patrick.net

Yeah, I would assume it would overshoot too, based mainly on the extreme nature of the bubble itself. In general, the more extreme the bubble on the upside, the more extreme the downside

now thats called irrational thought process...once it undershoots, i'll buy and then sell when it over shoots ( since the previous event was undershoot) again and do this multiple times and be multi millionaire...common guys its not a damped sinusoidal wave! if the world was so simple, everybody would be millionaires.
My suggestion : If you need a home and like it and the shiller index in your area is in line with long term trend...buy it.

renter for ever_san jose - it's not an irrational thought process, it's simply an empirical observation made by a number of economists. And we're not talking a perpetual motion machine here. If you have evidence to the contrary, then by all means, present it.

And we're not talking a perpetual motion machine or a pendulum here. In fact, it's more like a roller coaster. This bubble was inflated by a series of unique events and policies and a by rather unique mindset. Now that these things are largely absent, the bubble is deflating and returning to mean. Bubbles are driven by emotion and fear both on the upside and on the down. One reason larger bubbles tend to overshoot is that people panic on the downside once they realize how fast prices are falling or how far they have already fallen.

This has been documented in many past bubbles.

Of course, market timing is a whole other story as you never know just where a bottom will be. But there seems to be a very good chance there will be a prolonged flat period after this bubble, so while you might not be able to time the bottom, there is no reason to rush to by "before prices rebound" either.

renter for ever_san jose says

guys…what is the expectation on this board.
What would make you guys happy ??
1) prices 50% less than long term trend of case shiller index
2) prices 20% less than long term trend of case shiller index
3) prices in line with long term trend of case shiller index
I am getting sick of the pessimism here..you guys are sounding like the same bunch of irrational people who use to believe that housing will go up for ever during housing bubble.
Please do me and others a favor and look at the graphs :http://www.recharts.com/cme.html (scroll to the bottom)

I'm just curious, but why do you come to a board that clearly states Housing Crash Continues and then get "sick of the pessimism" when people post things about prices continuing to decline? I don't go to a Red Sox board expecting them to say positive things about the Yankees.

As for your question, I just want prices to be in line with rents or at least close. Right now I'd have to pay $4-5k for a mortgage when I could rent the same place for $2-3k. I don't think I'm being unreasonable for waiting.

renter for ever_san jose says

I am getting sick of the pessimism here..you guys are sounding like the same bunch of irrational people who use to believe that housing will go up for ever during housing bubble.

Guys, let's cheer up for renter for ever_san_jose, and give him this news:
Silicon Valley real estate market: The bidding war is back

The news article says:

He said the county has only 22 days worth of unsold inventory under $450,000 — measured by dividing the number of homes on the market by their current sales pace. That's not enough lower-priced homes to meet the current demand.

To Calhoun, that looks like a market "on fire."

Bidding war is back! Offer over asking is back! We are back to 2004 again! Only 22 days worth of inventory! Cheer!!!

But, Ooops!

I've said it before, and I will have to repeat: you can't have a civilized dialouge with anyone calling themselves Wanker. And why, Wanker, do you look like an African American woman? What are you really trying to tell everyone?

Tell us about your mother.

P2D2 - Hahah. Of course, I'm not really sure how assuming housing will revert to trend or to rental parity is pessimistic. For anyone who doesn't own a house yet or who wants to move from a lower priced market, it's great news. It's also great news for the next generation of homebuyers, who will only have to pay close to what there parents paid for houses, adjusted for inflation, rather than some insane proportion of their salary.

Of course, the government is hell bent on re-inflating prices, but just because they want to ignore attendant harm caused to the above mentioned groups doesn't mean that damage isn't being inflected. So yay to the falling prices. It's great that actual supply and demand will once again determine housing prices rather than speculative frenzy.

Bubbles are driven by emotion and fear both on the upside and on the down. One reason larger bubbles tend to overshoot is that people panic on the downside once they realize how fast prices are falling or how far they have already fallen

I agree that there is some truth to the above statement but are you going to count on that and wait for the undershoot just like after the dot com bust in real estate, people waited for housing to overshoot.
How would you know that housing has bottomed ? what % of upward trend would convince you ? 10% 20% 30% ?

renter for ever_san jose says

How would you know that housing has bottomed ? what % of upward trend would convince you ? 10% 20% 30% ?

I don't think anybody here, whom you refer "pessimist", claimed bottom. There are plenty of signs of farther fall - unemployment, foreclosures, Alt-A. Bottom call is coming from only those who were denial even a few months back. First they kept on denying - "Market is great and healthy. I don't see any crash here.". Then suddenly they changed their gears and started shouting "it's bottom, it's bottom". Well, if market did not crash (and so healthy), where is the bottom coming from?

srla says

I don’t believe it’s that difficult to guess where prices might bottom. Check out the price in a given area in 1999, then adjust for inflation.

You are missing some critical factors
1. Interest rates (affordability depends on both prices and interest rate). The interest rates in 1999 where around 8%.
2. Migration factors (ie jobs)
3. Economic factors
4. Human factor

Although from a 1 million mile few things look simple, they are not. I beleive that the government is often over simplifies economic problems which is why almost every time they change interest rates in attempts to fix a problem a new and bigger problem is often created.

I went to the fourth open house at a very nice condo in Pasadena that has been on the market for more than a year.
The price keeps dropping so I don't think there are "multiple offers" yet.
In another year it might be down to a reasonable price.

I thought Buffett thought Obama walked on water. Whats up with this?

http://finance.yahoo.com/tech-ticker/article/306287/Buffett-We%27re-Going-to-Be-Crushed-Under-Mountain-of-Debt?tickers=tbt,tlt,udn,uup,brk-a,brk-b,spy&sec=topStories&pos=9&asset=&ccode=

2 weeks left of the summer selling season. By Labor Day, we will see an entirely different market on the Westside of Los Angeles. Sales will drop dramatically, with foreclosures being the talk of the town. Alt-A and Prime Loan Tsunami is headed this way.

www.westsideremeltdown.blogspot.com

http://finance.yahoo.com/news/US-July-existing-home-sale-rb-1135231752.html?x=0&sec=topStories&pos=main&asset=&ccode=

"WASHINGTON (Reuters) - Sales of previously owned U.S. homes notched their fastest pace in nearly two years in July, an industry survey showed on Friday, the strongest sign yet that housing was pulling out of a three-year slump.

The National Association of Realtors said that sales jumped 7.2 percent to an annual rate of 5.24 million units, the highest since August 2007, beating market expectations for a 5 million unit pace. Sales were at a 4.89 million pace in June.

July's percentage increase was the largest monthly gain since the series started in 1999 and marked the fourth straight monthly advance. The last time sales rose for four consecutive months was in June 2004, the NAR said."

~~~snip~~~

""Existing home sales data show that we are moving in the right direction," said Kevin Flanagan, fixed income strategist for Global Wealth Management at Morgan Stanley in Purchase, New York.

Compared to July last year, sales rose 5.0 percent. The improvement in sales in July was broad based with single-family home sales rising 6.5 percent to annual rate of 4.61 million units and multifamily dwellings surging 12.5 percent to a 630,000 unit rate."

I know, I know~~~~I want to be able to buy a house in The Palisades for $400K, too. But we aren't there yet. Perhaps if we wait a year or two, prices in The Palisades, Brentwood and Bel Air will drop low enough where a box~boy at Home Depot will be able to buy his dream home. (tongue planted firmly in cheek)

The wanker is on his pump-and-dump mission again. Need I say he is wrong?

Look at the NAS (non-seasonally-adjusted) graph under the following link.

http://www.calculatedriskblog.com/2009/08/existing-home-sales-increase-in-july.html

You will see that 2009 home sales volume were up by some piddly amount relative to 2008 in
JUNE-JULY only. Compare volumes in 2009 with volumes in 2006 and 2007. Note that a large percentage
of sales were low-end houses in badly ravaged states and locations. Keep in mind that some people are getting
all hot and bothered about a $8k tax credit that expires SOON.

Now sit back and wait for the new wave of foreclosures to hit the market. And watch prices
fall, along with volume. Watch the Case-Schiller index drop again.

Wanker -- are you a realtor or otherwise derive your income from housing transactions?

@justmoi, No, I'm not a realtor. No need to be a realtor to read the news that the economy is picking up and the real estate market may have hit bottom in certain markets.

WillyWanker says

No need to be a realtor to read the news that the economy is picking up and the real estate market may have hit bottom in certain markets.

LOL! Is this the new metric for gauging economy - some numbers from NARRRRRRRRRRR?

Regarding hitting bottom, the operative word is "certain market". Certain lower end areas may have hit bottom, but "Palisades, Brentwood and Bel Air" are definitely not one of them.

Expensive homes miss the recovery
Why Home Prices Will Continue To Fall
High-End Homes Frozen Out of Budding Housing Rebound

WillyWanker says

I know, I know~~~~I want to be able to buy a house in The Palisades for $400K, too.

Tell me about Palisades. How is it doing there? Lots of overbidding? Home value is appreciating in 10%?

Wanker sez (my emphasis):

>>the real estate market MAY have hit bottom in CERTAIN markets

That's like me saying "There exists a stock which MAY (already) have hit bottom for the next 5 years". In fact, I would not be too surprised if such a stock exists. But does that mean that people should start "getting into stocks". No, it doesn't.

There is an abyss of difference between "there exists an area where prices have already hit bottom" and "for all areas, prices have hit bottom".

You don't need to be a logician to understand there is a fundamental difference between "for all" and "there exists".

My problem with Wanker is the sheer dishonesty of pumping the real estate market, while at the same time hiding by weasel phrases such as "may have" and "certain markets".

It is clear that Wanker does not really want the reader to understand the fine print. The fine print is only there to give the Wanker cover when prices drop again. The overall message he is trying to send is "it is a good time to buy".

Wanker, you say you are not a Realtor? You did not answer the full question: Do you derive income, dorectly or indirectly, from RE transactions taking place?

I am sorry but someone who calls himself 'wanker' is not exactly asking for respect. WW I am not posting this to insult you, just to point out that as someone from UK I cannot get passed it:

* Main Entry: wank·er
* Pronunciation: \ˈwaŋ-kər\
* Function: noun
* Date: circa 1961

1 chiefly British usually vulgar : a person who masturbates
2 chiefly British usually vulgar : jerk, dolt

OK, having pointed this out, I totally agree with what justme said. A general housing rebound is not here yet and I do think anybody can say when it will arrive.

RentorBuy says

2 chiefly British usually vulgar : jerk, dolt

Interesting. I thought that term was merely the second part of a compound word that refers to an East Ender. After all, when has anyone heard the term "Cockney" without the term "Wanker" immediately following?

California removed from bond-rating watch list

http://www.latimes.com/news/local/la-me-california-iou22-2009aug22,0,4684215.story?track=rss

Slowly but surely........

P2D2 says

WillyWanker says

I know, I know~~~~I want to be able to buy a house in The Palisades for $400K, too.

Tell me about Palisades. How is it doing there? Lots of overbidding? Home value is appreciating in 10%?

No, actually you can buy a 3500 square foot for $450K right now in the Palisades, you just don't get the ocean view. You would need to spend another $50K if you want that.

RentorBuy says

I am sorry but someone who calls himself ‘wanker’ is not exactly asking for respect. WW I am not posting this to insult you, just to point out that as someone from UK I cannot get passed it:
* Main Entry: wank·er

* Pronunciation: \ˈwaŋ-kər\

* Function: noun

* Date: circa 1961
1 chiefly British usually vulgar : a person who masturbates

2 chiefly British usually vulgar : jerk, dolt
OK, having pointed this out, I totally agree with what justme said. A general housing rebound is not here yet and I do think anybody can say when it will arrive.

Actually, I have been sitting around losing sleep~~~hoping that I could earn your respect. What I need, and have always wanted, is some snaggle~toothed brit to 'respect' me. Yeah, that's it.

Sorry, I don't mean ANY disrespect by this post, just pointing out the obvious.

The market does not lower the price just because you can't afford it. It all depends on the demand and supply and what people in general can afford. I am not saying that houses are affordable now but pointing out that you cannot wait for a price just because you cannot afford something at that price. in essense, your affordability does not reflect everybody else's affordability. Maybe, you need to downgrade your requirement.you can wait if you fall under middle class and cannot afford a middle class home ( which means something is wrong with the market). There is nothing wrong when middle class people cannot afford traditionally upper class homes.

homeowner_for ever_san jose says

I am not saying that houses are affordable now but pointing out that you cannot wait for a price just because you cannot afford something at that price.

That sounds like an used car salesman - "how much you can afford".
According to you, I must buy a house in East Palo Alto where you I can get a house for $300K, right?

Your whole argument is backward. It's not a question of how-much-I-can-afford or how-much-John-Doe-can-afford. Just look at the historical trend of median income vs median home price of certain city, zipcode, neighborhood to measure affordability. By this measure, home value is still inflated. Why do you think home price still falling? Because they are still not affordable for most of the buyers.

P2D2 : I looked at the case shiller index and prices are within 10% of HISTORICAL TRENDS in many areas !!

http://www.recharts.com/cme.html

homeowner_for ever_san jose says

P2D2 : I looked at the case shiller index and prices are within 10% of HISTORICAL TRENDS in many areas !!

"Many areas"? You mean East Palo Alto, right?
Have you ever noticed that in good neighborhood prices are still falling? Pick any zipcode - Palo Alto, West SJ, Cupertino, Sunnyvale Cherry-Chase? So, if your supply and demand theory is so correct, price must be stabilizing by now. This market has long way to go - downward of course.

Just Case-Shiller chart is not relevant in this context because it does not take income into account. Here a chart combining Case-Shiller and US census data (for income). Click on San Francisco.
New York Times median income vs median home price chart

1979: Median home price to median income ratio = 4
2009: same ratio = 6.6

In last 30 years this ratio never been above 6 until 2002 (not even in 1989-1991 bubble).

Income is not rising. Most of the hitech companies froze salary. No bonus. Unemployment is rising (For hitech companies, those jobs won't coming back to Silicon Valley, even when economy recovers. Those jobs will be shipped to India/China). VC funding is disappearing. On the top of that, wave of foreclosure is coming. If you want to believe that home price stabilized, you can believe. But I don't.

even Median home price to median income ratio is not accurate because most homes are mortgaged.

you have to take avg 30 years fixed interest rate * (Median home price to median income ratio )

1979 = avg 30 years fixed * (Median home price to median income ratio ) = 14 * 4 = 56
2009 = avg 30 years fixed * (Median home price to median income ratio ) = 6 * 6.6 = 39.6

Since 6 is too low...and will soon correct to somewhere around 8 % , the ratio soon will be = 8*6.6 = 52.8

There is a reason most people go with case shiller index !

homeowner_for ever_san jose says

you have to take avg 30 years fixed interest rate * (Median home price to median income ratio )

1979 = avg 30 years fixed * (Median home price to median income ratio ) = 14 * 4 = 56
2009 = avg 30 years fixed * (Median home price to median income ratio ) = 6 * 6.6 = 39.6

Since 6 is too low…and will soon correct to somewhere around 8 % , the ratio soon will be = 8*6.6 = 52.8

That's very interesting calculation (sarcasm)! If we keep multiplying/substructing/adding stuffs, anybody can prove anything. After all they are just numbers.

No, I did not claim that median income vs median home price is "accurate". But it does give some broader idea. There are other factors, including mortgage rate. There is a reason median home was $99K in 1979. Because 13-15% interest rate reduced homebuyers' affordability. Todays' 6% interest rate is pretty low in this regard. But yet home price is falling. So even if interest rate stays 6% home price will continue its current trend - downward, given current economic condition, stagnant income, unemployment, foreclosures. If the interest rate goes up to 8%, it will affect home value - by adding more salt to injury.

If people can afford $2400 rent in an area. its hard to imagine, they cannot afford a loan of $2400 * 100/5 * 12 = 576 K because the monthly mortgage will be same as rent.
property tax = saving in interest deduction.
maintanence cost = premium of owning a home.

simple math = rent of a similar home * 12 * 100/X = Home price
where X is interest rate ( 30 years fixed)

example :

rent of a faily new townhome in a decent area in bay area = $2500
equivalent price of a townhouse to get a similar mortgage with 5.2% interest = $2500 *12 * 100/5.2 = 576K

Do you think you cannot get a fairly new townhome in bay area for a price around 600K ?

BTW, if you can lock in a 30 years fixed and your mortgage ( interest part) is equal to rent of the home...who gives a fuck about all the graphs..just buy and stay put for 15 years. if home price is same as today even after 15 years ....still you are not losing anything.

homeowner_for ever_san jose says

rent of a faily new townhome in a decent area in bay area = $2500
equivalent price of a townhouse to get a similar mortgage with 5.2% interest = $2500 *12 * 100/5.2 = 576K

I rent 1600sqft SFH in Sunnyvale Cherry Chase. I pay rent $2400. Two years back these kind of homes used to rent for $2500-2600. But they are back to $2300-2400 range again. Show me an equivalent home here which can be bought for $576K. Of course you would ask why I am not buying something in East Palo Alto or East San Jose. But when you do that, your rent vs buy comparison become useless, isn't it? Because you are comparing apples to oranges.
A SFH/townhome that rents for $2400 does not go for $576K. They get higher than that. And home that sells for $576K rents much lower than $2400.

Take this example of from craiglist:1162 W. McKinley Ave. Renting for $2200. Can you buy it for $576K? Zillow says $718K.

As you mentioned townhome, most of the townhomes have HOA. Don't forget to take that into account. But when you buy townhome, HOA is not included into your mortgage. But when you rent a townhome, you don't pay HOA on the top of rent. It is included.

I can show you so many homes in east san jose where rent versus buy makes PERFECT SENSE. Do you think homes in that area will fall further ? NO because investors are waiting like vultures for this kind of oppurtunity.
Don't look at good school districts and do rent versus buy.
The math is different in good school areas . homes in good school area have school expenses priced in to the homes.
Do you know that you save around 432K in school fees if you send your kids to good public schools versus private schools ? assuming you have 2 kids and private schools fees are average $1500/month per kid for 12 years

actually $1500/month for 12 years is being optimistic as schools fees keep increasing every year.

There is a reason people don't worry about throwing in 100/200 K more for a good school area.

homeowner_for ever_san jose says

BTW, if you can lock in a 30 years fixed and your mortgage ( interest part) is equal to rent of the home…who gives a fuck about all the graphs..just buy and stay put for 15 years. if home price is same as today even after 15 years ….still you are not losing anything.

Provided you can afford to stay in one home for 15 years. Majority of homeowners move before 10 years for various reasons - job change (or loss), divorce, retirement, wants bigger home (or better neighborhood). I know some people who can't move even though they want to. They bought their home in last four years and they are under water. They indeed will be forced to live in a place 15 years, even though they don't want to.

homeowner_for ever_san jose says

I can show you so many homes in east san jose where rent ver buy makes PERFECT SENSE.

So, you essentially admitted that except East San Jose your rent vs buy calculation does not work. But this is not what you mentioned in earlier post. You said "an area". I can afford $2400 rent in "an area" called south Sunnyvale. There is no similar home in south Sunnyvale for $576K.

homeowner_for ever_san jose says

Don’t look at good school districts and do rent versus buy.
The math is different in good school areas . homes in good school area have school expenses priced in to the homes.

That's bullshit. Rent is also higher in good school districts - for very same reason. Renters are not childless people from another planet. They want to rent in good school district for VERY SAME REASON the buyers wants to buy homes in good school district. Do you think landlords in good school district are dumb? Just go to craiglist and see the rent price difference between good and bad school districts for similar properties.

homeowner_for ever_san jose says

maintanence cost = premium of owning a home.

I always love when someone quotes "premium of owning a home". This is the magical thing that fills the gap between two different numbers (e.g. numbers in rent vs buy calculation). It comes right from realtor's manual.

WillyWanker says

P2D2 says

No, actually you can buy a 3500 square foot for $450K right now in the Palisades, you just don’t get the ocean view. You would need to spend another $50K if you want that.

Um. No you can't. Maybe a mobile home.

stillrentinginLA says

Um. No you can’t. Maybe a mobile home.

LOL! I think this is what he/she was talking about - "60' mobile home".

Yeah, slight difference between a 3500 SF house and a 60 ft mobile home. Maybe wanker thinks his trailer is a mcmansion. Meth will do that to you.

P2D, good of you to take the time to dispel the multiple falsehoods of HFESJ (and Wanker, too). Great public service.