patrick.net

MMAfia Says:

> Not every single market will have price drops occur
> at the same rate nor at the same time

Real estate "markets" are tough to track since a city like Burlingame may have a large number of homes in the hills sell for $2mm+ in a month showing a huge increase in both the average and median home price when every sale was for lower than the exact homes sold for last year...

I think there’s about a 50% chance still that the Bay Area will undergo a soft-landing correction. Every time I see evidence of a harder-landing, I come across equally convincing soft-landing data.

I also feel that soft-landing is a real possibility. Homes that we do not want may crash hard though. :(

@SF Woman,
Your on-the-street anectodes from Weston and Milton definitely corroborate what I've heard and seen. Friends in Newton and Wellesley tell me similar stories.

Regarding the apparent price stickiness in some areas, I think there is a phenomenon not often mentioned by the MSM: the folks still buying today are not necassarily saying, they want a certain type of house (let's say, a 3BR/2BA stucco box), and now that prices are dropping, they will keep following that house and its comparables downward. No, I think many buyers will stay at the same price point, and just look at nicer and nicer houses, maybe even bigger houses, better neighborhoods, etc. As a result, recorded purchase prices don't necessarily plummet quickly - another reason for price stickiness in the face of slower sales numbers.

Gavin (who put together a great site) says:

> See the link to my analysis of the San Francisco housing market
> http://www.crimsonbee.com/house_graphs/sf_house_prices.html

Looking at the data it will be "different" (drop more) this time since:

1. Interest rates are not dropping
2. The number of jobs are dropping (and soon to drop even faster when most of the jobs related to buying, selling, financing and remodeling homes go away).
3. The population dropping (and will drop faster as more people with kids move out of the expensive Bay Area)...

No, I think many buyers will stay at the same price point, and just look at nicer and nicer houses, maybe even bigger houses, better neighborhoods, etc.

We only needed a condo or townhouse in the first place. It is unlikely that we will "stay at the same price point" for long.

3. The population dropping (and will drop faster as more people with kids move out of the expensive Bay Area)…

Not so sure about that. The Bay Area population is actually dropping less. The NY Times had an article a while back about how Silicon Valley's population is set to increase next year.

You can already feel it on 101.

All I wanted was for prices to roll back to 2002. Is that too much to ask for?

We only needed a condo or townhouse in the first place. It is unlikely that we will “stay at the same price point” for long.

At least for the Peninsula, you describe a different situation. I would argue that outside of the city, there is only a small minority that actually prefers a condo over a SFH. Most would switch from looking at condos to SFH's if the prices of SFH's started to creep down into the condo range. For instance, I just did a quick search in PA: there are no condos for sale over $1M, and the SFH's under $1M all seem to be piles of crap. If your "price point" is under $1M, you'd have a hard time finding any habitable SFH in PA, so many are "forced" to look at condos as an "entry point." If SFH's that are not basically teardowns start overlapping in price with these higher-end priced condos, don't you think a fair number of buyers will switch over to looking at SFH's? (Of course, this exercise assumes you'd only be looking in PA).

Sorry to bore some of you with our BA bubble (and housing bubble) talk. Here is a leading economic indicator in our neck of the woods -- traffic.

Published Thursday, September 28, 2006, by the San Jose Mercury News

Roadshow

Complaints of more traffic jams mirror recovery of the economy

By Gary Richards
Mercury News Staff Columnist

Q Can you help my husband and me out? We carpool on Highway 101 from
Masten Avenue to Bernal Road and have seen a considerable increase
in traffic in the past month. It wasn't bad at all this time last
year. There isn't any construction, Amber Alert signs or accidents.
Have that many people moved to South County and beyond? Help. It
used to take us 20 minutes; now it takes about 35 minutes.

Nancy Taves
Gilroy

A Bad traffic here and elsewhere.

Q The westbound morning commute on Highway 85 passing Almaden
Expressway has always been a bit slow, but since school started it
has been much worse than usual, even compared with last year. I
remember a few months ago you wrote that the metering lights from
Almaden to 85 were not working. Were they fixed? Even the carpool
lane crawls for about a mile.

Mark Marley
San Jose

A Bad on 101, 85 and ...

Q I commute to Cupertino (Wolfe Road) daily via I-280, normally a 30-
minute drive on a bad day. During the past few days, my commute has
taken awfully long, like one hour Monday and 45 minutes Tuesday. I
have XM traffic playing and switch to local traffic reports trying
to find out what accidents may be ahead, but there are none. What
gives? I know kids are back to school, but it could not be this bad.
I have gone to I-880 to Stevens Creek Boulevard onto city roads, but
that is a nightmare.

Andrew
San Jose

A Avoid I-880 as well.

Q I travel on I-880 north and traffic used to open up after Stevens
Creek. There would be some tie-ups around the Coleman construction
site, but then it would open up again. Now, I-880 between The
Alameda and First Street is always clogged. What is causing that?
Just more cars?

John Formale

A These calls roll in every September, when traffic can be 3,000 to
5,000 more vehicles a day on any given route. No one is on vacation,
and school is in session. But the biggie -- the economy is picking
up and more folks are commuting to work. Come next month, you should
see an easing of traffic as people begin leaving earlier or later to
avoid the jams. On 85, the Almaden meter is working. But Caltrans
has noticed the tie-ups and could slow down meters.

I'd like to see some reputable, hard, verifiable data that shows or suggests that the Bay Area population will decrease or already is decreasing. Census and sample data show the exact opposite. Both population and median incomes are rising in the Bay Area at present. I believe the number of dependent children has also risen substantially, not decreased.

"Don't show the same impatience on the way down"

George, so true. I've been so busy not wallowing in misery that I may have lost sight of that. Much like boxing fans not wanting the fight to be decided by judges, we're looking for that "telling blow" that sends the "guy we don't have money on" reeling. Wether it's KO/TKO or decision we still collect!

And long rates are currently dropping, unless my ears and eyes have deceived me all this week. And by a healthy amount. And, despite the certain longer term pause in Fed rate hikes. And, the USD has strengthened during all this, not weakened as IRP would predict. This is the kind of data that doesn't bode well for those expecting a non-sticky, sharp, hard landing. Diversified, large MSA economic areas, of which the BA is one, have as good of a chance as not to land softly.

At least for the Peninsula, you describe a different situation. I would argue that outside of the city, there is only a small minority that actually prefers a condo over a SFH.

We would prefer a house. However, a well-built townhouse will do.

The SFH market will be hot even after the bust because they are not building enough of them.

However, I will prefer a steel-and-concrete high-end condo with marble bath to a crappy SFH in PA anyday.

And long rates are currently dropping, unless my ears and eyes have deceived me all this week.

Long rates may drop to below 4% again. The Fed may have to use the "conundrum" to handle housing and inflation at the same time.

I believe the number of dependent children has also risen substantially, not decreased.

Childrens are net liabilities though, financially speaking.

Childrens are net liabilities though, financially speaking.

I was merely addressing the notion that having children forces people out of this area. It may seem intuitive, but I don't see the empirical evidence.

Traffic has also increased as a factor of rising employment, not just population increases. Bay Area employment has been rising steadily throughout 06.

DinOR:

Your radio idea is a good one. Still, on my station during the day, are realtwhore-huckster-info-mercials hawking their housing/land wares and optimism as if it were still spring of '05.

I wouldn't mind, myself, doing an over-the-phone, round-table discussion on the state of housing in the West (CA, NV, AZ).

It could just be a few people from this site giving their views (Patrick, Randy, you, et al) and taking calls, etc. We could get like three or four people on the phone concurrently and take some calls. I'm up for it.

It would be pretty funny to hear Surfer-x weighing in on behalf of Gen-X. Definitely some fur would fly if a realtwhore called in to counter the negative sentiments of those successful people--like surfer-x--who played by the rules, got educated beyond the call of duty, and are still locked out of BA and other housing markets, notwithstanding the landed gentry (makes for good, entertaining radio).

I would definitely have my sound engineer's finger on the bleep button in case things got a little excited.

Traffic has also increased as a factor of rising employment, not just population increases.

Restaurants are getting overcrowded. This is a problem that is more acute than the housing bubble.

Here is a leading economic indicator in our neck of the woods — traffic.

Last time traffic increased dramatically, a bust followed quickly. Perhaps traffic is an indication of overheating and the inevitable bust?

wo or more years of experience with Sales Supervision within a private client group or Compliance of a retail brokerage firm.

That's not bad as a static analysis. There's a problem, though. The last bust was many years ago, and the population has continued to climb in absolute numbers since then. What happened was a dramatic decrease in the population growth rate, not an absolute drop in population. I think there were only a couple of quarters where absolute pop'l estimates dropped. We did hit a very low growth rate, below .1%.

During that period, very little infrastructure capacity has been added, either roadways or various public transits. So the system may just be more sensitive now. Also note that there are currently a large number of highway improvement projects underway. Infrastructure grows in fits and starts, while population grows smoothly.

Last time traffic increased dramatically, a bust followed quickly. Perhaps traffic is an indication of overheating and the inevitable bust?

should have been the quote. Some dangling copy left in my clipboard apparently. And if you know any PE RE Brokerage sales managers....lol

should have been the quote. Some dangling copy left in my clipboard apparently. And if you know any PE RE Brokerage sales managers….lol

Huh?

Correction:

"...It could just be a few people from this site giving their views (Patrick [i.e. Peter P.] Randy, you, et al)..."

I think since the site is Patrick.net...I call Peter, Patrick.

Ha, ha!

The market was as over-priced when comparing house prices to mortgage rates and income in 1981 and 1989. In both cases affordability improved significantly because of a combination of falling house prices, decreasing mortgages rates or rising incomes. I would expect affordability to improve rapidly once again.

If house prices are flat this time it would mean that either incomes would rise significantly or mortgage rates would fall. Either of the two are unlikely this time.

Bingo!

Yes, the Fed can panic-drop rates again to 1% or 0%, but given how low long rates are already (note how strongly inverted yield curve indicates bond market is already pricing in future rate cuts), I doubt mortgage rates can/will drop much further than they already have. So that's a non-starter.

Incomes rising? Asking your boss for a raise as we head into recession? Good luck with that. We're already seeing all kinds of reports of home builder & mortgage company RIFs/layoffs in the MSM. And this down cycle's just getting warmed up.

So of our three major correction mechanisms, what does that leave us?: falling house prices. Good luck with the soft landing scenario ( NOT GONNA HAPPEN ).

Seamus,
Regarding condo towers and units that are getting built in SF --unfortunately they are selling out quickly. The state of the market is such that it'll have to go from selling out presales -> selling out when the tower is complete -> sitting on the market a couple of weeks before selling -> sitting on the market for several months, before downward pricing pressure is exerted on the rest of the real estate market. Not that this can't happen, but we have a way to go. Supposedly this market is also being affected by the (global) uber-rich buying a pied-à-terre in SF. Some times I think only "The Big One" will be able to effect BA "intangibles".

"In San Francisco, five towers that will exceed 30 stories now are under construction, more than at any time since the early 1980s. Most will pop high above their neighbors on low-lying blocks south of Market Street; one is a hotel, and three are residential, including the 55-story One Rincon Hill rising alongside the Bay Bridge with the marketing slogan "Your life. Above all."

There's plenty of interest in new high-rise units; the developers of One Rincon said 90 percent of their 360 units are spoken for, and the project's 45-story second phase could start construction next year. "
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/09/05/MNGQ4KVB041.DTL&hw=rincon+hill&sn=001&sc=1000

I think prices may continue falling if the Fed drops interest rate again. Who wants to buy when they anticipate lower rates in the near future?

Remember this current boom really got heated up when people thought interest rate was going up in 2003-2004?

Elk Grove is a suburb that’s been growing faster than the infrastracture can keep up with.

It can be *really* foggy there...

Asking your boss for a raise as we head into recession?

Are you suggesting that I should ask for a raise AFTER we are in a recession?

Supposedly this market is also being affected by the (global) uber-rich buying a pied-à-terre in SF.

The uber-rich already have many homes in SF. Many of them hate SF because of earthquakes and its "legacy" in family-values.

There are not too many of them, probably lass than 100K in the Whole Wide World:

http://en.wikipedia.org/wiki/Millionaire

(There were only 70000 UHNWIs in the world in 2003)

Michael Holliday,

Sure, I would be open to that. I still have e-mail so I could forward you a few ideas and v/v! I get a strong sense that as sentiment turns (and the optimism of '05 turns ugly) somebody is going to do it anyway. Why not us?

And yes, if "X" is going to be a guest, your engineer had best be at the ready!

And anyone with 30M qualifies as a UHNWI. If you only have 30M, will you buy a 2M condo in a far-away place with potentially hostile immigration policy?

Randy H Says:

> I’d like to see some reputable, hard, verifiable data that
> shows or suggests that the Bay Area population will
> decrease or already is decreasing. Census and sample
> data show the exact opposite.

Below is a link that shows a drop in the number of kids and public school students in SF over the past 40 years of just about 40%. At the current rate of decline there will not be any kids living in SF in 60 years…

www.spur.org/newsletters/0604.pdf

Census data has the SF population at 775K in 1950, that hit 776K (up by 1,000 people in 50 years due to large numbers of recent MBAs living like Mexicans packed in to crappy apartments trying to cash in on the dot com boom) in 2000 and down to 739K today…

http://quickfacts.census.gov/qfd/states/06/06075.html

"a bust followed quickly"

I can't believe it. All these sophisticated BA types and you need some guy from Oregon to figure this one out?

Ahem, the increased traffic you are experiencing is due to all the former flippers/living off the MEW crowd that are now forced to get real jobs (as in 9 to 5?).

Does SFWoman have to beat us over the head w/her shocking coverage of "Living of the Fat of the MEW" husbands? I've seen it a million times!

We went through something similar in Portland post tech bust. I couldn't believe it? All these people that were now back in the commute were obviously over dressed (as in they hadn't even heard about the HR directive for "casual Monday". Arrrgh.

…but I’d like to see more correction, just to stick it to every financial genius out there that helped to put me in a predicament where I just wanted to sell my wife’s old place, marry her, buy “our” place as a newlywed couple and turn it into a horrible nightmare…F*cking pricks.

John M.,

That's good... GOOOOD... embrace your anger! It gives you focus, it makes your stronger. :twisted:

You've hit the nail on the head for me. I just want to know when can housing go back to being plain old shelter? When can it stop being an "investment"/retirement account/ATM machine/Ponzi scheme, so I can stop worrying about "timing" the market correctly? Why can't housing just track inflation like most other boring commodities? How about just buying/selling whatever my family needs whenever we happen to need it?

Why does buying a house today have to require getting a PhD in economics/finance to avoid getting a dick up your ass by some sub-prime con-man or Carlton Sheets specuvestor a$$hole? Why do I have to wait for that rare window of opportunity (Golden Wonka Housing Ticket) that only comes by once every 15 years?

You're 100% correct --f*ck this shit!

I was referring to the San Francisco - San Jose, Metro Statistical Census Area. Not just San Francisco, which is not a reliable proxy for the Bay Area as a whole.

Again, I was countering the claim that the BAY AREA is losing population, one factor of which claimed being having kids. The BAY AREA, comprised of two effective US Census MSAs: San Francisco-Oakland-Fremont and San Jose-Sunnyvale-Santa Clara with a total population of just about 6 million (2005 estimate). This makes the area the 5th largest mega-MSA in the US.

It has grown, not shrunk, as have the number of children increased not decreased.

Only one MSA in the entire US has lost absolute population, and it's not even on this coast.

Only one MSA in the entire US has lost absolute population, and it’s not even on this coast.

Detroit?

HARM,

Well when you're right, you're right. There's a firm out in Bend, OR of all places that is building homes on leased land. I actually spoke with the guy (Casey Serin hasn't returned my calls as of yet) and he was very down to earth and realistic about Bend's state of affairs. They put you in a "site-built home" for a little over a 100k and you lease the land for 99 years (renewable) for under $350 a month. So...... it's a land bubble!

www.rennieinc.com/Golfside.html

For Randy,

Couldn't you have made the exact same prediction in 1981 and 1989 when home prices were as detached from fundamentals as in 2006?

If you look at the link I posted earlier it explains that houses became more affordable after both the previous peaks.

Are you claiming that it is different this time?

John M. said:
"Personally, at this point, I feel that a country with the masonic symbol on its dollar is going to do everything in its power to make this thing go into soft landing mode and attempt to play the flattened prices game"

Not to worry about such things as we are firmly in control of the situation. Card carrying members of the Fraternity get the word, well in advance, when to get in.....and when to get out.

@DinOR,

We have a number of these here in SCAL as well. They're marketed as a "solution" to insanely high prices. I know of at least one former co-worker in Simi Valley who "bought" one. Personally, I don't see the benefit to the buyer. You overpay what amounts to a fancified mobile home shell (except that it's not "mobile" and is permanently attached to the foundation), but you still have to pay rent on leased land. Oh, and you don't qualify for the mortgage interest deduction, as you're not really a homeowner.

How is this form of "owning" different from renting (aside from illiquidity and huge downside risk)?