patrick.net

"How do government create demand for tech products? "

Seriously ?

The methods govt interference are legion.

One way they do is to foment govt policies that allow giant insolvent banks to allow 4 or 5 million people to stay in their mortgaged houses and not pay anything.

You can buy a lot of useless fanboi crap if you dont have to pay anything for your shelter costs.

And that is a tiny insignificant minnow compared to the 1.5 Trillion of borrowed money the govt pumped into the system in the last 12 months.

That 1.5 trillion ended up in SOMEONE'S pocket.

"My wife and I aren't engineers, but we would fit your model income-wise. That said, there is NO WAY we would ever pay 700k for a house."

Yes, but you prove my point.

A thinking rational human being would NEVER consider this. However, thinking human beings are very much in a small minority.

MOST people think getting a 30 year mortgage is a GREAT idea. That's why there are 44 million of them out there.

You think.

They don't.

You = 1 percent of the population (at best).

They = 99+ percent of the population

Equals - shitty BA houses being bought for 700k.

House prices are set by whatever BUYERS, at the present time, are willing to pay.

Yes, 8 million people, only 55% of which are in the labor force, then you can take out kids, illegals, retired etc. You can also take out anyone who bought a house in the BA before 1995. You can also take out anyone who has a shitty job that gets out bid by the engineers. That leaves us still with a crapload of engineers who can easily pony up 3 to 4k a month.

It is the high percentage of engineers + the limited supply because there is no room to build any more new houses in the BA any more + the current low interest rates that cause this.

There is a REASON a crappy house cost 700k in the BA and it is not Facebook or mystery Chinese or whatever retarded internet scam is the flavor du jour.

The JOBS that are here pay ENOUGH for a lot of people to pay a 3 or 4k a month mortgage. For the most part, the only JOBS in the BA that pay at that rate are engineers or those that supervise them or are dependent on their inventions (lawyers realtors investors etc).

kochevnik says

Those engineer and bureaucrat jobs tho, they exist right now because the govt/Fed is willing to overspend the natl budget by 40% each year.
When that stops, then the jobs go away, and when the jobs go away then BA house prices crater.
So in buying a BA house, your REAL bet is that the govt will be able to single-handedly continue to prop up the economy with borrowed money at a 40+ percent run rate, for the next 30 years.
Good luck with that.

Don't know how much of the engineering jobs depend on gummint money. But for the bureaucrat jobs in DC, you're probably right.

And let's be clear - I am not saying this is a rational market, in fact I am saying it is the OPPOSITE of a rational market.

But there are a lot of people out there who will DO something just because they CAN without ever considering if it is a good idea in the long term.

This is why this entire country is such a mess right now.

But it is, what it is. And it has not changed much in all the time I lived in the BA. I remember in 1999 the cheapest house I could find in Burlingame was some dump literally right next to the freeway that needed a total rebuild and it was 250k.

And then I realized I could never own a house there, so I left.

Maybe someday house prices there will come down, but if that happens, it's because there are no jobs there, and with that change is going to come a lot of social upheaval, so it will be cheap again because no one will want to live there.

So I guess be careful what you wish for LOL
Me, I want my kids to grow up in the country, away from the idiocy of suburbia - where they can get their hands dirty and build cool crazy stuff.

I can do that lots of other places in the US for cheap. What I cant do is do it in the BA - not unless I want to become a slave.

So no thanks.

"Don't know how much the engineering jobs depend on gummint money."

repeat after me

1.5 Trillion
1.5 Trillion
1.5 Trillion
1.5 Trillion
1.5 Trillion
1.5 Trillion
1.5 Trillion

It's not just pocket change and it goes places. Google is a place. Apple is a place. People spend money on useless tech crap. If they didnt, Silly Valley would not exist at all.

I would argue better than 80% of ALL engineer jobs depend on govt money of one sort or another - funnelled one place or another.

I know personally better than 80 percent of all the engineer jobs I have ever had depended on that money, and it is far worse now than it ever was.

Just follow the string.

kochevnik says

That IMO is the ENTIRE basis behind the BA house prices right there. A boatload of engineers, willing to bet they will be able to keep their jobs for the next 30 years and make those payments on time.

As long as Silly Valley has those engineer jobs, the prices there will stay up. And you can make the same argument for Washington DC and use average govt bureaucrat salaries.

There are around 200K people that work in tech in the BA.

The population is 7 million.

edit: myob beat me to it, though his tech #'s are bit different than mine. Either way, it's a drop in the bucket.

p.s. Where did you move to if you don't mind saying?

I have a few hundred K saved for a house, but I'm debating just leaving the rat race. So far, it's Washington or Oregon but I'll probably give it another year here (I like my job as well).

I'll keep my house in Santa Cruz and just visit from time to time.

kochevnik says

However, thinking human beings are very much in a small minority.

Pretty much, yes. And the politicians and businesspeople know this.

Politicians and businesspeople know the game: don't try to fix stupidity...profit from it.

kochevnik says

So I guess be careful what you wish for LOL
Me, I want my kids to grow up in the country, away from the idiocy of suburbia - where they can get their hands dirty and build cool crazy stuff.

I happened to grow up " in the country" in the rural South. Its not all peachy-keen either, if going by my own experiences. Not saying that you fit this description, but I have met my fair share of people from big cities who " want to get away from the rat race" and buy some sort of chunk of land in the sticks with this romantic notion of peaceful, quite country roads, friendly people, and so on and so on. That is pretty much a fantasy. let me just put it this way: My parents have lived on the same piece of land for almost 43 years. Locals still call their land by the last name of the previous owners that sold it to them.

Rent indeed can go down. My rent in South Bay went down by 22% a couple years ago (now going up). I have also reduced rent on my investment houses (other area) due to large supply of investor purchases. Betting that current house price (not over asking) is in line of rent give you very small error margin. Huge activity of investors purring new rental supply plus new rental development can bring rent down again (now it is a problem in Seattle).
The sad part is that proudly high salaries in S. Valley, actually do not buy you a luxury, but a very basic live standard where in over places uneducated people can enjoy. $500K house here is like $120K somewhere else. Living costs cheaper too. Silly Valley…

kochevnik says

The (ir)rationality is the same and it will not change because that is just the human nature of your average non-thinking human.

Yeah we humans just don't tend to think too far into future, too often just focused on immediate.

Those immediate gratification people may have a point, though. The ones that defaulted sometimes get a year or two of free rent while the foreclosure goes through, while the rest of us pay for it via reduced buying power of our savings. The ones who don't plan for the future are more numerous, and so, have more political clout :)

myob says

The ones who don't plan for the future are more numerous, and so, have more political clout :)

Ironic but is true. America is bailing out spendthrift, WS crooks and greedy toxic investors.

edvard2 says

I talked to one realtor and their opinion from what they were witnessing is that there are a lot of people who bought at the peak who now can't sell because there is no way they would get what they paid... so they are stuck. And so they simply don't put the house on the market.

That's part of the shadow inventory though. And if prices go up again, even a little, it'll be within the range that many of those will sell.

And I think some of those are dead-men walking. Their 5 and 7 year ARMS from 2005-2007 will catch up with them. They just haven't stopped paying yet.

I don't see how there can be anything but downward pressure on prices for the foreseeable future.

CL says

I don't see how there can be anything but downward pressure on prices for the foreseeable future.

That is what a rational, thinking person would conclude. Sadly, market manipulation is rampant, and aimed at preventing this logical outcome. Keep your fingers crossed, because there's no law of nature stating that the housing market can't remain screwed up for an indefinite period!

You all sound like $100k is a good pay.

I thought a simple police officer or bus driver makes $100k + pension in SF.

Where I moved & growing up in the country ...

Yeah I know that country thing - we moved into the sticks when I was about 11. Yes you have people with those fixed attitudes, in a way you can't blame them - they live there because they DONT want things to change, and then city people move in and want to 'fix' all the things they think are wrong. I want to live in the country to be left alone - not to change anyone else - and I grew up poor so I think I should be ok, barring any run-ins with meth-heads.

I looked at a lot of places, I was in the BA for about 10 years in the 90's - I had a startup (that imploded) before they were cool - once I figured the price was too high for me (and I'm not talking just about money) I traveled all over the world for a while - not as a tourist - 6 months in Russia, a couple of months in Switzerland, a couple of years in China.

In buying a country place I also narrowed down to Washington and Oregon - I would also like northern CA but all the laws and regulations make the state much too intrusive for me. BTW - I crossed WA state off my list as well when I found out about the Critical Areas Ordinance which is statewide - the county gets to come in an do a survey (at your expense BTW), determine which areas of your land are 'critical' (a bureaucrat decides this and can change their mind at any time now or in the future) - and if they are, then you cannot touch or change that land in any way - even clearing brush is illegal. I had a series of emails with a county bureacrap who could not understand why I did not think it was a good idea to let him have dictatorial powers over how I could or could not use my own property.

So that pretty much leaves OR - which south of Eugene is kind of like Appalachia in a lot of ways - right down to the drugs, poverty and southern accents. Young poor people taking care of (relatively) well-off old retired people.

I'm of the opinion that the collapse is going to be Tony Manero level catastrophic and we probably have about 6 years or so to get ready

read your Fourth Turning book -
1780 Rev War
1860 Civ War
1940 WWII

they all come 80 years apart like clockwork - and clearly, clearly we are on the verge of deep trouble now, sliding into 2020.

I wake up every day wishing I had more money, more time and more friends to share the load - but you work with what you have ...

xenogear3 says

You all sound like $100k is a good pay.

I thought a simple police officer or bus driver makes $100k + pension in SF.

Absolutely, and totally schweet benefits too!

Little update:

The house we were thinking of bidding on was in west sunnyvale, 5 bed, 2.5bath about 2700sqft, on 9500 sqft lot. It was on an intersection and bordered a school, so that dropped the price a bit. It was offered at $1.199M (which we though was about right), and apparently got a dozen bids and went for over $1.4M. We chose not to bid due partially to the price, and partially due to potential problems that might be expensive to fix.

So, this is just one sample, but I stand by my assertion that there's a bidding frenzy out there, and it's not my real estate agent feeding me BS.

[edit]: Also, the entire house went from listed to sold in 6 days

myob says

The ones who don't plan for the future are more numerous, and so, have more political clout :)

Good point. I should cash in my 401k and buy a Canyonero. Responsibility is for suckers.

REpro says

The sad part is that proudly high salaries in S. Valley, actually do not buy you a luxury, but a very basic live standard where in over places uneducated people can enjoy. $500K house here is like $120K somewhere else. Living costs cheaper too. Silly Valley…

IBM, Texas Instruments, Motorola, ATT, Dell, EMC and many others dont seem to be in high priced areas, but they do have the same educated workforce. Frankly we (SV) employ the same workfoce in more lower costing places than in SV.

myob says

since renting something comparable is maybe only 20% cheaper per month.

Don't pay more per month to get a depreciating asset. Silly.

This is not happening only in Sunnyvale. We've been looking at houses in the Willow Glen area for the past 2 months and have experienced the same thing.
Seller's agents have told us (during open houses) that there have been multiple bids (up to 15K over asking price) even before the open house was posted.

We've been outbid twice (on $520K offers) by cash buyers!

What boggles my mind is that these houses are not worth 600K+! The schools aren't that great in that area either. Why would someone pay more than $525K for any of those houses?

I have made several offers in Contra Costa County in 2012.

I'll admit that I am being selective, but each one had multiple offers and going above asking price.

Part of the reason is that these have been REOs that are originally being priced too low by the bank to create frenzy, but the big reason is discussed in the link below (lack of supply):

http://realestate.patrick.net/?p=1211201

The Bay Area is down 35% in invetory compared to this same time last year, the number of homes sold is up 9%. Although this is creating multiple offer situations and homes aren't sitting on MLS as long as they did last year, the selling prices are remaining flat.

Let's take it a step further regarding Bay Area RE:

Inventory down 35% compared to 1yr ago.
Sales are up 9%
Prices are flat

With supply down and demand up, anything other than prices being up would be an indication that the real estate market in the Bay Area is still sinking (at least relative to a year ago)

BayArea says

With supply down and demand up, anything other than prices being up would be an indication that the real estate market in the Bay Area is still sinking (at least relative to a year ago)

Its more that as of now, homes can only be bought using "real" financials. In other words, buyers not only need good credit, but they also need numerous forms of proof of their financial well-being. You need cash. You need savings. You need good jobs. And so on. Prices are either flat or slightly sinking because what people can really afford is reflected in the prices and the prices from the boom were not reflecting reality. What people in the BA can 'really' afford is far less than what many might have assumed.

edvard2 says

In other words, buyers not only need good credit, but they also need numerous forms of proof of their financial well-being. You need cash. You need savings. You need good jobs.

Great! It's about time.