patrick.net

Rumor and innuendo on the commercial market from Ben's. Toth says he heard that grade A real estate saw vacancy rate increases across ALL bay area markets. Can FAB or anyone else confirm (or deny)? Oh, now this would get some of the regulars here worked up.

# FormerAptBroker Says:
It sounds like Lennar is doing what many flippers did holding a bunch of real estate and “hoping” that the value goes up by more than their carry cost of $50K per home per year…

Didn't you hear? Sue McAllister said the market will pick up after the superbowl. It was in the Mercury News, so don't you worry about a thing...

SP

EBGuy Says:
In case anyone missed the news yesterday, Starbucks reported a 1 percent drop in traffic

Yep, I saw that and raised my home-made cappuccino (about 25 cents to make) in silent celebration of this forum's foresight.

More interesting to me was the daily news warnings about bond insurers. Every day now for the past week, someone or other has been warning that sellers of credit default swaps and other insurance could be hit.

I think it is a signal that it is already happening - watch out when that news breaks and the collective-dump hits the fan. Remember, you heard it here.

SP

EBGuy Says:
grade A real estate saw vacancy rate increases across ALL bay area markets. Can FAB or anyone else confirm (or deny)? Oh, now this would get some of the regulars here worked up.

You lookin' at me? :-)

Seriously, FAB, do you have the numbers? It would be a VERY unmistakable indicator of health in the Bay Area wreckonomy (tm)

DennisN Says:
November 16th, 2007 at 5:48 pm
"If a house burns down, on what basis does the insurance company pay out? Original sales price? Comps and square footage? Stated value by the developers? Will they pay out less now that prices are falling? And then of course the land doesn’t burn."

The policies are for replacement cost, meaning they will rebuild the house to the same standards as before. After the Cedar fires of 2003 the laws were changed to avoid being underinsured. It used to be, that you would have a policy written for the value of the improvement, but as time went by people didn't upgrade the coverage and found inflation caused them to be underinsured. Personal contents are a small upcharge, and a good policy will have workers comp, as well as liability protection for things like dog bites. Believe it or not earthquake insurance is not in a standard homeowner's policy, that in my case is about a 50% upcharge roughly $300 extra per year. I don't carry earthquake coverage. Mold is expressly excluded from standard policies.

Since we seem to be doing the weekly news wrap up, here are my other highlights:
1. GE not-quite a money market fund going below $1 NAV
2. BofA setting aside several hundred million to prop up a money market fund
3. Wells Fargo CEO starting to mimic the Tanman with "housing not this bad since the Great Depression" talk. I can imagine many a Wells low LTV subprime loan in the Central Valley/IE is starting to become a not-so-low LTV loan.

I exited some mutual funds in the retirement account during the mid-week rally and am heading for the GLD fallout shelter. As Randy said on this thread a while back, they will fire up the printing presses before allowing a MMF to fail.

You lookin’ at me?
You and skibum were two folks I had in mind ;-)
And for what its worth, our building still seems to have a fair number of vacancies...

So, when are the buses full of homeless going to start pulling in?
There seems to have happened to a newer office building in Sunnyavle or Santa Clara (Lawrence and El Camino), This building was brand new a few years ago, and then the tenant moved out. A few months ago I saw a lot of broken windows and then the whole building was fenced off.

Sometimes a lot of things in Silivalley seems rather 3rd world.

McAllister is a complete REIC shill and whore. Her articles are completely useless. RE agents might as well cut-and-paste her drivel directly into their ads.

Agree, a few years ago at the height of the bubble she wrote an article quoting some RW, the RW made a comparison something about selling in the expensive neighborhood is not like selling a 500K house in Santa Clara (exactly what I forgot).

The funny thing is that I emailed Sue McAllister and told her that week there was not a single 3/2 house in Santa Clara that was under 600K, she replied the RW was speaking metaphorically. I was totally enlightened about her reply.

Lawrence and ECR ..... yeah, that rings a bell. Larry and El Camino is a very slummy area, that's where the true Silicon Valley ambiance is to be savored .......

If I'd stayed there I'd be living in the bushes with my stuff in a storage, sketching people (badly at least at first) at farmers' markets and probably making noise with a geetar on the street for variety for coins .....

Instead I came here.

Everyone's white! Everyone's nice! I have ..... a room and a workshop and tons of tools, material, 2 acres, a motorcycle (hehe!) plus tons of toys from lathe to BIG forklift to a truck and a car and more cars'n'trucks, and I got Welfare!

Red State Bliss!!

I should have something going in a few months, then can tell Welfare thanks for the help but I'm doing OK.....

Meanwhile back in the BA I'd be dodging meth-heads and essentially begging ..... not knocking begging in the BA, it's not bad, I guess on one level I sensed where things are going and started befriending some of the street people, the BA is actually very 3rd world.

Went to the Hudson and Marshall auction in Stockton last night. They auctioned off about 60 bank owned properties. What a realtor zoo. You had to run a gauntlet of re agents trying to get their 2 percent to represent you. I've never seen so many beggars acting so arrogant. The Eau de 2005 still oozes from their pores - but at least now you can see the fear in their eyes. Two of the open houses I visited last weekend had sold in the low 400's in late 2005 and went in the mid 200's at auction. Overall though, the winning bids seemed way too high for a market in meltdown.

low 400s to mid 200s is still too high? that's only a 40% drop, I can see why you'd be disappointed...

Different Sean:

The properties were sold with reserve, ie. the bank will review the high bids and accept or reject in a week or so. It will be a while before I can see what actually happens with the offers. Saved my catalog in which I wrote the high bids and I'll follow a few to see the outcome. Some lenders must realize that the offers won't be any higher in next few months. US Bank alone holds over 400 properties in this county. Unemployment in the Stockton area has jumped to over 8 percent. I'm thinking the smart money will wait at least until the ARM resets peak in 2008.

Somebody wrote a note on here yesterday contrasting the SF Chronicle's spin on housing prices versus the SJ Mercury News.

SJ Merc has a lot of real estate advertising in the Saturday and Sunday editions. Seems like the Chronicle has less of it.

Betcha they don't want to upset those advertisers at the SJMN.

The SJ Merc publishes "real estate transactions" every Saturday.

According to their data, two homes in th "non-Fortress" (s*box) SJ tract where I live, very similar homes to the one I live in, sold recently, for about what I reckon is 20% less than they woulda fetched a year ago, and about 24% less than two years ago.

Theres lotsa homes for sale in the neighborhood, too.

Losing 20% a year? Oh why didn't I get on that bandwagon.....

The Original Bankster Says:
November 17th, 2007 at 12:36 am
"House Approves Bill to Restrict Mortgages"

Legislate due dilligence....wow our government in action. I think they should pass a law making it illegal to stick a metal fork in an electric outlet.

Isn't that just going to cause the underwriting cost to surge upwards? How will the lenders deal with new fixed costs in an obviously cyclical market?

ex renter,

Probably about minus 4% year before last, about 20% this year. Don't forget, we had some insane year-over-year appreciation 1998 - 2006.

Yes, minus 20% this year. But not exactly " minus 20% per year".

sybrib: Comparing a decline after a gain is better done with absolute numbers instead of a percentage. If there was a +50% gain from the bottom, and then a -20% loss from the top, that really removes 30 of 50%.

Right now I'm seeing condos that sold for $150-160K in 2002/2003 go for $125K now (they were built in 2001-2003). Most of the big price drops are from REO; I suspect that the builder had a pocket mortgage broker for "creative" financing. The owner-occupied comps are creeping down as well, but it's the REO that really seems to shove things down hard. SFH's are holding up better, but the $/sqft is slowing descending after a long plateau at $100.

-slowing +slowly

TOB: Um, yeah. Hence the question. If their revenue stream is cyclical, but their fixed costs have increased due to legislation, that will put them further underwater during bad times.

Brand,

Appreciation since I bought that property as compounded annual appreciation between 5 to 5.5%. If we still had 2005 prices now it'd be just about 7%.

I'm not cool and hip enough to calculate the exact appreciation of the equity because of the rental equivalency cost. I'd say, the first 5 years or so I paid a premium for owning which would include time value of downpayment money, then the next decade and a half has been below market "rent equivalency", even including property tax, insurance, maintenance, etc. And for "rent equivalency" I'm comparing to the kind of rental I lived in before, a 2 BR/ 2 BA apartment in a 1960's genre building, not the 4BR 2 BA 1970's s*box where I live.

Suppose the ownership premium and time value of downpayment money roughly cancelled out the "ownership discount" since then, the appreciation of the downpayment money has compounded annual increase of about 13 to 14%. If we still had 2005 prices it'd be about 17%.

I've tracked the sales prices in my zip code going back to the middle 1960's: the regression line to the log plot, with very good fit, is in the 8 to 9% per year range. But mine's only been 5%. That's what happens when you buy in a housing bubble like I was so stupid to do last time we had a housing bubble.

Tim Iacono of http://themessthatgreenspanmade.blogspot.com/ is meeting Patrick Killea:

.....
.....

One of the highlights of the trip will be sitting down for a cup of coffee with Patrick Killea of the world famous housing crash site Patrick.net.

Oh yeah, gotta pick up some sourdough bread too.

Bap, I think that graph was normalized for inflation. And I thought recent CPI is oft-cited in the 3-3.5% range.

Brand Says:

> sybrib: Comparing a decline after a gain is better
> done with absolute numbers instead of a percentage.
> If there was a +50% gain from the bottom, and then
> a -20% loss from the top, that really removes
> 30 of 50%.

It is a 200% loss (before any cost of sale or the extra cost for the year to "own"/"rent money from a bank") with a 10% down payment and 100% loss with a 20% down payment...

P.S. I have heard from friends that are Commercial leasign brokers in the Bay Area that things are slowing down (except around Google and in SF SOMA where a lot of social networking stuff is going on)...

FAB, although I obviously am not fond of percentages, you made an interesting point. A 200% loss is obviously negative equity. I have often noticed that people in the Bay Area don't have much more saved than folks elsewhere. With 5x the home prices, their survivability is tremendously lower than the rest of the country.

In Colorado, a 10% downpayment on a $200,000 loan is $20,000. Most established homeowners could handle losing $20,000. It would be severely painful for many people, but it's financially survivable.

In California, that same $20,000 would only be a 2.5% downpayment on an $800,000 loan. All it takes is a tiny drop in home values to put that loanowner way into the red. In fact, you've got a 6% realtor commission built in along with all the origination fees, taxes and other purchase costs.

So my question is, are California homeowners actually more likely to embrace foreclosure, simply because a sale would immediately bankrupt them? That really becomes the ultimate sticky behavior, since there is absolutely no option to accept anything less than the precise price (without bank approval, and even then there's a 1099). At least in other areas of the country people can still eat the difference and move on.

Lenners CEO will lose his job. Once prices go down further they will be forced by their auditors to write down their unsold inventory. Mark to Market!!! Once that happens they will miss their numbers issued to Wall Street. This is all pretty simple stuff! We saw this plenty of times in Silicon Valley during the tech downturn. This will be different. CEO will get his walking papers and walk out in disgrace.

Appreciation is more close to inflation since 1975...

http://www.housingbubblebust.com/OFHEO/Major/NorCal.html

BTW Sue McAllister and her kind have a political agenda. I often meet people in the heart High Tech whose job is X however after over a period
of time you often see them as with other non-work objectives. Sometimes
it promoting women in the workforce or other Social Engineering changes.
Sue is no different. Another Business writer for the Merc stated Enron or Tyco fruad could never happen in SV because because because... its was
as totally joke what he wrote.. Total Joke! right before the stock option scandal hit nailing over 100 local companies and several criminal charges.
The Merc business writes are cheerleaders and are clueless about the real business and real estate in SV. The Business section has degraded to wholesale advertising... it was great reading years back but worthless today.

Bap33,

The s*boxes in my tract were built in 1968, sold new for 20K-ish.
I bought in the peak of the last bubble, 190K, going price at the time in 1989.
Have some other other landmarks over the years in the 70's and 80's as I grew up in the same tract that I live in now.
2005 going price for those s*boxes was 700K
2006 one sold on my street for 630K.
Yesterday's SJMN listed two recent sales in the 500-550 K range.

Anything in the 470K to 650K ish range would stay in the regression range >8%,

con't

hmmm the last part didn't get in the post, I musta goofed on the keypad.

Anything in the range about about 470K to 650K -ish would be in the longtime regression range of 8-9%, noise really in the big overall picture.

But it might not feel that way to you if you bought on the high end of the noise like my 630K neighbor did last year. Been there and done that myself in 1989, it's not a fun place to be.

Now if anyone was realy motivated to lower the value of homes in Irvine all they would need to do is get a few busses up to skid row and help the homeless find a decent place to squat.

Brand,

It sounds like you don't live in the coolandhip bay area. Here's a couple of things to consider inside the minds of Bay Areans. Mind you, I'm not referring to the recent tsunami of well-heeled immigrants who have a different perspective, but more from the perspective of the few workaday locals who take the plunge.

As you pointed out, a lot of us who are not the dotcom hipsters, are house poor when we take the plunge. THere's probably as many different attitudes and perspectives as there are buyers, but some of us can fall into one of two groups:

One group is OK with no personal savings, because they know that they'll just make it all up in appreciation, retire on it, and when they retire, cash out and quit the B.A. for greener pastures. Say what you want to, this has worked out well in the long term for folks if they have with stamina and determination (and income) to stick it out. I personally know lotsa people who did this. Having said that, like many on this website, I am also skeptical that past results don't guarantee future returns.

Another group keeps their housing cost closer to normalcy of income ratio by doing whatever it takes, selling their soul to a high paying job, or taking in boarders for years to defray the cost, working a second job, having multiple adult wage earners (extended family or otherwise) live in the house and share the monthly cost, or buying in an accommodation or location, below their social caste, whatever. Any way you look at it, sacrificing their standard of living. With this approach, they make it work withing reasonable normalcy of housing cost, but with a lower standard of living.

Goddamnit Sybrib, you're not going to have any credibility until you learn to spell it right, it's Bay Aryans.

And India Cash And Carry is the best place to get your boxes of candy with the swastika all over 'em, still overpriced but worth it because the Bay Area is Special (tm).

PS your 2nd example reminds me of an old buddy of mine, got his house in Hell-A but slept in a sleeping bag, furnished a'la Garage Sale for years, and I think is OK. As long as he realizes how worthless his house REALLY is and all those grumpy old farmers who came into his father's hardware store were right........

you know, those stucco spanish villas don't have good shading over the windows or good natural shading from tree plantings... not good passive cooing design for a hot climate...

I would love someone to take a crack at the real development cost of the homes that are the title of this thread.

Materials
labor
permits
land
preparing the land (grating, packing, roads, sewar, electrical)
financial costs

My belief is still that these developers are nowhere near only asking a 10% markup unless they let labor, materials, AND land costs run amok.

Duke,

I have no idea but the SDC (sys. dev. charges) can be considerable. Major, public builders know that local governments create one of the biggest hurdles to mom and pop builders so they view it as the cost of doing business and pass it on to the consumer.

When developers "frame" the conversation by advertising:

"View lots starting in the Low 200's"

they establish several things. Firstly, if you have to ask what is meant by "Low 200's" (you obviously don't belong here!) Secondly, it tends to imply that there IS a particular value or exclusiveness to the area and thirdly, it allows them to sell lots to smaller builders and make a very respectable profit and have them take over the risk.

I have watched SO many people over the last several years scrimp, save and cut corners to cargo-ize their dream home even doing much of the labor themselves (thinking they were getting a deal) yet not realizing their actual failing was in overpaying for the lot to begin with! Way more times than I can count. Now, not only are they every bit as under water as their neighbor but the misspent time they'll never get back.

China loan balance freeze: I read over the weekend that China is directing banks to limit their outstanding loan balances to current levels for the rest of the year (link lost). That ought to put areal crimp on the domestic real estate market for a while...

Here's the link to the China banking freeze news story:

http://www.bloomberg.com/apps/news?pid=20601080&sid=aXxs1Lap3vcU&refer=asia