was born and the odds are good they will remain good at least until anyone that buys today sends their kids to college

But none of them are Cupertino are they?

They don't have the star power of Monta Vista where families are so desperate to enroll, that multiple families live in one house. And we're not talking about strawberry pickers either.

The insanity...

OK, so gold went up when the Fed raised interest rates, now that they cut rates it went up some more. No I'm not seeing irrational exuberance, just getting ready to pull the ejection handle.

Malcom,

I think I see what you mean by "pull marketing" b/c even Rite-Aid/CVS and the other drug purveyors are circumventing the doc's by saying their pharmacy tech knows how to cross check your medications for drug inter-actions!

Plus, a lot of people won't need to take a certain medication for life! Without proper guidance, how will the gen. public know when it's safe to discontinue using a medication? Oh... I guess they wouldn't want you to know that...

Patrick,

Thanks. Too much blogging can distort one's perspective on things, myself being no exception. I'm not sure if regulars here realize just how incredibly unique they are amid the masses, but I am more sure now than ever.

Some "genius" on CNBC earlier this morning -- one which was supposedly so wise that everyone was fawning over him -- stated "Absolutely nobody anywhere saw this credit crisis coming or had any clue it would be this bad".

I just sighed.

Make sure you have a nice backup of all these archives stored somewhere safe. If for no other reason than perhaps you can submit them to some economic historian in 25 years for research.

Malcolm

I believe gold is being treated as a currency versus an asset (ala Mish), and further that interest-rate-parity is not largely driving FX at present. Things have given way to expectations of growth and other fundamentals like balances of trade and capital flows. That explains the GBP versus EUR, and why the EUR has not gained more on the USD. I view IRP as more of a weak-gravitational force that pulls currency rates back towards their theoretical interest-rate expression, but other forces are stronger in the short term and can bounce rates well away from the IRP forward computation. For example, a US recession could well weaken the EUR against the USD, which seems counter intuitive given the two banks' rate policies.

DinOR, actually that is a different value add that those pharmacies are providing. Pull marketing is a specific strategy where you actually spend a lot of money to advertise directly to the end user to get them to demand the products from the middleman. Now big pharma is looking at doctors as being an inconvenient barrier so they are, like you said, convincing people they know better than the doctors.
What the pharmacies are doing is trying to differentiate themselves so that someone will chose them over other pharmacies and that is perfectly fine. It's the drug companies themselves that I have the problem with. It's outright drug peddling what they are doing.

Nice to see you again Randy, I have missed our fun conversations. Even when I don't agree with you, I always respect your original insight and well structured points.

You will forgive my ignorance but I don't know what IRP stands for. I'd like to hear more about your view on the international influences since that is not my comfort zone and you've obviously got a clear idea of a process in motion right now.

Randy H Says:
January 10th, 2008 at 10:36 am
"Patrick,
Thanks. Too much blogging can distort one’s perspective on things, myself being no exception. I’m not sure if regulars here realize just how incredibly unique they are amid the masses, but I am more sure now than ever."

That's what keeps me coming back.

Breaking news on the wires: BofA is planning to buy CFC...

BOA is buying Countrywide!

skibum,

Don't they already... kind of "own" them?

One of my secret fantasies is Valerie Bertinelli becoming a cocktail waitress to work off her debt to the casino (pre-Jenny days of course)

IRP = interest rate parity
CIRP = covered interest rate parity

The theoretical exchange rate between two currencies (going from memory here) is the amount that allows one to cover the forward interest rate in order to eliminate interest rate arbitrage between the two currencies. You are not supposed to be able to create a synthetic currency forward (borrow in one currency to buy the other) in order to arbitrage a forward in that currency, by CIRP. But uncovered interest rate parity--IRP--doesn't hold in the real world or there couldn't be a yen carry trade, for example.

That's about my limit of real world knowledge. The rest is all bond market sorta stuff. Currencies will be pulled away from IRP by expectations of growth and recession, among other factors.

And there's also the nominal-rate versus real-rate discrepancy which 3 central banks enjoy: Fed, BoJ and ECB. Those banks can force a nominal rate to diverge from the rest-of-the-world's market real rate.

Without rambling on, I think we're looking at a stealth-ZIRP policy being enacted right now. Things will get much worse before they get better, I'm afraid.

Gold has several independent factors that influence its price, only when it is able to break these relationships one by one can it really become the ultimate safe harbor and store of wealth it is destined to be. It broke these relationships one by one in the last few years.

First relationship was with USD. I started building my position in late 2003. It had a perfectly inverse relationship with USD, USD strengthened, it went down, I didn't need to look at the gold quotes, all I needed to do is to look at the USD index. It broke that pattern in 2005 as USD went into a short-term consolidation against all currencies when Bush implemented the one-time relief on all repatriation of corporate profit overseas.

It has another leg in Yen. When Yen went up, gold came down, and this has been very true in all the previous Yen unwinding rehearsals particularly in 2006. It broke that pattern in late 2007. Higher Yen is no longer able to pull gold down to break the upward channel, it marched on no matter what Yen was.

These two breaks marked the emergence of gold as the real money. Interest rate is just one dimension of how money is printed. USD injection in the scale of billions and trillions is happening every day without lowering interest rate. When gold breaks the pattern with the currencies, that means it is seen as a more authoritative recognition as the store of wealth. But it will never be the replacement for transaction because it is simply impractical to go back to gold standard.

Another important relationship gold has is with oil. So far, this link is still fairly strong, but it is not following every dip in oil, like today. And gold is less and less dependent on the oil movement, although I won't say the pattern is broken yet.

When gold does break the pattern of following oil, it will shoot up to unbelievable heights. I am not a gold bug believing in gold standard, but I think right now, I would much rather store my hard earned "wealth" in hard assets like gold, oil, agricultural commodities than any printable currencies. Among all the printable currencies, I would rather prefer AUD, which is a commodity-based currency, and its short-term government bond is giving me a current yield of 7+% per year ignoring the potential gains (or loss, much less likely) in currency appreciation.