Me and my wife are looking for a house in Foster City California for past couple of years. We didn't buy hoping prices will go down further but the market is going crazy lately. We saw a townhouse in a foster city - 2bd 2 bath 1500 sqft which was selling for $550K in 2010. Now in the same community similar houses are getting listed for $680 plus. Few weeks ago in the same community there was listing for 2db 2 bath same floor plan. I do not remember the listing price but it got sold for $628k. Seriously ??
I do not understand how come market turn around so fast. It's absolutely a financial suicide to buy a house now. Prices are highly inflated. There is VERY BIG bubble forming again.
More than $100,000 increase. Are you kidding me ??
By leo9 Follow Thu, 26 Jul 2012, 10:00am 5,870 views 90 comments
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E-man says
Yeah that makes total and complete sense. I totally get you. It is totally unpopular to say the following but I also think some form of slavery will make a comeback also because it was just too much of an economic boon, you know? I mean, come on. It was only a matter of time. Robots is too far off for us to wait for that kinda deal.
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leo9 says
Victorville never looked better bud. Once we get the DesertExpress through here it's all over. Get a leg up on the coming inflows.
$46 per sq ft for a 4000 sq ft mansion: CANNOT BE BEAT.
http://www.zillow.com/homedetails/12525-Dos-Palmas-Rd-Victorville-CA-92392/69013150_zpid/
and local talent and entertainment which is free for all to enjoy:
https://www.youtube.com/watch?v=Y-SQFw12-vg&feature=related
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iwog says
No one here is arguing that investors who have a bankroll can make out like bandits by buying and renting. It's the people that put all they have into buying one house to live in that are getting screwed. A lot can change in 30 years.
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StoutFiles says
Actually I will be upfront. I plan to unload all of my SFH holdings by the end of the next six to eight years. Multifamily units are going to be the place to be - I am now currently looking at nothing smaller than a quadplex. I will eventually downsize myself from all my luxuries and divets myself of most of my more sumptuous trappings like my silk duvet and my REAL ZEBRA rug and probably live in a unit in one of my quads. I am also interested in small niche businesses like tattoo and body hair removal. Also, affordable area rugs.
By the ways, nobody buys and holds ANYTHING for 30 years. Specially not any more these days. They might think they going to, but forget it. I agree with you that, among other things, buyers are neither solvent, liquid or creditworthy enough to buy (and as some bright bulbs on here have professed to doing, willingly overbid by what is likely an entire years salary for them outside of anywhere other than Sillycon Valley) and hold that heavy note for even 15 years. They'll be crying poor in ten years and looking for they bailout. It's a different game from here on out, kids .. Hard hard times. at least for the next generation or so. I will be fine tho. $$$$
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iwog says
Pretty much all of em are under water. Whatever positive cash flow you have is sinking along with the sinking values. :)
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bubblesitter says
Right........interest rates have declined the entire time, rents have risen the entire time, and my cash flow has been sinking.
Why do you let your anti-real estate dogma warp reality so much?
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iwog says
Because reality won't hit you until you sell em at higher price then you bought for - SIMPLE.
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bubblesitter says
Which reality is that? You said my positive cash flow is sinking. Yet unless you're in total complete denial, you MUST realize that interest rates are falling and rents are rising, therefore ANYONE who owns rental real estate right now is watching his/her investment get better and better.
That is reality, but for some reason you cling to the fantasy that anyone who bought during the last few years is suffering right now.
It's simply not true. The people suffering right now, the people who are RIGHT NOW posting threads about the desperation of submitting bids over asking and still not getting their home, the people who write with misery and despair..............
........are the people who listened to you. Comments?
peninsulabuyer says
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JodyChunder says
How did you know about my flat hairy butt???
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iwog says
It'll sell lower then your buying price. Your positive cash flow is pure BS unless you prove it. LOL.
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bubblesitter says
It's not necessary for me to prove it. You can prove it to yourself. All it takes is the price homes sold for and what rents are in that area. All public and all easily accessible.
NOT doing so is the definition of denial.
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E-man says
All subjective. Until you sell, you never really know what your house is worth. To me a house in Foster City is not even worth the hassle for free. I'd be worried about the liability of my belongings floating around and hurting people trying to kayak to safety during the big one. I'd probably use it as a weekend home or rent it out, but to live. Crazy.
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David Losh says
Affordability is dropping because real estate prices are headed back up. That's why the graph is jagged, because there's a spring rush and winter doldrums every year.
What you should take from that graph is how cheap a 30-year mortgage is. Combine that with rising rents, and it should be pretty obvious that there are many instances of positive cash flow.
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SubOink says
It could be worse! ; )
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I am surprised and shocked by seeing this trend in Foster City too.
In just last 2-3 weeks, inventory has totally dried up and prices for a condo / town home are 100 - 250 K more that what they were 1 month back.
What happened in just one month? A 1080 Sq. Ft. condo is listed in 485K which was sold in 345K 1 month back.
Another condo listed in 700 K which was sold in 430K one year. ago.
Can someone explain this bubble? what is driving this crazy prices?
Is it only Foster city or other cities too in bay area?
Can we expect to see prices coming down to its normal range?
Thanks
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You have been priced out. Forever. You knew it was going to happen but you sat on your hands. Time to move to Baltimore.
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1234 says
Go to Google.
Search string: City or county, redfin
Then you'll get a graph of recent sale prices per sq. ft. The answer is yes, it's all over the Bay Area. Here's Foster City:
http://www.redfin.com/city/6524/CA/Foster-City
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1234 says
Same with where we bought. They were selling for $150k to $160k, and boom. Now they're selling for $210k to $220k, and all of them are pending.
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iwog is correct that "affordability" is at an all-time high. With interest rates crazy-low, you can borrow a lot of money. It doesn't necessarily mean that you SHOULD, but you certainly can borrow a lot and pay about the same as rent (maybe more, maybe less depending on what sort of rental you live in). In the Bay Area, there are at least as many people with $200k+ household incomes that have the "borrow as much as we possibly can" mentality as there are available properties for sale in "nice" areas. Whether or not those people are stupid or not is largely immaterial: they are who you are directly competing with for houses in "nice" areas, and they are obviously more than willing to spend a lot more than us "smart" penny pinchers & folks that object on principle alone.
Lots of people argue that affordability is low because prices are really high. Well, you can borrow a lot of money, and given the income distribution in the SFBA, the mortgage + tax + insurance probably falls pretty easily below 33% of gross income. If you define affordability as, "still having money for all the other stuff I want after house expenses," then you are sort of looking at it wrong. Affordability is defined in absolute terms of how many people can afford the ownership costs of houses, not how comfortable they are with the costs.
I'm not comfortable with the costs associated with a house that I can "afford" so I don't buy. Renting a 2BR apartment isn't perfect due to having shared walls, but it saves me almost $1500 per month versus putting 20% down on a $700k house, which is how much it would cost me to get a house with a detached garage in Campbell or somewhere similar. Tons of other people are already paying out the ass to rent a house, so that mortgage to them doesn't seem like any big deal, and although I CAN compete with them, I don't care to. Over the next 5 years, I still expect to save money in my apartment at a faster rate then the houses I want to live in (someday) will appreciate. Even if I am wrong, the only way that prices will continue to go up so fast is if interest rates drop precipitously, or the Bay Area sees large overall gains in incomes. The former is actually fairly likely, although there isn't all that much further down to go. The latter seems really unlikely since the fact that interest rates are what they are is a direct result of our economy's fundamentals being rotten (which has obvious implications for incomes).
I want prices to be lower around here, but it isn't likely at this point. The game's rigged and those rigging it still have control. If you think that competition for houses is bad now, just imagine how it would be if prices dropped. All of the people that were paying enough attention to stay out now would stampede into bidding wars against one another and probably push prices back up. Welcome to the SF Bay Area, where there are way more people with money or the means to borrow heaps of it than there are decent houses. Accept it and adjust accordingly. Your choices are to pack up, go somewhere else and adjust to the compromises, or to stay here and accept that you are nothing more than cattle and knowingly walk yourself into the slaughterhouse. Well, you can also stay and rent cheaply, and adjust to the compromises there too, but enough people can afford much higher rents than we have today that we'll all probably end up paying out the ass to rent in a few years, too.
Reality is ugly. But, there are far worse places to live in the world and there is zero reason to feel sorry for yourself. Be glad that your biggest problem is, "I am tired of renting in a nice area, boo hoo I want my own house here." It could be, "my youngest son has not eaten in 4 days and my oldest son was killed after the militia took him to try to oust the dictator. I wonder if the town well will still work next week."
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bmwman91 says
buyer solvency and earning potential is not at an all time high, tho. A better way to putit is, wealth effect and debt facility is at an all time high and asset prices have been goosed to an all-time high low.
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RentingForHalfTheCost says
True, but appraisers for the lenders tend to be more conservative on their valuation when it comes to refinancing. Therefore, Suboink's house may worth more than the appraised value. Of course, we won't know until we put his house on the market.
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JodyChunder says
Sure. However, the "affordability index" doesn't distinguish between a solid economy and rotten bullshit that is totally unsustainable in the long term. Our economy is mostly made up of the latter.
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E-man says
Not true at all. Where'd you get that idea? conservative since when??? Do you actually know any apprasiers? It's not like lenders are keeping the loans or even a portion of these laons on their books.
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JodyChunder says
I got the idea from refinancing whole bunch of my properties. The loan officer would do a quick CMA and give us the value and ask whether or not we think that's fair. However, when we get the appraisal, it's always lower than they CMA or FMV price. They picked fixer upper properties and compared to our fully upgraded properties and gave them a small premium. WTF? We appeal 3 times on 3 different properties, but lost all 3 appeals.
On new purchase, the appraisal is a little more biased. There is a 3-point hit if we want to get cash-out on any of our investment property during the refi. So you get the best rate just be refinancing. They rape you if you want cash-out.
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E-man says
Man I am sorry. That really sucks! It has not been my experience at all. I keep no cash in any of my properties.
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Half the countries job is about the same, Starbucks, Bestbuy, Government work pays pretty much the same whether you are in Silicon Valley or Ohio Valley. From that perspetive,median household income tells very little.
The difference between region is the other 25% of the jobs. That is why the better barometer is to determine income at the 75th percentile. The income at the 75% tile is highest in this world for a large metro area.
In Santa Clara, a city of Approx 110K, 25% of the family households makes more than 150K, 14% over 200K. The source is city data.com. That was 2009, its surely a bit higher now. In Victorville, a city of the same size, 2% makes over 150K and 50 household makes over 200K. The demographic and competition is completely different. And as Troy Bellingham use to point out, housing price is taken at the income margin, not a percentage margin, especially in a high competition area where no new subdivision have been built for decades. (population has not changed in two decades)
Note that I use family household because it takes out college students and Retiree which are counted as households. A family household is the primary competition.
In any case, Foster city is a fantastic location as it is right in the backyard of VISA, Oracle, Gilead, Sony USA, etc and halway between San Francisco and San Jose. The weather is perfect and planes landing don't cause noise. In an event of an accident, I would imagine the planes will land in the bay before desending on land. To the west is San Mateo, which is a further steeo step up in price. If not Foster City, where else can you go?
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iwog says
This is just an inverse of interest rates. If rates went to 8% tommorrow, and prices stayed the same, where's the next data point on this chart?
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errc says
The point is that mortgage rates are set by the long term bond, and the long term bond rate is currently set by the federal reserve through operation twist.
There isn't going to be any tightening of the money supply until the federal reserve is convinced housing and the economy are back on track.
Now to answer your question. If rates went to 8% tomorrow, those who locked in at less than 4% will be rejoicing. The cash value of the mortgage debt will be cut in half.
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iwog says
The only thing is they'd be trapped for a long ass time in that house unless they rented it out and I don't thiink I could get the kinds of rents I presently COMMAND in a higher rate enviroment.
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iwog says
i'm not sure that answers the question. What would the next data point on your affordablility index be, if rates were 8% at opening bell today?
The point is, that the price of a house matters more then the interest rate. How mush rejoicing would the 4% locked-in-ers be doing if they saw their house valuation fall in half to compensate for the doubling of interest rates?
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errc says
Historically that isn't a problem. An 8% environment is an inflationary one and home prices will be going up, not down.
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David Losh says
No it doesn't. Many homes today, including mine, are positive cash flow even if you calculate 100% financing. This means the home price is irrelevant. Assuming rents are stable or even if they decline a bit, the home doesn't cost anything. It can be carried for decades until home prices come back up.
David Losh says
Now you've left the reservation completely. Your assumption that home prices will continue to decline for 15 and 30 years is EXACTLY the inverse logic used by people during the bubble. No chance whatsoever.
David Losh says
This is another one of your assertions that is totally disproved by history. What generally happens coming out of a bear market is that higher prices stimulate more buying and an extended upturn occurs.
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We are not in a deflationary cycle. The proof being the price of gold and silver and even more important the price of gold and silver miners. Look how much the price of the PMs have risen and still the miners are doing poorly.
This means the price to extract PMs from the ground has risen. This means inflation. And housing will do the worst in this inflation since it is way overpriced.
The only reason the price of housing has not cratered is because the banks would be insolvent if we had an honest housing market. And the banks own the government. But people are really starting to get ticked off at the banks.
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StillLooking says
In a deflationary cycle, hard assets are worth more because they keep their value relative to cash and most goods and services. PMs also go up during rampant inflation for the same reason. The reason people don't keep PMs in normal or "Boom" times is because PMs don't pay interest or dividends, so the price sinks as people decide to invest in real estate, stocks, bonds, etc. to get an ROI. By staying in metal during times of growth, one loses out on a lot of appreciation.
The Great Stagflation was an inflationary cycle, and gold and silver soared.
The Great Depression was a deflationary cycle, but gold and silver soared.
Basically, PMs are a safety play. If we DO go to hard currency, make it silver. It's too easy for a few big banks to hoard all the gold and insist you take their paper representation instead. This is an aspect of a Hard Currency economy that Gold/Silver Bugs gloss over. Read any account of Colonial America or the Napoleonic Wars or any Panic in the US in the 19th Century. Many times specie was impossible to get, and you got paid with private bank paper that ended up worthless.
Are we in a deflationary environment? Wages are stagnant, Home Prices are dropping. Assets and Income that the middle class uses for income or wealth is decreasing.
However, food prices, commodities, education, and health care costs continue to outpace growth by an often substantial margin.
What do we call this? Maybe somebody needs to coin a word for this situation, like Stagflation in the 70s.
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I'm not so sure that prices will recover - see Japan.
Or Sicily, once a prized destination, the economic powerhouse and breadbasket of the Med, where you needed bags of gold to buy farms and housing. Fought over by Italians, Catalans, Normans, and Arabs. Today, the government literally gives away the buildings of entire towns in the hopes somebody will move in, keep it from falling into ruin, and pay some - any - tax.
We'll see what becomes of Ireland and the UK.
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iwog says
But I thought you said prices ARE going up, yet rates keep falling.
You sound like the weatherman calling for partly sunny day with a chance of showers. Cover all your bases, that way you can't be not right.
Always appreciate the discussion, but that chart is crap, and I think you know it. "Affordability" to me, is relative to what people can afford. Not relative to how low interest rates allow the monthly payment debtor to lever himself to the hilt
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errc says
Nope, never said that unless you're talking about this year. I said back in 2009 that I expected real estate to be flat.
Now I expect real estate to start to appreciate, however rates are being held down artificially by the federal reserve via operation twist. Until that ends, rates aren't going anywhere regardless of what else happens.
It's not quite as simple as homes appreciate with interest rates, however you can be sure when the fed finally allows rates to rise, it will be a whole new world.
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errc says
That's the big disconnect that many on here face. House "Affordability" to most people means, "the mortgage payment is small so I have plenty of money left for everything else that I want." People define it as what they are COMFORTABLE with. The chart you mention is not defined based on individuals' comfort. It is calculated on an absolute basis of how much an average house's would cost vs an average salary (or something like that). Per those metrics, affordability IS near an all time high across the nation due to super low interest rates and lower house prices. I doubt that the chart factors in how many people can actually QUALIFY for mortgages, but based on payments vs income, on average affordability is high across the US. A chart for the SF Bay Area might look a little different, but as of now we only seem to have a chart that aggregates the US as a whole to work off of.
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I understand many people in bay area earns $200k plus but still it doesn't justify high prices in bay area. If a couple earns $200k plus then most likely they are both working with kids. Everything is expensive in bay area day care, car payment, restaurants, insurance, utility, etc. Where is the money left for mortgage ?
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leo9 says
I simply don't understand this argument.
Who cares if they can't afford it. THEY ARE AFFORDING IT!
The mechanism may be open to interpretation, but the home sales are not.