patrick.net

I've just closed a purchase, a short sale at about 45% off the original price in 2006. Two days after closing I filed a tax appeal that should reduce the taxes a few thousand for next year. Now I have to sell a condo in the same area, but it's in a premium location and includes several upgrades I've done that are unique within the community. I don't anticipate any problems selling at a small lose, which will make the purchase-sale a wash other than the usual transaction costs.

This is in the Northeast, in an area that is stable but slowing like much of the economy. I expect to own and enjoy the new house for most of my remaining years; it's almost irrelevant if it goes up or down since I have no need or plans to move.

For anyone with reasonable financial security, someone who can put down 20% or more, it's a great time to buy. Mortgages are lower than anytime I can remember; I got a 15 year balloon, amortized at 30 years, for 3.75%. from a local bank. (The bank that held the prior mortgage and took over a $275K hit is Wells Fargo. )

I had a broker from previous homes of interest; she was all but worthless, claiming the bank would never agree to a short sale and then claiming it would sell for much more than the listing price. I got it right at the listing price and it appraised higher.

masayako2456 says

I don't think home price will fall "at least 35%" from here in good, established neighborhood.

So you see a sanrio where the current 250K-350K tier will fall to 150K-250K But the houses that were at 350K - 500K would just magically hover in that price slot, with out any middle tier support underneath it?

Like there would be this big magic empty Price void of houses worth 275K.

What is a "good, established neighborhood" anyway. Are you suggesting that there is an enclave of protected homes in a community somewhere that didn't see any foreclosures, or weren't negatively effected by flippers and speculators during the bubble?

thomas.wong1986 says

Oddly enough it was the "established neighborhoods" that rose the most and like back in 89-95 dropped the most.

I don't think this is true. The new neighborhoods in the middle of nowhere are the ones had the huge increase and decrease (i.e. neighborhoods east of the east bay). The "established neighborhoods" like Palo Alto had a run up, but prices have not crashed.

50% off peak pricing will clear all unneccessay inventory, both listed and shadow. That includes the high end, where prices are currently only 25% off. Only because the banks are stalling with their foreclosures, do we have some support at the high end. After the 2012 election, look for all hell to break loose, as politicians don't have to hold their breath anymore.

Here on the Westside of Los Angeles, the high end is already starting to big hits. Most of Malibu especially, is in trouble.

www.westsideremeltdown.blogspot.com

pick a neighborhood that you like. pick 5 houses that you would buy, and 5 houses that you would rent. If there is a huge (huge= $500 or more) difference in the monthly expense, choose the cheaper one. If there is not a huge difference in monthly expenses (monthly expenses = mortgage, HOA, Insurance, maintenance, escrow closing costs, downpayment or monthly expenses = rent) choose to buy. It is always preferable to buy versus rent because the goal is to someday not have a monthly housing expense, so you can retire with more dough in your pocket! But if you can save enough money monthly by not buying due to expenses, than you have a greater downpayment on a home someday, which again means that you are working towards not paying a housing expense some day. I need to take my own damn advice!!

I don't think prices will fall as much as you are saying. Especially in higher end areas/neighborhoods. I agree real estate is a local thing.

I don't think you need to be pressured at all! Just buy when YOU are ready to buy. And when you buy, buy something that you totally love and that you can see yourself in for the LONG TERM. Don't buy more than you can afford. If you follow those things you will be ok so don't feel the pressure.

What your asking for is a psychic prediction. Who better than Sylvia Brown to answer your question.
from 2008 Montell Williams:
"...WILLIAMS: So is the housing market gonna now get stronger?

BROWNE: Yeah. It will.

WILLIAMS: All right.

BROWNE: It certainly will. And the problem is, is some of these moguls will come in and buy up all the, you know, the foreclosures, and they'll get richer..."

from this youtube clip
http://www.youtube.com/watch?v=aAitXMW7gdE

bubblesburst says

I don't think prices will fall as much as you are saying. Especially in higher end areas/neighborhoods. I agree real estate is a local thing.

I don't think you need to be pressured at all! Just buy when YOU are ready to buy. And when you buy, buy something that you totally love and that you can see yourself in for the LONG TERM. Don't buy more than you can afford. If you follow those things you will be ok so don't feel the pressure.

Yeah, its not like he should be at all concerned that the $500K house he buys today could be worth $420K five years from now or anything.

$@%^ing realtors.

Location, location, location.....

I have been waiting for many years to buy. I will probably have to wait at least a couple more. I saw the RE bubble up close in Japan in the 80s as a Marine. When the US RE bubble came here, I knew it wouldn't have a happy ending. I cannot tell you how many folks I have come across that were wiped about trying to be the next Donald Trump. Now I am actively looking at houses since I am retiring from the military soon. Based on my research, here goes:

1-Prices went up b/c of low interest rates. Rates are at LIFETIME lows now. Which way are they going to go in the future? That's obvious.

2-Because rates are going to rise, some suggest buying now while rates are low. WRONG. Prices will fall with rises in rates because people buy PAYMENTS, not prices. Unless there is some economic miracle that increases peoples paychecks. Doubtful since taxes and medical insurance are only going one way (hint: it ain't down). Not to mention proposed tax changes to the mortgage deduction that will inevitably happen, especially on the higher end. And we can't forget the drop in freddie/fannie loan guarantee amounts coming soon. But I digress.....

3-Many people say buy your house w/o much regard to what happens in the market. WRONG. I just looked in an expensive neighborhood where prices are down by half (i.e. $800k down to $4-$500k. The place looks like crap b/c many have moved out, and prices for HOAs and such are increasing for those that stay. I suspect many others will follow suit unless the banks drop their principal (thanks Zillow!) by a ton. From what I can tell, those people do not seem to be happy with newer buyers paying a fraction of what they paid. I guess they feel like they are being stolen from, in some perverted way. Not to mention property tax and insurance increases that somehow keep happening despite falling prices. Once you buy a house, the house owns you, especially in a declining market. That is personally MY biggest fear. I do not want to be stuck in a house in a declining hood.

I really wish RE was stable. I would love to buy a house w/o losing money as soon as I turn the key, like it was most of my life. But the banks decided to turn RE into a casino since everyone got burned by stocks. It is what it is.... We are ALL speculators now.

PRIME says

thomas.wong1986 says

Oddly enough it was the "established neighborhoods" that rose the most and like back in 89-95 dropped the most.

I don't think this is true. The new neighborhoods in the middle of nowhere are the ones had the huge increase and decrease (i.e. neighborhoods east of the east bay). The "established neighborhoods" like Palo Alto had a run up, but prices have not crashed.

this is exactly why price in high end will drop more then low end. they are still overpriced.

Its funny when people site the fact the fact that prices haven't crashed yet, as evidence that they wont crash. wtf kind of logic is that?

its like saying we haven't had a big earthquake in years, therefore we are safe from the "big one".

masayako2456 says

Real Estate is a very local thing.

I disagree. Real estate used to be a “local” thing. But today the real estate market is the finance market, and the finance market is global. In south Florida, we had (and still do to some extent) buyers from all over the world including England, China, and Australia. When a market spans every content except Antarctica, it’s no longer local. It’s not even national; it’s global.

The other old saying is “the three most important things in real estate are location, location, location.” This also isn’t true; the bubble/burst proved that. The three most important things in real estate are “timing, timing, and timing.”

The poster said

I think home prices are going to fall AT LEAST 35% from here.

Looking at the Case-Shiller Index for Miami, I’d say that’s true for south Florida. I haven’t looked at CA recently, but it was similar to FL last time I checked. My advise is to just follow the Case-Shiller and to hold off buying until it flatlines for a year, if you have the patience and your life plans don’t require you to buy.

I posted a URL to a site that keeps the most recent CSI data. Search my comments for it.

APOCALYPSEFUCK is Tony Manero says

You can have an property you want in a few years with the swing of an ax.

Must invest in ax futures. Or is it axe futures?

I hear people say Real estate drop is mostly a localized phenomenon. I am from East Bay, CA and I hear people are saying that it wont drop much here in the Bay area. I personally feel there is going to be a major drop here, some areas here appreciated 3 time since 2000. People are still buying a lot in these areas after a recent drop in prices thinking that it would appreciate soon.
I am looking for homes around Fremont, San Ramon etc. I feel people over here have better jobs around here and are willing to buy multiple homes as soon as they see drop in prices. So i am kind of dilemma would it drop further in these area, is it a good time to buy or wait? Has any one done some research about these areas?

There was a housing collapse in Calgary in 1982, it took until 1998 for prices to recover to their 1982 level....but they recovered in 1998 dollars, so it took a full 16 years! The idea that there's going to be a 'recovery' in the next few years is a fantasy, you probably have until the year 2024 befor you need to make a decision. Hey, if the inlaws are pressuring you, tell them that you'd be happy if they bought a house and you can rent it from them at the revailing rental rates...see if they bite.

When mortgages+taxes+hoa/melaroos (compare using 0% down) are about the same as an equivalent rental, it is a pretty good time to buy (price wise). Although, many personal matters could still make renting a better option.

Anyone have any more of a clue about the north scottsdale area? I have heard so many opinions my head is spinning.

Wonder if the future of real estate for the regular folks is going to be that of renting while the super wealthy around the world own the vast majority of real estate... basically the end of the 'home ownership' era

thomas.wong1986 says

masayako2456 says

I don't think home price will fall "at least 35%" from here in good, established neighborhood.

Real Estate is a very local thing. It depends on the particular house and neighborhood. If you find a house you like, price to income ratio make sense and you can honestly and comfortably afford it, then buy. If not, then sit, save and wait to buy later.

Don't let in-law tell you otherwise. It's your money and your future.

Oddly enough it was the "established neighborhoods" that rose the most and like back in 89-95 dropped the most.

History repeats itself...

Actually, at least in LA - the only true part about that is if you include South Central in established neighborhoods - it was the new sprawl at the edges that fared poorly, not the more wealthy neighborhoods - see http://graphicsweb.wsj.com/documents/MetroDecline_June2011/index.php

JG1 says

Actually, at least in LA - the only true part about that is if you include South Central in established neighborhoods -

Here is some loss % from back in the day...

http://archive.dqnews.com/AA1995OFA06.shtm

Prices should drop until purchase costs (in terms of monthly payments including mortgage, mortgage insurance, property taxes, etc.) are comparable to rent (whatever that is with the building type in your local market) because that makes the payments sustainable based on local wages with people buying houses or paying rent that's enough higher than acquisition costs to make properties attractive as investments.

Exceptions should exist for unique markets where people buy property based on emotion using their wealth, perhaps like prime locations in Silicon Valley where houses may be purchased with vested startup stock options instead of wages. People want to own houses, and once they net $5M in a nice liquidity event dropping $1.5M in cash on a house instead of the $500-$800K suggested by rents isn't going to change their lifestyle now or hurt them in the future if things change and they loose that difference or even the entire acquisition cost.

Hey all you in Cali,

Looks like Prop 13 will eventually get "revised". I see it discussed more in the news, basically like a trial balloon. Don't know exactly when, but it's coming. You know what that means for RE. Just another variable to consider. I guess paying $200k a year to librarians and lifeguards catches up to you eventually.

Who know how long this bubble will drag out especially in the prime SF Bay Areas. I know that houses are still extremely over-valued in SF proper and throughout the Peninsula into Silicon Valley. I am of the opinion that sooner or most likely later the prices have to come down considerably even in the more desirable areas - I am not holding my breath though.

Two anecdotal examples from my general area - there's an ugly little semi-fixer upper 3BR / 1BA 1,700 sq foot detached home on the marker for $830,000 a block down the street from me in San Francisco. Also in Burlingame there's a decent size 3BR rancher that my wife drove by and picked up a flyer - it was listed for $1.29M which is insane IMHO! Even though taxes are killing me partly due to not having interest payment write offs I can't see myself mortgaging my future on a loan big enough to buy either one of these houses.

Friends of ours recently purchased a 4,200+ sq foot mansion in Atlanta for $500K. That house would easily list for three to four times that amount in the SF Bay Area.

Dr Detroit says

Hey all you in Cali,

Looks like Prop 13 will eventually get "revised". I see it discussed more in the news, basically like a trial balloon. Don't know exactly when, but it's coming. You know what that means for RE. Just another variable to consider. I guess paying $200k a year to librarians and lifeguards catches up to you eventually.

The aspect of Prop 13 that'll be MIGHT get revisited first is most likely commercial property not residential. But then again the commercial interests will throw so much money & disinformation at defeating any legislation that it probably won't pass regardless. Prop 13 is the political third rail in California and I can't imagine any politicians having the stomach to take all the political heat in appealing it. One would think that Jerry Brown would be the ideal person to take this on but so far I haven't heard a peep from him on repealing Prop 13.

Wonder if the future of real estate for the regular folks is going to be that of renting while the super wealthy around the world own the vast majority of real estate... basically the end of the 'home ownership' era

Exactly, and in rural areas this may be a return to serfdom. But then again, the maintenance is the landlord's problem...

Beat this:

In Dobbs Ferry, NY, we saw a modest, fairly ugly 2200 SF 4BR 2BR house for $729k (yikes) with current RE taxes of $29,600 per year!! Yup, that's about $2500 per month just for the taxes! So who wants to buy when we're renting a nice 1300 SF place on the river for $1950 a month?

thomas.wong1986 says

JG1 says

Actually, at least in LA - the only true part about that is if you include South Central in established neighborhoods -

Here is some loss % from back in the day...

http://archive.dqnews.com/AA1995OFA06.shtm

That data isn't specific enough to rebut what I said, but part of the text seems to support what I said, e.g., "Large newly-built homes that were bought during the 1989 to 1991 sales surge have been particularly exposed" This is akin to the new subdivisions sprouting up on the fringes of LA, in Riverside, that were much harder hit than Malibu, Beverly Hills, Encino, Santa Monica, etc.

solver says

If you keep up with the current events and watch how our laws are being manipulated at the detrimental expense of our constitutional rights

What laws are being manipulated at the expense of our constitutional rights? Please be specific.

solver says

There is still no light at the end of the tunnel and I would waste my time watching the TUBE. Search the internet before they take it over with the newer version that's being rolled out to control and monitor it.

Would you like to borrow some aluminum foil?

solver says

I was listening to Dave Ramses the other day and I worship this guys advice.

Oh, that explains it. You don't even have to throw a snowball (pun intended) to find things that guy gets wrong -- this is just the first thing from Google:

http://badmoneyadvice.com/2009/05/ten-things-dave-ramsey-got-wrong.html

gameisrigged says

masayako2456 says

I don't think home price will fall "at least 35%" from here in good, established neighborhood.

I'm curious why so many people say this. It's actually the "good" neighborhoods that are in the most danger of further price declines, as the higher end tends to react more slowly to market forces. The "bad" areas have likely already bottomed or are close to it. Patrick even mentions this on the home page. Funny how people are scared off by low prices and feel security in high prices, when it should be the exact opposite.

Agreed, probably, for the most part. What I disagree with is that the high end will be hit harder than the low end when it all shakes out - don't think so. The folks in the high end are on average in possession of better credit, more equity, more financial resources of their own and their family's to avoid foreclosure and to buy/sell when they want to instead of when they have to (probably part of the reason for the more precipitous drop in outlying / poorer areas).

drew_eckhardt says

People want to own houses, and once they net $5M in a nice liquidity event dropping $1.5M in cash on a house instead of the $500-$800K suggested by rents isn't going to change their lifestyle now or hurt them in the future if things change and they loose that difference or even the entire acquisition cost.

a) how many people actually get $5M from an IPO? (not many!) If you'd like something more concrete -- Pandora had about 300 employees, according their S-1 when they went public. How many got $5M or more?

b) how many people whose chief asset is $5M from an IPO, while they are still getting their normal salary and having normal expenses, are willing to buy a $1.5M house for cash?

This example seems entirely fabricated.

Dr Detroit says

I guess paying $200k a year to librarians and lifeguards catches up to you eventually.

Speaking of fabricated, where are you even getting this?

JG1 says

What I disagree with is that the high end will be hit harder than the low end when it all shakes out - don't think so. The folks in the high end are on average in possession of better credit, more equity, more financial resources of their own and their family's to avoid foreclosure and to buy/sell when they want to instead of when they have to (probably part of the reason for the more precipitous drop in outlying / poorer areas).

I'd agree. Usually the lower end has many more transactions, more liquidity, etc. This usually means that it rises faster and falls faster.

However, it's worth mentioning that you had much more reasonable prices on the Peninsula before the dotcom boom. You could buy houses in Menlo Park for something around $400K without being in Belle Haven (medians in 1994-1995 were just over $400K: http://www.menlopark.org/departments/hsg/hsgplan.pdf). That's not the case any more, and housing prices have far exceeded inflation in high end areas. At some point the money has to keep coming in to keep the prices up this far beyond rises in income.

corntrollio says

This example seems entirely fabricated.

$5M was a decent take from the GOOG IPO. I have a friend-of-a-friend who made about that, maybe more. He's certainly retired now at my age, at least.

The AAPL appreciation of 2003-2010 was also an IPO-like event for everyone at the company 2000-2005. The average ESPP price 2001-2005 was $11 or so. People putting 10% ($50,000) of their income during this period would have 6000 shares worth ~$2M now.

corntrollio says

That's not the case any more, and housing prices have far exceeded inflation in high end areas. At some point the money has to keep coming in to keep the prices up this far beyond rises in income.

Nope. Supply & demand says otherwise. 30% of the region might want to live in the good part of town, but only 1% can afford to, but that's OK because 1% does not exceed the supply that is on the market. I have a close friend who would love to move to Los Altos, but he can't afford/justify it. He has more AAPL shares than God (SJ), but it's not enough.

E-man says

America is truly the land of opportunity. :)

for 2-5% of the population.

Troy says

$5M was a decent take from the GOOG IPO. I have a friend-of-a-friend who made about that, maybe more. He's certainly retired now at my age, at least.

But again, that wasn't very common, even if your "friend of a friend of a friend of a friend of your cousin's neighbor's uncle" said so. The vast majority of people made considerably less from Google, and the vast majority of people at other companies made far less. Even at the top of the market when Google's share price was $700+, it was estimated there were only about 1000 such people:

http://www.nytimes.com/2007/11/12/technology/12google.html?pagewanted=print

That money has largely been absorbed already, and if you look at the Pandora and LinkedIn S-1s carefully, you will see that very few non-executive/founder employees ended up with even $1M.

Troy says

The AAPL appreciation of 2003-2010 was also an IPO-like event for everyone at the company 2000-2005. The average ESPP price 2001-2005 was $11 or so. People putting 10% ($50,000) of their income during this period would have 6000 shares worth ~$2M now.

But again, how many people actually did that? Not that many. 10% of your income in your own company's stock is not necessarily wise in the first place.

Booch221 says

You will know the market has turned the corner when ALL of the following conditions are met:

1. Sales increase four months in a row.

2. Prices increase four months in a row.

3. Inventory decreases four months in a row.

4. Foreclosures decrease four months in a row.

Then, if it's cheaper to own than rent--BUY!

I agree, but also watch employment. As long as the countries unemployment is in the toilet the housing will continue to stay low and maybe even go down a little lower, but like as stated above if it's cheaper to own than rent then buy. Always remember when buying that you are buying a place to live in...not an ATM machine.

Troy says

E-man says

America is truly the land of opportunity. :)

for 2-5% of the population.

“Nessuna soluzione . . . nessun problema!„

Don't confuse opportunity with realization/results. Opportunity means chance, not Obama's distortion of the American Dream as a guarantee or promise.

Drew,
In case you think I exaggerated the lifeguard salary, here goes:

http://orangepunch.ocregister.com/2011/05/10/lifeguarding-in-oc-is-totally-lucrative-some-make-over-200k/447

BTW, I lowballed the librarians in some cities. They make over 300k if they are high enough up the food chain. This is common knowledge. Prison nurses with overtime can make over 200k as well, plus there are an infinite # of folks getting 6-figure PENSIONS FOR LIFE. I guess you didn't hear of the city manager in a poor LA-area town making over 800k per year. Do a little homework, and you'll see why Cali is beyond hope. Suggest you start listening to Puplava at Financial Sense. He broadcasts out of San Diego, and updates this stuff regularly.

JG1 says

not Obama's distortion of the American Dream as a guarantee or promise.

You are aware that what you wrote here is untethered-to-reality bullshit, yes?

Dr Detroit says

In case you think I exaggerated the lifeguard salary, here goes:

http://orangepunch.ocregister.com/2011/05/10/lifeguarding-in-oc-is-totally-lucrative-some-make-over-200k/447

BTW, I lowballed the librarians in some cities. They make over 300k if they are high enough up the food chain. This is common knowledge. Prison nurses with overtime can make over 200k as well, plus there are an infinite # of folks getting 6-figure PENSIONS FOR LIFE. I guess you didn't hear of the city manager in a poor LA-area town making over 800k per year.

Comparing Bell, CA to California cities is not really a very good comparison. That's based on corruption and is not applicable broadly to other cities.

In addition, your link failed, but here's the right link:

http://orangepunch.ocregister.com/2011/05/10/lifeguarding-in-oc-is-totally-lucrative-some-make-over-200k/44783/

Citing 14 lifeguards in Orange County making decent incomes with overtime doesn't really constitute government waste when there are 210 seasonal/part-time lifeguards in addition. The qualifications are quite high for those 14 people. These aren't your average pool boys, but rather the supervisors and head guards of the staff who have a risky job and are highly trained in advanced techniques. They are probably closer to EMTs than the pool boys you're trying to mock and do that job in a risky environment. Do you really think these guys are working 30 years in this same job? If you do, I have a bridge to sell you.

Nonetheless, I do agree the pensions in most CA jurisdictions are out of control. The way they are calculated is typically ripe for abuse and it has no correlation to private sector pay whatsoever. You'll get no argument from me there.

By the way, quoting salary + benefits is misleading. A lot of jobs are "6-figure jobs" by that measure.