patrick.net

So.. um.. about that housing….

More tangents please. Housing is a dead horse. We have prevailed!

I wonder how many of those botox injections and boob expansions were paid by the housing bubble...

Well, boobs, bubbles, there are some vague similarities.

I wonder how many of those botox injections and boob expansions were paid by the housing bubble…

Bubbles for bubbles. I bet they can do 1031 exchanges. :)

Not tax advice

To clarify my Apple comment:

A lot of dot.com folks with stock options tended to compare randomgadget.com or whatever it was they were holding to Apple stock when making decisions. That's what I meant when I said that it was "all Apple stock."

Had they actually been holding Apple stock, well, holding onto it would have been the right choice. Since it was actually just random tech stock from a company in its nth round of layoffs, maybe letting it go for $500K or $250K or whatever pittance the market was offering would have been a good idea.

I even had stock options myself, as did my husband. Luckily enough for us, they never amounted to anything even for a minute, so there was no paper fortune and no sense of loss.

On the dating/prettiness bit: There was a brief time when I was maybe 19 or 20 when I turned heads. I was never model material, but I did get attention. I ended up attracting the most terrible awful weird unpleasant guys who had nothing in common with me but liked the way I looked. Eventually I got smart and started dressing plainly, wearing no make-up, etc, and ended up dating much nicer people, one of whom I married and many of whom remain friends. I was invisible to the former set of guys, and that was a little ego-deflating, but all in all the change was really, really positive.

Bubbles bubbles everywhere!

For this thread it's boobels boobels everywhere. (Not that I am complaining.)

I even had stock options myself, as did my husband. Luckily enough for us, they never amounted to anything even for a minute, so there was no paper fortune and no sense of loss.

Now that is something I can relate to. I was underwater from day one. When I left the stock was at the bottom of the SF Bay. It's still there.

SQT, can you write a thread?

I think we have to be careful to avoid tunnel vision. I am not that familiar with the BA, but here in LA, it's easy to develop tunnel vision. My guess is that this is also true of the BA.

Take Cupertino, for example. The LA equivalent of Cupertino is San Marino. It has the best public schools in the state and because of this it attracts many well-educated Asian professionals. I don't know how many of the families there have two incomes, but I'm sure the number is quite high.

At present the median SFH in San Marino is around $1.2mm, the cheapest SFH is currently $800k. (Unlike Cupertino, San Marino has no condos).

Let's assume that the "average" double-income professional couple has a pretax family income of $200k, and that people are willing to stretch to 4x their income in order to get their kids into a good school district. The first assumption seems a little generous to me, the second quite reasonable, but for the sake of argument let's assume that they are both true.

Are there enough double-income couples in LA to support a median price of $800-$900k in San Marino? Yes. Since the current median price is around $1.2mm, this means that we can expect prices in San Marino to decline by no more than 33%, right?

(Please note that I am oversimplifying because unlike Cupertino, San Marino was once home to the ultra-rich, and there are still some spectacular mansions there that sell for $4mm plus, the quality of the housing stock is quite high, it's not just a bunch of 1950's tract homes, so I would expect the median to eventually wind up somewhere north of $800k. The ultra-rich don't really live in San Marino any more, but some of the houses there are still awfully nice and will always command a premium. But for the purpose of this analysis, the $800k median is not unreasonable.)

The answer is yes. There are enough double-income couples in LA to support an $800k median in San Marino. Viewed from this perspective, that community will always be expensive and will never cost less than 4x a double income professional couple's income.

But there is a flaw in this analysis. San Marino isn't the only nice neighborhood in Los Angeles county. In fact, there are a shitload of nice neighborhoods in LA. Off the top of my head, I can think of Beverly Hills. Bel Air. Brentwood. Malibu. Pacific Palisades. Santa Monica. La Canada. Sherman Oaks. Studio City. Westwood. Manhattan Beach. Encino. South Pasadena. Parts of Pasadena proper. Many of these neighborhoods also have public schools that are almost as good as San Marino's. And of course, there is no shortage of good private schools here. Traditionally, people who lived in the nicest neighborhoods, where the public schools are amply funded and of outstanding quality, often sent their kids to private school anyway.

The long and short of it is this. Yes, there are a lot of double income professional couples here in LA. But not enough to populate all of these desirable areas. Not by a longshot. Even if there are enough of them to fill up San Marino, that still leaves a million other high-end communities with good schools.

This is why it is possible for the median SFH price in San Marino (or Cupertino) to decline below the double income professional couple support level. In fact, it could fall far below the $800k level. After all -- and this is significant -- you could buy the cheapest house in San Marino for $300k back in 2000. (It's now $700-$800k.) Of course, double income professional couples who earn a combined income of $200k today ($100k x2) weren't earning $84k seven years ago ($42k x2.) Not at all.

This is why it is possible for houses in nice neighborhoods with good schools to fall below the 4x median double income professional couple threshold.

Joe Schmoe,

Cupertino prices can indeed fall, no one (except maybe FaceReality) has called it immune . The reason it gets mentioned here quite often as it is a good barometer for the market. It's the Mecca for the Middle Class.

It may not be easy for non-BA people to imagine. But for someone working in IT here it's common to be surrounded by people of all ethnicities who consider it a privilege to have a house there. Again not for the truly rich - but for salaried professionals.

It's one thing to go ballistic and start cursing everyone and everything in Cupertino or BA. That's one solution and it works for some. It's another to consider Cupertino as an indicator of market psychology and speculate on its effect on middle-class localities of BA. To each his own.

Cupertino has a very good steak house. So it cannot be all bad.

Cupertino also has the Blue Pheasant. That place is scary. I did not know why my friends were laughing about meeting there last Friday night. I will never be the same.

A good friend of mine grew up in San Marino. She said it was like paradise to her as a little kid, but she wouldn't move there now. Her father was a scientist at Cal Tech, so he had a good, but not phenomenal salary. Her family house is quite beautiful.

Yes, other than the school district, Cupertino does not have much to offer. My friend, who just found a buyer for her house in Cupertino, is an older white lady who stands to sell for $400k more than she paid in 2000. She can't believe the school district premium some people are willing to pay, and is laughing all the way to the bank.

We rent a condo in Cupertino, but only because it is right on the border of Los Altos, which is where we ultimately want to settle if we decide to stay in the Bay Area long term. We don't have children, but if we did I would work to keep them OUT of the Cupertino schools.

As an aside, I remember Cupertino from my youth (I grew up in Mtn. View). It's comical to me that it is considered so "desirable" now, really, I mean, I'm laughing right now as I write this...

We rent a condo in Cupertino, but only because it is right on the border of Los Altos, which is where we ultimately want to settle if we decide to stay in the Bay Area long term.

I love Los Altos. Much nicer than Palo Alto.

Peter P, I agree. I have always loved Los Altos. I liked Palo Alto when I was much younger, but I no longer find it appealing.

Both Los Alto and Menlo Park have much nicer downtowns than Palo Alto. Los Altos just gives the right vibes.

From the book on how NOT to get your asking price-

I just saw the funniest thing in a house for sale a couple blocks away! We are in the kitchen and on the refrigerator is a note "I NEED MONEY BADLY"

Note to self - Do not broadcast the fact that you are desperate.

As an aside, I remember Cupertino from my youth (I grew up in Mtn. View). It’s comical to me that it is considered so “desirable” now, really, I mean, I’m laughing right now as I write this…

Things like this happen. :(

And the changes stick - it's not like it's going to revert back to the way it was.

The problem with Elephant Bar is not just the food. I would have been OK with that. But even the drinks are bad. Now that is not something one can ignore.

A little nostalgia for the old San Jose crowd.
http://www.bvnasj.org/SanJose19752006.htm

Whoa ! I notice WAY more greenery in the new photos.

Wow... there's just as many people in the new photos as the old photos. :(

Being from the Los Angeles area, I can't speak about Cupertino. But what makes San Marino "intrinsically desirable" (to use SP's words) is the school system, even if it might otherwise be a boring place to live. Most of the people I know who bought or are looking to buy in San Marino are not doing so for financial reasons. (In fact, housing prices in San Marino have grown at a slower percentage rate than less expensive areas in the Los Angeles region, and so if you were an investor, you would have been better off buying in other regions.) They are buying because they want their kids to go to San Marino schools. No culture? No class? No history? No downtown? Who cares so long as the schools are good.

At least among the Chinese immigrant community here in the Los Angeles area, the view is that you buy in the best school district you can afford. People buy in Arcadia because they cannot afford San Marino. People buy in Diamond Bar/Walnut because they cannot afford Arcadia. People buy in Rowland Heights/Temple City because they cannot afford Diamond Bar/Walnut. This is not to say that prices in San Marino will not drop as part of a general decline in housing prices, but there is only so much they can drop before the area becomes affordable to folks who otherwise would have bought at the next level down. I think SP is underestimating the "clueless geek parent premium" (to use his words).

I also think that Joe Schmoe is overlooking an important segment of the buyers in San Marino and other areas where demand is heightened by immigrant interest. Many of the buyers in the San Marino area are wealthy immigrants who pay cash for their houses or can at least make a significant down payment. The number of couples with 200K in income per year that are around today may not be significantly less than the numbers around four years ago, but the 200K in income crowd is not their sole competition in these areas.

I think the more interesting question is at what point the demand created by Asian buyers who are willing to pay a premium for better schools gets offset by white flight from communities with rapidly growing Asian residents.

Ah, yes, the mark of haute culture. I am always surprised to see huge crowds at places like ElephBar and Cheezecake Factory. A long wait to eat generic unhealthy food (jamaican salad, my arse) that is barely above fast-food quality.

Heh. I remember when the Cheesecake factory opened in PA and Valley Fair. Long lines every day and night.

OH WAIT! It's still like that!

Meanwhile, in all the east coast places I've lived where there's a Cheesecake Factory, you walk right in and they sit you down right away.

We have such low standards here. :(

(That said, their Cheesecake is pretty respectable given the volume produced...)

I think that was the 70's as the link has 1975 in it.

I think you are being too kind. Other than the school district, Crappertino has exactly fuck-all-point-zero to offer. I have seen cemeteries with more character, and with more interesting residents.

If you want to live in a place where you never need to learn to speak English or Spanish - it's pretty good.

I know an Asian family that bought in a super good school district at a price that boggled my mind.

Then I realized their secret: they were super frugal on everything. They drove a really old Toyota Camry (cliche!) and not an impractical German car that. They bought clothes in Taiwan - instead of any-store-at-Stanford mall. They spent like money on keeping the house standing aside from the minimum.

Damn them and their frugal ways. Why can't they be more American and spend every last cent they have on consumables? This kind of stuff makes my life so much harder being that I'm accustomed to shopping at Stanford mall.

I do not like Cheesecake Factory because their portions are too large. I love small plates because I want 4 of them.

For a $200K double-income family, the loan threshold should be around $600K-$700K, with $200K down. So I believe 1M is sort of sustainable for certain more desirable neighborhoods. Most educated immigrants in BA came as graduate students and marry a spouse of equal earning power, therefore their household income is far above the BA median.

Asian immigrants are able to sacrifice everything for a house, that is something quite special to the culture. Most 1st gen immigrants I know, myself included, can easily save $50K-70K on a $200K household income. A friend of mine bought in Saratoga with 40% down in 2000 after squeezing his wife and two kids in a tiny one-bedroom apartment for 6 years. I know of another couple who lived in a studio for 5 years with one kid before buying a house in Almaden with a big down payment and a comfortable size of loan.

We don't spend on restaurant, vacation, clothes, or entertainment of any kind etc. and frankly if you cook yourself, there is really not much to spend apart from mortgage, gas and utilities. Oh, we usually buy our car with cash and drive it to the ground. I am not saying that the current housing price is justified, but one has to look carefully at the spending pattern of buyers (or prospective buyers) to determine whether such a price will break their back. My assessment is, the current price won't. However, this is all based on the assumption that BOTH can keep their jobs.

I maintain that the BA housing bubble won't pop until the job market breaks down and a lot of double-income families become single-income household.

Do you folks in NorCal have the Claim Jumper? It's a lot like the Cheesecake Factory, just (slightly) more upscale and without the cheesecake.

We don’t spend on restaurant, vacation, clothes, or entertainment of any kind etc.

Really? Perhaps I am spoiled. What is the point of life?

Damn them and their frugal ways. Why can’t they be more American and spend every last cent they have on consumables? This kind of stuff makes my life so much harder being that I’m accustomed to shopping at Stanford mall.

This is your new competition. Get used to it. ;-) Now do you still want that 328i and live an exiting life or you want to save money, buy a house and live a boring life ? What is it going to be ?

(Just in case, this was all tongue-in-cheek mode)

Wouldn’t work for my wife, I try to convince her that Acura is a luxury brand and she just laughed at me

You deserved that. If Acura is luxury, what is Rolls Royce then? :)

I heard that the Hong Kong housing bubble burst wiped out a lot of families. Perhaps Hong Kong is not in Asia.

Sandibe :

Are you sure you were not talking about Cupertino ?

We have a 6 year old 325i and with the legendary German reliability it’s now giving me minor problems, so I asked my wife if she wants to get the new 328, her response is “No way, got to upgrade to a 335″, I guess someone has to break the frugal Asian steroetype

No, get a GS350. Do not tolerate "minor" problems. By the time you have "major" problems you cannot get rid of the car easily.

Now it's the weekend (here in Oz) I'm catching up on the backlog here and at Ben's. So I just noticed;

http://thehousingbubbleblog.com/?p=2267

New 3/2 SFH for $158,990, holy dooley. :shock:

And then down in the comments one poster writes that she's tempted to invest at that price, and is promptly jumped on by people pointing out why these prices are still too high based on rental return.

Makes me realise just how insane the prices have got where I live. We recently had a land auction, and the lowest price paid was $170K for a 400sqm (about 4500sf) lot.

Both China, India, and the richer area of Taiwan and Hong Kong included, have no welfare system (HK only had a welfare system AFTER the handover). There are no pension system either.

Therefore, my theory is, Asian immigrants are raised on the notion that they have to save enough for their own retirement, because the society cannot offer old-age protection. So Asians tend to save every single penny possible for the rainy day. I know that we are living in America, but me and my wife don't take social security and medicare into consideration at all when we plan our retirement. We look at our own investment portfolio, savings and 401K alone. I believe there are many immigrants who think just like me.

Therefore, a fully paid-off house is seen as a guarantee for old life. I know of a few examples, myself included, who choose to accelerate mortgage payment when we can afford it so that we can be entirely debt-free earlier. The dream of owning a house free and clear, and having a big nest egg in the brokerage account can keep a lot us off the spending spree.

In short, Asian immigrants compete for houses by setting side a much bigger portion of their monthly income for the mortgage payment. As long as the couple can keep their jobs, that's ok. Such a model will break down when the job market turns sour.

What OO and eburbed are saying is true. Yes, there are some people who break from the stereotype (like CB :-) ). But this has also been a factor in BA prices - as much as the funny money. It is important to keep this in mind in order to figure out how the bubble unwinding will proceed.

I like GS350, we are considering it, you can get one for close to invoice but it’s still a large chunk of change.

Get a one-year lease return or something like that. The dealership once told me that someone just traded-in a brand-new car because his wife did not like it. :)