patrick.net

Also...wait until interest rates start reverting to their long term mean. There's an entire generation of people (Gen X, Gen Y, Millenials) who have only seen falling and low interest rates. Debt has been a way of life for many of them. And why not? They've not been held accountable, and their government is also irresponsible and unaccountable. It has been easy to over leverage and get away with poor financial (especially housing) decisions with a huge bull market. Well, unfortunately for a lot of people, and two different sets of relatives of mine up there, the music has stopped (since Oct 2006), and they are left holding the very large debt bag. One family is about $300k down on their purchase in the East Bay, and the other in the above neighborhood is down about $150k. Do you know how much you have to make to get back to break even after losing 20% You have to make 25%. And how about if you lose 50%? Then you have to make 100% back just to get back to break even. These lessons will be painfully learned in the coming years by many who over paid on the peninsula and surrounding areas. Wait until interest rates go up and put downward pressure on home prices...and debt won't be cheap any more...all the Gen X, Gen Y, and Millenials will be staring financial reality smack dab in the face.

I'd say this one is ripe for lowballing. They have to settle the estate. Judging by the pictures, this is a classic "big lot, but so sloped you get no yard" peninsula house, so it's not as attractive as the sizing numbers would suggest. It probably would rent for around 3k at best. At even ridiculously high historical bay area price/rent ratios (200x monthly rent) you get about 600k for that house.

Given that we're early in the second leg down and the sellers want to settle the estate, you MIGHT be able to get that house for 800k, maybe 750k. Almost certainly you could get it for 850k. But there is nothing to make it stand out enough to warrant bothering with.

This is how my wife and I wound up overpaying for our house (while still paying 35% less than the original listing price.) We watched clueless estate sellers start at the 2007 price and chase it down until they reached the end of the time-frame they had to to sell the house in before having to start insuring it as an empty house or renting it out.

We had bid very low on it on after the fourth price drop and had gotten the "multiple offer" runaround. We told them we weren't upping our offer and walked.

A month later (and another price drop), we resent our offer and it was accepted.

Yah, we paid too much, but we scored the best deal we could at the time. I wasn't thrilled about buying, but the wife wanted to own before having the second kid. (I talked her out of having to own before the first kid.)

Looks like a turd.

I wouldn't pay 500 for it.

I guess you are paying about 500K for nice weather with a view?

NagaEater says

I guess you are paying about 500K for nice weather with a view?

$500k? Try $1 mil for a view property.

At least upgrade your counters before trying to price any where near 1 million. Might need some staging too.

I personally don't think this area is worth that much.

Here are the Private Agent Remarks on the MLS Listing:

Private : Trust sale, no seller disclosures. All rpts at www.213bayview.com. Owner passed away in premises after short illness. Grt price for the sq footage of this home. Family needs to settle estate, so write up an offer. Allow time for trustees to respond.

pkowen says

NagaEater says

I guess you are paying about 500K for nice weather with a view?

$500k? Try $1 mil for a view property.

I meant a 500K premium in addition to the home value.

Yep. That is the premium in a bubble alright. A view is not worth that much.

What they need is to sell the home to a pedophile so he can set up a telescope to watch the youngins at a distance. Might be worth 500k to him.

Just to be clear, I do NOT think this place is worth $1 mil or even $500k. I wouldn't buy it. But in this area, people remain cuckoo and I suspect someone will.

@e-man,

I'll backpedal a little and say @$500k, I can't really judge you as 'cuckoo'. I guess it's just a little cuckoo for me. Currently, at that price given this local market it would definitely be a 'good deal'. it will surely sell for much more than that. I, however, am pretty stubborn and still see bay area housing perceived valuation as a bunch of silliness - I have lived in NYC, VA, several towns in MI and also north AL. I've travelled all over this country and a good part of the western world. What people will willingly buy at very high prices here continues to astound me.

Suffice to say I have my own standards for what I will buy. First, it MUST pencil out. I.e., it is equal or less to buy than rent a similar place (using my own variation on what everyone else does - estimating what the rent would be versus the monthly to buy, including tax deductions etc.). Second, as my Dad would say, "the house had to be something in the first place". That's where this one fails for me. Architecturally it's a turd. Finally, along with the house itself and the numbers working, comes the location. And more than just the general area ('it's in the bay area'!), I am talking about everything from the neighborhood to the micro-climate to the lot itself and the way the house sits on it. I have admittedly high standards on that, coming from my upbringing to my education in natural resources and land use. It's fun to have a view (I LOVE a great view, and I currently rent one that is better), but in my estimation this house is not well situated. This is a good sized lot but it is mostly unusable (or appears to be).

Now, let's talk about $989,000. Surely we can all agree that is pretty ridiculous? That was my original point.

for those saying it's not even worth $500k, that's $190/sf.

how many cities on the Peninsula have prices in that range?

none.

even east palo alto is over $200/sf and oakland is $170/sf.

it's fine to say prices are too high, but most of you are unrealistic perma-bears.

if san carlos gets prices cut in half, then east palo alto and oakland will drop a lot too.

Look at this one - it is only $300M - about 300 of the san carlos house :-)

http://money.cnn.com/galleries/2010/real_estate/1004/gallery.commercial_real_estate/6.html

sfbubblebuyer says

We had bid very low on it on after the fourth price drop and had gotten the “multiple offer” runaround. We told them we weren’t upping our offer and walked.
A month later (and another price drop), we resent our offer and it was accepted.

Goes to tell you how much "multple offer" fraud from realtors there is going around in the Bay Area, and its been going on for a very very long time.

Thomas,

I actually believe there was another offer this time. And I think that guy told them to stuff their 'multiple offers' and walked, leaving them blinking bewilderedly and moaning.

If the info I got from a 3rd realtor (who was brought in to help out the seller's realtor when she had to take a trip to the hospital) is true, the heirs had turned down an offer that was ~200k over ours when they first put the place on the market, because they wanted 'full price', turned down ANOTHER buyer who was offering ~100k more than we did because they were owed at least the 200k bid, and finally scared off the guy who was bidding with us, and he had bid about 35K more than us.

These people really needed to learn that the first offer is usually the best offer. One of the heirs was an east coast Realtor, so you'd think he'd have known better. Sheesh.

Golden!

mike says

for those saying it’s not even worth $500k, that’s $190/sf.
how many cities on the Peninsula have prices in that range?
none.
even east palo alto is over $200/sf and oakland is $170/sf.
it’s fine to say prices are too high, but most of you are unrealistic perma-bears.
if san carlos gets prices cut in half, then east palo alto and oakland will drop a lot too.

Yup, in today's penninsula market it's much more than $500k. What should it be? Surely not $998k, to my original point. For reference, in MOST of this country, $100/sq ft is considered pretty high. I had a 2900 sq/ft historic craftsman in a major AL city I bought for $235,000, did restoration and sold for $308,000.

With all due respect, it sounds like most of you have only seen the past couple decades of a falling interest rate environment....and more recently quantitative easing. Check out the 300+ year study on home prices in Holland (I have it and know it well)...housing will only keep pace with wage inflation over the long run. Want to know what a reasonable (and realistic, i.e., where it is heading) price for this house is? A price that would include the buyer putting 20% down, and financing with a conventional mortgage for 30 years at a historically average interest rate level. Why does that sound like punishment to most people? Especially in the Bay Area? Because they cannot afford it, and the bubble has gotten way out of hand (read: decades). "The way it used to be" is not 1995 or 1985...housing will revert to very long term averages, which it cannot fundamentally stay above for a sustained amount of time (especially void of funny money easy credit zero interest rate lending and toxic mortgages). Sure, California and the Bay Area included will always be more expensive than the middle of Iowa, but that house will go back to the mid $500 thousands before this is said and done...mark my words. For those of you who have not seen 8, 9, and 10% and higher interest rates, wait and see what happens. The past few decades have been an interesting, unsustainable ride...it is not a "new norm" that will prevail.

Quant HF Mgr says

Sure, California and the Bay Area included will always be more expensive than the middle of Iowa, but that house will go back to the mid $500 thousands before this is said and done…mark my words

Yes i been here a few decades, long enough to have seen you cant burn a candle at both ends. You cant expect employers to keep feeding higher salaries, due to housing costs, given they can easily set up shop in other states and keep operations going. And very oftern lured with tax incentives and freebies. Thats why many local companies in SV have many more people outside of SV than locally. So either prices fall easing up on job outmigration or migration takes a full swing as prices to up which in the end game will fall permenant to a very few local employees. Sure to be plenty of inventory and price reduction then.

Is Intel really hiring that many people in Hillsboro, Or ?... may be so...
http://www.indeed.com/jobs?q=Intel&l=hillsboro%2C+or&start=100

i say that house will be $50M - mark my words. stupid prediction why? because it'll probably happen in 3010.

put on a timeline on it. when will this be all said and done?

here's the other thing.

i never believe anyone that is so strongly convinced of their predictions ("mark my words!").
in fact i automatically assume they don't know what they are talking about - because they're too dense to identify the hundreds of times they've been wrong before with their predictions.

if you're so good at seeing the future, you'd be rich and you wouldn't be on this board arguing with a bunch of nobodies.

Quant HF Mgr says

house will go back to the mid $500 thousands before this is said and done…mark my words.

Perhaps you feel like a "nobody", Mike, and for that I feel sorry for you. I enjoy the posts at Patrick.net and do not consider the readers "a bunch of nobodies", nor am I arguing with anyone. The great thing about the internet is, you have no idea who you may be trading comments with...could be a guy who runs a multi-billion hedge fund with a legendary investor...you just never know. But it is probably more comfortable to assume I'm "stupid" and "not rich". :-)

I'm all for your prediction of the home being worth $50M some day: care to produce a study or any hard scientific or quantitative data on which you base your prediction? After all, my "prediction" isn't much of a stretch, considering how home prices have historically (over long periods of time) only kept pace with [wage] inflation...hence I referenced the 300+ year Holland home price study. Professor Robert Shiller's work demonstrates the same phenomenon here in the U.S.

i am a nobody. my ego isn't big enough to assume i'm a somebody.

the great thing about the internet. is you are judged solely on your post. not your title, or your position in life or your appearance.
it's a bit of a meritocracy and to be blunt you don't come across as all that bright.

you're not a billionaire. you're not smart enough.
you're not rich either. again, not smart enough.

i think you're probably poor and not anywhere near rich:)

Quant HF Mgr says

Perhaps you feel like a “nobody”, Mike, and for that I feel sorry for you. I enjoy the posts at Patrick.net and do not consider the readers “a bunch of nobodies”, nor am I arguing with anyone. The great thing about the internet is, you have no idea who you may be trading comments with…could be a guy who runs a multi-billion hedge fund with a legendary investor…you just never know. But it is probably more comfortable to assume I’m “stupid” and “not rich”.
I’m all for your prediction of the home being worth $50M some day: care to produce a study or any hard scientific or quantitative data on which you base your prediction? After all, my “prediction” isn’t much of a stretch, considering how home prices have historically (over long periods of time) only kept pace with [wage] inflation…hence I referenced the 300+ year Holland home price study. Professor Robert Shiller’s work demonstrates the same phenomenon here in the U.S.

he won't take you up on his bet.
guys like this don't have much going on in real life and pumped themselves up online.
if he met you, the jig would be up that he's got nothing going on.

E-man says

@ Quant,
I am willing to make a bet with you. Tell us when this home will hit the mid $500k. The loser will have to take the winner and his/her spouse out to lunch or dinner at a restaurant of the winner’s choice. Are you up to the challenge and willing to put your $$ where your mouth is :-)?
I was taught that it’s easier to make an enemy than a friend. It doesn’t hurt to have a new friend who is willing to admit that (s)he’s wrong at time

Quant HF Mgr says

[..]
I’m all for your prediction of the home being worth $50M some day: care to produce a study or any hard scientific or quantitative data on which you base your prediction? After all, my “prediction” isn’t much of a stretch, considering how home prices have historically (over long periods of time) only kept pace with [wage] inflation…hence I referenced the 300+ year Holland home price study. Professor Robert Shiller’s work demonstrates the same phenomenon here in the U.S.

Did you all see the Shiller article today on NYT?
http://www.nytimes.com/2010/04/11/business/economy/11view.html?ref=todayspaper

I still think much of the bay area is way overpriced due to the cuckoo effect. I was hit pretty hard by Uncle Sam this weekend. No mortgage, no kids, no write-offs. So it does get one looking at making changes. Specifically, I am looking harder at buying. But short of moving to the dregs of the bay area or somewhere that's nice but too damn far away from work -- I doubt a reasonable option is going to pop up. I still refuse to pay $500k (or more) for a dump even if it means I don't get to itemize.

@ e-man, yeah you make sense. I guess I missed the size of that house, given it looks so crappy in the pics. You are right, that's a lot of sqft (to be verified by buyer?). ;)

It is the level of 'premium valuation' that I think is at question for me. The peninsula will definitely bear a premium for the foreseeable future. But how much? Houses I see here for $800k are literally $80k (at most) in my home state. Income in my CA zip is around $100k and in where I grew up, it's more like $40k. So, like I've said in the past there are a couple things I come back to again and again -

1) When most of the country is maybe 3x median income and (insert prime location here) house costs are 10x, seems like an unsustainable bubble. I'll grant a premium, but not that much.
2) This factor of desireability, where many want to move 'in' to the prime space (like where I lived in the upper west side NYC, or in this area parts of SF and places like Palo Alto, Woodside, Portola Valley) is hard to quantify. There are a lot of these people, but how many? I think of it as two bars on a chart. First, the number of people with the money and desire to move in to the prime area and who will therefore bid it up. They create an upward pressure that makes the median income less useful. They may have a bucket of cash but not that amazing of an income (previous house equity, parental loans, all the things we hear around here) The second bar on the chart is the number of 'desireable' properties in the prime area. I think both bars go up and down with market fluctuations.

The question for me is (and this is really what I care about), what do I do about it? I have ranted a bit but I do not have hard feelings about all of this. I would *like* to find a good house (or condo, or really cool: a loft) near my work. I know that what a 'good house' means has to be much less here than in say, Detroit. I am a student of the market, and feel I have been correct to date in 'watching and waiting'. Next move? Not sure.

SF ace says

median income in SFBA don’t mean anything to me, the income in the bay area is way too diverse to make any kind of meaningful conclusion. I honesty think you should throw out the top 10% and bottom 40% of salary to get a better idea of what people actually makes and can afford. I might also think about the 3X salary as well. It may work in Fresno, but every costs does not correlate to housing cost evenly.

Yeah, well I am thinking about individual zip codes not the entire SFBA. In some areas of the 'greater' SFBA median income to house costs actually match pretty well. Medians may not mean much, but I believe they mean something. I agree it ain't Fresno. I have lived in 5 states, from small towns to medium and large cities (including NYC) and frankly this area correlates more closely to NYC than anything else.

E-man, yeah, I get it wrt the old money. Day trader? More like a decade trader! That's the Shiller chart.

I tend to look basically from RWC to San Mateo. Or really anywhere within a decent commute of RWC, including by Caltrain. Sometimes I think of going up to SF ... This week I've browsed a bit in 95125 and 95112 because I used to live and work in those and feel I know them pretty well, and they are ok. I see you are in Milpitas.

E-man, afraid I am not a good stock trading reference for reading the technicals. I generally stay away from financials. I know a bit about the tech industry, but I trade very little. I was one of those who just did the 401k and let that fill up on big cap mutuals over the years rather blindly, which was fine as everything went up. Now I am undoing the results of that laziness. I have been moving a little toward commodities ETFs - but I am definitely a long trader.

I'll always take a good tip on property to check out! Thanks.

That was an informative post, thanks very much.

(13 :-)

Yes very informative, it basically debunks "fortress areas need to fall" that everyone talks about here. Many areas around here will never fall due to exactly what you stated. Places like palo alto, los gatos and others will remain high because they are very desirable.

You guys should research what happened to Tokyo and other "very desirable" areas of Japan....60-80% reductions in price....20+ years later...no bounce. And that is on an island with very limited space...

btw, no takers yet on the overpriced 233 Bay View POS....big surprise

someone will likely roll in and buy it with a tax-payer back mortgage, and they'll put a whopping 3% down...also given to them by the gov't and taxpayers

He points to specific reasons why a small area of the city can maintain such high property values, and you cite one of the worlds largest cities as a counter example.

The small area being described doesn't fall because it has a very small number of homes for sale per year. The people who live there have no interest in moving. The number for sale doesn't exceed the number of wealthy people coming into the city and/or building enough wealth to move into that area. Hence it's prices are supported by small customer base and smaller supply.

These are nothing alike. If you don't understand, re-read his statements, they are very clear.

Yes it's overpriced by about
$450,000 but it will sell for near asking, unfortunately. Only after interest rates start to rise will San Carlos property prices start softening.

Still no action on this house....tick, tick, tick

"New Aggressive Price"...lol

just want to to give some conclusions to these old topics. everyone was right that the property was gonna be low-balled. sold for 970K.

My relatives paid $565 / sq ft at the peak of the bubble a stones throw away from 233 Bayview, which just sold for $366 / sq ft. That's a strong down trend and an ugly situation. Lots of people in the same situation up there who either won't fess up to it or don't understand how bad their situation actually is (my relatives are the latter). My calculations suggest their home will likely continue to depreciate until it is worth 31-39% off the peak price.

Quant HF Mgr says

My relatives paid $565 / sq ft at the peak of the bubble a stones throw away from 233 Bayview, which just sold for $366 / sq ft. That’s a strong down trend and an ugly situation. Lots of people in the same situation up there who either won’t fess up to it or don’t understand how bad their situation actually is (my relatives are the latter). My calculations suggest their home will likely continue to depreciate until it is worth 31-39% off the peak price.

It's not ugly in my view at all, with regrets to your relatives. It's what needs to happen.

E-man says

I like pkowen’s perpective “It’s not ugly in my view at all, with regrets to your relatives. It’s what needs to happen.”

Agreed. I would add it was just plain stupidity and arrogance of buyers as prices skyrocketed to become cheerturds.

pkennedy says

Yes very informative, it basically debunks “fortress areas need to fall” that everyone talks about here. Many areas around here will never fall due to exactly what you stated. Places like palo alto, los gatos and others will remain high because they are very desirable.

http://www.paloaltoonline.com/news_features/real_estate/fall2000/2000_09_22.trends.php

"No one wants to recognize it, but between 1989 and 1992, prices dropped 30 to 40 percent. There's no question that could happen again. Everything has a cycle and real estate is no exception. It's foolish to think prices will go up forever. In the longer term they will, if you can weather the downturns in between. There's no way to know," Dancer said.

So what makes PA or LG imune to price declines? The majority of the price inflation comes form the free wheeling stock options of 1999. Take away IPOs and stock options what do you have left to support these prices. There is very little to support these prices. Desirabilty means very little.