patrick.net

In a rational world with a truly free market, you would be right.

However, what we have is a highly manipulated market controlled by large interests with a desire to keep prices as high as possible. Those large interests are ultimately sitting on a font of unlimited money (tax payers) and they can stall indefinitely, or until the entire nation implodes, in which case real estate is the last of anyone's concerns.

I doubt that anyone would argue against the logical reasons why housing prices have more to fall. However, in practice, it is unlikely that they will without some sort of larger implosion of the economy as a whole. Believe me, I would LOVE to see prices tank again as a prospective buyer, but I sort of doubt that they will. So, I focus on enjoying my life and the fact that I am financially secure with zero debt to my name.

bmwman91 says

However, what we have is a highly manipulated market controlled by large interests with a desire to keep prices as high as possible.

Do they? Or do they just want enough buyers at this level, and then the next and then the next?

In other words, are they getting exactly what they want as an outcome? They need to move inventory, and the best way to do that is to entice people off the sidelines and then let it drop some more?

CL says

Do they? Or do they just want enough buyers at this level, and then the next and then the next?

In other words, are they getting exactly what they want as an outcome? They need to move inventory, and the best way to do that is to entice people off the sidelines and then let it drop some more?

Well, there are multiple parties that want high prices. I think that they outnumber, and overpower the groups that don't.

1) Government: property taxes
2) Realtors: commissions, their "reputation" after lying out their asses about house prices always increasing
3) Current house owners: they want to be able to sell and at least break even, some want to ride the HELOC train

Individuals in 2 & 3 vote, and make up a significant portion of the electorate. In addition to this, group 2 has powerful lobbyists behind them. Combine that with the fact that group 1 is broke as fuck and wants to be able to tax higher valued properties, and you'll have group 1 doing all sorts of stuff ot keep prices up. Since CA's income is severely dampered by Prop 13, they desperately need a supply of people buying high-value properties now to pay full taxes on that property's value.

There is, of course, a lot of pressure on prices to go DOWN for all the reasons you mentioned in your original post. There's an epic struggle between those forces and the 3 groups I mentioned. Overall, the downward forces already overcame the 3 groups in a large way in most areas, and the pressure is lower now so they are having some success in fighting it. Only time will tell what is going to happen. I keep my fingers crossed for a $400k house on 0.25 acres with a 1000SF detached garage within 30 minutes of my office, but I am sure as hell not holding my breath lol. Frankly, I don't EVER expect to see that happen around here. It's more likely that I will make $300k per year and just buy what I want...and the actual odds of that are SLIM lol. Still, it is more likely than "cheap" housing in the Bay Area in my opinion. Frankly, the Bay Area has too much money and not enough people looking at the big picture in life (LIVING it, not just making money to live it with "someday" which never comes). Anyone interested in LIVING life has to compete with people that think making money is LIVING, and the results are in plain sight for all to see. $1.5M for a 700SF shit shack in Palo Alto and that sort of thing.

I hope you are right.

All I know is that from where I sit, here is San Francisco, prices have gone crazy in the last 4 months.

We've been looking since Jan 1 and gotten overbid 4 times already - on houses that would have gone for less than list last year.

Give me some good arguments why we should wait longer to buy here in the city, because with 30% of all sales here being all cash and inventory down 45% since this time last year, it looks like we'll be renting whether we want to or not.

I sure am gonna be pissed off if I waited 12 years for the bubble to pop and then missed the bottom by 6 months.

Sick of renting already.

1strenter, honestly, I have no idea what to tell you. It seems really unlikely that today's trends will keep up indefinitely. There is a crazy investor frenzy right now and RE is today's flavor of "easy money." As with everything, by the time the masses see these "investment opportunities" it is too late and the only people that ultimately come out ahead are LARGE players and the ones that got in early.

There is a lot of downward pressure on pricing. For now, the government, NAr and current owners can push back hard enough against it. As far as a places like SF go, I am not sure if it will ever be "reasonable" to live there given the demand & utterly limited space since every developable square foot has been developed on. It is a niche area for sure. Did you "miss" the bottom by 6 months? I don't know, but it seems doubtful.

Good luck up there. 12 years is a hell of a long time.

bmwman91 says

Did you "miss" the bottom by 6 months? I don't know, but it seems doubtful.

Let me tell you one thing - even you missed the bottom there will be no bubble year appreciations(like 20% YOY) for years to come. Some people here say 2009 was the bottom but I see totally different results here in my area(socal). Few them sold in 2009 are coming back on market now at even lower then 2009 prices,hence waiting was worth it. BA may be crazed but who cares I am not looking there anyways.

bmwman91 says

12 years is a hell of a long time.

Well actually I've been renting for almost 30 years, but wasn't in a position family-wise or career-wise to buy until about 2003, and by then it was so obviously crazy that even though I could have bought I chose not too.

Not sure when I found patrick.net and The Housing Bubble Blog, but I was one of those people everyone thought was crazy because I kept saying that real estate doesn't always go up.

Luckily I found company online.

Although now no one seems to know what's going to happen in "special" places like SF.

I know it will always cost more to live here, and I can deal with that, but sheesh, the all cash folks and the investors are bumming me out.

I'm not a facebook stockholder, a would-be-landlord, or a flipper. Just need a decent place to live and tired of landlords.

Why would these conditions have changed in the last year or two, to the point where home prices would be turning around?

Piles of money, just waiting to be inflated away, with no where else to go with it. Investor demand.

Heck, we are even selling banks to China now.

E-man says

CL,

What BMW man said. The 99% think they're in control, but the 1% is holding the remote control. :)

Learn from your victory. Prosper from your failure.

There is symbiosis here though. They can't fuck us too bad, since they need us to make and buy their garbage. (You'd be lucky if you worked at the pitchfork and torch factory!).

Keep in mind that for most Americans, they have no retirement plans per se. They spend and live like they have pensions, but they only had their houses. If the solution proffered by the .01% is that granny and Grandpa can work until they die, they might just get the revolution they've been successfully avoiding thus far.

Housing has not yet returned to pre-bubble pricing, right? We are to believe that the Government et al have finally figured out a way to defy gravity? Or is that only in SF and Manhattan? Or will we get our comeuppance soon?

CL says

There is symbiosis here though. They can't fuck us too bad, since they need us to make and buy their garbage. (You'd be lucky if you worked at the pitchfork and torch factory!).

Keep in mind that for most Americans, they have no retirement plans per se. They spend and live like they have pensions, but they only had their houses. If the solution proffered by the .01% is that granny and Grandpa can work until they die, they might just get the revolution they've been successfully avoiding thus far.

Housing has not yet returned to pre-bubble pricing, right? We are to believe that the Government et al have finally figured out a way to defy gravity? Or is that only in SF and Manhattan? Or will we get our comeuppance soon?

This is a very interesting line of discussion and one that always fascinated me in social science / history classes.

Looking through history, we see time and time again that the elite 0.01% ALWAYS ends up fucking the producer classes harder and harder until a revolution comes, or the society is weakened to the point that it is overrun by another one. While it may seem hard to believe that those with that sort of power could be so short sighted and stupid, it is the case every single time in history. They have an incredible gig going, but there is no such thing as "enough" and they will continually seek ways to extract wealth from the masses. Eventually, they there comes an event in history that wakes everyone up into come sort of semi-cohesive rage, and the 0.01% gets hung & dismembered. It is never a pleasant thing for anyone as the entire society generally turns inside out and a lot of innocent blood is spilled in the process.

As far as I can tell, America is still pretty far from that. We still have our bread & circuses (the dollar menu & reality TV) to keep everyone complacent, with bellies full of [something]. Our freedoms are slowly being eroded and we are in a position where the only way to get the nation's finances in order is through massive austerity & tax increases. If I had to guess, the spark that will set it all off someday will be when the government attempts to repeal the second amendment. If they did it now, it wouldn't cause a revolution. Give it 30-40 years of further government corruption & incompetence, and when it is clear that they mean to disarm us in a final move to make us slaves to the ruling class, I think that it will get ugly.

What does this tangent have to do with housing? Well, as far as I can tell, housing is increasingly becoming a vehicle for wealth extraction from the people. Home ownership has been a pillar of American culture, and having your own slice of property embodies what a lot of people see freedom as. As that is taken away from us, it will be a sore point that isn't easily forgotten, and probably drawn upon someday if things get to the point where the ruling class is hunted by the angry masses.

(and of course, it may be that not a single bit of this ever happens and we all live happily ever after...you just never know)

bmwman91 says

Anyone interested in LIVING life has to compete with people that think making money is LIVING, and the results are in plain sight for all to see. $1.5M for a 700SF shit shack in Palo Alto and that sort of thing.

Really?? That's odd because I find people in SF to be much better traveled than in Texas or North Carolina because they are LIVING it. These are people that realize that they don't need a quarter acre with a 1000 SF garage but can live in a smaller place and still enjoy the outdoors around here. I've met more folks in SF that have taken one year sabbaticals that in DC, Austin, Raleigh, Irvine in twice the time.

And using SF as a barometer for the US is disingenuous (you might as well use Manhatten as well). Plenty of folks can find cheap housing to buy in Houston, San Antonio, Dallas, Detroit.

bmwman91 says

What does this tangent have to do with housing?

It's kind of also that old adage about boiling frogs. Already, we frogs are boiling in no or lost housing, low wages, bad food, unemployment, and shrinking benefits, austerity, etc.

The problem with Americans is faux outrage has displaced real outrage. We used to care about social justice and economic fairness, and now most are corporate sycophants.

CL says

The problem with Americans is faux outrage has displaced real outrage.

I agree completely. The internet & mass media have given people the false impression that their voice counts because it can be "seen" on a computer screen. Take almost everyone in here. It is much easier to post in a forum about why housing should be cheaper and how rigged the game is than to go and DO anything about it (defecating on a realtor's face, herding people that HELOCed their house to the max & then squatted onto some sort of prison-island, feeding investment bankers & the heads of the TBTF banks to needy children in African cannibal tribes, etc).

It seems to me that the reason rates are low, and that the Fed et al are deploying herculean efforts, is to make the payment affordable. They want suckers to jump in and take some property off their hands at a HIGHER price, right?

The only problem this time is a shortage of suckers that either qualify or want to be the last man/woman in on the ponzi, n'est-ce pas?

And wouldn't that mean that prices have nowhere, longer term, to go but down? How long can they maintain ZIRP? How many QEs can they undertake? How many immigrants will buy with cash?

Can rents bubble? Because that would be the next step for "them". Raise the rents to make that crappy, overpriced house look more appealing, if you can get financed at 3%.

CL says

Can rents bubble?

You can't borrow money to pay for rent - so at a certain point rents must be in line with incomes.

But the landlord class will squeeze their renters for every dime...

...until they can't.

E-man says

Life in the ghetto part of Oakland is still pretty good compared to other countries. We have it very very good here.

Yup. After a few trips to industrial China (I have in-laws there, and have to go to Flex/Foxconn for work stuff), I no longer complain about the quality of life in America. There is stuff that concerns me since I think that we are in a downward trajectory, but I would still prefer to be poor here than middle-class there. It was quite a shock to a white guy the first time I went there!

E-man says

If you think the Bay Area housing is expensive compared to our salary, you haven't travelled much. To me and many foreigners, RE in the Bay Area is cheap cheap cheap.

I don't think this is true. I think it ignores the fact that many don't make a living wage in the Bay Area, and points to a disconnect that Patnet readers have from the wage reality that most live under.

Sure, WE have decent wages, and WE can afford to live here. But many struggle under the onerous burden that rents and mortgages place on them.

I've lived in 3 countries. A lot of the homes were owned outright in multigenerational settings. Carpoolers I pick up from Africa are shocked at how nice and affordable their homes were in their birthplace compared to here.

Rich people don't have a problem here. That's true.

E-man says

To me and many foreigners, RE in the Bay Area is cheap cheap cheap.

I'd rather say that salaries in the Bay Area are ridiculously high.

In mainland China, RE is ordinary by US standards but is expensive to them, because they're grossly underpaid (i. e., the yuan is undervalued).

E-man says

Call it Crazy says

Until the fundamental conditions needed to own a house change, the overall direction of house prices is DOWN!!

If this is your believe, are you currently shorting the homebuilder and the bank stocks? What stocks are you shorting? I'd love to know. Thanks in advance.

eman,
shorting is speculating, "gambling", not investing. To be "investing" for when prices going down, whether its houses or some other asset, is being totally liquid in money or cash equivalent. you are welcome.

bmwman91 says

So, I focus on enjoying my life and the fact that I am financially secure with zero debt to my name.

this is what i've done myself. i've spent way too much time analyzing and following the bay area market and finally came to the conclusion that it's just not rational.

now if i can only convince myself to stop looking entirely, it's almost like a bad accident, you don't want to look but can't help yourself.

THere is a new show called 'doomsday preppers' and I watched a few - some people are preparing for TEOTWAKI due to currency collapse and/or hyperinflation. Its a great show!

http://channel.nationalgeographic.com/channel/doomsday-preppers/

If you arent planning for cannibal anarchy you will have two choices: become a scavenging cannibal or get eaten by one.

Fun stuff!

ih8alameda says

this is what i've done myself. i've spent way too much time analyzing and following the bay area market and finally came to the conclusion that it's just not rational.

now if i can only convince myself to stop looking entirely, it's almost like a bad accident, you don't want to look but can't help yourself.

I hear you. Keeping tabs is hard to stop doing...for one it is like watching a train wreck happen. Second, there's this nagging glimmer of hope that maybe it WILL be rational someday...hope is a bitch lol. The rational part of my brain already knows that it will likely always be irrational here! But yeah, looking at it objectively & seeing that there is no reason to give credence to the FEAR associated with not buying, and that that fear is a deliberate sales tactic, makes life ever so much more pleasant. It hit me a while ago that I don't want a house: I want a large garage/workshop and a big listening room with no attached walls for my speakers.

The easiest way to deal with the unhappiness that comes from wanting something...is to STOP WANTING IT! Sure, it sounds contrived and silly, but it really is the secret to keeping sane & happy in our consumerist society.

CL says

There were 100s of thousands of consumers added to the pool of purchasers, due to easy credit and low underwriting standards.

Homeownership is at multi-year lows. Thus, once can deduce that many of these low tier purchasers have already been weeded out. Going forward the impact of high risk / low credit borrowers should be minimal.

What does it mean when the following conditions occur:

-Rents are falling.
-Purchase prices are rising. Drastically. Pretty sure I don't need to justify this one. Should be accepted fact at the moment.
-New build is going up in significant amounts, but won't be complete for 1-2 more years. Will be a mix of rentals and sales.

This is currently happening in DTLA...funny how there were news articles left and right in the short time frame(1 to 1 1/2 years) that featured rising rents, but now that rents are falling(by as much as 10-20% based on recent list prices), mums the word.

However, you don't need news articles and you don't need to take my word for it. Thanks to craigslists map feature, you can search to your hearts content.

And in fact, I almost missed a unit at $1250/mo...a price level I've never seen outside one poorly located, poorly maintained building. I had set the minimum rent at $1400 and was finding so many units at that level that I figured I better lower it to $1200!

dodgerfanjohn says

This is currently happening in DTLA...funny how there were news articles left and right in the short time frame

DTLA is the poster boy for a speculative investment. Investors bought RE there hoping the revitalization trend continues. I'm skeptical that it'll turn out the way some people are anticipating, especially with the Farmer's Field hiccup, but I can see the potential.

IF (and that's a big IF) it realizes that potential, rents and prices will skyrocket. Until then, people will be able to rent out for much less than the cost of buying. Kudos for those taking advantage of it. It's a great place to live if you're young and single.

dodgerfanjohn says

However, you don't need news articles and you don't need to take my word for it. Thanks to craigslists map feature, you can search to your hearts content.

http://patrick.net/?p=1219721

Mark D says

dodgerfanjohn says

However, you don't need news articles and you don't need to take my word for it. Thanks to craigslists map feature, you can search to your hearts content.

http://patrick.net/?p=1219721

LOL that was awesome!

zesta says

dodgerfanjohn says

This is currently happening in DTLA...funny how there were news articles left and right in the short time frame

DTLA is the poster boy for a speculative investment. Investors bought RE there hoping the revitalization trend continues. I'm skeptical that it'll turn out the way some people are anticipating, especially with the Farmer's Field hiccup, but I can see the potential.

IF (and that's a big IF) it realizes that potential, rents and prices will skyrocket. Until then, people will be able to rent out for much less than the cost of buying. Kudos for those taking advantage of it. It's a great place to live if you're young and single.

Whats funny is Roberto Aribas claimed in a past post that no investor ever bought a property soley because they thought it would appreciate.

I had posted that I was confused because I knew investors were buying units in DTLA that either they were renting at a loss or NOT RENTING AT ALL!!!!!!

Yet, confusingly...thats exactly what is happening. I wonder how many of these mom and pop investors factored in declining rents?

dodgerfanjohn says

Whats funny is Roberto Aribas claimed in a past post that no investor ever bought a property soley because they thought it would appreciate.

Well, I can't speak for Roberto Aribas, but obviously anybody speaking in absolute terms will be wrong sometime.

Some people invest in stocks for slow and steady returns, others try to hit for the cycle. In my opinion, investing in DTLA condos is like trying to buy a lottery ticket, a loser more often than not. On the other hand I know of an investment group that purchased a couple lots a decade ago that is very unprofitable as a parking lot, but is going to end up being a 'winning lotto ticket' whenever they sell.

Ironman says

1sfrenter says

I sure am gonna be pissed off if I waited 12 years for the bubble to pop and then missed the bottom by 6 months.

I don't think we've seen the true bottom. I believe what's going on is a quick Spring bounce that happens every year. When Summer gets here, prices will continue their downward trend.

Why??? until the job situation gets better and unemployment "truly" drops (not the fake numbers put out by the BLS), it takes a solid job to buy a house. Don't think the ones on unemployment will be eligible for a mortgage.

Plus, you have the boat loads of houses underwater, these people are truly "stuck"... until their houses rise in value or they pay off a big chunk of principal, they ain't going anywhere or moving up to their next larger home.

If the financial situation melts down in this country, then all bets are off....

Sit tight, you'll be able to get a deal shortly......

So much for "shortly" - its 4 years later and prices have absolutely exploded in SF where 1st renter lived. He was 4 months removed from the best market in over a decade, and the advice was sit tight and wait for something that never came.

Its not the only place - only the place that !strenter lived which you told him to wait because we haven't seen the true bottom - so much for that nugget of wisdom.

Ironman says

I don't think we've seen the true bottom. I believe what's going on is a quick Spring bounce that happens every year.

2012... good call dumbass!