patrick.net

Feel free to post a rebuttal to Danielle who posted that on my site.

Feel free to post a rebuttal to Danielle who posted that on my site.

What is the point?

Eventually, reality always asserts itself over wishful thinking, and such realignments are sometimes abrupt, as illustrated by the collapse of the high-tech bubble a few years ago.

-- Donald Kohn, April 22, 2005.

eburbed,

When sales are down and inventory drops, it means people are pulling their properties off the markets, or aren't listing them because they don't think they'll get a good price.

Inventory = Inv - HS - HDL + HL (Houses Sold, Delisted, and Listed)

From what I saw from DQ, housing sales have dropped again. That suggests that HL is down, HDL is up, or a combo of the two.

I've seen multi-offer houses going down in the southbay area. But it's almost always from setting an initial 'low price' to drum up the interest. One house listed at 749,000 and sold for 815,000. Just down the street, there was a house with the same 'basic' floor plan, but with the obvious additions (master bed and expanded family room)... and it was selling for 998k. And sitting on the market for months. Just recently they dropped the price to 918k, hoping, I suspect, to get a little 'bidding' action. In reality, they need to drop probably to 850 to get the 'sold above asking!' action.

The cagey sellers right now are offering low and pulling in about the best price they can... but still not as good as they could have gotten a year ago, and certainly not as good as 2005.

I suspect there is a group that saw the 'spring bounce' in comparables stay pretty flat and are holding off listing.

For all the criticism of a low asking price to get multiple offers, I will point out one obvious thing. Their real estate agents are encouraging these people to price to sell. And who knows, maybe some houses going on the market now are owned by people with a very low basis from 10 or 20 years ago. A $100K drop might sound like a lot, but if their house has appreciated by $600K in 10 years, why not just take a hit and start your retirement now?

I think folks on this blog often forget that most of the Bay Area homes probably haven't changed hands in the last 5 years. Hence why some homes rent cheaply, and why many people can still afford to sell their house for the slightly lower 2007 price.

When sales are down and inventory drops, it means people are pulling their properties off the markets, or aren’t listing them because they don’t think they’ll get a good price.

I was really hoping for some fear and desperation.

theOtherside:

Really, you're starting to embarrass yourself now. You know better.

Here's a bigger CSI graph for you, with a line on it so you can see how full of shit you are.

Listen carefully. Read slowly...

The Case Shiller Index is benchmarked at 100 for prices in 1890

Look carefully, nearly 40% of the 20th Century was spent BELOW 100, meaning houses LOST VALUE from 1890 through 1945.

And the recent 70s and 80s booms saw the index drop to about 105. Wooohooo! A home in 1984 was worth 5% more than 1890. 1997 prices where a whopping 10% higher than 1890. 10% real return in 107 years. Man, who needs the stock market?

I've written numerous articles on my blog explaining CSI for ex IBs like you, but you're apparently too intimidated to come on there and debate in a no-bullshit forum. I'm still waiting for your input on The Bubblizer, which you promised 6 months ago. You told me you could quantitatively prove my model was flawed. I'm still waiting.

http://www.housingtracker.net/old_housingtracker/location/California/SanJose/

Housingtracker shows inventory is up in San Jose.

"In short, the biggest problems were that they usually charged higher interest and also possibly higher fees" RE mortgage acceleration

One more thing because this made me think of something. Even all things being equal, I actually have heard of people doing entire refinances to do this. Here is some sound advice.

Refinancing to do the 26 vs 24 payments is the stupidest move in finance someone can do. To actually go and get a new loan is an absolute waste of all the fees.

The other really dumb move, and I actually know and have heard people on call in shows talk about; is to refinance a 30 year loan to a 15 year loan with no additional benefit in rates. I hope everyone here is shaking their heads saying 'no one could be that stupid' but there are people who don't know that they can just up their payment by a small amount to do this. If anyone has ever done this, keep it to yourself and learn for the next time.

Brand,

I don't think anybody is hating on the sellers who price below current expectations of 'market value' to drum up multiple bids on their houses. It's EXACTLY what I would do in a buyer's market. Once you get people 'bidding' against eachother, you get a much better price than the one you would have gotten from the eventual winner if he'd been the only buyer... maybe not by a lot, and maybe not always, but on average, yes, a slightly better price... and much faster!

Those are cagey sellers.

The ones that are screwed are the ones whose outstanding mortgage is more than the 'current' market price, and who will 'chase the prices down' the market, losing more and more money to interest.

Newbie mistkake? I posted to the previous thread (reprinted below for comments).

What am I afraid of? Continued stupidity on the part of buyers, head-in-the-sand RE "experts", and new stupidity on the part of the pro-bail-out camp.

(from previous thread post):

I have been enjoying this blog for about a year now. Given the MENSA qualities of the posters, I’ve been intimidated to enter the fray (those econ models and formulas freak me out). But what I can offer, as a true lay person and bona fide non-expert, is my own experience and my ’simple’, common sense opinion about real estate in the Bay Area.

To CMAC’s question about rental rises:

I was recruited to the BA from Southern California in 1997, with all the lure that was so very rampant at that time — the sign-on bonus, the low strike-price grants, the paid relocation, the silly toys and the dorm like environment, etc. — and God was I shocked at the rental market! I mean, it wasn’t like I was moving from an inexpensive area!

My roommate and I basically took the *first* apartment we could find in Santa Clara. We hadn’t even seen it. But given the wait lists we’d encountered, we simply had to take the first place we could find.

Long story short, my company was purchased, I went to another start-up, went IPO and then bankrupt, got purchased, then purchased again by an even bigger fish, and voila, I ended up in San Ramon in 2001. All the while, the H1-B visa holders left en masse. You could easily find a parking spot or leisurely walk the mall at Valco unimpeded. The tech bust became fully realized.

What a lovely surprise to pay less rent for a much nicer apartment deep in the burbs. More shocking, I pay less rent now than I did 6 years ago when I moved in. That’s not a type-O folks. My rent fell every six months for the following 5 years. I did experience one increase (5%) last summer, but still, well below the original lease.

It doesn’t take an Alan Greenspan or a fancy model to see what was happening/ is happening. Rents have been consistently falling while real estate prices have been going through the roof. This unbelievable trend defies all the fundamentals and all known historical models. If it smells like sh*t, looks like sh*t, even tastes like sh*t (which many FB’s are well familiar with), then it is indeed a big, heaping pile of steaming sh*t. Lowly renter that I am, I can move at a moment’s notice, which in the M&A craze of the Silicon Valley is a nice option for an American-born engineer to have.

In addition, *every* weekend for the past year, I’ve seen poor schlubs standing on all the major corners with those ridiculous signs, pointing me, desperately, to the many new developments within the Dougherty valley. For the first time in all these years, I’m seeing “For Rent” signs as well, for the multi-million dollar homes in my subdivision.

I see empty units all around me. I regularly receive flyers from the management, offering discounts on rent to refer friends. And that 5% increase? They returned 1/2 of that increase to me (over six prior months) when I finally signed a 12-month lease.

Rents going up? I think not. At least not in the Tri-Valley area. There are so many new condos and SFHs as well as new apartment complexes, that the increased supply necessarily demands a relative lowering or at least stagnation of rental rates. Considering inflation and my increase in salary (yes, “Uh-Amekican” engineers are still getting courted and paid well in the BA), I am making out very well. Gone are those days of IPOs and VC capital growing from trees. BA software companies have to recruit from the residents who have some how eked by in this area. For sure, foreign investors are still coming to BA to buy, but keep in mind, they aren’t workers, they’re investors. Somebody still has to write the code and evangelize the product to US clients (the insurmountable logistics surrounding outsourcing are a whole ‘nother thread, but not entirely unrelated to RE issues in the BA).

For any FB’s or Happy B’s out there who look upon my cohort with pity and disdain, save it for yourselves. My savings and investments are doing quite well, thank you very much.

Question for FAB: In your experience, have apartment management companies been able to pull off a 10%+ increase on current residents? I have not seen that succeed myself (i.e. lots of empty units appear suddenly) but given the crazy RE economics of our last 5 years or so, I suppose anything is possible. I’m particularly interested in the large management firms, as they have the foot hold in most residential areas, still.

Thanks much,
-LSR

Very right LSR....

Here is a recent take on Tech Economy...

http://www.siliconvalley.com/mld/mercurynews/news/16293878.htm

Private equity set to reshape venture capital industry
By Constance Loizos
Mercury News

Private equity firms, already reshaping wide swathes of American business, are poised to begin shaking up the venture industry, too.

In a new survey of venture capitalists' 2007 predictions, 71 percent of the 200 individuals polled by the National Venture Capital Association said that selling their startups to these giant buyout firms may become an ``attractive option'' next year.

It's a dramatic shift; the worlds of venture capital and private equity have rarely interacted.

SFBubbleBuyer -
You talk about Bidding Action. My question, are you sure these are real or fake biddings. It is almost impossible for me to verify if other bids are real. I found myself putting offers on two homes however on each time I was told to up the offer because other offers... "will you go higher". In each case I was not told how much the other bids. In both cases I declined to counter offer and backed off the deal. The homes stayed on the market for months afterwards and did not sell.

Do you trust these multiple bids we hear of? How are you verifying if multiple bids actually exist?

I can't stand cupertino but I know some of you like it for the schools. Here's a foreclosure for you:
http://sfbay.craigslist.org/sby/rfs/296769918.html

Held on for a year...

eburbed, I've got something for Danielle. She may not realize that there's some extra inventory coming her way. These are NODs sent out through Jan '07, before the lending screws tightened.
http://www.flickr.com/photos/7409273@N03/427735192/

theotherside Says:

> Randy H, The green line (post war trend) on your graph
> is ONLY an expression of your beliefs or crystal ball

Below is a graph that compares homes to inflation:

http://tinyurl.com/2m2wgu

Patrick, I don't think your WordPress site remembered to spring forward. Comments have time stamps that run one hour behind... Not that it matters, but I just noticed.

New thread: If you are a NINJA…

I have a question for you engineers out there. I want to do kind of a mashup but I don't know if the data is easily accessible. Tell me if this is possible:

Grab current for sale price (from anywhere, MLS, Ziprealty, etc) and the previous sale price (Zillow). Ideally, you'd spit these results out on a map, but I'd settle for a list.

I'd like to identify all properties that qualify as "short". You could define short as purchase price > sale price, or if you wanted to get really technical you could figure selling costs into the equation to determine the approx. seller breakeven.

This data is available but not easily accessible. You can find it (one property at a time) on ziprealty. I poked around in the zillow api, but it's not built for this kind of extraction. Any ideas?

PAR, just make sure you watch out for acceptable use policies.

Inflation is defined as growth in money supply, not price inflation as reported by the government.

Wrong! Inflation is defined by the constant 2%. :)

Thanks SpaceAge, for posting some support.

Overall, I think it's good news for the common, working engineer (and, after all, we're the preponderance of potential/future buyers in the BA RE market right?). Where IPO's previously landed us with riches, we now have stay-on bonuses to fund our personal fortunes whilst M&As (regardless of who is the 'A' or who is the 'M' company) churn on.... heck, I even made substantial gains on a company that ultimately went bankrupt. ;)

Does that mean I'm rushing out to spend 10X my income on a stucco ugly box? In the words of that real estate maven Whitney Houston: "Hells to the no!"

Thanks again,
LSR

GC Says:

> A good — rich — dad beats good
> grades, talents and good looks.

Many people forget that there are a lot of kids with “rich dads” who actually get less money than the kids with poor dads (who will go in to debt to give their kids money). Giving kids a lot of money is a big mistake…

I dated a girl as an undergrad with a dad ten times richer than my dad. Her dad made her work even harder than I did and gave her even less money. Like me she worked to pay for school (and like me eventually paid her way through grad school).

A dumb, ugly guy with no talents who has a rich dad that gives him a lot of money will do fine, but for a dumb ugly girl with no talents a rich dad will just probably increase the chance of her becoming a bitter old cat lady…

Many people forget that there are a lot of kids with “rich dads” who actually get less money than the kids with poor dads (who will go in to debt to give their kids money). Giving kids a lot of money is a big mistake…

It is all in the stars.

Space Ace, you can never be REALLY sure if there are multiple bids unless you're the person reading them. I'm sure there are many cases where the selling agent tries to 'talk you up' on your bid by hinting that there are many buyers.

The one property that I referred to, however, I was at on several occasions over one weekend, and heard at least 3 other buyers asking very 'serious' questions and making sure they knew when to get their bids in by, etc. Personally, I decided against bidding because I felt it was too much for what I would be getting anyway at the asking price, and basically walked away from the whole market for awhile.

Since it sold for 65k (9%ish) over asking, either the seller and his agent lied through his teeth and really suckered one buyer, or there really were a few people bidding on it.

I would never respond to a 'wanna raise your bid?' question. If they counteroffered, I would respond. But if they just say "Somebody else is bidding" to me, I'd walk.

BTW, I’m handwriting this using tablet PC. MSFT is great.

Which one do you have? Motion? HP? Toshiba?

Its so good to be a renter.
1) I can move to as many places as i want and not worry about any particular place.
2) my downpayment money is safely in the bank and can be easily moved anywhere i want to go
3) when shtf and gangs roam the street along with armed militia like they are in iraq a heavy investment like a house is a liability. You might have difficult choices such as being alive and homeless or may be killed because of emotional attachment to your house/neighbourhood.
4) Why take life seriously and constantly work to keep up with the jones?
5) If your job gets outsourced no problem, move wherever.
6) If after all this you still want to buy a house, use your 401k money and retirement money as downpayment and dont pay more than what you would pay as rent every month. If shtf your 401k money will go caput.

So it is an HP then. :)

LowlySmartRenter/LSR Says:

> Question for FAB: In your experience, have apartment
> management companies been able to pull off a 10%+
> increase on current residents? I have not seen that succeed
> myself (i.e. lots of empty units appear suddenly) but given
> the crazy RE economics of our last 5 years or so, I
> suppose anything is possible.

The only time I have ever seen an across the board double digit rent increase is when a new (or in rare cases current) owner wants a lot of people to leave so they can start a renovation project to reposition a property (This is in the past 30 years since Angelo Sangiacomo did raise rents more than 10% in the 70’s but he pissed off so many people that we ended up with rent control in SF)…

> I’m particularly interested in the large management firms,
> as they have the foot hold in most residential areas, still.

If you are a good tenant (landlords define a “good tenant” as someone who pays their rent on time and is not a pain in the ass) you can usually make a deal with a large management firm when you get a rent increase letter. The first step is to do your homework and “shop the property” and try and get a better deal on the phone. If they are giving a free ½ month rent or $100 to a current resident as a referral you are in luck. You will also want to shop the competition to see what other apartments in the area are offering. Even if the new units are renting (net of concessions) for more than your unit you may still be able to make a deal. Try and get to a decision maker and do some research to find out who he reports to (if you are renting from a REIT you can get a lot of information from the annual report). A friend in the San Ramon Valley said that his manager couldn’t believe it when (based info I gave him) he told the guy that he was going to write the CEO of the REIT (with a cc: to the Directors) and explain how “instructing a manager to push good tenants out for $50 a month to get a market rent that net of concessions was lower was not the way to increase FFO and shareholder value”…

P.S. You will have even better luck with a fee manager than a REIT manager if you talk about writing the owner of the property to discuss the upside of your rent increase vs. the cost of renting it to someone else…

You can say that. But I believe the case still has Compaq’s name on it.

Did you have that for a while? The new tc4400 is pretty nice. It even has a keyboard just in case you are sick of scribbling. :)

Any recommendation on text-to-speech software? I want one with AT&T natural voice. They even have one with British accent. :)

I need a computer voice that does not put me to sleep.

SFBubbleBuyer-
Thanks for your input. I have spoken to sellers. Of the 3, 2 told me they only rec'd one offer and the offer was 10% asking.. Shaking my head.. how would anyone overbid themself. As many older homeowners tell me .. Your offer should always be under asking.. actual price is somewhere in between. This could screw up the comparables if it hasnt already.

Im my world, Accounting/Finance especial due to SOX rules anyone using that kind of practice would get fired. Reminds me of the $500 hammer spending by Pentgon.

I do believe we need more visibility in the buying process. SOX type legislation would be good candidate for this kind of transaction. After all it would be tax neutral inpact. No taxpayer money involved.

LowlySmartRenter - Im double cursed since I have seen prices normally at 3-4x med. salary. Rather hard to shake off history trends of booms and busts.

"text-to-speech software? I want one with AT&T"

Att is suing the pants off microsoft for patent infringment. Shame on you Mr Bill-ionaire Gates.

theOtherside

Randy H, calm down…As I said before, I should really make sure that I never get stuck in an elevator with you, because I can feel the love :-)

Oh, I don't know. There could be worse things besides being stuck on an elevator with you.

By the way, the "green line" isn't mine. Thanks for the compliment though, just as when you complimented me earlier for thinking I was smart enough to come up with the HSBC model.

I hope you come to our upcoming Marin Brewing Company get together.

LowlySmartRenter-

I forgot to add, we actually are back to what normal SV would be. I would say today is far more like from early 1980s to mid 1990s before the IPO mania. There was no such thing as IPO shares before 1995. Its was only VC and founders that got that. Corporate offiecers typically didnt get this much in shares. That is why we had no accounting scandels back then.

There is some shaking out left we need but the more painful RIFs and Salary cuts are behinds us.

Really, can someone workout a better solution B extend the battery life?

http://www.epowerpad.com/300.html

I hope you come to our upcoming Marin Brewing Company get together.

When?

LOL! im using Linux Xandros which also runs MS Apps... virus free

I am under the impression that Windows is more secure than Linux. It is just that virus writers do not like Microsoft. :(

I type with confidence... between virus hackers and the crashs.. i switched
and didnt look back.. office is free browser is free OS is around $75 vs MSFT
at $350... what the heck OS is OS...

FAB,

Sound advice. In fact I did some of what you recommended about six months ago when the management tried to put the squeeze on me. First, I went month-to-month (which tacked on an extra $150/mo.). Next, I gathered comps. Lastly, met with the manager and explained that his asking price was comparable to the apartments in the area, BUT, they are all brand new buildings, built literally within the last year. So why would I pay the same price for a 1980's apartment? He relented, I got a rebate, and we signed a 1-year lease for a more reasonable rate.

It remains to be seen what I'll face when the lease expires next year. I've copied your suggestions to my own file and will certainly have them handy.

Thanks
LSR