patrick.net

Guys, here is the official defnition of *existing home sale* and *new home sale* from US Census Bureau

The devil is definitely in the details. Here you go:
http://www.census.gov/const/www/existingvsnewsales.html

New home sales and existing home sales are released each month at about the same time. Many comparisons are made between the two series, but before doing any comparisons, one must be aware of some definition differences that affect the timing of the statistics.

The Census Bureau collects new home sales based upon the following definition: "A sale of the new house occurs with the signing of a sales contract or the acceptance of a deposit." The house can be in any stage of construction: not yet started, under construction, or already completed. Typically about 25% of the houses are sold at the time of completion. The remaining 75% are evenly split between those not yet started and those under construction.

Existing home sales data are provided by the National Association of Realtors®. According to them, "the majority of transactions are reported when the sales contract is closed." Most transactions usually involve a mortgage which takes 30-60 days to close. Therefore an existing home sale (closing) most likely involves a sales contract that was signed a month or two prior.

Given the difference in definition, new home sales usually lead existing home sales regarding changes in the residential sales market by a month or two. For example, an existing home sale in January, was probably signed 30 to 45 days earlier which would have been in November or December. This is based on the usual time it takes to obtain and close a mortgage.

Effective with January 2005, the National Association of Realtors created a new monthly series to overcome the lagging effect of the existing home sales definition. This new series is called Pending Home Sales and is based on sales of existing homes where the contract has been signed but the transaction has not been closed, making it roughly equivalent to the new home sales definition. Monthly estimates are expressed as an index where the year 2001 has been set to equal 100.0.

Those of you who worked in RE and mortgage industry please chip in, does a tightening in mortgage lending standard lengthen or shorten the transaction process? By how much?

SGV Patience,

We are generally in agreement. I would counter that what Costco has accomplished is a strategic triumph more than a disproof to the economic fundamentals I proposed. Costco is thus far winning a defensive battle against Wal-mart, not an offensive initiative. It is much easier for Costco to defend it's markets against Wal-mart than the converse, especially since Costco has met or exceeded Wal-marts scale and logistic supply chain advantages. The CSR aspect is really a PR aspect, which Costco is masterfully doing well without really investing in CSR to the degree many companies like the apparel sector (namely The Gap) have been doing.

As to "on-shoring": I do think this is sustainable over the medium-term. What is great about America is our dynamism and fluidity. We are willing to move often and change jobs often. This causes social disruption, but makes us very hard to compete against over the long-term. I have never really questioned the long-term effect of global wage arbitrage: we will win more than we lose. It's happening now as the comparative advantages of places like India are eroded. India has not invested in restructuring old, rigid systems anywhere near to the level the US has always done. So, jobs come back, although in a different form. In fact, more GDP per capita results than would have if we'd just done things the old way and protected our markets with barriers.

The problem with manufacturing is that the US has progressed to a point of extreme capital-heavy manufacturing. That is, we utilize technology for productivity to a point that makes us more reactive, but less labor intensive. So, the minimum wage factory worker is a thing of the past. The new factories require far less labor per output, and that labor is much higher skilled. So, I do not see a return of manufacturing in its old form, ever. I see already a large flowering of micromanufacturing which is about 80% capital and 20% labor, and going more automated every day.

By the way, this is a great contradiction for the CSR advocates. We should be welcoming labor-poor, capital-rich manufacturing and happy to see the opposite leave. The former is environmentally more friendly, more efficient, and more flexible. The latter externalize much of its costs to the environment, illegal immigration and uneducated non-skilled workers. But CSR has gotten into bed with big labor unions, so they can't take this stand. Instead they are trying to protect socially irresponsible industry.

Well, onshoring or offshoring, the only way that this country will continue to do well in the long run is we educate our kids well so that even those working at U-haul knows that New Mexico is not another country.

Wanna disucss why school district has become such an important aspect in home purchase? I really don't remember it being this way before, it is a recent phenomenon within the last decade, and it is even more ridiculous that given such a RE value, CA is able to turn out such crappy schools. Where did the tax money go?

The bottom line is that cutting off illegal immigration is not enough. You also have to erect complicated, punitive trade barriers. You can see how well this is working in Europe at the moment. For the US, the effect of limiting cheap labor sources (cheap meaning workers willing to work below the rates immigrants are for the same jobs) would only benefit the Chinese and other global suppliers, and would rob the US of domestic economic activity and tax revenues.

I never see cutting off illegal immigration as a way to keep wage high. The Market has a price for every job and setting up barriers will prove counterproductive in the end.

However, there are two issues:

1) Selective law enforcement - those who ignore the law should not be given the unfair advantage of cheaper available labor over those who obey the law.

2) Massive undesirable immigration is a direct result of having a welfare state. We may need to approach the problem at the souce and reform the welfare system.

RE: costco, walmart, whatever...

To me, no business can be considered sucessful unless it has absolute pricing power.

Nice how a fucking troll who posts the typical tired drivel,

My condo is appraised (actually a lot of them got sold) at 170k. So I gained 50k in 9 months.

attracts our favorite SF troll.

Ok assholes, here is how it works, a gain is realized when sold, an appraisal means nothing. My dog's house got appraised last week at 1.5 million, yet I only paid $50 bucks for it, I've "gained" $1499950

On a different topic,"cheerful" use your fucking spel chek.

As a child of the welfare state and some less than stellar parents I say Nuke that MF’er to Kingdom Come! While morally I do support universal health care on some level. Hand outs need to die. If you can’t maintain in your local market MOVE and get a job somewhere else.

Help should be available to those who seek personal development or those who have just suffered setbacks.

Universal health care and education are good ideas, but they need to be executed correctly.

Look at this Marina House. You guys think it’ll sell for its $2 million asking?

I did not sushi in Russian Hill last weekend, but I did not find that particular restaurant. :( Nevertheless, it was very good. :)

I was typing fast and had a few typos. I would really love to hear from Peter P and Randy about my viewpoint as they can think rationally.

I don't know anymore. Currently, I care more about sushi than real estates.

I did not sushi in Russian Hill last weekend

not = have

SGV Patience ,

here is my Republican streak, this country is based on self-reliance. If government offers help, great, if not, fine, the only thing I gripe about is the government doesn't seem to have a lot to show for this much tax money. If they leave me alone and tax me less, excellent.

My best friend went through the Kobe quake in Japan, over 4,000 people died within seconds. Guess what, nobody sat on their ass waiting for government aid, they self-organized, share food and water, and by the time the rescue team came, the local residents have long started well coordinated self-rescue effort mobolising all driveable automobiles and tools there is left. Well, if some of the Katrina victims chose to sit on their ass and wait for help, that was ok with with me too. But shooting rescue team and police with looted guns? WTF is that? I am paying my tax money to sustain sorryful asses like that?

I always believe that god helps those who help themselves. If someone chooses to have 3 kids with three different guys when she is 15 and passes down this glorious tradition within the family, be my guest, just not on my tax dollars.

wowowow is just MarinaPrime, he always uses the same website for his reference. Why are you guys repsonding to trolls? Just ignore them, save the breath.

My best friend went through the Kobe quake in Japan, over 4,000 people died within seconds. Guess what, nobody sat on their ass waiting for government aid, they self-organized, share food and water, and by the time the rescue team came, the local residents have long started well coordinated self-rescue effort mobolising all driveable automobiles and tools there is left.

This is why they deserve the BEST BEEF in the world.

Kudo to the Japanese for bringing out the best of humanity in the face of a major calamity.

wowowow is just MarinaPrime, he always uses the same website for his reference. Why are you guys repsonding to trolls? Just ignore them, save the breath.

It's fine. Let's just try to make peace. We do not have to be confrontational. The truth will eventually assert itself over wishful thinking. He could be wrong, we could be wrong, it does not matter in the end.

Owneroccupier, who the heck is Marina Prime? What kind of name is that?

Too bad, I was planning to buy sushi for MarinaPrime. Oh well.

@Cheerful & wowowowow,

I've read your comments, and think I can help clear up something for you: you have the wrong blog. This one is called Patrick.net, aka "SF Bay Area Housing Crash Continues" and, while we welcome intelligent contrarian debate, contributors here are generally bearish on the housing bubble.

You might want to try out Condoflip.com or Craigslist. Or any site sponsored by NAR, CAR or MBAA. I think you'll find the people there a bit more sympathetic to your POV.

Please also feel free to visit some of our more bullish past threads, such as:
No Bubble, My Bad :-(
Jealous Bitter Renters
One for the Bulls

Cheers,
HARM

And while I know no social program can fix their general malaise this villanising of the poor disgusts me.

Overtime, education should help. On the other hand, we all need more spiritual lives.

Hi Peter P - Why would I deserve sushi? I’m confused.

I don't know. Perhaps you can buy sushi then. :)

I would like prices to come down of course, but at the same time, I don’t want negative repercussions for the economy and jobs as a whole.

Definitely. We can only hope. If a sustainable soft landing is at all possible, that is fine with me.

As an atheist I still believe in human spirituality, I just don’t need a little black book to define it for me. I find many of the Righty Evangelical types to be decidedly NON spiritual.

Did you mean that you are agnostic?

Hey wait a minute wern’t we supposed to be talking about Real Estate.

Real estate or sushi.

And, I was talking about the price that actually got closed and not the asking price but I know a dumb ass loser like you will not understand.

Hmmm I be's mighty confused, you said above.

My condo is appraised (actually a lot of them got sold) at 170k. So I gained 50k in 9 months. I am not selling as I am positive cash flow there.

Ok asshole here is how it works, your "gain" is not realized until you sell, until you are just some fucking jerkoff that took out a NAAVLP, congratulations on your financial acumen.

Randy perhaps you could shed some light on what a "gain" is?

You first read your post learn how to spell.

And, I was talking about the price that actually got closed

And while we are at it, learn some fucking grammmemmemememr,

There are blogs for you, kindly take HARM's suggestion and post your incomprehensible drivel there.

I believe in human spirit and the unknowable power of the universe (universes?) I do not believe that power is embodied by a singular sentient being. So I would be an Atheist.

Sounds good to me, although I do believe in an immortal being of infinite love.

cheerful, are you the same RUBEN GHOSAL that lives in Calcutta? Hmm funny above you list your age as 31, you list it here as 39, are you a moving star? do you live in Ballywood?

tinyurl.com/j969p

Anyhoo Ruben, enjoy your equity! You Sir are a money management wizard.

@ SGV Pat

crap

remove spaces for full effect.

You friendly neighborhood low-rider.

whoops, sorry less than followed by i then greater than, close with less than, /i and then greater than.

Would a bar called "The Black Hole" work in Calcutta?

@Bap33, I too wish the very worst to happen, perhaps if we shot enough of the greedy ones, the nice ones might return.

I want unethical loan writers getting fitted for chain bracelettes. I want developers that sold brand new homes to investors to be dragged through town behind a blind horse with the runs. I want house investors that rent their newly purchaced brand new home through the welfare program, Section 8, to be buried in an ant hill neck deep and honey smeared on their eyes.

Perhaps karma will get them.

Hey guys, what do you guys think of Pleasanton? How would you rate and describe that area? It looks like there’s relatively good value homes there, but how long is the commute to Downtown SF?

I do not know the area well. What do you mean by good value? Do you mean big house for 1M or super big house for 2M?

1M haha is a lot of money.

Peter P, I guess on a price/sqft basis.. pleasanton seems to have houses at around $300-350/sqft?

What kind of houses? (square footage, lot size, amenities, ...)

I cannot imagine that the commute to SF can be enjoyable, unless you take BART, which may not be so bad. :)

@Cheerful - thanks for posting your home deals and the money you made.. everyone wants to make money.. be it by saving real hard or by winning a lottery at the real estate game.. please do continue posting here.. I would like to read what happens in a year or so from now when the housing bubble goes bust or poof...

I do want the housing bubble to burst... even though i have family around me who have a lot invested in RE.. I would definitely like to have the prices go down to what it was in the 1998's.. but that would require a huge recession and i do fear my job will be at stake... working in the IT for a mortgage banker, I am sure the i will be the first to be caught high and dry...

someone mentioned about improving and tightening the lending process, yes it would reduce the time needed to buy a property in my opinion...

@nancy, the lowest any company pays in the BA is 1HaHa, aka, 150K. Everyone at every company here gets stock options, you actually use your pets.com stock as legal tender at 120 establishments in Santa Clara. The average janitor at a BA company makes 1.7 million a year, plus countless stock options.

Nancy,

The median household income is usually an ESTIMATE, not a hard data directly fed from IRS database. Also, it is a median number, not mean. Usually it is a product of the data obtained from the US Census Bureau, State's financial management office and the city's research group. It is mainly a derivation from a financial model that they developed and fine-tuned over time. Contrary to common belief, such data comes from SURVEY data, sampling method and respondents' integrity in answering questions may skew the final result.

As for incorporation of stock options, it is INCLUDED in the estimate (at least I saw it mentioned in the footnote).

Is the current median household income data truely reflective of the reality? I think it is as close as it gets, because they do cross check data with different sources.

Cheerful and wowwow...,

Congratulations for making money in the RE, and good luck in the future.

Do you have any suggestions / thoughts to make money investing in this economy / market from this point onwards ? Past performance is no guarantee of future results.

If you have any ideas other than buying more RE in Idaho, please share with us.

Damn, I'm out for a few hours and the fireworks really go off around here.

@SFWoman,

OK guys, since I am somewhat new to blogs (this is my first)- how often do Realtors or other people with a vested interest in maintaining very high real estate prices come to this blog and simply pretend to be real estate purchasers who are doing well or who have hit it big? Do they ever get groups to do this? Does Patrick ever produce a list of visitors to this site (I believe I saw one on Athena’s Sonoma blog)?

I don't think anyone here produces such lists. Athena a different blogging service (blogger I think); this site uses WorldPress which doesn't easily (so I can see) allow what you propose. I use Typepad on my own blog and it doesn't really support this user visits either, but does have a list of who the last few visitors were.

I'm sure this blog has had at least a couple of colluding spinners, but nothing well coordinated.

Coordinated blog attacks aren't all that common, but becoming more so over time. Mainly in political arenas, there are organized blogs which exist for the sole purpose of getting a bunch of partisans to all go pile on some influential other blog and skew the sentiment. Also, a bit more troubling, there are at least two startups I know of which have developed pretty impressive natural-language processing/artificial intelligence processes which can auto-blog but appear very much like real people. You can only tell they aren't real in that they appear for a short while, only respond to the thread comments a couple times -- usually only briefly engaging other comments (which are usually also collusive "bots") -- then disappearing. One of these guys is working on actually creating persistent, long-lived virtual blog personalities.

In fact, maybe I am not real, just an advanced bot. Oh wait, I passed the Turing test because I've made far too many idiotic comments that can only be attributed to being human.

Wowwow... ,

Pleasanton is a good area, the commute is bad to South Bay, and OK with BART to SF. In general, the area feels very much new, and clean compared to San Jose.

But ... I don't think there are any houses in the range of $300-350/sqft there at all. That is simply way off. The "asking" price is in the range of $400-450/sqft. The $300 rate was in 2003.

Pleasanton inventory is steadily climbing this year. It's not the core of BA, so will fall first.

@SGV Patience,

Speaking for myself (Sans degree at the moment) I believe in my own social mobility as long as I need only care for myself. 27, no kids, no significant debt $20,000 in an investment garnering me 5% a month compounding interest that I can contribute to on the fly. I wonder what you might do in a similar position?

I think you already know the answer. Invest in your own education and work experience so that you can rely upon your ability to earn an income. Then, once you know you can live life comfortably, react to unseen changes, and deal with unplanned events, invest wisely. I don't give specific investment advice -- not because I don't have an opinion, but because others here are far more capable at doing so than I -- I just try to focus on big picture stuff and how it is important to you.

Just make sure your investment is diversified according to your own risk tolerance level. At your age, this should be aggressive and long-term. And, don't invest a penny until you've maxed out every possible tax-deferral available to you.

Just my own perspective. I wouldn't really consider buying a home -- even if there were no bubble -- if I were in your shoes. It's probably worth far more to you to stay flexible. Consider it the price of a real-option. If you can move relatively quickly whether for job, for love, for family, you will probably be far better off than trying to be shrewd by buying a home anytime soon. Once you're tied down, rooted, or perhaps just happy being single and in one place for a longer while, then buying might make sense.

@Cheerful,

Thanks for posting the details of your experience, and as others have said, please continue to post. You won't be labeled a Troll by most of us unless you purposefully incite things without being willing to engage in serious debate. Surfer-X has had a very long, bitter battle with genuine Trolls here for years, so his response is easy to understand. See how your post did bring out another much more "Trollish" response from another commenter.

Anyway, as to evaluating your situation, all I can say is that ultimately all real-estate transactions are LOCAL. We talk a lot about averages and trends, but it is always possible to find exceptional deals in any market -- just harder in some than others. This is really what the professionals like Zephyr or FormerAptBroker here do well. They have the experience, intuition, and stomach to run profitable RE investment/income businesses.

What you did was speculate (again, in my opinion), and got lucky. If you take your luck as such and use your gains to invest in learning how to run a RE rental business, then you stand a chance of doing well. If you think your luck was something else, more directly due to your own incredible prowess, then I'm afraid I'm not very optimistic about your future ability to generate returns. And, by the way, X is right that you have not *realized* some of the gains you are claiming. With RE, your gains are not realized until sale or asset restructuring occurs -- until then it's all book value. We don't do fair-price valuation on RE for tax or financial accounting in the US. So unless you're pulling out equity and restructuring the asset, it's still only worth the book value to you now (because you can't tell the future. it could drop to what you paid the day before you sell it).

Remember this, for a RE income business, or any business for that fact, the value to you is ONLY based on the expectation of future FREE-CASH-FLOWS. This means cash in excess of all capital budgeting needs, operational needs, and working capital. What you have described doesn't give me enough info to evaluate whether you're doing this or not.