patrick.net

There’s a lot of money and pent up demand sloshing around...

Sure there is. And for every moneyed lamb jumping for the knife there's probably at least ten who are unemployed or soon to be, or underemployed, or took at least a 10% pay cut last year.

But even if you are a low cognition, impulsive gambler sitting there on the sidelines, you'd do best to think a few moves ahead and at least consider the very real benefit of staying mobile for at least a few years before tucking into a mortgage; if not a necessity, it's a valuable asset for any worker's resume in any field right now.

Truly normal would be properties listed with Y2K asking prices, adjusted for inflation.

How come Santa Clara county and SF county aren't in that table?

And how come BobbyS has 3 posts and only 7 comments? It reeks of shill.

Patrick, time to think again about identifying multiple posters from the same IP address?

One parallel that seems pretty important:
We both had a housing bubble of epic proportions led by easy credit.

The recovery of the Nasdaq was not V-shaped. 5000 down to 1000 up to 2000 is not a V. Yes, the general economy recovered quickly, but that was because of the housing bubble. If housing is similar to the Nasdaq, that means it will hit bottom, come up a little and stay relatively flat for a long period.

The quoted data is for Median price. Never trust Median price as indicator of anything significant.

Case-Shiller index is the only one you should pay attention too.

The sales mix has changed because prices of high end homes are sliding, causing some sales, whereas the low end is stabilizing or slowing down.

NEXT!

camping says

How about 1% of Y2k asking prices like in Detroit?

Of course that would be a first, prices doubling in 2-3 years, back in 1997-2000.
In the past from 1980 to 1995 prices double in the SF Bay Area. Took 15 years
under more realistic and sound economic circumstances. .
So now doubling and tripling is somehow a norm in under 10 years under all the
wrong reasons, Is that what your saying ?

I would also it's important to look at the number of reasons, and houses that are likely to cause the market from dipping.

We already know the government will take actions, we already know there are large investors out there who will swoop in and grab up deals. So where is the bottom for them, they are going to create it. There is a lot of pent up demand, people have been scared, some have been waiting for the end, some have been waiting for the best deals possible. As they each throw in the towel and go try and get housing, they'll create the bottom. People eventually get tired of being scared, people eventually buy because they can't take the waiting game anymore, people realize their jobs aren't going away (some), some get new jobs, and have been at them for a year or two and feel secure. Unemployment is a large, but remember, when there are 10% unemployed, that means 90% are employed. That is still a fairly substation base of buyers. We went from 95% employeed to 90% employed. A large drop for sure, but really we only lost 5% of our buyers.

Bears can look at any way they want, claiming 5% difference is massive, that government can't keep going, that people are going to run out of money, jobs are going to keep going until we're at 50% unemployment, but it's not happening. We've been in this situation awhile now, people are looking for better times, they're done with the bear feeling.

I'm betting employed people in good circumstances are tired of hiding and will come out in force this year to buy things up. I don't expect some huge recovery, I just don't see any massive drops this year either. From where we are, I could see +-5%. There could be enough forces pushing down to keep it negative, but probably nothing over a few % points.

pkennedy says

We went from 95% employeed to 90% employed. A large drop for sure, but really we only lost 5% of our buyers

One would under that scenario not see retail numbers plung in sales/revenue.
Both domestic and foreign auto makers took a brutal hit given 90% were employed
or Macys dropping from $40/share to under $10 and now $14/share.
Seems 90% employed didnt make a difference after all.

In 1998 I was quoted in a newspaper article, to the effect "I'm somewhat afraid to buy now, because I don't feel my purchase will hold its value".

Well, I did buy, in 1999, and watched values skyrocket. I enjoyed some nice gains along the way (and lows), but, ultimately, that house I bought in 1999 did NOT hold its value. It's worth less today than 1999.

But for 11 years I felt like a real idiot, and questioned my judgment.

But Hell, I was right, in retrospect. Who'da thunk? And right now I feel the same way, but am even more pessimistic. I think homes today are even worse of an investment than I did in 1998.

pkennedy says

Unemployment is a large, but remember, when there are 10% unemployed, that means 90% are employed. That is still a fairly substation base of buyers. We went from 95% employeed to 90% employed. A large drop for sure, but really we only lost 5% of our buyers.

You are not serious, right?
The whole 90% is not buyers. Only a certain percent of this 90% employed are potential buyer (or just buyers). So, yes 5% increase in unemployment rate could have huge impact, depending on demographics. In addition, keep in mind that unemployment could result in loss of home. That means more properties in market.

thomas.wong1986 says

Macys dropping from $40/share to under $10 and now $14/share.
Seems 90% employed didnt make a difference after all.

One of my friends works in the data warehouse of Walmart.com. He told me that Walmart is trying to "upgrade" their stores with more upscale items because "more wealthy people are shopping in Walmart nowadays due to bad economy". In addition, Walmart is making all stores look "cleaner and stylish".
I guess even that 90% is cutting corners.

P2D2 says

I guess even that 90% is cutting corners.

Lots and lots of BMWs and MBs on the used car lot when you drive down Stevens Creek.
LOL! saw a Porsche Spider listed at $10K the other week. Not to mention I read how several
ritzy nigh clubs are also closing down. I saw this all before back in 1989 to mid 90s.

I thought there was some consensus that U3 is inaccurate, and that even U6 is probably underestimated? I believe that some contractors or failed businesses owners are unaccounted for. Also, folks that decide not to file for UI are probably missed.

So, the aforementioned 10% does not count someone like me that made over six-figures, and has been laid-off for more than six months.

As an aside, every recent buyer I know personally put very, very little down. I also know that most don't have large savings. On a positive note most of the associated ownership costs are not significantly greater than average rents for the areas.

Another nail in the coffin of high-end SF Bay Area home prices:

Prime Jumbo RMBS Approach 10% Delinquent

http://www.calculatedriskblog.com/2010/02/fitch-prime-jumbo-rmbs-approach-10.html

Jumbo loans are the lifeblood of bay area housing transactions.

RMBS = Residential Mortgage Backed Securities

where are all these "wealthy investors" waiting to snap up all these single family homes? Lets see some data and not just speculation and story telling.

And how are these mystical investors going to make money keeping all these unevenly maintained SFHs occupied with rents going down, unemployment rising, and cap rates still looking unfavorable even at today's prices?

I seriously doubt China Sovereign Fund or some Saudi Prince is going to go though the trouble of snapping up boring 35 year old houses in Fremont or Sunnyvale any time soon.

the key info in left out in the post is the mix of housing. Median price don't mean jack squat.

A boring 35 year old house in Fremont selling for $400,000 and earning $2000 a month in rents will NET about 4.5% after taxes, insurance, and administration costs.

That's a 6% cap rate before expenses. Take off 1.2% for taxes, 0.2% for insurance, and you're already down to 4.6%.

Just maintenance costs of a property averages about 1%. Hiring somebody to manage your property, or owning it through a real estate trust is not free either. 2% is typical for large commercial real estates holdings, so I doubt professional SFR management is available for less than that.

Hmmm... already down to 1.6% cap rate.

Yet we have not yet considered vacancies, transaction costs, or potential legal liability. Or the fact that the pass through tax advantages that make RE attractive to many Americans are not so interesting to Saudi princes.

...also serves as a hedge against dollar devaluation?

...and also bears the risk of loosing value as the bubble continues to deflate.

No, I do not think we need to consider Saudi Princes or foreign central banks swooping in to buy SFR in the USA any time soon. There are already REITs that pay well more than 1.6%.

I'm speaking for South Florida, but I'm sure SO CAL is no different.
There's no bottom, every time a house is lowered to any where near affordable it gets bought.
Period, I keep seeing these houses that have been listed for 500 months, but when they fall below a threshold then they move. These are people that feel compelled to buy to qualify for the 8K incentive.
It's not that the prices are going up, but that threshold, of peoples psyche that justify for hundreds of reasons, buying when they normally wouldn't. People are sheep, if everyone is jumping in for the tax incentive, then so will they.

But when that incentive is taken off the table then people wont have the incentive or the social pressure to take advantage(sic) of that stimulus. And lets not kid our selves, these houses aren't exactly moving quickly nor or there bidding wars on them.

E-man says

The bottom for the low-end market was in early 2009.
The mid-end market is stabilizing, but might still drop another 10% max.
The high-end market (over $1.5mil) still has some room to fall. This might not be true for the Fortress areas.

2009 reset a lot of home prices for the sub-prime/low-end market. Therefore, I don’t expect home prices in the low-end market to drop. They might even increase going forward.

Agreed 100% on the low end market. I think 10 to 20 % is missing in the mid end market.
There is a serious disconnect for houses valued between 120K - 190K.

Low end market is tooping at 90K or more, and the mid end market starts at 195K.
There's a whole 100K range that has nothing, people are duking the stats and padding the numbers to stay above 195K. I just saw a house built in '35, with a crack on the front porch, that went from the floor up the front wall to under the window seal. The window actually sags in the middle where the crack stops.

So I just called on it for the hell of it, the guy told me, it's listed for 225K.

225K seems to be the MANUFACTURE floor for any 3 BR in South Florida regardless of location.

That's just optimistic fantasy talk.

"GITTER DONE!" sounds silly in 2010 doesn't it? So will 225K for 90% of these homes currently listed at 225K in a few years.

Something has to fall to that 120-180 price range, I can wait.

@TOT,
it seems to me that there is absolulty a planned amount agreed upon by all of the local REpukes. Why is this not price fixing or colusion? A straight public auction of all REO SFH to owner/occupiers would cut out the REpukes and set the values to wages and credit ability in a flash. Only qualified buyers with an actual D.P. and the loan can not be over 3X H.H.I. THat would help fix this crap. It would also avoid more rich people having Section8 rentals that have us taxpayers buying their investment for them. Another stupid welfare program.

Bap33 says

. Why is this not price fixing or colusion? A straight public auction of all REO SFH to owner/occupiers would cut out the

I spoke with a Realtor today, while inquireing on a house, he was audibly upset. He told me, he has put 5 offers with buyers on that property for the asking price, and it is still sitting unsold. He was pissed for two reasons. The house is rotting away, and he is passionate about RE, he dislikes that this blight is bringing down the values of the neighbors(but not really because of the games the banks play.) But the values of the homes that are owned out right, they take a hit more so than the banks, because they can't just hold out, and keep getting TARP funds while the house rots.

The other reason is, he is doing a lot of leg work and ground work to work deals, submit offers and seemingly all for not. He talked about ethical issues the banks and the REA is doing. He wasn't towing the line, and I liked that.

So I asked him, well who would one file a class action law suit against? He said he hadn't thought about that, but he has a case that more easily proven than the would be buyers.
These houses shouldn't be put on the MLS if they have no intention of selling them for that price.

I volunteered any leg work, and signature canvasing.

We'll see what happens, but it's high time we get back the American dream, Washington, Banks and the Goddamn REA has hijacked it long enough. And it is quietly being scuttled to foreign investors. After the creme of the crop has been rummaged over, we mere cretins can then have what will be left. After how ever long it takes for the inventory to be sold to these foreign interest.

He also confirmed that the 195 to 225 price range I see in Hollywood lakes listed, is to insight bidding wars, and to instill trust in the RE market that the prices are in line now. But the Bank or RE has no intention of selling those houses at that price.

E-man says

If history is any indication, a $75k investment now will yield you a $700k home, free and clear in 30 years. Approx. 900% return.

That would be true only if I borrowed the money from my friend who does not expect any interest.

Tenouncetrout says

He also confirmed that the 195 to 225 price range I see in Hollywood lakes listed, is to insight bidding wars, and to instill trust in the RE market that the prices are in line now. But the Bank or RE has no intention of selling those houses at that price.

Talk about false advertising practice !

How can one call it 'in line now' when they were wrong when it was 'in line then'.

Another RE marketing jargon designed to screw buyers, and to a greater extent our economy.