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Ruminations on "Inflated" / "Overpriced" Real Estate


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2012 Jan 17, 3:25am   15,372 views  51 comments

by bmwman91   ➕follow (5)   💰tip   ignore  

This pertains to the SF Bay Area, particularly the south bay & the peninsula since that is where most people here seem to be located & paying attention to.

There are two main groups in here. The bigger one is comprised of the housing bears, and I would imagine that many or most of them are in this boat: would-be first time buyers that have obvious reasons why they want prices to go down (faster). I am in this group as well. The other group is made up of the housing bulls, or people that just see no reason for prices to slide much (if any) further. The continual battle between them rages on with various repetitions of, "here is my data showing why housing prices are sure to decrease XX% over some unknown timespan, but it will surely happen soon. The market is being manipulated & will correct when that stops." Then someone will counter with, "your data is crap and you are wrong; house prices are going to be flat and go up after Y years," or "well this is my data and it says yours is wrong because reasons A, B, & C. Oh and the market is permanently corrupted so forget a free market." Both arguments have merit, on some level.

Really, it all comes down to the market value of the houses in the area. I think that many of us are losing sight of how value is derived. The value ascribed to the properties in the Bay Area are obviously high, and a lot of people call it outrageous, inflated and over-priced. Because it offends the sensibilities of many, lots of people feel certain that it will "become reasonable" (e.g. price implosion) at some point. However, this seems pretty unlikely.

Value is determined by the market. Yes yes, the government & banks are manipulating the market & it isn't really a "free market," but this is how it is, and we all know that this manipulation won't end in our lifetime. So, the market determines the value, and obviously the market is setting the value at a pretty high point. OK, so maybe the prices seem ridiculous. Patrick.net is obviously made up of people with an above-average interest in their finances, with the key term being "above-average." The market is comprised of everyone, from housing bears to housing bulls, and everyone in between. The vast majority of the market is people "in between," while most bulls & bears are those "above average" folks that actually take time to look at market data.

What am I getting at? I am making the point that Bay Area housing prices won't see a massive implosion any time soon (they already did), and they will probably continue to slowly drift downward for a few more years, like they have been. OK, but why? Here's the crux of it. See the plot below that illustrates my perception of the market.

The "smart" people that see how messed up the market is have to compete with the "dumb" majority that "just want a house," and are enabled by the "rigged" market. Income & education also don't necessarily have a direct correlation with financial sense either, so you can't pull the, "well the SV is full of smart people so it's different here," card. Lots of highly educated tech workers made really stupid financial decisions with RE in the last decade and live paycheck to paycheck. People with little financial sense make up most of the market. When people with little financial sense, and large paychecks make up a big part of the market (Silicon Valley), you get super high housing prices. This is why there won't be a price implosion: there is a HUGE pool of people that don't think critically about borrowing as much money as they possibly can to buy some sort of property within an hour of where they work. People that don't want to sell themselves into debt slavery have to compete with this endless supply of people that don't think twice about it.

In short, "you can't compete with stupid." Rage about it, get mad, whatever. There are times that I just want to bang my head into a wall when I think about it. The fact is that the Bay Area / Silicon Valley is expensive, and will remain so despite it being "unreasonable" by most logical standards. Prices are coming down since some of the mechanisms that enabled people with average or below-average financial sense to inflate things went away & have been scaled back. However, GSE loans & FHA loans ARE the mortgage market, enable the market to remain "overpriced" and certainly aren't going away in the foreseeable future.

So, to end this post that is now borderline-pedantic, I think that folks here should be more careful with their usage of the terms over-priced, inflated & over-valued. On a personal level, these terms have personal meaning. In regards to the market though, they don't really apply. The market will bear what the market will bear, and most of the market (average people) are just fine with bearing the heaviest load that they can (and more, when given the opportunity).

There are some caveats to the "no price implosion" claim. Prices could and probably would tank in the BA if:
- Interest rates went up to 10%
- GSEs were dissolved & FHA loan limits were changed to 50% of what they are now
- Banks liquidated their shadow inventory & got the foreclosure process back under 100 days
- HUGE earthquake that knocked out utilities & took down a few buildings
- Prop 13 got repealed & CA cranked up property taxes to try to gain solvency
- The mortgage interest deduction was eliminated
- Open spaces were sold to developers & all the NIMBYs magically disappeared
- The economy entered a real depression, and all the frivolous consumption that fuels the tech economy (directly & indirectly) dried up, turning the BA into something akin to the rust-belt (minus the rust).

Evaluate the probability of these things happening, along with whether or not you would stick around if they did, and see how likely a price crash would be, and how likely you would be to take advantage of it.

This post was sort of fun. I am usually a housing bear in my posts, being a would-be buyer and all. As messed up as the housing market still is around here, I guess I can't realistically see any good reason for prices to take a big step down, no matter how much I want them to. I'll wait another year or two since slow declines seem probable, but at some point I am going to pull the trigger for personal reasons, despite it not making the most financial sense. The old adage of, "if you can't beat them, join them" holds some weight here.

#housing

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1   clambo   2012 Jan 17, 3:28am  

The firemen, cops and welfare queens thank you in advance for buying your house in the Bay Area.

2   bmwman91   2012 Jan 17, 3:34am  

clambo says

The firemen, cops and welfare queens thank you in advance for buying your house in the Bay Area.

Like I said, go ahead & get mad. CA is completely screwed for many reasons, some of which you mentioned. As far as I can tell, if prices ever got super low in the BA, there would probably be a list of reasons why I wouldn't want to live here anymore, that would outweigh my glee over lower prices. It's a rigged game.

Collapsing Housing Prices says

"Value is determined by the market"

It has nothing to do with construction costs? Really? REALLY?

I'm sure glad we have guys like you who know nothing about bidding, estimating or construction management telling us you know what the price of housing OUGHT to be.

In the Bay Area, the vast majority of sales are resales of used houses. With open space requirements & highly empowered NIMBY groups, new construction projects in "desirable" areas are pretty minimal. If new construction made up a significant portion of the housing market here, you'd have a point.

3   bmwman91   2012 Jan 17, 3:48am  

Collapsing Housing Prices says

Construction costs ALWAYS determine value.

Secondly, prices in the in the Bay Area are FALLING.

Well, being that construction opportunities are super restricted, and permitting in CA is very involved, construction is very costly. I basically grew up in a residential construction site, so the things that are involved in the legal construction of structures aren't foreign to me. It happens that construction costs in the BA are high, as well as housing prices. Correlation does not necessarily imply causation though.

Again though, where do "construction costs" have such a large effect? The vast majority of sales in the Bay Area re re-sales of existing houses.

Yes, prices are falling (thank god). However, most of this activity is in the low- & mid-tier markets. Higher end markets are also drifting lower, but not nearly at the same rate. I guess I should have clarified a little since I am mostly concerned with the mid- & upper-tier markets in my postings (places tech Silicon Valley workers would generally prefer). There is real downward pressure on the market. At the same time, it is still really easy to get a big fat loan, and there is an endless pool of takers for these loans. That is NOT going to change any time soon since the whole system is more or less dependent on it.

Believe me, I would LOVE to see some sort of evidence that shows a clear, logical reason for housing to take a 20% hit in the nicer areas. Logic & reason can be successfully applied in economics, to a point. When the market is being manipulated by the government (and the financial interests that control it), free market logic stops applying and you can only do your best to guess what the next manipulation will be, and its effects. I more or less see the US government & economy as being past the point of reconciliation, and there are only two options: perpetual corruption & market manipulation, or total collapse & we start over with a new system (and food/water will be the main concern at the start of this scenario, not housing).

4   dunnross   2012 Jan 17, 4:03am  

bmwman91 says

This post was sort of fun. I am usually a housing bear in my posts, being a would-be buyer and all. As messed up as the housing market still is around here, I guess I can't realistically see any good reason for prices to take a big step down, no matter how much I want them to. I'll wait another year or two since slow declines seem probable, but at some point I am going to pull the trigger for personal reasons, despite it not making the most financial sense. The old adage of, "if you can't beat them, join them" holds some weight here.

All I can say to this is: Halleluja! The objective of the housing bubble, or any bubble, for that matter, is to pull in as many suckers as possible, both on the way up, and way down. The fact that a bear on patrick.net is finally, giving up, tells us, the only remaining "true" bears, that the objective of the housing bubble have been achieved - even the bmwguy is going to sell his last bmw just to buy a house in the Bay Area. All we need to do now, is wait for him to sell his last bmw, and pull his trigger, and then, the housing market will implode the next day.

5   bmwman91   2012 Jan 17, 4:05am  

LOL

I am not a realtor, nor do I make any part of my living from anything real estate related (mechanical engineer).

My post is purely a grouping of my own thoughts & reasoning. People are more than welcome to provide evidence that contradicts my conclusions. Nothing would make me happier than some sort of solid demonstration that would show that housing prices are going to take a massive hit, without the driving force being CA's complete conversion into a socialist shit hole.

Prices are going down now, and will keep doing so for a couple more years at least. However, the declines are slow in desirable areas and I am not really certain that they will keep going since there is a giant pool of well paid people that is willing to take on loads of debt. If the jobs go away, then prices will crater, but I'll probably be leaving CA with the jobs, so it is a moot point as far as I am concerned.

Feel free to make baseless claims & imagine me as being a realtor. Just because I can see reasons for housing to not take a wild dip down in prices doesn't mean that I don't want them to. I've been hoping for a serious dip in prices for a few years now, but am starting to think that I am kidding myself in thinking that it will happen. Really, the big dip already happened (see CS graph of SFBA). The dip should have been a lot deeper in San Jose / San Francisco, but market manipulation & irrationally exuberant demand stopped it short.

6   thomas.wong1986   2012 Jan 17, 4:07am  

Collapsing Housing Prices says

It has nothing to do with construction costs? Really? REALLY?

You can compare the differences between new home prices Santa Clara/San Mateo County vs say other states. Same lumber, nails and other material/labor costs are identical. The big differences are intangibles only pie in the sky hype and marketing can justify.

7   dunnross   2012 Jan 17, 4:11am  

bmwman91 says

However, the declines are slow in desirable areas and I am not really certain that they will keep going since there is a giant pool of well paid people that is willing to take on loads of debt. I

Dumb people don't consider their finances, you are right about that. But they are, like all good citizen sheep, follow the herd. If the herd is "buying", they will buy, if the herd is selling, they will sell. Right now the trend is selling, but, the overall psychology hasn't turned around completely. Some people still think that house is a good investment. Until this psychology changes, prices will continue to drop, and they will not drop for 1-2 years. This change in psychology takes decades, not years.

8   bmwman91   2012 Jan 17, 4:14am  

dunnross says

All I can say to this is: Halleluja! The objective of the housing bubble, or any bubble, for that matter, is to pull in as many suckers as possible, both on the way up, and way down. The fact that a bear on patrick.net is finally, giving up, tells us, the only remaining "true" bears, that the objective of the housing bubble have been achieved - even the bmwguy is going to sell his last bmw just to buy a house in the Bay Area. All we need to do now, is wait for him to sell his last bmw, and pull his trigger, and then, the housing market will implode the next day.

Nah, the BMW would only get me $4k at best. It is a 1991 318iS. I drive a 21 year old car that I paid $2000 for in 2005 and do all of my own repairs to save money (it gets 30-32MPG on the highway, and is still fun to drive).

And yes, it is a sign of the times I guess. Maybe I will get burned. Rents in the area I have been living in are rising, and basically houses AND rent are going to be "unreasonable" in a couple of years, in the Silicon Valley. While I could leave, I have a solid job here, and 90% of my family is in the area. Personal factors are a part of this, and sure, they conflict with the financial indicators that scream "WARNING." I'm getting married in October, and I certainly don't plan to get serious about buying until after then (and the election...once the votes are cast, I can see politicians telling underwater voters to piss off & easing off of their measures to keep things inflated).

I can respect the long-term bears for sticking to their guns. However, perma-bears often get hosed because they can't recognize the bottom. What would your indicators of a "bottom" be? Is your perception of the bottom determined by market factors or absolute pricing?

9   bmwman91   2012 Jan 17, 4:18am  

Collapsing Housing Prices says

thomas.wong1986 says

Collapsing Housing Prices says

It has nothing to do with construction costs? Really? REALLY?

You can compare the differences between new home prices Santa Clara/San Mateo County vs say other states. Same lumber, nails and other material/labor costs are identical. The big differences are intangibles only pie in the sky hype and marketing can justify.

BINGO

I am sort of confused. First you indicated that construction costs have something to do with it, and now you are saying that the high prices are because of marketing hype? I am completely on-board with the hype part since the majority of activity is in used houses that are completely ordinary & boring, but are still fetching stupid amounts of money.

10   dunnross   2012 Jan 17, 4:22am  

bmwman91 says

What would your indicators of a "bottom" be?

Bottoms of bubble implosion always come after a "panic selling", not a whimper of selling, just like the tops come after "panic buying". This is what we saw back in 2006, when prices went up 20% just that year alone. Most unbiased people will see the bottom when it comes, but they will:

1. Be to scared to buy, just like most people were "scared" to sell back in '06.
2. Will be too poor to buy or not have enough credit.

But, in general, the demographics of this country is changing completely, and there will be many "organic" baby-boomer sellers, in the coming years. These "organic" sellers will still have some equity (although not nearly as much as they have now), and, the prices which they will offer, will be so low, that, even the banks will not be able to compete. This is when most of the banks will also throw in the towel, and engage in "who can sell" faster, game, instead of the "take your house off the market and wait until next year" attitude.

11   bmwman91   2012 Jan 17, 4:28am  

dunnross says

Dumb people don't consider their finances, you are right about that. But they are, like all good citizen sheep, follow the herd. If the herd is "buying", they will buy, if the herd is selling, they will sell. Right now the trend is selling, but, the overall psychology hasn't turned around completely. Some people still think that house is a good investment. Until this psychology changes, prices will continue to drop, and they will not drop for 1-2 years. This change in psychology takes decades, not years.

Agreed, humans as a whole are no smarter than any other animal. Herd mentality drives almost everything. Some individuals are intelligent enough to resist this.

My fiancee was ITCHING to buy in 2007-2008. All of her friends were doing it, "for investments" and stuff. They were all telling her to hurry and get in while there was time. I managed to stop her and convinced her that it was a terrible mistake. Again in 2010, friends & family were nagging us because of the home buyer credits. People were running around with hundreds of thousands of dollars like it was play money. It smelled fishy and neither of us went for it since it seemed obvious that this temporary measure would just lead to financial trouble in a couple of years.

Now, we are debt free and her friends are basically all under water (except one guy that has like 6 houses in Pittsburg & rents them out...he is doing OK). So, it isn't like I haven't thought about this. Everyone has their own ideas about what will happen. Some will get lucky & be right. Others won't. As far as I can tell, it is a far LESS BAD time to buy than it was in the last 5 years. While there is a laundry list of things that could happen to drop prices hard (making now a VERY BAD time to buy), those things strike me as being very unlikely to happen. If others think that they are in fact likely, then more power to them. Eventually we'll see who is right.

12   bmwman91   2012 Jan 17, 4:33am  

dunnross says

But, in general, the demographics of this country is changing completely, and there will be many "organic" baby-boomer sellers, in the coming years. These "organic" sellers will still have some equity (although not nearly as much as they have now), and, the prices which they will offer, will be so low, that, even the banks will not be able to compete. This is when most of the banks will also throw in the towel, and engage in "who can sell" faster, game, instead of the "take your house off the market and wait until next year" attitude.

I have heard this line of reasoning, and it is probably the only one that seems plausible as far as "things that will tank the market." I forgot this one in my original post's list.

Counter-arguments that I hear are:
- Where will these BB folks go? Prices are still high, so unless they want to leave the region or live in condos, options are limited.
-- Is there any real incentive to sell with this being the case? How many want to sell & use the cash to live-out their last years in a retirement home?
- How many will simply give their house to their children (and live with them or something)?

These counter-arguments have some merit. Still, I can't see them being enough to completely stem the tide of BB houses flooding the market. The first BB was born in 1946, making them 66 now. So, I it sounds like this theory will be put to the test throughout the next 5 years. So, congratulations, you reminded me of one possible source of hope for lower prices!

13   thomas.wong1986   2012 Jan 17, 4:34am  

Collapsing Housing Prices says

thomas.wong1986 says

Collapsing Housing Prices says

It has nothing to do with construction costs? Really? REALLY?

You can compare the differences between new home prices Santa Clara/San Mateo County vs say other states. Same lumber, nails and other material/labor costs are identical. The big differences are intangibles only pie in the sky hype and marketing can justify.

BINGO

I doubt many read the Wall Street Journal back in the 80s... not much mentioned regarding Silicon Valley... frankly ignored like the plague...

But then in 1998-2000, everyone including the big 4 TV News broadcasters discovered Silicon Valley.. and there went the neighborhood.

14   REpro   2012 Jan 17, 5:37am  

Both: Bmwman and thomas.wong have good points.
What create the value?
1. Hard cost; “Same lumber nails and other material/labor costs are identical.” It’s pretty much same all over US and entire developed world.
2. Soft cost; Impact fees, restrictions, permitting, inspections, approvals, time consumed.
3. Land value; this one is similar everywhere as well, more expensive land force to build on smaller lots or high-rise condominiums.
4. Intangible vale; what post says: “When people with little financial sense, and large paychecks make up a big part of the market (Silicon Valley), you get super high housing prices.”
5. Lending practice; interest rate, down payment requirement.
6. People confidence; job, security, investment objectives.

15   REpro   2012 Jan 17, 6:04am  

That's all people confidence.Collapsing Housing Prices says

What destroys the value?
1) Falling Housing Prices- CHECK
2) Falling Sales Volume- CHECK
3) Structure Deprecation- CHECK
4) Traditional Lending Standards- CHECK
5) Speaking truth about the Housing Crime Syndicate- CHECK
6) Increasing Inventory- CHECK

16   Hysteresis   2012 Jan 17, 6:04am  

the problem is forecasts are usually wrong.

so i am basing my purchase on the past:
* as long a prices are dropping, i wait.
* when prices increase year-over-year. i'll wait a bit longer.
* if they continue increasing for a few years then i'll buy.

the only exception is if i see a house that i feel is both desirable and dirt cheap (hasn't happened yet).

17   PRIME   2012 Jan 17, 6:25am  

bmwman91 says

but at some point I am going to pull the trigger for personal reasons, despite it not making the most financial sense

Your psychological angst about the decision is the most interesting portion of this discussion. Instead of asking the question "What will housing prices do in the future?" you may want to spend more time with "What are the psychological factors affecting my attitudes towards real estate." What are the "personal reasons" you feel compelled to buy a house when you don't think it is a good investment? Have you seen others make money in real estate, which causes you psychological pain? Do you feel like you cannot settle down without owning?

Try reading Irrational Exuberance 2nd Edition.

BTW, this is so fascinating to me because I am an economist/Chartered Financial Analyst Charterhoder.

18   clambo   2012 Jan 17, 6:41am  

bmwman, I salute you for having the intestinal fortitude to not crumble under the pressure of your girlfriend's friends and catch a falling knife.
There are advantages to buying also. They are few.
You can use the mortgage interest deduction. This only helps people who have high enough incomes however.
You can reverse-mortgage the place eventually and get money back from it.
You can use leverage to acquire the house. Few people buy houses for cash.
The idea of reverse-mortgage assumes you will be not seeing house prices falling forever. The other problem is lack of mobility. Selling your place takes time and you pay for the experience.
The idea of houses appreciating significant capital will depend entirely on the rising WAGES in the area near that house.
In balance it's not a bad thing to buy a house that is 1. affordable (4x your income or less) 2. have no expectations of capital appreciation (i.e. it's not an "Investment"). 3. does not FALL much in value.

19   bmwman91   2012 Jan 17, 7:54am  

PRIME says

bmwman91 says

but at some point I am going to pull the trigger for personal reasons, despite it not making the most financial sense

Your psychological angst about the decision is the most interesting portion of this discussion. Instead of asking the question "What will housing prices do in the future?" you may want to spend more time with "What are the psychological factors affecting my attitudes towards real estate." What are the "personal reasons" you feel compelled to buy a house when you don't think it is a good investment? Have you seen others make money in real estate, which causes you psychological pain? Do you feel like you cannot settle down without owning?

Try reading Irrational Exuberance 2nd Edition.

BTW, this is so fascinating to me because I am an economist/Chartered Financial Analyst Charterhoder.

I am a huge fan of "changing my mentality to stop wanting something" versus "earning more money to afford something." Everything in life gets so much easier when your list of "wants" gets shortened! People are GREAT at lying to themselves about what their wants vs. needs are and justifying them to themselves. Housing is certainly no different. I have been holding out for a while since the market was a clear mess in the past (and it still is, although IMO slightly less so). I don't NEED to buy a house by any means. However, I have my reasons for why I want to.

- I am a huge fan of cars & working on them. Rental units don't have garages where I can spend months swapping in a non-stock motor into a chassis. Aside from that, I do all of my own maintenance. Since my parents own a house about 30 minutes from where I rent, I go there to do my maintenance. However, I dislike imposing on them with a full rebuilt project (already done it a couple of times).
- Woodworking & metal fabrication are big hobbies. I want to have a wood & machine shop at my disposal. Again, my father has this stuff, but it is 30 minutes away (40-60 minutes on weekdays with traffic) and I dislike imposing on them too much. I have evaluated the cost of memberships to fab shop type places, and it is cheaper in the long run to have my own.
- Another one of my creative hobbies is building loudspeakers. It should be simple enough to figure out why I want to be free of shared walls. I try to be a good neighbor & keep the volume low, which sucks considering the stuff I have built. With a house, I would likely re-engineer one of the bedrooms into a den/listening room with structurally isolated walls & some heavy acoustic damping between. Alternatively, I might have a basement dug out for this purpose.
- Eventually I will have kid(s) and having some dirt & trees to play in is good for them. I grew up playing in the yard making tree forts, digging holes & learning yard work / home repair skills. I'd like for my child to have the same sort of unfettered access to unstructured play time & life's lessons about falling out of trees, how much fun mud is & generally be able to boot them out of the house to somewhere safe when I need some peace & quiet. Hell, I want some tall trees in my yard too! I routinely set up large rope swings & zip lines with my rock climbing gear in parks and at one of my old apartment complexes (never got caught lol).

So, my motivations for wanting to buy are really based on my set of hobbies. Being a huge Do-It-Yourself'er, the maintenance aspect of a house does not bother me, to say the least. I COULD rent a house, but I would still be constrained in some ways, and as long as I am going to rent, I will do it cheaply in an apartment.

20   bmwman91   2012 Jan 17, 8:01am  

clambo says

bmwman, I salute you for having the intestinal fortitude to not crumble under the pressure of your girlfriend's friends and catch a falling knife.
There are advantages to buying also. They are few.
You can use the mortgage interest deduction. This only helps people who have high enough incomes however.
You can reverse-mortgage the place eventually and get money back from it.
You can use leverage to acquire the house. Few people buy houses for cash.
The idea of reverse-mortgage assumes you will be not seeing house prices falling forever. The other problem is lack of mobility. Selling your place takes time and you pay for the experience.
The idea of houses appreciating significant capital will depend entirely on the rising WAGES in the area near that house.
In balance it's not a bad thing to buy a house that is 1. affordable (4x your income or less) 2. have no expectations of capital appreciation (i.e. it's not an "Investment"). 3. does not FALL much in value.

As long as the MID continues to exist, it will benefit my fiancee & I. We earn enough that it will.
Reverse mortgage...yeah, I'll figure that one out when I get there.
We plan to put ~30% down and still have $50k in cash savings, and none of this factors in our 401k's / IRA's. We have been saving for close to a decade now.

I agree, the mobility aspect is a large drawback. I have no plans to leave the area since almost all of my family is here, but it is a valid point. At the very least, my commute is completely out of my control once I buy. Currently, renting allows my commute to be a 5 minute bike ride (I drive to work, on average, once every 2 months). There's no way I am buying around here (Mountain View), so my commute would probably end being 30-60 minutes on a bike.

I can't see any good reason for house prices to appreciate if they are left dependent on wages alone. Since that'll probably be the case...yeah, I don't think prices are going up unless crazy inflation hits (which again, would have to hit wages as well as housing).

1) We are looking at houses 3X & below. 2) I have convinced my fiancee that if we buy, we will likely never be able to use it as a tool to "trade up" since we would, at best, break even upon sale. Thankfully, I got her over the silly idea of living in a condo / townhouse (HOA hell) with this argument. 3) This is the big one that is more or less a wildcard. There are lots of good, logical reasons as to why prices should fall. Time will tell whether or not the market manipulators will ever let it happen.

21   clambo   2012 Jan 17, 8:47am  

It sounds like mr bmw has a firm grasp on the situation.
The only way that a house you buy today becomes an "investment" is if you reverse-mortgage it. This is simply selling the house to the reverse mortgage company and they let you inhabit it until you die. They pay you monthly annuity payments for life based on 1. what your house is worth 2. what you life expectancy is. It's the only way you can get the money back you paid for that house while you are living.
The fly in the ointment is some people who have kids want the kids to have the dough instead.
Expecting a true capital appreciation of houses today is wishful thinking since wages are not going up and taxes ARE going up, especially in California.

22   thomas.wong1986   2012 Jan 17, 8:48am  

REpro says

4. Intangible vale; what post says: “When people with little financial sense, and large paychecks make up a big part of the market (Silicon Valley), you get super high housing prices.”

That would have made sense when SV was booming 80-90s (Paychecks were much richer back than) with our customer revenues tacking on 15-20% annual growth. We acheived over 400 public companies by year 2000, but home prices didnt skyrocket as much.

Today, we are much closer to 200 public companies (employers), far more spread over nationally and globaly, matured markets, and far more competition.. but the hype in over-drive..

Since 2005, people talk of high salaries, large vested stock options and rich valuationes as if its 1995-1999. But its not!

23   David9   2012 Jan 17, 8:53am  

"HUGE earthquake that knocked out utilities & took down a few buildings"

Personally, being a Northridge Earthquake Survivor as that is the only time in my life so far I literally thought: "So...this is how I will die.."

Back to the point, even THEN, prices did not drop immediately, they did tank big time, in not nearly the length of time this taxpayer paid slow moving train wreck 'slush fund' RE market we have now.

24   REpro   2012 Jan 17, 10:36am  

thomas.wong1986 says

REpro says



4. Intangible vale; what post says: “When people with little financial sense, and large paychecks make up a big part of the market (Silicon Valley), you get super high housing prices.”


That would have made sense when SV was booming 80-90s (Paychecks were much richer back than) with our customer revenues tacking on 15-20% annual growth. We acheived over 400 public companies by year 2000, but home prices didnt skyrocket as much.


Today, we are much closer to 200 public companies (employers), far more spread over nationally and globaly, matured markets, and far more competition.. but the hype in over-drive..


Since 2005, people talk of high salaries, large vested stock options and rich valuationes as if its 1995-1999. But its not!

I referred in the past northern Dallas where HH income is comparable to SV and houses are reasonably priced for every income level.
How you can explain situation when about 40% transaction is cash purchases on houses below rent comparable. I experience this by myself on several occasions. If someone offers full asking price or 10th of thousands above in cash, that’s HOT MONEY to me.

25   SiO2   2012 Jan 17, 10:55am  

Thomas Wong says: "You can compare the differences between new home prices Santa Clara/San Mateo County vs say other states. Same lumber, nails and other material/labor costs are identical. The big differences are intangibles only pie in the sky hype and marketing can justify."

So, then, why not sell your Santa Clara County house while you can and live in another state, if the big difference is the pie in the sky hype and marketing? You could pocket hundreds of thousands of $.

I'll tell you why I don't: I can get a better job here than elsewhere. I like living on a street and working with people from around the world. And I like the weather here. So paying more is worth it to me. Call me stupid.

I don't get the people who pay the price to live here while saying it's no better (or even worse) then elsewhere. Seems like there's an easy solution to the problem.

26   B.A.C.A.H.   2012 Jan 17, 11:11am  

SiO2 says

I don't get the people who pay the price to live here while saying it's no better (or even worse) then elsewhere.

SiO2, I am a local kid (not a kid any more) with deep roots here and it is true for my partner, also. That's what makes it better, for us. But that's it. The rest of the stuff is true.

Are you one of the Hipsters that came here from somewhere else like dunross did, to make this place what it has become?

27   thomas.wong1986   2012 Jan 17, 11:38am  

SiO2 says

So, then, why not sell your Santa Clara County house while you can and live in another state, if the big difference is the pie in the sky hype and marketing? You could pocket hundreds of thousands of $

Many many native Californians have already done that. Has been happening for some time now! "Tired of the BS and the Rat Race"... was common to hear. Look around!!! where are the people who lived here in the 70-80-90s... Gone!!

Sounds to me your just here for $$$$... thats all you see.
Guess what! your too late... should have been here some 20-30 years ago if you want to talk about industry boom and jobs. I been here way too long and early enought to enjoy the fruits of my labor.

Today, your equally able to get a job from a Silicon Valley company outside the Bay Area and the State. If you work for Intel, HP, Oracle... what difference does it make where you worked ?

Intel
http://www.indeed.com/jobs?q=company%3Aintel&l=&radius=0

Hillsboro, OR (479)
Folsom, CA (279)
Santa Clara, CA (272)
Phoenix, AZ (160)
Austin, TX (22)
Washington, DC (21)
Massachusetts (21)
Allentown, PA (13)
Irvine, CA (9)
Sacramento, CA (9)
Washington (9)
Los Angeles, CA (8)
Chicago, IL (7)
Albuquerque, NM (7)
Boulder, CO (6)

Oracle
http://www.indeed.com/jobs?q=company%3Aoracle&rbc=Oracle&jcid=cd22d01053af7669

Redwood Shores, CA (460)
Redwood City, CA (435)
Reston, VA (234)
Burlington, MA (214)
Santa Clara, CA (199)
Broomfield, CO (113)
Austin, TX (93)
Belmont, CA (87)
Minneapolis, MN (80)
San Francisco, CA (75)
Chicago, IL (72)
New York, NY (69)
Denver, CO (51)
Atlanta, GA (49)
Rocklin, CA (44)

Hewlett Packard

http://www.indeed.com/jobs?q=company%3Ahewlett+Packard&rbc=Hewlett+Packard&jcid=c1b7b013176db6f3

California (101)
Pontiac, MI (97)
Houston, TX (86)
Austin, TX (56)
Montgomery, AL (50)
Atlanta, GA (43)
San Diego, CA (38)
Cupertino, CA (37)
Boise, ID (36)
Plano, TX (34)
Dallas, TX (32)
Herndon, VA (28)
San Jose, CA (23)
Palo Alto, CA (22)
Washington, DC (20)

28   thomas.wong1986   2012 Jan 17, 11:46am  

SiO2 says

I don't get the people who pay the price to live here while saying it's no better (or even worse) then elsewhere. Seems like there's an easy solution to the problem.

So young so much to learn!

http://www.youtube.com/embed/NUbTW928sMU

29   SFace   2012 Jan 17, 12:12pm  

thomas.wong1986 says

Today, your equally able to get a job from a Silicon Valley company outside the Bay Area and the State. If you work for Intel, HP, Oracle... what difference does it make where you worked ?

The difference is if you live and work in Hilsboro, Oregon, Intel is the only cat in town, there may be a few more. It's Intel or nothing. (May be good or bad, but generally bad)

If you work for Intel In Santa Clara, within a 20 mile radius, you have basically 200 legitiment employers in the industry to choose from. Intel can easily be replaced with AMD, AMAT, CSCO, HPQ, FUJITSU, Samsung, IBM, Dell, Cyrpess, Maxim, Lockheed, Sandisk, Rambus and at least another 200 companies to choose from:

In Silicon Valley, each industry runs ten deep The econcomic opportunity is still the best in the enitre world.

30   dunnross   2012 Jan 17, 12:20pm  

SiO2 says

I don't get the people who pay the price to live here while saying it's no better (or even worse) then elsewhere. Seems like there's an easy solution to the problem.

And I don't get the people who assume that uprooting yourself and your family is such an easy thing to do. When I lived in Chicago, I heard lot of people complaining about the weather, but none of them actually, picked up and left anywhere. If there is some place where you were born, all your friends are family are in that place, than there is a 90% chance that you will never leave, no matter how terrible the place is. Otherwise, nobody would stay in places like Iraq and Outer Mongolia, now would they?

31   dunnross   2012 Jan 17, 12:24pm  

SFace says

In Silicon Valley, each industry runs ten deep.

Not true at all. Silicon Valley is not a very diversified economy, like what you would find in New York, Chicago, LA, or any other big city. Silicon Valley is only good for computer tech and software, but doesn't offer that much, as far as mechanical engineering, finance, biotech, international affairs, government, or any other field. That's why I always said that, as far as the overall job market, Silicon Valley is actually closer to a city like Detroit or Cleveland, than it is to a city like New York or Chicago.

32   REpro   2012 Jan 17, 12:53pm  

thomas.wong1986 says

Look around!!! where are the people who lived here in the 70-80-90s... Gone!!

True, CA is not a destination for retired people and won’t be any time soon. Which also means, we can expect more housing stock coming to market from BB (the beaten up old one, unfortunately).

33   REpro   2012 Jan 17, 1:03pm  

dunnross says

In Silicon Valley, each industry runs ten deep.
Not true at all. Silicon Valley is not a very diversified economy, like what you would find in New York, Chicago, LA, or any other big city. Silicon Valley is only good for computer tech and software, but doesn't offer that much, as far as mechanical engineering, finance, biotech, international affairs, government, or any other field. That's why I always said that, as far as the overall job market, Silicon Valley is actually closer to a city like Detroit or Cleveland, than it is to a city like New York or Chicago.

True. When we moved to SV my wife got job on a spot. I was unable to find (2xMS); overeducated, too old or not this one experience. Forced me to go in depended direction or live.

34   happyrenter   2012 Jan 17, 2:02pm  

bmwman91 says:

>The "smart" people that see how messed up the market is have to compete with the "dumb" majority that "just want a house,"

Not as long as there are homes for rent we don't.

>I think that folks here should be more careful with their usage of the terms over-priced, inflated & over-valued.

A home's value is that you can live in it. Rent puts a very clear dollar amount on that value. If it costs more to service a home loan and keep a home in repair than it does to rent it, the home is over-priced.

35   toothfairy   2012 Jan 17, 8:03pm  

Some people don't like being told to move each time their landlord decides to no longer rent the house.
My house is very customized exactly the way I want and I would not appreciate being asked to move.

Im willing to pay for that privelege since it greatly improves my day to day lifestyle So there is a value beyond what it would cost to rent the same thing.

I imagine there's even more incentive for people with school age kids.

36   dunnross   2012 Jan 17, 11:07pm  

toothfairy says

Im willing to pay for that privelege since it greatly improves my day to day lifestyle So there is a value beyond what it would cost to rent the same thing.

That was the old story. The new story, is that renting actually has a higher perceived value, because it makes you more mobile in case of job loss. We have recession, remember.

37   toothfairy   2012 Jan 17, 11:44pm  

I guess that's the bright side but seeing as how I dont want to move mobility isnt a big selling point for me.

38   SparrowBell   2012 Jan 18, 3:40am  

bmwman91 says

When people with little financial sense, and large paychecks make up a big part of the market (Silicon Valley), you get super high housing prices.

I do think this strike the chord with me. Think most of my friends consistently fall into 3 groups, they are all dual-income couple, so I assume mostly make above 250K:
1. Those who buy houses that worth 900K - 1.6M in Cupertino, Saratoga, Palo Alto ... They are all Chinese, willing to put up with one bathroom, no money for renovation (unusable oven for few years), no money for furniture after move-in ....
2. Those who buy houses around $650 - $700, like San Jose .... They are American-born, either Wh

39   bmwman91   2012 Jan 18, 4:09am  

Sparrow, who's the 3rd group?

40   SparrowBell   2012 Jan 18, 4:09am  

bmwman91 says

When people with little financial sense, and large paychecks make up a big part of the market (Silicon Valley), you get super high housing prices.

Ya .... I think that's quite true, or at least a paycheck that would get them a much bigger loan. I would go further that some does not even make practical senses, I have friends who bought over-priced houses at Cupertino, Palo Alto or Saratoga and had:
1. no money to renovate the house, kitchen oven was unusable for several years.
2. Family of 5 sharing one 1 bathroom, guess, already 6 years, still not extending.
3. No money to buy furniture for the house (mostly empty except for apt furniture) ... husband was complaining about life quality had gone down from living in a apartment.

Sometimes, the psychology of wanting something is so strong, despite it makes no financial sense or practical sense, people still go for it.

Maybe, one paycheck for mortgage is a norm for some people too..... Guess, as much as I would like to buy google stock for less than half the price, others are willing to pay it as it is. Can't argue with the market ..

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