patrick.net

Wonder if the future of real estate for the regular folks is going to be that of renting while the super wealthy around the world own the vast majority of real estate... basically the end of the 'home ownership' era

thomas.wong1986 says

masayako2456 says

I don't think home price will fall "at least 35%" from here in good, established neighborhood.

Real Estate is a very local thing. It depends on the particular house and neighborhood. If you find a house you like, price to income ratio make sense and you can honestly and comfortably afford it, then buy. If not, then sit, save and wait to buy later.

Don't let in-law tell you otherwise. It's your money and your future.

Oddly enough it was the "established neighborhoods" that rose the most and like back in 89-95 dropped the most.

History repeats itself...

Actually, at least in LA - the only true part about that is if you include South Central in established neighborhoods - it was the new sprawl at the edges that fared poorly, not the more wealthy neighborhoods - see http://graphicsweb.wsj.com/documents/MetroDecline_June2011/index.php

JG1 says

Actually, at least in LA - the only true part about that is if you include South Central in established neighborhoods -

Here is some loss % from back in the day...

http://archive.dqnews.com/AA1995OFA06.shtm

Prices should drop until purchase costs (in terms of monthly payments including mortgage, mortgage insurance, property taxes, etc.) are comparable to rent (whatever that is with the building type in your local market) because that makes the payments sustainable based on local wages with people buying houses or paying rent that's enough higher than acquisition costs to make properties attractive as investments.

Exceptions should exist for unique markets where people buy property based on emotion using their wealth, perhaps like prime locations in Silicon Valley where houses may be purchased with vested startup stock options instead of wages. People want to own houses, and once they net $5M in a nice liquidity event dropping $1.5M in cash on a house instead of the $500-$800K suggested by rents isn't going to change their lifestyle now or hurt them in the future if things change and they loose that difference or even the entire acquisition cost.

Hey all you in Cali,

Looks like Prop 13 will eventually get "revised". I see it discussed more in the news, basically like a trial balloon. Don't know exactly when, but it's coming. You know what that means for RE. Just another variable to consider. I guess paying $200k a year to librarians and lifeguards catches up to you eventually.

Who know how long this bubble will drag out especially in the prime SF Bay Areas. I know that houses are still extremely over-valued in SF proper and throughout the Peninsula into Silicon Valley. I am of the opinion that sooner or most likely later the prices have to come down considerably even in the more desirable areas - I am not holding my breath though.

Two anecdotal examples from my general area - there's an ugly little semi-fixer upper 3BR / 1BA 1,700 sq foot detached home on the marker for $830,000 a block down the street from me in San Francisco. Also in Burlingame there's a decent size 3BR rancher that my wife drove by and picked up a flyer - it was listed for $1.29M which is insane IMHO! Even though taxes are killing me partly due to not having interest payment write offs I can't see myself mortgaging my future on a loan big enough to buy either one of these houses.

Friends of ours recently purchased a 4,200+ sq foot mansion in Atlanta for $500K. That house would easily list for three to four times that amount in the SF Bay Area.

Dr Detroit says

Hey all you in Cali,

Looks like Prop 13 will eventually get "revised". I see it discussed more in the news, basically like a trial balloon. Don't know exactly when, but it's coming. You know what that means for RE. Just another variable to consider. I guess paying $200k a year to librarians and lifeguards catches up to you eventually.

The aspect of Prop 13 that'll be MIGHT get revisited first is most likely commercial property not residential. But then again the commercial interests will throw so much money & disinformation at defeating any legislation that it probably won't pass regardless. Prop 13 is the political third rail in California and I can't imagine any politicians having the stomach to take all the political heat in appealing it. One would think that Jerry Brown would be the ideal person to take this on but so far I haven't heard a peep from him on repealing Prop 13.

Wonder if the future of real estate for the regular folks is going to be that of renting while the super wealthy around the world own the vast majority of real estate... basically the end of the 'home ownership' era

Exactly, and in rural areas this may be a return to serfdom. But then again, the maintenance is the landlord's problem...

Beat this:

In Dobbs Ferry, NY, we saw a modest, fairly ugly 2200 SF 4BR 2BR house for $729k (yikes) with current RE taxes of $29,600 per year!! Yup, that's about $2500 per month just for the taxes! So who wants to buy when we're renting a nice 1300 SF place on the river for $1950 a month?

thomas.wong1986 says

JG1 says

Actually, at least in LA - the only true part about that is if you include South Central in established neighborhoods -

Here is some loss % from back in the day...

http://archive.dqnews.com/AA1995OFA06.shtm

That data isn't specific enough to rebut what I said, but part of the text seems to support what I said, e.g., "Large newly-built homes that were bought during the 1989 to 1991 sales surge have been particularly exposed" This is akin to the new subdivisions sprouting up on the fringes of LA, in Riverside, that were much harder hit than Malibu, Beverly Hills, Encino, Santa Monica, etc.

solver says

If you keep up with the current events and watch how our laws are being manipulated at the detrimental expense of our constitutional rights

What laws are being manipulated at the expense of our constitutional rights? Please be specific.

solver says

There is still no light at the end of the tunnel and I would waste my time watching the TUBE. Search the internet before they take it over with the newer version that's being rolled out to control and monitor it.

Would you like to borrow some aluminum foil?

solver says

I was listening to Dave Ramses the other day and I worship this guys advice.

Oh, that explains it. You don't even have to throw a snowball (pun intended) to find things that guy gets wrong -- this is just the first thing from Google:

http://badmoneyadvice.com/2009/05/ten-things-dave-ramsey-got-wrong.html

gameisrigged says

masayako2456 says

I don't think home price will fall "at least 35%" from here in good, established neighborhood.

I'm curious why so many people say this. It's actually the "good" neighborhoods that are in the most danger of further price declines, as the higher end tends to react more slowly to market forces. The "bad" areas have likely already bottomed or are close to it. Patrick even mentions this on the home page. Funny how people are scared off by low prices and feel security in high prices, when it should be the exact opposite.

Agreed, probably, for the most part. What I disagree with is that the high end will be hit harder than the low end when it all shakes out - don't think so. The folks in the high end are on average in possession of better credit, more equity, more financial resources of their own and their family's to avoid foreclosure and to buy/sell when they want to instead of when they have to (probably part of the reason for the more precipitous drop in outlying / poorer areas).

drew_eckhardt says

People want to own houses, and once they net $5M in a nice liquidity event dropping $1.5M in cash on a house instead of the $500-$800K suggested by rents isn't going to change their lifestyle now or hurt them in the future if things change and they loose that difference or even the entire acquisition cost.

a) how many people actually get $5M from an IPO? (not many!) If you'd like something more concrete -- Pandora had about 300 employees, according their S-1 when they went public. How many got $5M or more?

b) how many people whose chief asset is $5M from an IPO, while they are still getting their normal salary and having normal expenses, are willing to buy a $1.5M house for cash?

This example seems entirely fabricated.

Dr Detroit says

I guess paying $200k a year to librarians and lifeguards catches up to you eventually.

Speaking of fabricated, where are you even getting this?

JG1 says

What I disagree with is that the high end will be hit harder than the low end when it all shakes out - don't think so. The folks in the high end are on average in possession of better credit, more equity, more financial resources of their own and their family's to avoid foreclosure and to buy/sell when they want to instead of when they have to (probably part of the reason for the more precipitous drop in outlying / poorer areas).

I'd agree. Usually the lower end has many more transactions, more liquidity, etc. This usually means that it rises faster and falls faster.

However, it's worth mentioning that you had much more reasonable prices on the Peninsula before the dotcom boom. You could buy houses in Menlo Park for something around $400K without being in Belle Haven (medians in 1994-1995 were just over $400K: http://www.menlopark.org/departments/hsg/hsgplan.pdf). That's not the case any more, and housing prices have far exceeded inflation in high end areas. At some point the money has to keep coming in to keep the prices up this far beyond rises in income.

corntrollio says

This example seems entirely fabricated.

$5M was a decent take from the GOOG IPO. I have a friend-of-a-friend who made about that, maybe more. He's certainly retired now at my age, at least.

The AAPL appreciation of 2003-2010 was also an IPO-like event for everyone at the company 2000-2005. The average ESPP price 2001-2005 was $11 or so. People putting 10% ($50,000) of their income during this period would have 6000 shares worth ~$2M now.

corntrollio says

That's not the case any more, and housing prices have far exceeded inflation in high end areas. At some point the money has to keep coming in to keep the prices up this far beyond rises in income.

Nope. Supply & demand says otherwise. 30% of the region might want to live in the good part of town, but only 1% can afford to, but that's OK because 1% does not exceed the supply that is on the market. I have a close friend who would love to move to Los Altos, but he can't afford/justify it. He has more AAPL shares than God (SJ), but it's not enough.

E-man says

America is truly the land of opportunity. :)

for 2-5% of the population.

Troy says

$5M was a decent take from the GOOG IPO. I have a friend-of-a-friend who made about that, maybe more. He's certainly retired now at my age, at least.

But again, that wasn't very common, even if your "friend of a friend of a friend of a friend of your cousin's neighbor's uncle" said so. The vast majority of people made considerably less from Google, and the vast majority of people at other companies made far less. Even at the top of the market when Google's share price was $700+, it was estimated there were only about 1000 such people:

http://www.nytimes.com/2007/11/12/technology/12google.html?pagewanted=print

That money has largely been absorbed already, and if you look at the Pandora and LinkedIn S-1s carefully, you will see that very few non-executive/founder employees ended up with even $1M.

Troy says

The AAPL appreciation of 2003-2010 was also an IPO-like event for everyone at the company 2000-2005. The average ESPP price 2001-2005 was $11 or so. People putting 10% ($50,000) of their income during this period would have 6000 shares worth ~$2M now.

But again, how many people actually did that? Not that many. 10% of your income in your own company's stock is not necessarily wise in the first place.

Booch221 says

You will know the market has turned the corner when ALL of the following conditions are met:

1. Sales increase four months in a row.

2. Prices increase four months in a row.

3. Inventory decreases four months in a row.

4. Foreclosures decrease four months in a row.

Then, if it's cheaper to own than rent--BUY!

I agree, but also watch employment. As long as the countries unemployment is in the toilet the housing will continue to stay low and maybe even go down a little lower, but like as stated above if it's cheaper to own than rent then buy. Always remember when buying that you are buying a place to live in...not an ATM machine.

Troy says

E-man says

America is truly the land of opportunity. :)

for 2-5% of the population.

“Nessuna soluzione . . . nessun problema!„

Don't confuse opportunity with realization/results. Opportunity means chance, not Obama's distortion of the American Dream as a guarantee or promise.

Drew,
In case you think I exaggerated the lifeguard salary, here goes:

http://orangepunch.ocregister.com/2011/05/10/lifeguarding-in-oc-is-totally-lucrative-some-make-over-200k/447

BTW, I lowballed the librarians in some cities. They make over 300k if they are high enough up the food chain. This is common knowledge. Prison nurses with overtime can make over 200k as well, plus there are an infinite # of folks getting 6-figure PENSIONS FOR LIFE. I guess you didn't hear of the city manager in a poor LA-area town making over 800k per year. Do a little homework, and you'll see why Cali is beyond hope. Suggest you start listening to Puplava at Financial Sense. He broadcasts out of San Diego, and updates this stuff regularly.

JG1 says

not Obama's distortion of the American Dream as a guarantee or promise.

You are aware that what you wrote here is untethered-to-reality bullshit, yes?

Dr Detroit says

In case you think I exaggerated the lifeguard salary, here goes:

http://orangepunch.ocregister.com/2011/05/10/lifeguarding-in-oc-is-totally-lucrative-some-make-over-200k/447

BTW, I lowballed the librarians in some cities. They make over 300k if they are high enough up the food chain. This is common knowledge. Prison nurses with overtime can make over 200k as well, plus there are an infinite # of folks getting 6-figure PENSIONS FOR LIFE. I guess you didn't hear of the city manager in a poor LA-area town making over 800k per year.

Comparing Bell, CA to California cities is not really a very good comparison. That's based on corruption and is not applicable broadly to other cities.

In addition, your link failed, but here's the right link:

http://orangepunch.ocregister.com/2011/05/10/lifeguarding-in-oc-is-totally-lucrative-some-make-over-200k/44783/

Citing 14 lifeguards in Orange County making decent incomes with overtime doesn't really constitute government waste when there are 210 seasonal/part-time lifeguards in addition. The qualifications are quite high for those 14 people. These aren't your average pool boys, but rather the supervisors and head guards of the staff who have a risky job and are highly trained in advanced techniques. They are probably closer to EMTs than the pool boys you're trying to mock and do that job in a risky environment. Do you really think these guys are working 30 years in this same job? If you do, I have a bridge to sell you.

Nonetheless, I do agree the pensions in most CA jurisdictions are out of control. The way they are calculated is typically ripe for abuse and it has no correlation to private sector pay whatsoever. You'll get no argument from me there.

By the way, quoting salary + benefits is misleading. A lot of jobs are "6-figure jobs" by that measure.

The median U.S. price will, I think, return to normal U.S. median values relative to income. It will probably even go a bit lower and then stagnate there for 5 years or so.

Many places are there already, including Florida, Phoenix, Vegas, Riverside, etc...

In some overpriced areas, like coastal California we probably have 20-30% to go in real terms, but that may mean no further drops in dollar values, just slow inflation adjustments.

Finally, I think it's important to realize that there may be a temporary rise in prices at some point near the bottom because of pent up demand. You, like me, have been waiting a long time. I chose not to buy because of obviously inflated prices in Pasadena, California in 2002. We're still not back to those levels but when we get close I have many friends who will jump in. It's almost unprecedented to have to wait this long as a young person to get involved in housing. Thus, I think there will be a false recovery, after which stagnating wages and lots of folks with bad credit will force prices back to their proper levels.

This all will take time. My guess in inflated areas is another three years!

I don't think anyone can predict how much it's going to drop (or go up) in the coming years. Home prices are largely determined by what public is willing to pay. Your opinion or mine does not matter. If public is willing to go deep into pocket to buy a home even if it does not make any financial sense at all, it will still do so.

bubblesitter says

Tell me about it. I have been pressured since 2005. Yep, in 2005 I was pressured from everywhere

sashi says

I'm in the same boat, resisting resisting resisting...

HousingBoom says

I have been waiting to buy a home in SoCal since 2006.

Since 2006? That's nothing. I have been pressured to buy since 1998. ... I said to my gf at that time ..."It is very expensive to be a loanowner, it is cheap to rent"

I resisted thru the bubble, it was very tempting though.... The result? I am richer today.

MoneySheep says

Since 2006? That's nothing. I have been pressured to buy since 1998. ... I said to my gf at that time ..."It is very expensive to be a loanowner, it is cheap to rent"

I resisted thru the bubble, it was very tempting though.... The result? I am richer today.

would you have been better off to buy in 1998?

a 15 year mortgage would be paid off in 2 years.

MoneySheep says

bubblesitter says

Tell me about it. I have been pressured since 2005. Yep, in 2005 I was pressured from everywhere

sashi says

I'm in the same boat, resisting resisting resisting...

HousingBoom says

I have been waiting to buy a home in SoCal since 2006.

Since 2006? That's nothing. I have been pressured to buy since 1998. ... I said to my gf at that time ..."It is very expensive to be a loanowner, it is cheap to rent"

I resisted thru the bubble, it was very tempting though.... The result? I am richer today.

You would be alot wealthier had you bought in 1998 and sold in 2006... I wouldnt brag too much about sitting on the sidelines forever.... You could get hit by a bus tomorrow .. Sometimes you gotta just live your life.... You can die with a loan or die rich... In the end you died waiting for another 10-20% drop... A drop that in 10-15 years when you go to sell would be gained back anyway.

I agree at the least 35% if china keeps oil prices climbing year after year then the area like Antioch and Brentwood , Tracy, Stockton, and areas that are more then say 25 miles from employment centers, they are bound to go way way down as a gallon of gas is 5 bucks ( not because of our fixed economy) but because of China by 2015 it will prove out.

Cvoc13 says

they are bound to go way way down as a gallon of gas is 5 bucks

$5? Try $10. It's closer than you think.

A gallon of gas at $5 is still an amazing value vs. the utility it provides.

It provides a week's worth of traveling around town for me. Beats waiting for the bus, which is $16/week with a pass

E-man says

Troy says
$5M was a decent take from the GOOG IPO. I have a friend-of-a-friend who made about that, maybe more. He's certainly retired now at my age, at least.

Troy,
This is the beauty about the Silicon Valley. My ex-coworker's wife works for GOOG. She's been with GOOG since the start-up date. She sold 2,000 shares of GOOG in the summer of 05 and put $300k down payment for a $850k home in Menlo Park.

For those who sold Goog at $650-700/share, what can you say for the buyers you paid $650-700/share.. LOSERS!

I think that everyone needs to really start re-evaluating property. Who in their right mind would pay 1/2 a million dollars, or more for boxes that look like they came out of TV show "All in the Family"?

Seriously, I see quite a few homes as a contractor and the prices shock me the majority of the time. 30 year notes on boxes. California has go to be one of the dumbest Sheeple breeding states in the nation.

Seriously, look at the home you're in. The home you've been sold on a 30 year note. The home you may die in and ask yourself if it's really worth it. 30 years is an awful long time for something that you have to settle for. Is there really 30 years of value in you the place that your going to lease on a 30 year note really worth it.

Think about this. After 30 years, you've finally paid off the BANKS note and the house is yours. Now you're an old fart living in an inflated world and on a fixed income that sufficed nicely 20 years back in 2011, but now really only buys you air.

This place you call home needs tons of upkeep, but you've spent the past 30 years paying it off and have exhausted your funds and now you just want to live in it for your last few days. Uh oh, a few bills came in that you didn't plan for and now you don't have the tax money. You let it slide and figure you'll make up for it on the next run.

Uh oh, hospital bills come in steeper and steeper and suddenly they come in asking for the TAX money on your still leased property. You don't have it. The TAX collector puts a lock and chain on the door and evicts you. Your property is now owned by THE FED which is owned by the BANKS and they get your property back again.

The Fed sells your home for the lost taxes. Now the new party is responsible for the taxes and "The Beat Goes On". Then you decide to sell it again. The new buyers come in and borrow money from the bank to purchase it on another 30 year note with the BANK.

The BANK plays their cards praying that you default and that they can foreclose. Oh, you've paid down 2 million of the 5 million dollar normal price and now you've defaulted. The BANK seizes the opportunity to resell your home on the open market for the full appraised value of 6 million on a brand new 30 year note and "The Beat Goes On".

http://www.youtube.com/watch?v=vhe3vSe-mmw

Troy says

A gallon of gas at $5 is still an amazing value vs. the utility it provides.

If you compare the price of a gallon of gas to a gallon of other things people pay big bucks for, gas is rather cheap. Olive oil, for example.

Los Angeles Renter says

You would be alot wealthier had you bought in 1998 and sold in 2006... I wouldnt brag too much about sitting on the sidelines forever.... You could get hit by a bus tomorrow .. Sometimes you gotta just live your life.... You can die with a loan or die rich... In the end you died waiting for another 10-20% drop... A drop that in 10-15 years when you go to sell would be gained back anyway.

Exactly why I bought, even though the bottom may not be in (unless you have a crystal ball, good luck catching the exact bottom, and it may not matter anyway, if, as many predict, prices will plateau for an extended period of time before going up). I can afford it, and plan to stay a decently long time, so I did, and it's much nicer than renting, even though it costs more, just like a Rolls Royce [or insert other car or luxury item you like] is much nicer than a Chevy [or insert car or other item you don't like as much but which is more economical], even though it costs more.

What is all this silly talk about being "Pressured" into buying? Who cares what other people think? Sure- I too hear from people who say we should buy. But most of those are people who bought and did so recently in the last few years. My take is that they want to feel like they made the right decision and getting someone they know who rents to "Join the party" would make them feel validated.

corntrollio says

f you compare the price of a gallon of gas to a gallon of other things people pay big bucks for, gas is rather cheap.

thing is, people don't pump 20 gallons of olive oil at a time.

and there are substitute goods for olive oil. Replacing gasoline in our economy is going to require god knows how many trillions of investment in new energy infrastructure and private capital, stuff that hasn't been invented yet even.

Re: gas - two interesting links -

http://www.fintrend.com/inflation/Inflation_Rate/Gasoline_Inflation.asp

http://gasbuddy.com/gb_gastemperaturemap.aspx

Dear masayako2456
Learn WHY Real Estate prices exploded from the mid eighties thru 2006 and you will KNOW where those prices will land.
simple; Real property buyers phenomanally pay 2.5 times there annual income.
If you invent something that each person in the free world buys for a couple thou $$$ each, incomes rise. (the computer ?)

Educate your parents

p.s.

the fuse; in 1974, lending institutions doubled the amount loaned on real property