patrick.net

Joe said

"I read a story over the weekend in the NY Times where they quote a Silicon Valley realtor, stating that 45% of Valley area brokers didn’t sell a home last year. That seems pretty relevant, in context of “rising prices” and this “hot housing market.”"

Actually -- this tells me more that there are a bunch of new agents in the industry more than anything else. Agents would are able to score real estate listings tend to be more experienced (and thus more networked). If you saw the number of fresh-faced agents these days, you would know right away.

All those dot-commers became agents!

Mortgage interest is deductible under AMT. I'm referring to home mortgages used for buying the home, of course, not home equity loans used to buy a boat or whatever.

Or maybe mortgage interest is not deductible just like house prices are crashing in this alternate reality that some people are occupying here.

Yes, I admit that Oaktown Girl got it right when she said: "My guess is that Patrick used that much-remarked-on title to grab people's attention (it's certainly done that), and to provide counterbalance to the media's mindless real estate rah-rahing (much more prevalent a year, even six months ago)."

But now that there's not so much need to counterbalance the cheerleading press, the title is probably just about true.

Patrick

I'm still trying to figure out the answer to this question. . .

… How much of a house can family with

OK. People, let's look at some data from an independent source.

The The Data Quick Real Estate News - April 14 2005

They have been tracking California Home Prices for over a decade.
The April prices should come any day now.
Change "0405" the month/year and you can get previous releases.

So let's look at the prices in San Diego for the last one year.

Apr 05 *Due* *Due*

Mar 05 477K 12.5%
Feb 05 472K 16.3%
Jan 05 478K 20.7%

Dec 04 491K 21.2%
Nov 04 487K 23.9%
Oct 04 489K 26.4%

Sep 04 480K 23.1%
Aug 04 483K 24.2%
Jul 04 472K 23.6%

Jun 04 464K19.0%
May 04 454K 21.1%
Apr 04 439K 22.6%

Mar 04 425K 17.1%

To me looks like San Diego is stalled at around 475K since the begining
of the year. I dont think April numbers will be any different. San Diego looks like it already peaked in Dec 04.

More alarming, if the trend of the last three months conitnues, the year-over-year appreciation will be zero in 3 months, provided prices
don't change. Any change will most likely be more downward rather than
upward.

And that's when the crash will begin.

Does anybody know if any site provides these numbers for
the Las Vegas Market.
DQNEWs prolly has it, but they charge $250.

Bay Area Market apparently has not stalled yet. But a San Diego ( and Las Vegas) crash may spread the panic, and crash other markets without
giving them a "stalled" period.

And after all, California Speculators have been the driving force
for the San Diego, Las Vegas and Phoenix Markets.
Those who found Bay Area/ LA market too expensive, shifted
to these less pricey markets, and gave them the spike we have
seen.

Matt: If nobody can get into the market anymore that is precisely what KILLS the seller's market. There will probably not be a mass sell off, but the more likey scenario is that at some point buyers will simply refuse to buy because they are too expensive. This is the scenario being played out inEngland and Australia right now after years of breathtaking price increases. Because at the rate things are going, NONE of the kids growing up in the Bay Area today will be homeowners tomorrow. At some point, something has got to give.

My wife also has listened to the bubble theory. I convinced her to move one year earlier than we planned in order to ensure we can cash out our equity. We close in 5 days. Lord, I hope the buyer isn't reading this Blog.

Trying to break the mold . . . We're limiting our next house to the amount of cash we have. When I told our broker that we're buying the house for 400k or less and we're paying cash, you should have seen her face. Her first thought? Cash? Her second? Why don't you but a million dollar house? Why? Because it's time to lose the golden handcuffs, that's why.

With regard to new buyers, I view this bubble as a giant pyramid scheme. Everything goes well until you can't find entry level participants. Then the people in the middle of the pyramid start to panic. We had a scheme on our campus when I was a frosh. It was hillarious watching the guys running around with their pieces of paper that showed how all they needed were four more suckers to come in on the bottom of the pyramid and they'd make 2K. Instead, they all lost about 250. Hopefully they learned their lesson. In the case of housing, it's not quite a pyramid, because you don't need an exponentially growing number of newbs. Consequently, you won't have the entire pyramid come apart when there are no newbs to entire. Instead, you'll have a frozen serial progression, where those who got in last are all looking around for the last of the newbs. Soon, like a female seal being overwhelmed by an excess of hormone driven males, the newbs will get nervous and decide that maybe they don't need to move up to the big house.

In CT where I'm looking the sellers apear to be resistant to come down in price, even if their properties are staying on the market longer than 5 months ago. Hell, I don't blame them. It's gotta suck to miss the peak and have to sell your house for 350 when you saw the same model up the street sell for 400 6 months earlier.

I'd rent if I could, but I have a business and bunch of kids and it'd be a real headache to move more than once.

Wish me luck.

Escape from DC:

I dont think any move is more inconvenient than losing a couple 100K.
Just because your are buying all cash does not mean you will
not loose money when the market crashes.

Rent a house from a speculative buyer who has entered the Market
recently, and will be looking to off load his house once this market
crashes. If his house is ARM , he is a prime candidate.
When that happens, offer to buy the house at much lower price.
May be just a bit above the market price.
You dont have to move, also you won't loose your money in the crash.

Golden State bubble:
Point taken, but it's not going to work out for me. Why?

Buying a house for about 400k, cash. If I rent for a year in the same house, I lose about 12k to rent costs over basic home ownership costs. The area I'm moving into hasn't been booming like D.C., So it will slide down less as well. If prices drop 10% in one year, that's still only 40k and my net loss to own was 28k. If prices stay flat, I've made money. Now of course if the market crashes 50% in a major depression, then I've lost 200k, and life sucks but . . .

I'm in the house at least 5 years, and probably 13 years until my youngest is out, so I can weather any downturn.

I run a business out of my house, and it is a HUGE pain to move everything over. I'm talking maybe 30k worth of pain.

I have 5 kids. It's going to be tough to move them out of this area. There are dozens of goodbyes. Once we get settled, even a move accross town means more goodbyes and getting reaqainted.

I don't see houses depreciating more than 10-30% in CT. Just my guess. thats a total exposure of 120K, with which I can live, particularly when you consider I'm not going to be selling any time soon. Not looking to make a killing, just looking to play it safe.

Finally, What do I do with 400k? There is no way I'm leaving that kind of money in the banks - I'm a paranoid dude.

Escape from DC

OK. As long as you dont buy in a Bubblicious Market.
You will be OK if you stay there for a long term.

Yes, when looking at prices in Western European countries, it becomes clear that US prices have a lot of room left to grow. Many Americans don't realize this because they don't know how much more expensive housing is relative to incomes in many other countries.

Yeah, and in my name too!

(just kidding, escape from DC here).

Stupid closing. Bank needs to recheck the appraisal 40 hours before closing. Great. Do I get the only buyer with a bank with a concern for his ability to repay?

Ah yes, what's that I smell? My exit from the bubble. If you look very closely you'll see that I have entered the soapy membrane of the bubble, and I am pushing my way through. That's me, the little dot over on the east coast. We are set to close at 4pm tommorrow, at which point I will cash out of this overpriced house and forever turn my back on mortgages and banks. I avow that I will never again buy a house unless I can buy it for cash. Thank you DC, thank you foolish speculators, thank you, for now, Alan Greenspan, thank you greedy realtors and bankers, thank you to the realtor at the gym who told me that "90%" of loans in the DC burbs are now interest only, thank you to the lady down the street who sold her house for 650 in February, thank you all.
Fake P, I'll miss you. Enjoy the buble without me.

Basic equation -
Bought in August 00 for 320
Sold in May 05 for 685.
Minus about 20k in "improvements"
Net is 365, or a bit over 110% return in 4.75 years. The only "investment" I ever made that returned anything.

But there's no buble. 20-25% a year is sustainable.

ptiemann, thanks! Yep, moving to another state. I've been tracking the market in norther Connecticut for 3 months. One of the most interesting aspect has been the number of deals that have fallen through. It's anecdotal, but I've following at leaset 4 out of 20 deal in my price range fall through for one reason or another. The market peaked in this area of CT in late 04, is my guess. There are houses sitting 4 houses down from houses that sold in January/December that are just sitting on the market. I've seen several price drops, and there are several properties that have been on the market for more than a month. It'll be interesting. I'm hoping that by making a cash offer with no contigencies I'll be able to knock 20 or so K off of any asking price.

Hey Jack, you should not beat yourself up about not buying in 2001. Believe me, in 2001 and 2002, I had friends, some even realtors, who were telling me that I better sell right then before prices go down. Your regret about your decision in 2001 could cause you to make another decision you'll regret in a few years. I also remember some bad decisions I made when I was first buying mutual funds...I looked at the funds that had gone up 50% in one year (this was in the early 90s) and figured they would keep going up, so I invested in them only to have them fall back down while the low performers from the previous year ended up going up.

OK, not to defend Fake P, but rather to defend other things, he makes a good point.

In the DC market, there are NO bids under asking. The only question is how much over asking. The theory here, which I think is accurate, is that you're better off listing, in this market, for 10k under what the property is worth and have 5 people bid war up the price to 10k over, than you are to list for 10k over and risk staying on the market for a week, at which point you will be labelled a "dog."

Well, as usual, I'm getting more lucky than good, and the town in CT I'm moving to is, IMHO, already heading down. I have watched many properties languish and then relist at a lower price. Those that sell are typically selling for 10k under asking. We had one seller alert us to the fact that they would be willing to accept less than asking. They lowered the price 10k the next day.