No need to expound, it only goes up. This is temporary. I repeat, this is temporary. Wells Fargo thinks so, you should also. Buy more. Get in now before it is too late. It only goes up.
Oh, sorry, trolls need not post.
It only goes up.
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SP,
I was making the christian comments in general, not directed to anyone in particular. I'll re-phrase it though. I think what I'm trying to get at is that just like the previous racism posts, there are undeniable diffrences between diffrent regions. As someone that's from an area that rains, gets sort of chilly in the winter, and damned hot in summer, I can say that yes- the weather in SF is nice in comparison. When you eat Mexican food in Chatanooga, it tastes like taco shells with tomato sauce all over it. In SF, you can eat anything anywhere, all the time, and it will usually be pretty decent.
So in the end, the diffrences come at a price. But the price is not as easy to pin down because we all have our own versions of what's important to us as individuals. I hate the city. Some people can't stand to NOT be in one. I like tractors, old cars, RC cola, and firecrackers, but I also am fairly tolerant of other people and their lifestyles, regardless of what they may be. Others probably hate all the stuff I mentioned and might be vehemently opposed to anyone diffrent than themselves.
So... do we elect to move to a place that has more people like ourselves? Is being with like-minded people important? Or- how much flexibility can one muster in order to accept diffrences?
One of the reasons I moved here was to challenge myself to think diffrently. Everyone in my family has been in the South since the 1700's, mostly in a confined area of the the Tennesee Valley. I was one of the first to leave and see the country, and I'm very glad I did it too. But sometimes while I sit at my desk in a glass office, I wonder what it would have been like if I had just stayed there. I would only know what I had experienced and probably be well on my way to being your typical average joe. I'd probably be more concerned about mowing the lawn and that perhaps my son( If I had one) was getting a D on his math test.
I don't have those concerns yet here because the neccesary basics to get into that mindset are difficult to come by. So here I am, just like many others questioning the price tag of the BA and whether swapping it for another region- an area that very well may have crappy weather, people that aren't as informed perhaps about the same things as people here, and maybe stores replaced by Wal-Marts.
Sorry for the ramblings. Early morning and the coffee has yet to kick in.
Didn't mean to offend you by the way.
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ajh Says:
DS,
I disagree completely; as far as I can see the new building technologies have been used to make houses (the actual buildings) cheaper and nastier.
I looked at some townhouse plans a few months back, and was actually tempted to buy. Since then I have seen them at a partially built stage, and I was disgusted by the corners which were being cut to save a few hundred dollars on a $300K property. Stuff like double-glazing and sound transmission through party walls, which really makes a difference to quality of life and is very expensive to retrofit.
I commented at work (and got no disagreement) that we are watching the slums of the 2020’s being built today.
I didn't say they were good quality -- just that they're cheap to erect... due to techniques of mass production of components, refinements in rapid assembly, etc -- and sometimes that means paring away all excess material to the point of flimsiness, or substituting cheap, nasty materials... how can you disagree completely with what i said?
it reminds me of the scene in 'growing up gotti' where one of the oversized kids chases another to his room, then kicks the closed door, and it jumps inwards about 6 inches while on the latch... the whole interior of that 'mansion' is mcmansion, no solidity...
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Sean,
What's interesting is that in reality, many of the homes being built in the BA are actually more like Prefabs. I'm a huge fan of prefab construction, but when companies start selling them off as high priced luxury homes, that's a problem.
On the other hand it is only fitting that this would occure here, being that the majority of the victorian homes in SF are themselves flatbed prefabd thrown up swiftly after the 06' quake.
What most buyers fail to see is if they are buying a new home these days, they're likely buying the cheapest quality from the cheapest bidding builder. That would be like buying a chevrolet with a BMW badge on the hood.
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Houses are vastly less expensive in real terms to design, manufacture and build today. Commoditization alone accounts for a great portion of this efficiency. This makes no claim about the quality of newer homes versus older homes. In fact, quality is a dangerous axis of measure because it is subject to bias. Most would agree that a 2002 McMansion has inferior carpentry work compared to a 1920 Victorian. However the inverse is true when comparing electrical systems safety, fire suppression, or various safety compliances protected children and older people.
The problem is that land has appreciated at equal or greater rates in real terms also. Further, many other costs not directly related to home building have increased at phenomenal rates. Taxes and insurance are examples.
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What's funny about the predeliction for new construction development is that in many cases people are paying a premium for the new construction, not a discount for poor quality construction, as I definitely notice a preference by many folks for the new developments or recent tear-down new McMansion. The best part is that, like a new car, the depreciation will be severe once the wear and tear start showing. A friend of mine bought a recent tear-down built into a McMansion in Newton, MA (a nice suburb of Boston very close to the city with good schools) about 2 years ago. Since then, it's been nonstop repairs, including major electrical work, basement flooding, and lots of minor stuff. He puts on a stiff upper lip, but it's pretty clear that he's not happy with the result.
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there was a skit called 'attack of the killer mock georgian townhouses with 8' ceilings' where the developments went up literally overnight...
when i said better designed, i really meant they have layouts down to a fine art, unlike older houses which have got pokey rooms or no light or doors in funny places -- meaning victorian and edwardian. even with more modern places, i stayed in an apartment at bondi beach which was only about 25 years old which had useless short corridors using up valuable floor space.
proper architect designed places pay attention to site orientation, light, space, materials, etc, as well as considering low energy use, passive heating and cooling, etc. there's a new mandatory building standard here called BASIX which requires a 40% reduction in energy use and 30% reduction in water use or similar in design -- the developers are up in arms and getting the govt to make concessions already as an unworkable requirement...
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Randy H Says:
Further, many other costs not directly related to home building have increased at phenomenal rates. Taxes and insurance are examples.
A big cost you forgot to mention: the $$ spent by HB's on the permitting, zoning approval and often the associated litigation to get developments approved in what are usually your typical NIMBY environments. There was a Sunday NYT interview of Bob Toll a few months ago that spent a good chunk of space on this issue. Interesting reading.
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San Francisco, CA
Good point, Randy H
Having rented in a 1925 built Victorian on California street I can say that the walls were very solid and didn't feel hollow like the new McMansions I see today. The detail and intricacy of the hard wood floor is what sold me to rent the particular unit. The floors did creak in some places and I wasn't a fan of the lack of insulating material around the doors. I don't know anything about the relative safety of electrical systems, but I know the place only had two prong outlets with no ground.
On another note, did any of you see this side bar in the Herald Tribune article posted on the Tuesday News Links from this site?
"A study by the National Association of Realtors this year found that almost 40 percent -- or 3.34 million -- of the homes and condominiums bought last year nationwide were bought by people who had little or no intention of living in them."
How do alarm bells NOT go off for the NAR with this kind of statistic? Do you guys on this board believe that statistic? If so, watch out below! Perhaps they just don't care what direction home prices eventually go since bad financing now can/will lead to "having to sell" later.
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this is basix - building sustainability index:
http://www.basix.nsw.gov.au/information/about.jsp
which sounds more like the sustainability of the building not falling down, rather than environmental practices, in the present context...
in the context of developers complaining about it, and govt setting it, i've cheekily suggested to the govt they develop affordable housing themselves to show all the builders how to do the job properly and how easy it is to comply... as they are in the process of selling off state land right now to the highest bidder while preaching 'developer levies for affordable housing'...
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I can't acuratly make comment on whether the safety benefits of a modern house are any greater than an older house other than earthquake safety equipment, but even this isn't a reliable factor to gauge since most older homes are retrofitted.
The reverse is happening now that happened in the past. If you look at the generation 1950's-1970's rancher homes found in subdivisions, they were designed by some of the most cutting-edge architects of the 20th century. People Like IM Pei and Frank Loyd Wright were major proponents for decent homes, with a minumalist design, for the average man. Translation: The average working Joe could have a decent home at a good value, and a home that was similiar to his neighbors. The desired result was a community that was more harmonius due to less obvious signs of disparity.George has a house, and so does Bill, and they all feel the same ways concerning their incomes and lives because everyone is massed together. If people see disparity, they get pissed( as many people in the BA are).
These days, the opposite is true. The desire is to build something that looks as oppulant as possible. People don't want to be grouped together. The desire to be noticed is HUGE.The people buying them try to stretch as much of their salaries as possible to attain the appearance of something they are not- which is upper class. This example would probably better fit the rest of the country. Not here in the BA. So the end result is an inverse of the value system set up in the subdivision system of the 50's.
Here in the BA, the value equation is less about the physical and more about the implied wealth, which has gone to ridiculous extremes. Now a person who buys an otherwise miserable example of a tiny home in a not-so-great area is automatically deemed " Important" in the microsystem of the BA.
Value is key here. When values get replaced with purely physcological factors, the alarm bells should and have been sounding loud and clear.
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Translation: The average working Joe could have a decent home at a good value, and a home that was similiar to his neighbors. The desired result was a community that was more harmonius due to less obvious signs of disparity. George has a house, and so does Bill, and they all feel the same ways concerning their incomes and lives because everyone is massed together. If people see disparity, they get pissed (as many people in the BA are).
that sounds like outright communism to me! we'll have none of that sort of talk around here, thank you very much...
get rich or die trying... (the new national motto; 'in god we trust' is not multi-cultural or even very accurate...)
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willywhopper2 Says:
> Lotsa comments about those darned Christian-folk.
> If Moving to another region that has decent schools,
> affordable housing, a decent job market, and more
> local stability means I might run into a coupla’
> Christians at the Mega-Lo-Mart, then….
> Seriously.. is that the BIGGEST concern people
> have? I’m amazed that this many people have a
> mindset that they simply can’t handle it.
There are lots of nutty “Christian-Folk” in the red states but I’ve never had a problem with them in my travels.
Every now and then someone will bring up religion in a red state and you can usually shut them up by saying “I’m Catholic, I’m Episcopalian, or I’m Jewish”.
The red state “Christian–Folk” have no idea that most San Francisco Catholics, Episcopalians and Jews are pro choice, have gay friends and don’t believe the bible is a historical text…
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@SP & JH,
Being pro-science and agnostic (if not an outright athiest) I can see where SP is coming from in terms of the discomfort/fish-out-of-water factor. I would also not want to live in a place where I was completely surrounded by Jeebus freaks who make it their mission in life to Convert the Heathen. (OT, but I recommend the movie Saved! --a real hoot.)
Though I know there are plenty of areas like that in the South & Midwest I think it's a big stretch to say that that it's like that EVERYWHERE in red states. Like I said before, if you stick to "progressive" areas of middling to large cities, you should be fine. I'm kind of amazed that all that stuff happened to SP (being attacked, car keyed, etc.). Nothing like that ever happened to me when I lived in Atlanta, despite the fact I made no secret of my lack of religiosity. Must be a Texas thing (?)
Ok, enough about the Jeebus stuff! You disagree --we got it. Let's get back to housing...
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Houses are vastly less expensive in real terms to design, manufacture and build today
And taken one step further, I'd really like to see modern, modular homes as a legitimate option in communities. Higher quality control can be maintained at lower cost/sqft, and the newer designs have far better layouts and aesthetics. Victorians look great if well-maintained, but I often hear of how much expense they require for proper restoration.
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SP-
I've heard the same about FLWright. I admire his aesthetics, but I've also heard his homes are notoriously hard to maintain, notably his "Fallingwater" house.
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KurtS,
How true! If restoring an older Victorian is truly your passion then by all means restore one (as long as you don't have any other pursuits!) Even keeping up with one that's in reasonably good condition can be very demanding. I don't mind the "curb appeal" of the design but that's all the closer I want to get, the curb!
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For some odd reason a FLW house was moved to the Oregon Garden just a few blocks from our place. When I saw it supported by stacks of railroad ties it seemed somewhat unimpressive? Although I hear it appears to be much better now. I'd read an article just a few months ago saying it's been VERY hard for long time owners of his homes to get rid of them. High maint. and the need for a very selective buyer have driven those values down. Even before home prices peaked.
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. There was a Sunday NYT interview of Bob Toll a few months ago that spent a good chunk of space on this issue. Interesting reading.
I am with Bob on this issue. California must relax the zoning regulations. The free market will regulate itself. Just let the builder build whatever it wants, wherever it wants, whenever it wants. If it overbuilds or make other mistakes, the area will suck, prices will come down and there will be less incentive to build.
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New thread: Attack of the California Equity Locusts!
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Peter P Says:
I am with Bob on this issue. California must relax the zoning regulations. The free market will regulate itself. Just let the builder build whatever it wants, wherever it wants, whenever it wants. If it overbuilds or make other mistakes, the area will suck, prices will come down and there will be less incentive to build.
This ain't never gonna happen nohow. Not if NIMBY-ists continue to have their way. CA is too much about, "I've got mine, now you get yours, if you can. Otherwise, screw you."
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Hampton, VA
DinOr,
"Equity Smug?" I love it!
On house quality - The oldest house I retored was built in the 50's. It was only about 1000 sqft, and was framed with what I think was first growth southern yellow pine. I stripped this house to the studs and changed some walls. The framing 2x4s from this house were so dense that driving nails was too difficult, I went with predrilling and screws. Contrast this with today's fast growth SPF 2x4s, which nail easy and are much lighter.
Although today's fast growth wood is much less dense and thus has less load bearing abiliy, the code still calls for 16in centers on load bearing walls. I also noticed from Hurricane Isabel how so many recent built houses were smashed by blown-over trees, while so many older homes that had trees fall on them just had minor damage to the beaverboard roof.
And DS, the original American motto was "Mind Your Business." The later introduced "In God We Trust" is only half the motto. The complete motto is "In God We Trust - All Others Pay Cash." I like the original before it was butchered from it's true meaning by the faithful.
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Allah's website
I filled out one of those forms for lowermybills.com. I used a fake name and a fake address (666 debt drive). I checked off that I had excellent credit. Selected that I am not working and have no income. There were so many fields to fill out, but I fudged them all. I wanted a loan greater than $1m with no money down and they sent me this:
CONGRATULATIONS!
You've taken the first step towards getting the best Home Purchase loan at a great rate. The following lender(s) will be contacting you soon with loan information and customized rate quotes:
Matched Lender Lender Phone Lender Email
Angel Capital Corp
914-377-0003 Email
Discount Rate Mortgage
631-240-6225 Email
CP Mortgage
(516) 221-1235 Email
Total Mortgage Services
203-876-2200
NationPoint
(800) 987-0470 Email
These lenders in your area will be contacting you shortly to provide you with the best rate for your loan.
I guess this debt bubble hasn't burst just yet!
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Then the pestering started, with a couple of middle-aged guys who came around on a daily basis to change my mind
I've met these people too, but the local Bay Area culture pushes them a bit more underground--and their package is wrapped in nicer paper, so to speak. All said, they're just as eager to pester you with their irrelevant take on the world.
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Randy says:
Prices will be sticky this time too. I state that categorically. I am not making a prediction. They already are exhibiting observable stickiness which would not be predicted by an efficient market. At best, they may be a bit less sticky this time, but it’s still going to be an unhappy ride down for many.
There will always be some stickiness...there was stickiness when the stock market crashed, people were holding out thinking that there would be a second wind...but they were wrong and most of them ended up cashing in at a much lower price eventually.
When the world trade center was burning there was also some stickiness...the people who were trapped up there were withstanding the heat and refused to jump out the window, but eventually they did anyway. God knows how much they suffered before they actually did!
The point I am trying to make here is that we are talking about a serious runup in prices. A runup that has never happened in history, not even close to this one! When people have an instant equity increase of lets say $200k or more and they start seeing $20-50k vanish every month, it is very hard to take a sticky position! People don't have the luxury to wait, time is certainly not on their side. I bet alot of the retiring baby boomer generation are going to leave the expensive areas since the cost of living is getting so expensive and they are on fixed income. They are certainly not going to wait for the next boom! (they'll probably be dead when it comes). Some of these boomers bought their house for about $20k back in the day so if they can only get $700k instead $1.2m that some have gotten, I highly doubt they will complain!
Real estate is going to crash hard....very hard! Those who drop their prices first are the ones who will walk away with the most equity and those who are stubborn will be vaporized.
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Prices will be sticky this time too. I state that categorically. I am not making a prediction.
RandyH-
Certainly in our local market, given the near-unflappable psychology and demographics; prices will hold out longer than elsewhere. That said, I'm noticing a price reversion underway in Sonoma county; it sure looks less "sticky" up there.
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There’s a FSBO in our neighborhood, and the house is $100K over-priced
SQT-
Since you live out in Sacto, have you ever seen inventory on this scale? Driving through the gold country this weekend, we were simply amazed...it looks like a panic.
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allah,
A runup that has never happened in history, not even close to this one!
This statement is categorically false. In aggregate:
1981 saw Real Holding Cost to Rent ratio of 2.5
1981 saw Real Holding Cost as a % of real income at 68%
1989-90 saw Real Holding Cost to Rent ratio of 2.2
1989-90 saw Real Holding cost as a % of real income at 75%
Today, Cost/Rent is 2.2
Today, Cost % of Income is 75%
---
Yes it is bad. But it is not without precedent.
**Source, HSBC HomePulse
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By the way, the Bay Area averages for those above statistics, 1975 to present are:
Real Homeowner Cost (holding cost) to Real Rent: 1.6~1.7
Real Homeowner Cost % of Real Income: 52%
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Real Homeowner Cost (holding cost) to Real Rent: 1.6~1.7
RandyH-
Great stats. Doesn't that effectively dispell the notion of residential real estate "investment"?
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Allah's website
Randy,
I am not talking about holding cost to rent, I'm talking about the magnitude of change in price from one year to another. It has never been that steep ever before. Prices have actually doubled in just a couple of years...some have even tripled!
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...and although I was ONLY talking about the differential in housing prices over the past few years, according to Dean Bakers data, the price to rent comparison is still unprecedented.
**sources BLS, BEA, OFHEO
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KurtS,
Yes, RE is NOT an investment (meaning personal home ownership). It never has been and it never will be. The notion of "equity" only is such in a somewhat fictitious accounting. Only business entities can have equity, not people.
Your home is a savings vehicle. It's basically like putting an increasing number of dollars in the bank every month (assuming a traditional loan), with the added dimension of the real-asset. As such, RE has traditionally been a reasonable way to save and protect against inflation.
Everything else is speculative bubble.
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allah,
79-81 was a runnup of a much larger magnitude than 03-06. That's because 78 started at half the level of 02.
Prices never returned to 78 levels, but got pretty close in 86/7 and 94.
Prices were so sticky coming off of the 80/81 bust real ownership costs rallied again 82-83, then fell in 84, then up slightly in 85, then crashed into 87.
The next peak in 90 took 6 years to correct back to 86 levels.
Post 77 real ownership to rent costs have remained constrained within a band between 1.5 and 2.4 (almost 2.5).
Dean Baker is using "value adjustment" in his data. I don't know what that means because he doesn't reveal the methodology.
The HSBC data (available for download on my blog if you click my name) is entirely notated, accompanied by hundreds of pages of methodology, and includes an open, non protected Excel spreadsheet showing all formulae and functions.
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Randy,
Would you be so kind as to provide a direct link to this HSBC excel data. I cannot find it on your site.
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Mountain View, CA
Hi All,
Okay, so I may be a little off topic this instant, but I though you might like to know from someone who lives in Mountain View - right in the shere of Google, that rent prices are increasing a little bit - I am a renter, and that I have been keeping an eye on some of the real estate - not all sectors, in fact, just a very narrow one in a specific area - i.e. a good school district and I have to report that there has been some price reductions - some houses are relisted as a new listing others plain show that they are a reduction - reductions in the ranges of $50,000 - $100,000, one even for $200,000. Now, it's only a few so far, but surely this would indicate that even Los Altos/Mountain View are not going to escape a bubble bursting! Maybe it will only be the less desirable properties - i.e corner plots and ones with rooms without permits etc; but I'm starting to get a little excited even if I'm going to have to wait another couple of years.
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The Excel model is here
The PDF document is here
I've been accumulating so much of this stuff I really need to build an index or get a workable search engine.
The HSBC documentation takes quite a while to read, but if you do you can then take the Excel and do any analysis you want.
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Randy,
There is alot of data to look at, but looking at the charts, I don't see anywhere in this data where house prices have risen like they have in the last 5 years. If you set the spreadsheet to US Average price and look at the median house price and look at price to income ratio.... You can see the steep climb in the last 5 years! You're in CA, set it to CA and you'll see an even more pronounced spike! I really don't know what you are talking about!
My brother bought his house about 10 years ago for $165k, his house was actually one of the nicest houses on the block and he had it comped at close to $500k....My brother didn't put one dime into the house! Before 911, real estate in this area was quite flat or pretty much pacing inflation;but in the last 5 years! c'mon! That's a difference of $335k! If the price had increased at another time by $335k someone must have gotten paid $170k just to claim ownership of it! :lol:
My Sister bought hers a few years earlier for $142k in the same area, now comped at $450k? Please..... Don't insult my intelligence! Houses in this area used to be in the low to mid $100K range. Houses in the $200k range where for the upper class and if you had a house worth $300K your kids would have been beaten in school for being the rich kids in town! Today, the cheapest house you can find in this area is in the low $330K's!
I conclude that there was NEVER a runup even close to this ever before in history! I really don't need any graphs to prove that I am right, I have always looked at house prices in the paper all my life and I know the latest differential in prices has been quite significant compared to years ago. If you really believe that house prices have increased before the way they did in the last 5 years, then I'm sorry, but you aren't as bright as I thought you were!
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Allah,
I don't dispute your aggregate data. Being that I believe in micromarkets for real-estate, I only looked at metro area granularity. When I run that for SF metro I see that this run-up is bad, but not materially worse than the two I listed.
If you believe that RE is more regional or national in nature, then I readily concede that this is the worst run-up ever by a long shot. However, just for kicks, look at Indiana (where I spent some time last week). It is in a mild RE depression in aggregate despite the fact I personally saw 800K crap McMansions in rural towns. That's the problem with aggregation, it includes the worst of the worst (Gary for IN).
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Randy,
I used SF metro area and I looked at the worst 5 year period(84-89) aside from the last 5 years and compared the two. Looking at the charts, I retrieved the following data.
house price to income ratio for a 5 year period
1984 4.7
1989 7.7 = differential of 3
2000 6.8 (not to mention the year before at 6.1)
2005 11.3 = differential of 4.5
50% increase!
median house price for the same 5 year period
1984 $141,556
1989 $291,745 = differential of $150,189
2000 $466,822
2005 $767,777 = differential of $300,955
100% increase!
real median house price adjusted with monopoly money
1984 $223,444
1989 $379,466 = differential of $156022
2000 $466,822
2005 $703,151 = differential of $236329
50% increase!
Yes, RE is local and some places will not see differences like this, but in the bubble areas which is what I was talking about in the first place, this is the worst 5 year runup in history! I rest my case!
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Allah,
I agree with those figures, and also agree that this bubble is very troubling by those measures. What I contend is that real-holding costs to real income are more relevant than price to income because it affects buyer psychology and true affordability more.
Using price to income or adjusted median figures does not include the relative value and opportunity cost of cheap money. I'll agree that few people think this way, but they do "feel" the direct affects of borrowing cheap to "own equity" as opposed to paying rent and doing something else with that money.
This is why I like datasets such as HSBC's, because it allows us both to take the raw data and draw our own conclusions, and debate the merits of each. Most of the data available in residential RE is purposefully massaged, constrained, or manipulated.
I will maintain to the death that information asymmetry is a huge problem in creating an efficient residential RE market. The Internet is trying to help this, but it's nowhere near the point of helping to create significantly less stickiness.