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Peter P
2007 Mar 22, 9:36am
Does this make any sense? Wouldn’t an increase in house prices increase underlying rent as it is the way owners extract value from their asset?
Renting and purchasing are alternatives to each other. On the other hand, asset pricing is driven primarily by expectations of future pricing. Here we have an interesting interaction between the two.
Peter P
2007 Mar 22, 9:39am
Do you prefer your realtor to tell you…
“There are other bidders, Can you go 10% above asking?
People can tell me anything. I listen to my inner voice. (And my astrologers.)
Trust me, auctions can be brutal. This is why I will only use Buy It Now at eBay.
sfbubblebuyer
2007 Mar 22, 9:41am
You can't force rents higher because your mortgage is high. With a bunch of new houses going up and people buying houses, the number of people renting decreased, lowering demand, thus lowering prices. You'll see the occasional FB trying to rent a 3/2 for enough to cover his PITI, but they won't be able to rent them out for that, and quickly drop down to close to 'market' rate. It slows the hemmoraging of cash.
Rents dropped because a lot of people left the BA after the dot com crash, and there was much more rental space than was necessary. With people buying all the new housing going up, even fewer rentals were required. With the speculators now trying to rent out their properties, I doubt we'll see much of an increase in rent even as the foreclosures start the shove FBs back into the rental market.
If a lot of speculators and FBs manage to hang on to their homes through the next ten years, we may see the 'golden' era of renting here in the BA... Housing stagnant, but rents not rising either.
Home prices from 1998 to today have been artifically inflated by number of factors. Rentals were inflated in 1997-2000 due to shortage of housing,
hwoever once demand for workers declined so did rental prices.
I quick note... Back in 1991-93
Home prices fell,
Rental cost fell,
Interest Rates fell.
In 1990 the workforce of SV was around 850K, todays its the same number if not less. So demand for housing has been flat for 15+ years.
Today home prices however have gone up 400% in 10 years...
never has this happened before in history.
"Here we have an interesting interaction between the two."
Peter, I would say we have an interesting "Divergence" of the two...
Just like the Divergence of NASD new economy and Dow old economy.
One went to the moon while the other did so so... we are no where near 10,000 on the NASD Y2K peak... we may never see that in our life time again.
Does a first TD $amount mean the amount owed to lender or the amount owned by buyer? Should I read this that the guy took a $1.3m loan?
Yes---buyer put $600K down and took out a $1.3M loan.
SFBubbleBuyer, what was interesting was back in 2000-2001, with all that vacancy for Commercial space the landlords (based in LA) didnt want to lower the rent from 3/sq ft... They often said, the BA will snap back... well we may be back... but in no way could a local company afford $3 per sq ft. The norm today is around 1-1.33/sq ft. thats 2/3 down since 2000.
Peter P
2007 Mar 22, 9:53am
Peter, I would say we have an interesting “Divergence†of the two…
But the two compete for occupants (and specuvestors). When everybody runs for purchases, the demand for rentals drops. This is how they interact.
"I listen to my inner voice. (And my astrologers.)"
Yes im shure the Realtors help out with that too...
It only takes a few to pepper the area with fake bidders a
and force others in the market to the new paradigm.
You wonder if the realtors ever took their ques from OPEC...
Nice monoply they have on setting prices... Not an shed of light
on true values to the public. I just cant wait for the RE industry to get slamed with what Accountants have to deal with --- SOX legislation.
they are already talking about it in Congress...
Malcolm
2007 Mar 22, 10:01am
Peter P Says:
March 22nd, 2007 at 4:36 pm
Does this make any sense? Wouldn’t an increase in house prices increase underlying rent as it is the way owners extract value from their asset?
Renting and purchasing are alternatives to each other. On the other hand, asset pricing is driven primarily by expectations of future pricing. Here we have an interesting interaction between the two.
The disconnect between the two is the bubble. IMO it is actually reversed, increasing rents should mean the home's value has increased. A bunch of FBs though are going to disagree.
Thanks CB,
Some of my coworkers sold their home ... in each case it was the same... one offer only (which was accepted) and the only offer was 5-10% above asking. What gives!!! 10% above asking and only one offer? The sellers didnt care! Which is understandable! If I was the buyer, well now....
"At the same time, open house activities appear to be picking up. Could this be the start of a considerable spring bounce?"
Corporate accountants/FPA may look at this and say, Maybe backend loaded... borrowing from March sales. That may no look rosey when March numbers are reported...
Yea so many similarities like the software-internet equity bubble of 2000-2001. (what many call the dot.com)
"The disconnect between the two is the bubble. IMO it is actually reversed, increasing rents should mean the home’s value has increased."
You could add to that "wage inflation" as we saw in the 1970s. Some on CNBC are talking about stagflation returning.
Peter P
2007 Mar 22, 10:17am
The disconnect between the two is the bubble.
Yes. In fact, the disconnect happens because asset pricing depends primarily on expectations but rent pricing is all about now.
OK, I saw the weirdest foreclosure on propertyshark.com.
269 271 Collins St, SF
bought on 8/17/1990 for $3000
bought on 5/21/1990 for $170,000
in foreclosure now with $2,312,831.14 unpaid.
What is this?
@Space_Acer,
Perhaps the people who bought your co-worker's house readthis article before making their offer.
Peter P
2007 Mar 22, 10:22am
Perhaps people are just too serious about competitions.
The one thing better than winning competitions is winning without competitions.
If you have to compete, you are doing the wrong thing at the wrong time.
Space_Acer Says:
> Today home prices however have gone up 400%
> in 10 years…never has this happened before in history.
An earlier post mentioned that it is due to the fact that they are not making any more land...
Hello Harm -
As many old timers I spoke to would say it has been normal in the past to offer below asking (lowball). Somewhere in between is the actual. This has been true for decades... I researched this out...
I visit open houses today and been told "we expect multiple bids"
I still see those homes on the market 3 months later or pulled.
My favorite bits:
A Tough Fact of Life
In the Northeast and Washington, D.C., regions, many parts of California and other desirable real-estate markets, competing against multiple buyers -- sometimes known as an overbid situation -- is a difficult fact of life. Learning what to offer is part science, part intuition, say Realtors. "With a market that's still extremely hot, it's the only way to be successful," says Linnette Edwards, an associate broker who specializes in San Francisco's East Bay area for ZipRealty Inc., an online real-estate company based in Emeryville, Calif.
She and other real-estate brokers offer these tips to help you fashion offers that outshine others on properties you want:
...If other homes like the one you want sold for $50,000 over the asking price, "you want to bid to that highest dollar amount," says Stephanie Vitacco, a realtor with Coldwell Banker Residential Brokerage in California's San Fernando Valley..."
Research the sellers. Find out how motivated they are to sell and whether they want to buy another home. In this case, you might be able to make your bid more attractive by offering such concessions in your bid as allowing them to stay in your home for free -- also known as a "free rent-back"...
Factor in the number of other buyers making offers. The more bids being made, the higher the final price will go. Typically, competitive bidding raises prices by 5% to 20%, with 10 or more offers generating the highest amounts.
Write a letter to the seller. "Don't discount the emotional factor," says Ms. Edwards. One way to set yourself apart is to write what she calls a "love letter" to the seller describing yourself and your partner and children, if you have them, and why you want the house. You might even include pictures your children have drawn of the home.
Ms. Grove and Ms. Wells included a photo from their wedding and described themselves in a personal letter to the owner of the home they wanted in San Rafael. Although they didn't get the property, such letters often work because they set potential buyers apart and make the transaction less about money, says Ms. Edwards. "It sounds cheesy, but it does work," she says. "The cheesier the better."
...Bid an odd-numbered amount. Most buyers typically offer a round number, such as $400,000 or $405,000 on a home selling for $395,000. Try to determine the highest amount you believe other bidders will offer. Then if you bid an uneven amount that's slightly higher, say $407,250, you may outbid the highest round-numbered offer and win the property, says Ms. Vitacco.
...Make your offer as clean as possible. Try to remove every factor in your offer that might deter a seller. Include the highest cash escrow and down payments you can afford and as much as possible of the remaining payment in cash. If you need financing, secure a letter from your lender stating that you have been approved for the loan. Eliminate as many contingencies as possible; offer to have the property inspected quickly and to pay local closing costs, such as special taxes; and be ready to close as soon as possible. Don't ask for any appliances or fixtures that the owner wants and be sure to offer special assistance the owner might need, such as a free rent-back clause.
...Formulate the final number yourself, with guidance from your broker. "You can't expect your broker to tell you what to bid," she says. "I try to lead buyers to a reasonable conclusion, but I hesitate to put numbers in other people's mouths."
El HARM-O, I can do a "weekend" meeting with the board of HARM-X industries GmbH LLC
ROAD TRIP.
Yeah, I agree that BA natives have a hard time surviving elsewhere. The biggest reason is the weather, once you get used to this kind of Mediterranean weather, then any deviation from the ideal mix of temperature range and humidity becomes intolerable.
A friend of mine was thinking of going to FL after living here for about a decade. His theory is, you get the same sunshine but pay half the price, since he built up quite a bit of equity in his current home, so that he can cash out and buy a nice place in FL outright. He originally planned a full-month confirmation trip hooking up with realtors and job contacts, after about a week, he cut the trip short and admitted defeat by the Southern humidity.
Another friend moved up to Seattle, at first he was very happy because Seattle has more drastic and stunning mountains than the BA. Three years ago, he called me up and said although he was sick and tired of the overcast and the lack of job options other than Microsoft, he figured that he could never move back, because the delta between his home and equivalent BA home had become so big that the only way he could move back was to win an IPO lotto.
sfbubblebuyer
2007 Mar 22, 10:35am
I have a co-worker who is selling a house right now (inherited) and she listed the house low and had two offers on the property within a day or two. She went with the lower one as the person was actually putting cash down, so she figured they MIGHT have a chance in actually closing, unlike the high bidder, who was doing a 3% down piggyback.
Former Apt Broker,
We have plenty of open land. As anyone has seen we had more construction from SF to San Jose in the past 5-7 years than any other decade i can recall. And there is plenty more... what the heck do you do with Moffet Park or the Westinghouse factory in Sunnyvale... Anyone want to take a shot ...
Space_Acer,
I actually don't think we have that much land in the more discovered urban spots, Gilroy is of course is a whole different world with as much land as you desire.
I drove through some vacant lots in Sunnyvale, Cupertino, Saratoga, and what I found out was, the vacant land was either held by a local developer who bought it many years ago, or by the city for preservation, or voted down for development by NIMBY neighbors. If land was really not an issue, we would not have seen so many townhomes, SFHs and condos built on the fringe of the freeway.
If you go down 85, and get off any exit in one of the major cities, you will see a new residential development right off the ramp. I'd like to believe that developers may assign a higher preference to lots NOT so close to the freeway if they have a choice.
Harm quoted the article...
"Learning what to offer is part science, part intuition, say Realtors. “With a market that’s still extremely hot, it’s the only way to be successful,â€
Im an accountant by trade I work with numbers. In a audit everything has to be justified and documented. Else you get Enron/WorldCom accounting fraud. Even our corporate sales team works with visiability in contract negotations. I really feel we are going to see lots of fraud first before we see any bottom in price. When you read stuff like this, you really know something is wrong.
Based on the Wall Street Journal's sage advice, the Mrs. and I will be tendering an offer this weekend for a quaint 1 Bdm shack under the Freeway overpass in lovely "South" Los Angeles we've had our eye on for some time.
Since other similar crackhou... er, homes, have been going for north of $500K, we will be bidding at least $600K. We will be waiving any buyer contingencies (as this can only impair us in our goal of "winning" the bidding war), including home inspection. I am sure if there's *anything* wrong with the home, the sellers (a nice Gypsy couple) will tell us about it, right?
Per the WSJ, we will also waive the right to keep appliances, electrical fixtures, plumbing, wiring, windows, doorknobs, etc. Who really wants to keep someone's old doorknobs and plumbing anyway? And if the seller wants to remain rent-free tenants indefinitely at our expense --no problem! We can just continue to rent until the sellers feel "ready" to move on. Anything we can do to make the transition easier for those kind-hearted souls...
Of course, we *will* be writing the sellers a personalized "love letter" with wedding photo, telling them how much we worship them and the ground they walk on, etc. I'm wondering if we shouldn't also offer a free BJ to, you know, set ourselves apart from the other buyers?
Unfortunately, we do not yet have children, so cannot include pictures our kids have drawn of the home. However, we do have a very prolific cat, who has kindly contributed some "found art" to the cause. Here is Mr. Whisker's rendering of the seller's home:
@Surfer-X,
Sounds do-able. Do we know when the NCAL blog party is taking place? We should talk soon.
OO-
I think you will find new developments scattered inward as well. Bottom line there is lots of land out there.
Use Zillow photos...
5307 Fraschini Cir, San Jose, CA 95136
Actually I dont think we need more land, we have plenty of land already.
We can also look at the vacent business parks .. lots of space there!
We are already seeing that on Tantau in Cupertino... form site of Tandem Computers...
Local employers are not eager to increase spending in our area to due higher salary costs.
OO,
Yes, I know, but most sellers' minds and expectations are still stuck in Jan '05. I am just "Facing Reality". ;-)
Seriously, though, I really enjoyed re-reading that --an unintentionally hilarious reminder of how absurd things got at the peak. It must be preserved in the Hall of Shame.
LOL!
"You might even include pictures your children have drawn of the home.
Ms. Grove and Ms. Wells included a photo from their wedding and described themselves in a personal letter to the owner of the home they wanted in San Rafael. "
Feed the chipmunks everyday....
BAHAHAHAAH !
@HelloKitty,
If the wife is hot, make sure to ask for a ‘date’ with her too
:lol:
On topic.
Last thread I mentioned to OO that Cupertino inventory is around 72. Today it is 82. Evergreen is 338 according to Zip Reality.
I see inventory UP. The prices and sales in DQ numbers for Santa Clara are up as well. The price per SQFT jumped from 485 to 500.
This is in the fortress areas. The fringe areas show continuing decline.
This is very interesting. I am looking forward to April-May numbers to see if the subprime meltdown has any effect.
Peter P Says:
The one thing better than winning competitions is winning without competitions.
If you have to compete, you are doing the wrong thing at the wrong time.
No kidding. Also, it’s important to remember that competition is really for us proles. The truly rich never have to "compete" for anything. The only "competition" going on in boardrooms is: (a) who can get the most outrageous compensation package, (b) who can (metaphorically) screw over rank-and-file employees and customers the hardest, and (c) who can (literally) screw the most supermodels.
It used to be 10 years ago if someone was giving you 1 million dollars they a night with Demi Moore. Now they get a fixer in Cupertino.
LOL. But can she teach math to my kids ? Hah ... see that's why one buys in Cupertino. Your kids will be set for life. Glory and prosperity will be theirs. Live in a crappy house, give up all your youth years so that your kids can learn 2+2 better than other kids. You won't have money for their college, they MAY not give a sh1t about you when you retire broke, but hey ... you can't put a price on ELEMENTARY education.
Is there any proof that the same kid, over a lifetime, do better by attending a Palo Alto school rather than a Mountain View school?
Is there any proof that the same kid,
What more proof do you need ? People paying 75% of their net income is not proof enough ? Are you doubting the judgment of so many geek parents "with a bad case of school fetish" (copyright SP) ?
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There appears to be a significant drop in inventory on listing sites. At the same time, open house activities appear to be picking up. Could this be the start of a considerable spring bounce? What is going on?
Perhaps we need to brace for some impact.
[Note: This observation has not been confirmed by most participants of this blog. Please do not be alarmed.]
Peter P