patrick.net

We have kept pushing our limit from 800K to 900K, now it looks like we need to go beyond 1M.

How does it affect your financial picture if you get a mortgage for the 900K - 1M house?

Remember, we can rent indefinitely until the price/rent ratio normalizes.

Remember, one guideline states that your PITI costs should not exceed 1/3 of your gross income.

For a 1M house with a 800K mortgage (assuming 20% down), the PITI is about 6000 a month.

Nancy,

You're not crazy, and neither are we (at least most of us). Most everyone here believes that the Bay Area's RE market will correct. There is a lot of disagreement about exactly when, how long, and in what form. It is very hard to time any market; RE is no exception.

It's quite possible that things could get better and head up again, for a while at least. But the economics of affordability mandate that RE prices *must* return to "mean" affordability eventually. I can't tell you when eventually will be. I hope for my own family's sake it'll be sooner than later. I suspect I won't have to wait too much longer.

I've said before that each person has to evaluate their own personal finances, life priorities and needs. If you can afford a 30 year fixed mortgage (or 15 year if you're older than 35), with 20%+ down, and you can stand to stay there for a long-term (maybe 10-15 years), then you'll probably do OK buying even now. I really doubt you'll lose any equity in that time frame, at least. I'm not a believer in the theory that the CA correction will be like Japan's. I more think it will be like previous CA corrections, just quite a bit steeper.

As to your agent: remember, (s)he is a salesperson for the seller. Yes, even your "buying" agent is working to sell the home. In fact, every single intermediary in the transaction is serving the seller's interests first and foremost. For example, when you hear "but the seller pays for that", think to yourself, "Wait a minute! I'm the one ultimately paying for everything here as the buyer. Everyone else is going to take a cut of what I get my bank to fund". When I bought my first home, each party actually still usually had to use a lawyer. Although that was expensive, and inefficient, at least the buyer actually had someone on their side.

I am not sure if I agree with the logic of using what someone else pays for something to determine what you will pay. The place I am in sold for $266k in 1993. I paid over double that in 2001. So they made a nice profit, whatrugonnado? That was then, this is now. That is like looking at a stock chart and saying, "oh someone paid less 5 years ago, the hell if I am buying that!" If you think things in general are overpriced, that's one thing, but personalizing things to that degree doesn't make much sense to me.

Remember, one guideline states that your PITI costs should not exceed 1/3 of your gross income.

I would use a max of .28 of gross myself. But .33 is ok, so long as you're reasonably young with upside, and/or very confident in your career and industry.

I would use a max of .28 of gross myself. But .33 is ok, so long as you’re reasonably young with upside, and/or very confident in your career and industry.

I agree, 0.28 is right. 0.33 is already stretching. 0.5 is highly speculative.

Consider a 1M 2/2 upscale condo with a large master bedroom and the works in the Peninsula. That segment may not be too compressed either.

Determine what young (silly) families are buying. Avoid those homes.

NOT HOMEBUYING ADVICE

That is like looking at a stock chart and saying, “oh someone paid less 5 years ago, the hell if I am buying that!” If you think things in general are overpriced, that’s one thing, but personalizing things to that degree doesn’t make much sense to me.

It's because corporate equities and houses are apples and oranges. I have no shortage of quite reliable mechanisms available for valuing equities (note this is different from predicting price movements). Most readily, I can value the entity's free cash flows.

With a home I have little to use as constraints in valuation, aside from medians, history, affordability, rent-to-mortgage, etc. So looking at past sales and applying an intuitive "sniff" test to them is very reasonable.

If I found a home to buy in 2006 that sold for $185K in 1993, then $850K in 1999, fine. I won't worry that gain too much. But if the same home then sold for $1,049K in 2004, and that buyer is now trying to sell for me for $1,550K in 2006...forget it. It's them, not me, that are basing their expectation of selling price on past gains. (these numbers roughly mirror a personal corte-madera situation; btw, that home never sold and is now empty assumedly being prepared for rental).

US is headed for a war in Iran. This will be interesting as it will help the Nation to concentrate on something else while their home values goes down gradually. They will be more worried about their protection when the threat level will be raised to the highest that they will conveniently forget that the house prices are back to what it was before. A scapegoat in the making.

My thoughts - US should stop trying to police the whole world and worry about itself first. Is the whole world scrutinizing the Nuclear shit that US is building up? No. No one cares. Because the rest of the world is secure about itseld and US is unsecure about itself.

Is there a good way to monitor the fall-through deals?

Since buyers are still callow and sellers are still in denial, I expect more deals drop out of contract due to financing.

Nancy,

before you make an offer, go to foreclosure.com to check if it is a preforeclosure sale by owner.

Honestly, for 800K-1M, what you get now is absolutely crap in the Bay Area, because that is the ceiling of what higher earner families can borrow. You will be banging your head against the wall 12 months from now for buying into a sh*thome.

I don't see what you see at all down here at West Valley. Nothing is moving, I mean, literally nothing. Some small reductions like 50K, 25K here and there but no takers. All the pending sales on MLS have been there for 2-6 months (who knows if they eventually cleared or not). Not only that, I have seen some houses on and off pending sale for at least twice!! Inventory in Saratoga and Los Gatos has been swelling, 280 homes sitting tight, delisted, relisted, sitting, delisted again, relisted, etc. the cycle goes on...A few homes are already listed at a price lower than the owner paid for 1-3 years ago.

30 miles away, Gilroy is already seeing 200+ homes sitting...Morgan Hill around 150+ homes, pretty much the same situation as last month, delisted, relisted, sitting...I won't call this market going up, what went up? The price has to clear in the market, if these homes are all sitting, whatever price they ask for is all irrelevant. If some idiots want to outbid you, let them be, one less potential buyer down the road to support the price when it starts to free fall.

Zillow is good for one thing: providing transaction record of a home. You can look up what the seller paid for the home and when he bought his home.

There are quite a few flippers who are trying to sell their homes 200-400K higher than what they paid for a year ago. Yeahright, like that is going to fly.

"Inventory in Saratoga and Los Gatos has been swelling"

I'm seeing the same thing. Also, it seems like NOTHING is moving in Santa Clara County. Inventory had been sitting over the past week - nothing being sold or added. However this week inventory is taking off again. So if the RE market in the Bay Area is "picking up" it must be somewhere other than the areas I follow.

Peter P,

I am just very suspicious of these fall-through deals. For example, there are homes A, B, C, D, E. On a particular day, A, C are on pending sale on the web, the next day (yes, one day later), B, D, E will be on pending sale while A and C have no more pending sale signs in the database! I have seen this too many times, which leads me to believe that some MLS agents are just randomly slapping on pending sale signs to existing inventory to make the market look more active. Since no one is buying, who will know?

I just don't buy the story that so many properties can fall in and out of pending sale repetitively.

DinOR-

I didn't mean to imply that you shouldn't care about the pricing of an individual house relative to the market; I was trying to say that another person's _profit_ shouldn't influence your bid as long as the price is reasonable to begin with.

I just don’t buy the story that so many properties can fall in and out of pending sale repetitively.

It is possible, especially when it is increasingly difficult for buyers to obtain financing. Many people may still think it it is possible to get a 4% IO loan. The payment for a 6% IO loan is 50% higher than that of a 4% loan!

Obviously, we cannot ignore the possibility of information manipulation by certain market players.

Do you mean “sale fail” deals?

I think so.

I also saw a piece on the ratio of children to adults in SF and it was very low.

And the ratio of dogs to children is likely to be scary.

Hey Nancy,
what you are seeing with the prices going up is an age-old retailing trick. People are putting houses on the market at what the undoubtedly know is way too high in the hopes that if someone doesn't make an offer, which they won't, then they can "lower" the price so the buyer will think they are getting a deal when in reality they're buying at way more than what the market calls for.
Buying now only means that you're doing just what the lenders, banks, and homeowners want you to do- take the bag from their hands. Someone above mentioned that there are other areas in the country besides the Bay Area. As someone from TN, I can tell you that there is no shortage of areas in the country with people that are just as smart and educated, and areas that are just as scenic, if perhaps not more so, for a fraction of the cost. Keep your options broadened.

Believe it or not, there are still people who move to the BA for career opportunities. In fact, my wife just hired a finance manager out of Nashville who'll now need to figure out whether to buy in Marin or commute from somewhere near. Btw, this is the fifth out-of-state hire she's made since January alone. And, they're paying full move/relo packages for these folks.

I haven't relo'd anyone here in a couple years, but back in the early 2000s, I almost exclusively hired folks out of the midwest, mainly from big state schools there. I almost certainly will do the same again when I enter the next business cycle with my next company.

DinOR, let's hope for an open MLS then. I am not accusing anyone but the bubble bust is going to uncover many dirty tricks. I guess any manipulation (if it exists) can be seen as a support for the case of an open and transparent system in the future.

I still want to see realtors as honorable people.

Believe it or not, there are still people who move to the BA for career opportunities.

We do have better sushi, although Boston has better lobsters.

Hey Seattledude,
You seem pretty depressed about the whole thing. To sort of put your mind at a slight ease, just look at the basic facts. The average homeowner tends to be older, established, etc etc. I don't want to turn this into another ugly anti-boomer thing, but the reality is that the population in control is in a limited supply. The price of housing may go up, but there are only X number of these said groups who can continue to push prices up. Eventually, it will all boil down to us- the younger middle income folks who don't make 6 figures, who want to lead normal lives replete of the java houses and Ipods. In the end, it will and is people like us who have the last say. When the US runs out of people who can afford, then thats that, and those old folks will probably die sooner than later anyhow. The day is coming.

I'm turning cynical on the prospects of the OpenMLS Act passing. The RE interests are already starting to test-market defensive positions. What I've seen is just so terrible and cynical in its own right that it'll almost surely work with the mass-voting-population.

Peter P,

while true fall-throughs happen, do you believe that it only takes a day or two for the deal to fall apart? This is what I see, one day house A is pending, the next day it is not, two days later the same house is pending again, another day later it is not. If we do have a cursed house like that, so be it, but there are a few houses falling in and out in the same fashion with very elusive pending sale signs coming in and out of the database.

I believe when this bubble eventually bursts, interesting stories like this will be revealed by insiders. When someone makes an earnest offer on a home, I don't think the bank can turn around in a day and tell him, oh yeah you're outta luck on your valuation. If the seller is fooled once by an careless buyer, you'd guess he will learn the next time! Oh no, he keeps getting these irresponsible buyers who can't line up financing in time.

When someone makes an earnest offer on a home, I don’t think the bank can turn around in a day and tell him, oh yeah you’re outta luck on your valuation.

But it does not take long for the loan clerk to laugh out loud when the payment and income is so out of whack.

Peter P and I just expressed hope that the “cartel” is not beyond redemption and now this?

I actually thought of growing up to become a realtor when I was in grade school.

People typically have pre-approval before making an offer. You don't just go in and make an offer assuming the bank is going to approve. Unless conditions change drastically between pre-approval and offer making, buyers have a good idea of what they can borrow.

And I am talking about homes around 1-1.5M, it is not your typical I/O loan homes, I would assume the buyers at least know what they are doing.

And I am talking about homes around 1-1.5M, it is not your typical I/O loan homes, I would assume the buyers at least know what they are doing.

Really? ;)

People typically have pre-approval before making an offer.

True.

Seattledude,
Perhaps you need to take a road trip. I'm not meaning to sound arrogant,
but I think that many people who live in Seattle, SF, NYC, LA, etc etc have a very skewed perception of what the rest of the country is really like. Are prices going up in places like NC and TN? Yes, but only because the prices were insanely low, as in 45-60k for a 1 bedroom home even within some of the major metro areas. Every time I go home, I get thrown back into reality land. My brother, who's 22 years old, goes to school, and works as a waiter part time bought a house last year- a small 3 bedroom deal about 10 minutes outside of Nashville. It's sort of ugly, but it cost him 40k.He did it because it was cheaper to buy than rent. While we were driving through, there were a number of houses- nice houses that weren't even over 70k. Houses that in the Bay area would be more like 700k.
Understand that what passes for median in CA is crap just about everywhere else. So in reality, when the press compares the "median" home of NC to the "median" of CA, they're comparing crappy little stucco houses in SF to some 2 story suburban home in NC. The equivelant of a CA median home in NC easily goes for 50-60k all day long.
In essence, CA,NY, etc have been out of touch with the rest of the country for years. Either you can accept that the wealthy class will rule these overprices areas for who knows how long, or ask yourself a serious question: what is importan to you?: Where you live, or how you live. If how you live wins, then you move. Trust me- I made that call a year ago and even if prices come back down to 1997 levels, I'm still leaving because in my opinion, the priority of people in CA are way off the mark to what I think is really important, which is family, good community, and a look to future growth.

Seattle...
If you're looking at prices online, then that's totally the wrong way of going about it. For one, sites like Craigslist, and all the others in the like are full of listings from places like NC by people who know that Californians and New Yorkers are desperate to get their hands on anything under 500k. So they list houses for way, way more than they would get for them from the locals. 160k is still pretty damned cheap right? if you move outside of the immediate Raleigh area, things get cheaper real, real fast.My aunt lives there. A few buddies of mine live in Chappel Hill, a quite college town. The way the highways and infrastructure works in the southeast is diffrent than it is here. The freeways are newer and made to accomodate way more people that currently live there. My folks both live about 20 minutes outside of Nashville, which in the Bay Area means you live across the Bay bridge, but in TN means you live in the next county. Traffic is almost non-exsitent.
Crime, race problems, and bad weather exsist in every part of the country. TN has had a warmer, dryer winter than SF for the past 2 years. It's rained practically for the last 4 minths straight here.West Oakland, Hunter's point, Richmond, and parts of Hayward have some of the worst crime in the country. Race problems exsist here too.. Just look around and wonder why everyone who's black still lives where everyone is still black, and all of Marin is white and rich, or that most of Hayward is immigrant hispanic. Meanwhile, Did you know Nashville has the largest Turkish population in the US?
I think you've already made up your mind that you're here to stay no matter what god-awful odds are against you in order to avoid things that exsist pretty much everywhere. I'm just saying man, but when I hear people say that things really suck, and they have no options, I always remind them that there's a whole big country awaiting them. If that's not good enough for them, well they can just suck it up and try and compete with the Bill Gates and Google Execs next door. Good luck to you anyhow. There's simply way too much news and gab pointing to an end to the boom to simply think it won't end soon.

I've posted quite a bit about regional inflation differentials in the past. The reason that so many rural midwestern, plaines and southeastern areas are "cheaper" has to do with the uneven inflation following the 70s/early 80s stagflationary periods and subsequent growth.

I refer to Bruce Greenwald's (Columbia University) work on this. It is generally *not* an advantage for these areas; quite the contrary. Of course, an individual can benefit 1-time by moving from an inflation-parity area to an inflation-depressed area. But, these areas have become the US' poverty traps (don't get upset about the name, it just refers to Easterly's economic work). The primary problem in these areas is that they lose out on nationally priced goods, which are driven by inflation-parity, not local economies. In fact, this relates directly to the Wal-mart strategy that was being hotly discussed last thread or two. You see, just because you live in Nowhere Indiana, and the median home price is say 90K, and the median family annual income is say 75K, and the local inflation is say 1%, you still suffer the national inflation when it comes to anything priced outside of your local economy, like cars, durables, travel, financial products, some portion of: insurance products, energy, food. Since your dollars aren't inflated, you're being bled by those who's dollars are inflated.

Randy,
My whole family lives in the south, in places like Ardmore Alabama, Knoxville, Nashville, Atlanta, Chattanooga, Memphis, and Raleigh. Most live outside these metropolitan areas by a considerable distance. My parents are teachers making a combined income of just under 70k. My aunt makes 45k. My uncle and Aunt( who doesn't work) makes maybe 55k. Yet in every single case, they are doing considerable better than anyone I know in the Bay Area int he same bracket if you measure material posessions, which is what this whole forum is about- the posession of a home.
My parents own- as in paid for- a 3 bedroom, 2 story home with 22 acres of land, an inground heated pool, a 2 story workshop along with 2 yard tractors to mow all that lawn- new ones at that with get this: cruise control and air-filled seats, 2 rental houses that are paid for as well, and even the side of a ridge with almost 2 miles of trails.They also own 2 newer cars, a Tundra and an Avalon.They bought this on my mom's salary, which in 1974 was about 9k a year. Even now, they still make considerably less than the national average, yet live very comfortably. My Aunt who hates work makes 45k, owns her large 1920's home in Memphis, works as a librarian, took a year off to travel, now works as a youth director. She just bought a new car, a toyota camry. My Cousin and her family with 2 kids bought a 4 bedroom home in Montgomery. He flies planes. She doesn't work.
I'm not sure what that report you mentioned was all about, but it was obviously written by someone who doesn't really know what they're talking about. The facts are that people in the Bay Area have the lowest standards of living in the country,which flies in the face of common thought since supposevly, things are progressive and forward here... right... Ask that question in context of the forum- material posessions, and perhaps that will place real meaning to the word:"value"

Try realtor.com

Seattle,
I'd call up a few area real esate agents. I did that when I was prospecting in Austin. The agent told me all the areas that were around it because Austin proper is a tad pricey. Very helpful. Seemed that anything I looked at on CL was in the 2-300k range, but I found a lot of homes in neighboring round rock for 80-100k. Pretty cheap. Also- if you have a relative there in raleigh, next time you go, take a look around. If you do it online, You're making yourself vulnerable. A couple from Burbank just bought the house across the street from my aunt in memphis- a large victorian, for 250k without even looking at it. They think they got it for a song, but it's way, way more than what the local market is, so it doesnt hurt to look there yourself if you're at all serious. I know I'll do the same thing when the time comes. Heck- I'll probably rent a place for a few months so that I can make sure and get the house I want at the price I want. I know that there are tons of CA residents that are just buying the first thing that comes up in these places, and this is stupid. I know it irratates my aunt because she can see her taxes going up and up if more people like that keep throwing money at houses they havent even seen.

nomadtoons,

I’m not sure what that report you mentioned was all about, but it was obviously written by someone who doesn’t really know what they’re talking about. The facts are that people in the Bay Area have the lowest standards of living in the country,which flies in the face of common thought since supposevly, things are progressive and forward here… right… Ask that question in context of the forum- material posessions, and perhaps that will place real meaning to the word:”value”

Just because I disagree with you and am willing to state such does not mean that I am attacking your value-system. There is room for debate; that's the point of a forum like this.

I assure you Bruce Greenwald "knows what he's talking about", as do I. You cannot verify that I do, but you can read Greenwald. I'm not making value judgements, just pointing out economic truisms. In fact, I made absolutely no claim about quality of life. There is no shortage of empirical data to back up what I'm claiming. I'm not attacking anyone's opinion, but there should be room for a few facts in these discussions. Anecdotes and opinions do not facts make. (I won't even refer to the fact that census data shows comparatively marked *generational depopulation* occurring in nearly every US rural region.)

My daugher is going to kindergarten this year. I want her to be in a good school.

How much is private school? How much is the mortgage going to cost you?

The buyer is an “investor” from Shanghai.

LOL.

West Vancouver

Is it across the Lion Gate?

Just got a call from my agent saying my last offer was rejected. There were more than 14 offers and mine is $100k short. The house is in west San Jose area, listed ~$940K. I offered more than the list price. Now I feel much reliefed. I’d rather rent.

Why bid when there are 14 offers? You are just added stress to yourself. You need to manage your own psychology.

I looked at a newish house in Palo Alto that was asking for under 1M. I know it is one of those. The seller has the absolute freedoom to ask for 100K (to start a bidding war of complete destruction) or 100M (to have the house with the highest asking price in the Bay Area).