patrick.net

Looks like Owneroccupier & Peter P already beat me to the punch.

All I'd add to what they said is:
--Expect those Bay area YoY numbers to go negative (as predicted) by mid-June. Even most prime locations are likely to go negative by year's end.
--Rents are nowhere near montly ownership carrying costs virtually anywhere in CA, even factoring in the interest tax deduction.
--Beware of "dead cat" bounces" to the way down to the trough. Don't purchase until the rent vs. buy equation balances, and you'll be fine.

In Santa Clara County, inventory is rising, but not at breathtaking speed. We're above the 2001 numbers for the same date (2/14/2001: 1740 SFH, 2/14/2006: 1950 SFH), but the 2001 curve seems to be catching up.
My totally unscientific method is to get the total number of MLS-listed SFH for sale from www.mlslistings.com.

I think the psychology regarding housing appreciation in the valley is iron-clad thanks to the 2001/2002 bounce, and it will take longer here than everywhere else for the bubble to burst.
Also, some people on this blog have mentioned that these days, quite a few houses for sale are not in the MLS. Is there any good data on this?

My 2c about Google:
At CES this year, the pimple-faced Google booth personell proudly handed out a little booklet listing all the projects they're working on. I counted 46.
I hear that, in addition to those, there are a *lot* of secret projects underway.
An example of a project that wasn't in the booklet: Google Space Travel! ;-)
I hope to be wrong, but IMHO, this is all going to end in tears. Not investment advice.

In my neighborhood, ( alameda) there are bascially no houses left that are anywhere close to being in the 400-450k range, and the ones that are the next level are more like 550k. Some of these are what once was the guest house to a larger house. There was a article in the local newspaper about an older somewhat wealthy couple that bought a small former chicken coop.( I am not kidding on this) that had been turned into a 1 bedroom house. Alameda was once a working man's, blue collar shipyard town, and many of the houses are basically shacks. Thus all that is left are what people at one time considered outbuildings, sheds, garages, and in the case above- chicken coops.
When I visit my family back in TN, I always get the question: " how in the world do people afford to live out there?!" I tell them a few new stories. People in CA might think that they are pretty lucky to live here, but as far as anyone I've talked to in numbers of other states, there is definantly no jealousy. They simply think we've lost our heads.
There is also a growing anger in places like Nashville where the severe upswing in recent California and New York refugees is for the first time causing the prices to go up in the double digits. Nashville just had a 10% growth last year. Thus the tone very recently from my family has been that they too wish the bubble in CA and NY will die soon, because otherwise they are going to get affected by families moving in, which ironically will raise their cost of living if left unchecked.
Back to Alameda, as mentioned above, we see the same houses up for sale over and over again. Both small and large homes are not really selling, and the other phenmina is that it seems like half of the island is now for rent. These rentals too sit totally vacant for months and months on end. In fact, it is safe to say that of the places that I've seen for rent, hardly any of them have come down since I have lived there for the last 1.5 years. I wonder what that indicates.

HELIBEN BECOMES HAWKBEN

“Federal Reserve Chairman Ben Bernanke said on Wednesday the U.S. economy was running so close to capacity that it faced heightened risks of an outbreak in inflation that could require higher interest rates to tame. In his first extensive remarks since taking office two weeks ago, Bernanke appeared to be making an effort to establish credentials as an inflation ‘hawk’ by stressing the need to keep price pressures contained.”

Yes, Alameda does have some pretty homes, but these come at a hefty price. It is decievingly expensive here, as in 8-900k for a victorian home, and several million for one on the water on Bayfarm Island. Alameda also has one of the fiercest anti-development clause in the Bay Area. Recently, there was a proposal to refurbish the Alameda Theater, built in 1927. The refurbishment would include a new parking garage attached to the side, so that this would avoid clogging up the streets. Sounds great huh? Well the local citizens shot it down quick. The same goes for even a mention of building new homes or perhaps turning the old abandoned military base into housing. Nope. Nada. Hell- my neighbor has a sign that says" keep measure A- No overcrowding!" and when the city needed to trim a branch off of one of her trees, she balked.
Alameda is basically a microstudy of exactly why CA is so damned expensive. because this whole attitude that "we were here first, and if you wanna' live here, then you'll have to wait for us to die first.. and you'd better not pull up my rose bushes after I'm gone either!"

HELIBEN BECOMES HAWKBEN

Bernanke's real test is fast approaching. What he does to stave off the looming prospect of stagflation will be very telling. Higher rates to fight inflation, or lower rates to avoid/recover from the gathering recession? (I fully expect the latter, but I have nothing more than a hunch and deep cynicism to offer as proof).

In the case of the naval base, it is HUGE, and what's more interesting, there are literally thosands and thousands of empty former military housing units. These are all smallish, concrete, well built condo buildings, complete with parks, playgrounds, a school, church, and access to the water. Some of them have been abandoned since the late 80's. They are all in good shape and could easily be turned into affordable housing units without a lot of work.
The city does nothing about it. A few years ago, there was a condo complex full of ,mostly immigrant families near the base. The city kicked them out. What went up in place were Massive, luxo homes that start at over a million bucks. I looked inside a few of them. The houses are shoddily built, but have all stainless appliances, big bathrooms with hot tubs and walk in showers, and nice floors, but as a former hardware salesman, I reached up and touched one of the rustic ceiling beams and realized they were made of hollow plastic. They are made to look nice, but in reality they are cheaply made worthless houses, so somebody made a killing and at the expense of many displaces low income families. Nobody seems to care either. Meanwhile, the base sits vacant and chained off. The base takes up half of the island, thus the opportunity is ripe to make it a nice new place for future citizens, and to make things even more palletable to the existant citizens, the base is totally seperate from the rest of the island. Hell- they never go out there anyhow, so why should they care?
It really pisses me off. There is TONS of room to develop, but they instead develop a overpriced group of luxo-homes instead.

The rent vs. buy equation wasn’t balanced in 2003 when I bought my house on the peninsula, but buying was a good move nonetheless.

It depends.

800K vs. 3000/m in SF is not exactly balanced but is acceptable.
700K vs. 2000/m is SJ not just unbalanced, it is out of whack!

Or how about this in the South Bay - $750k condo for $1795 a month. Gee, should I buy it or rent it?

Or how about this in the South Bay - $750k condo for $1795 a month. Gee, should I buy it or rent it?

Too bad you cannot short-sell a house. :)

750K/1975 implies a P/E of nearly 35. What are people smoking? Why are they still paying the "appreciation premium" at this point of the cycle?

Median condo prices in SF went up 23.20% in 2005.

What is the change of condo prices per square foot?

There are 300K studios and there are 5M penthouses...

"It looks like I wasn’t imagining things:
http://tinyurl.com/bta6n
Median condo prices in SF went up 23.20% in 2005." --Face Reality

Wow, ANOTHER year of ridiculous gains. You just have to ask yourself, what has happenned to any other asset class in history that has had a huge run-up like this?

I don't deny that the high-end housing where you're looking is probably not as badly overvalued as other types of units. And if you plan on holding this place forever, maybe keeping it in your family and have the money to afford the place, you might as well pull the trigger. It sounds like you REALLY want your own place and in that case paying a premium that you can afford may be worth it.

However, I would only add that trying to discount the current evidence of real estate overvaluation in San Francisco and thinking that current appreciation rates will continue is inconsistent with your screen name's credo of "facing reality."

True, but you can do a “short sale”.

I knew someone was going to say that. :)

"...he said that Sonoma is the new Sausalito."

Lmao...now there's a stretch. I suppose it's rather optimistic to hope for $1000/sqft someday up there.
Sonoma should actually hope it never becomes like S. Marin.

Athena, thanks for posting those #s
How far do you think sellers will chase the market down?

Expecting a high percentage of future appreciation on SF Bay Area real estate is really driving while looking in the rearview mirror. Also, what about the opportunity cost of using most of your earnings to make your mortgage payment? I expect that diligent renters will come out ahead of homeowners over the next few years.

So the median condo in SF-Oakland hit $616,800, eh? Wow.
I will say I'm impressed by buyers' continued willingness to bid prices far higher than rational expectations would allow, but then that's the textbook definition of a speculative bubble, no? Now worries, I'm sure those NAAVLPs will continue to pay off with future appreciation.

If I see negative numbers, I’ll definitely wait and rent meanwhile. So far, I haven’t noticed dropping prices (quite the contrary).

If you continue to speculatively buy RE until you actually see negative numbers, then --by definition-- you are basing your purchases on herd movement and have bought at the top. This is the worst "investment' strategy anyone could follow. Personally, rather than trying to precisely time the exact top (impossible), I'd rather cash out a bit early and leave a few chips on the table than ride this roller coaster all the way to the bottom. Everyone's tolerance for risk is different, though.

Also, when was the last time rents in major areas in CA were close to ownership costs?

I haven't run the numbers recently, but 2000 would be a good guess. They were certainly balanced (or better) during mid-to-late 90s (last trough).

The realtor (since 1978) in the area explained that with inventory expanding you can’t price “at the market” you have to be below the market to generate any buyer interest.

Yes, that might be the future for SF bay area sellers too.
"Price Cures All", and if inventory continues up, they'll need the "cure" in bigger dosages.

I'm seeing inventory head up again...is it earlier than normal for sellers to re-list?

“There are 300K studios and there are 5M penthouses… ”

Not unless they started building inverted pyramids or adopted mushroom-style architecture!

Huh? I was merely saying that a shift in market mix among these condos can produce huge movements in the median price. Condo prices are quite diverse.

If condo prices had crashed 25%, we would be hearing spins like "apartment conversions have dragged down the median, no need to alarm".

In the week of Feb 4, 2006, new home median price in San Mateo dropped more than 20% year-over-year, sales dropped more than 70% y/y!

Total new homes $829,000 -20.1% 11 -71.0%

(From www.viewfromsiliconvalley.com)

Does this mean more or less than the 25% increase in SF? :)

Simple - location, location, location. Most SFHs in SF are in relatively undesirable areas. Granted, there are some in the very best areas (such as parts of Pac Heights), but most SFHs are not located in those areas.

Can it also be explained that there have been more transactions on newer, more expensive condos in newly-trendy areas like SOMA? A lot of upsacle condos got built last year.

From Ben's blog: Orange County Home Prices ‘Down Sharply’

I believe BA is roughly in sync with OC in terms of buyer psychology. Perhaps time is up with Silly Valley real estates?

“Simple - location, location, location. Most SFHs in SF are in relatively undesirable areas. Granted, there are some in the very best areas (such as parts of Pac Heights), but most SFHs are not located in those areas.”

As doodler pointed out, the data comes from the entire metro area, not just SF. And, since the bulk of condo inventory created in 2005 was in new construction areas like Redwood City, San Mateo, San Bruno, would you care to rethink a while and repost another spin that's more plausible?

Definitely - a new market in “luxury” condos and lofts is evolving in SoMA.

I also expect new "luxury" condos in East Palo Alto. Similarity? Four Seasons Hotel. :)

At least the massive new condo project in Redwood City is located conveniently near one of their automatic gunshot detector stations.

Everyone hold on to your I/Os

Will the next one be a 50 bp hit?

At least the massive new condo project in Redwood City is located conveniently near one of their automatic gunshot detector stations.

Where is the project? Are the condos lined with Kevlar(tm)?

Will the next one be a 50 bp hit?

Prepare for even more inversion, if that's the case.

Prepare for even more inversion, if that’s the case.

I even prepared for free sushi.

Where is the project?

Between downtown and Chestnut, East of El Camino. There's another newer one going in South of Woodside Road, East of El Camino, in an even worse area. They're going for the Emeryville standard: build condos in the worst part of a rail corridor, carved out of Section 8 housing neighborhoods.

The Ikura is on me.

The Ikura is on me.

I will get some Uni.
Add one quail egg.
We have a cholesterol feast.

Converting chickencoops to living quarters for $79K MIT graduates in the Bay Area?

Even my cat lived better when I was living in San Jose, and he doesn't have any fancy college degrees.

Certainly there is some sort of larger metaphor being presented to us by this whole housing hysteria. Certainly it is an image of some higher, unpleasant truth.

Perhaps it's that California in general, and the Bay Area in particular is nothing more than a giant friggen' psych ward, where the inmate pay
for the privilege of being incarcerated.

Certainly the Bay Area is becoming a caraciture of its former self, if
not a shell.

Pray for the housing bubble collapse...

Pray hard!

Perhaps it’s that California in general, and the Bay Area in particular is nothing more than a giant friggen’ psych ward, where the inmate pay
for the privilege of being incarcerated.

There is a term for it: voluntarily committed! :)

“Is it earlier than normal for sellers to re-list”?
--I’m not sure that re-listing is part of the normal protocol.

DinOr--
I recall hearing about sellers delisting homes over the winter, hoping for things to pick up again in the spring. I'm not sure that's the case, but I'm seeing inventory pick up again. Perhaps this is a seasonal norm.

Pray for the housing bubble collapse…

Divine intervention is not necessary. We should pray hard for America though.

If you are serious about selling your “home” why would you take it off the market for a few weeks then “re-list”. What’s the strategy here? Is this like “window re-dressing”?

They are attempting to manipulate buyer psychology.

Now you see it. Now you do not. Now you see it again. Buy before it disappears.

If you are serious about selling your “home” why would you take it off the market for a few weeks then “re-list”. What’s the strategy here? Is this like “window re-dressing”?

They are attempting to manipulate buyer psychology.

I don't know if there's any truth to it, but I did notice a significant drop in home listings late November to Dec '05. All the same, I can guess which sounds better: listed since July 05, or just listed Feb 06.

I don’t know if there’s any truth to it, but I did notice a significant drop in home listings late November to Dec ‘05. All the same, I can guess which sounds better: listed since July 05, or just listed Feb 06.

Yes, realtors can point to the listings and say that most entries were listed not long ago. Meaning: buy now or they will be gone!

When a property sits on the market for a long time, people start to wonder what’s wrong with it. The de-list/re-list combats that psychology.

The price is wrong. This fact cannot be corrected until the price is significantly reduced.

Also, any respectable buyer's agent should be able to dig up this relisting history.

This is really flirting with some core ethical issues then isn’t it? I can see someone backing out of a listing b/c of personal issues, job transfer didn’t go through etc. This is getting awfully silly for adults, why aren’t there at least some guidelines as to what is ethical/legal here?

I tend to agree here. But to me it is mostly a silliness issue. Any rational buyer with a competent agent should be able to see through the smoke.

But again, I can also say that a rational buyer in this market has wings. This statement is just similar to "a unicorn has one horn".