patrick.net

housing price doesn't move overnight like stocks. I'm surprised at the current pace of price declines, especially on the low end. The bubble took a long time to inflate and I've always expected it to to take a long time to deflate. Just look at Japan to see how government intervention affect the decline.

Some people have short attention spans and little patience. Just because its "only" dropped 15% (whats 15% of $600k? ouch!) doesn't mean we have bottomed, or the worst is not yet to come, or it will go back to bubble evaluations anytime soon.

Some people seem to dismiss the possibility of an overshoot below historic valuations. Just give it a few years or 10.

If major global cities such as London, Paris, Zurich, etc can sustain real estate prices that far exceed the median wages of its residents for prolonged periods of time, it can happen in the SF Bay Area too. There is just such a global demand for these cities that great drops in prices are unlikely.

brokebaroque says

If major global cities such as London, Paris, Zurich, etc can sustain real estate prices that far exceed the median wages of its residents for prolonged periods of time, it can happen in the SF Bay Area too. There is just such a global demand for these cities that great drops in prices are unlikely.

Unlike the global cities you listed which has a diverse economy, eveyone has penned SF Bay Area (esp the south bay) as Tech Mecca, as such they ignored the deflationary economy. We are more like Tokyo, fast booming technology economy with dreadful downturn.

Also keep in mind that the US has lax immigration laws compared to Japan.

Yep,

cheaper than London Paris now as it was before those bubbles, when we were still more expensive than flyover land, but nowhere near out of whack like now.

Some of us in the Bay Area can be a little bit too Bay Area Centric for our own Hip Cool and Beautiful good.

It is great that you and E-man are putting dissenting points of view on Patrick's blog, a good exchange of ideas. But putting so much energy into arguments for folks who have made up their minds to be skeptical, who are you really spending so much energy into trying to convince? Could it be yourself?

Hey Wong,

You thought cleantech was funny? - I have another one for you.

Question: (sybrib) Please paint the rosy scenario for how the Bay Area economy will prop up or even according to your forecast increase the high cost of home ownership and propup/boost the rents.

Answer: (Guess who) I think the answer is health care.

LOL! thats good one sybrib.
I guess if i get a hernia thats somehow translates to a higher GDP.

1) Home prices double from 1976 to 1980.

Job expansion! Growth in Tech industries like PC/Semiconductor/Software. By mid 80s SV had 70% of world wide semi production. There was lots of demand for skilled tech employees. A very young demand driven economy which allowed high salaries to grow.

2) We had 100% inflation from 1980 to 1995, but 50% inflation from 1995 to 2010.

Yes, and thats were prices indeed doubled based on inflation line but after the correction due to job losses. Much of the manufacturing was wipped out. PC/Semi manufacturing was closed down and moved out of the valley. Others like Microsoft pretty much killed off their competition , our local software makers. Others fell due to fierce price competition.

3) We had 30% inflation during the recession from 1989 to 1995, but we’re in a deflation stage since mid 2008.

What cost $100 in 1989 would cost $122.53 in 1995.. more like 20-25%.... 30% is passable.
Deflation is factored in based on published results.

4) Shouldn’t the graph be plotted on log scale?
Yes you can certainly do that... try excel or open office... its free.

thomas.wong1986 says

1) Home prices double from 1976 to 1980.
Job expansion! Growth in Tech industries like PC/Semiconductor/Software. By mid 80s SV had 70% of world wide semi production. There was lots of demand for skilled tech employees. A very young demand driven economy which allowed high salaries to grow

Which part dont you get ? See above....

E-man says

How do you explain the median household income of $175k with a median home price of $2.4mil?

The same way I explain Yahoo Stock with price of $350/share with PE of 200x earnings back in 1999.
Irrational Exhuberance!

The fact is we hardly had $1M homes before the bubble years with the same 5% makeing $170K a year. Irrational Exhuberance (second edition).

Prices will eventual fall back to pre-bubble plus inflation (30-35%)

http://www.redfin.com/CA/Campbell/1212-Capri-Dr-95008/home/997015

Date Event Price Appreciation Source
Mar 08, 2001 Sold (Public Records) $731,818 26.3%/yr Public Records
Apr 16, 1997 Sold (Public Records) $295,000 - - Public Records

thomas.wong1986 says

Date Event Price Appreciation Source
Mar 08, 2001 Sold (Public Records) $731,818 26.3%/yr Public Records
Apr 16, 1997 Sold (Public Records) $295,000 - - Public Records

BTW, similary homes by year 2000 went to $500K... long before any easy lending or evil bankers
even created the toxic loans.......

The census data says in 1950 the median home value adjusted for inflation was $44,600. It also says the median home value adjusted for inflation in the year 2000 was $119,600.
Median, Ha, ha... that's a good one. The reason many of us live and breathe Shiller is that he uses ACTUAL home sales data pairs -- looking at what a house sells for and comparing it to when it was last sold. He's able to aggregate all the sales pairs and construct a comprehensive picture of how the market behaves over time. There are limitations to this approach, but I'll take it any day over medians.

E-man says

@ camping,
I don’t think the Bay Area is special like everyone elses. However, you cannot compare the Bay Area to TX or AZ. It has always been expensive to live in the Bay Area. When was the last time that RE could cash flow positive in the Bay Area?

I haven't been here that long - were good parts of the Bay Area not cash flow positive in the 90's?

The census data says in 1950 the median home value adjusted for inflation was $44,600. It also says the median home value adjusted for inflation in the year 2000 was $119,600

Along the same lines as what EBGuy says, have you considered that newly constructed houses have been increasing in size every year for a long time? You cannot directly compare a 1950 house to a 2000 house. Again, this is why Case-Schiller exists!

>>I love accuracy. I hate propaganda. I don’t get upset, but I do like to set the record straight.

I'm busy right now, but will respond in due time

>> Who wants a discussion where everyone agrees with each other anyway?

The purpose of discussion is to FIND THE RIGHT ANSWER. Discussion for the sake of disagreement is just a waste of time.

justme says

The purpose of discussion is to FIND THE RIGHT ANSWER. Discussion for the sake of disagreement is just a waste of time.

You won't find the right answer if everyone agrees with each other. It's called groupthink...

E-man says

According to Patrick’s formula, this is borderline for buying in both the early 90’s and now. I consider South and East San Jose to be the working class neighborhood. The better part of San Jose, Santa Clara and Sunnyvale are the professional working class neighborhoods.

Perhaps one should define what working class is. I hardly think Silver Creek or Alamden Valley as working class and plenty of tech workers come from So. San Jose. Its not hard to see the heavy commute to/from that region. Friends of mine, wife is a manager at Ebay and husband is also a manager at Intel live off 7th Street down in Central San Jose about 3-4 blocks from San Jose State University campus. They dont seem to have any plans on moving. And there seems to be plenty of tech workers living in East Side. I would say a large percentage of homes in SCC are working class built type homes.

tatupu70 says

justme says

The purpose of discussion is to FIND THE RIGHT ANSWER. Discussion for the sake of disagreement is just a waste of time.

You won’t find the right answer if everyone agrees with each other. It’s called groupthink…

Well, guess what. Nowhere did I say that everyone should agree with each other. I simply stated what the OBJECTIVE of the discussion should be. Discussion includes disagreement.

justme,

give it up. S/he is spending an inordinate amount of time piddling over all sorts of figures, accusing others of lying or citing lies and distorting facts, accusing Prof. Shiller of being dishonest, in effort of trying to "prove the housing bears wrong" on a blog that is entitled "Housing Crash Forum". Maybe s/he hasn't figured out yet that s/he is in buyers' remorse. Or maybe bears here are a straw man for a partner or spouse, or maybe s/he has such a type-A mentality that s/he "just can't stand it"... "gotta prove them wrong."

Or maybe s/he is writing it all in jest, to buttress the arguments Patrick has in the sidebar on the main page, because that is the effect that all those rants looks like.

Who knows?

Does it matter? Is it important?

sybrib says

S/he is spending an inordinate amount of time piddling over all sorts of figures

Yes, I agree. Let's not let data get in the way of a good story... If everyone here wants to reassure each other that housing will continue to decline forever, far be it for someone to get in the way.

As someone with an open mind, I enjoy looking at both sides of the argument.

Sybrib,

agreed. The only reason one needs to speak up is that if nobody does, then the propagandist wins by default. And that would be bad.

tatapu,

>>As someone with an open mind, I enjoy looking at both sides of the argument.

You mean both the dishonest side and the honest side?

justme says

The purpose of discussion is to FIND THE RIGHT ANSWER. Discussion for the sake of disagreement is just a waste of time

What you meant was "the purpose of the discussion is to FIND THE ANSWER THAT AGREES WITH MY OPINION"

just me,

I don't think such ranting is going to "win" anything on a web page called "Housing Crash Forum" except possibly win some legitimacy away from the housing bulls side.

Stream of consciousness, all we need now is some rap music and a good rapper and we've got a superstar

Please don’t lie about what I say here.
I consider their data useless now
decline is so small that it can hardly be seen on the graph
10 year data is flawed?

Unfortunately you failed to take the opportunity
to make any point whatsoever.

I proved Case-Shiller data must be wrong.
totally and irrefutably useless. A 50% deviation is
shocking result

deviation is a joke
data shouldn’t be taken seriously.
I offered you opportunity for redemption.
almost totally devoid of any support
for any of your assertions
on the housing market.
What exactly can you present ?

Boom-chika-boom-chika-boom-boom-BOOM!

tatupu70 says

justme says

The purpose of discussion is to FIND THE RIGHT ANSWER. Discussion for the sake of disagreement is just a waste of time

What you meant was “the purpose of the discussion is to FIND THE ANSWER THAT AGREES WITH MY OPINION”

It might possibly be a good time to go and look up the term "psychological projection" on wikipedia.

justme--

My point was that you are a little presumptous to think that you KNOW the RIGHT answer to an unanswerable question. Will house prices continue to drop? You can have your opinion, but it's not "right" or "wrong", it's just your best guess.

It may be right--time will tell...

http://www.mercurynews.com/ci_14413694?source=patrick.net&nclick_check=1

After taking a break for the holidays, foreclosures spiked in Santa Clara and San Mateo counties in January.

Despite efforts by the federal government and lenders to help people stay in their homes, foreclosures rose 37 percent in Santa Clara County last month from December, and 71 percent in San Mateo County, according to a report Tuesday from ForeclosureRadar.

azrob,

I think that here in the Bay Area, except for an enclave called The Fortress where wealthy immigrants use cash, most homes are bought with borrowed money. That would include, even speculators who call themselves "investors" (actually, I suppose the lender is the "investor" in those cases).

Well you will probably not be surprised to read in Evans-Pritchard's article in today's Telegraph that borrowing is drying up in the USA, here is the link

http://www.telegraph.co.uk/finance/economics/7259323/US-bank-lending-falls-at-fastest-rate-in-history.html

@E-man,

Setting aside my disagreement on some opinions in this tread, I am kind of wondering where those data in the article come from since CNN does not specify anything about it.

To me, the numbers are median home price of those cities and the percentages are price level dropped from the peak years. You may able to see the same too.

If so, this article is just showing us what city got hit hard and what city is doing ok. It can not be used to determine if a certain area undervalued or overvalued. Thus, it is silly for us to debate on that article from the begining.

What do you think?

azrob00 says

Why is my still having one rental property a joke? i had six properties, and sold 4 of them. Its called hedging, you never know, the US could throw the dollar completely under the bus instead, and not let prices fall due to rampant inflation

You completely missed his point. 1 property doesn't prove any theory. It's a sample size issue--that's why he referenced you using statistics before using your 1 rental as evidence.

tatupu70,

>> No, you’ve done a little more than that. Here’s the post I was refering to…

Have I really? What I stated was

>The purpose of discussion is to FIND THE RIGHT ANSWER. Discussion for the sake of disagreement is just a waste of time.

It should be clear that you are mis-reading my statement,

Eliminating logically flawed or otherwise errant arguments is an important part of the process of establishing the right answer. Such elimination is ALL I have done in this thread.

Ready to retract?

WOG,

>>Ready to retract?

Hell no. Here is what you said, further up in this very thread:

>> Here’s a link to the U.S. Census data tables on house prices. EVERY SINGLE DECADE from 1940 onward shows significant appreciation for homes for BOTH nominal values and inflation adjusted values.

Here is an excerpt of the census data you referred to

Year 2000 1990 1980 1970 1960 1950 1940
California $211,500 $249,800 $167,300 $88,700 $74,400 $57,900 $36,700

Could it be more clear that from 1990 to 2000 there was a (big) drop in inflation adjusted values? Are you going to deny it again? Are your delusions never-ending?

You said EVERY SINGLE DECADE. So I looked at every single decade and found several, in particular one in California, were your assertion was false.

Now you want to exclude California data from consideration and pretend it is not there.
And this on the thread about "Bay Area Home values", no less. "oh, no, Sir, I was referring only to LINE ONE of the table, Sir".

Your semantic games are not going to save you.

>> DUH!!!!! I linked the data!!!!!

Yeah, you linked the data. You just picked ONE line from the data (without stating that this is what you did), and then you neglected to understand what the rest of the data said. And now you are playing semantic games.

You're a QUACK!

justme says

tatupu70,
>> No, you’ve done a little more than that. Here’s the post I was refering to…
Have I really? What I stated was
>The purpose of discussion is to FIND THE RIGHT ANSWER. Discussion for the sake of disagreement is just a waste of time.
It should be clear that you are mis-reading my statement,
Eliminating logically flawed or otherwise errant arguments is an important part of the process of establishing the right answer. Such elimination is ALL I have done in this thread.
Ready to retract?

I'm ready to laugh... if that helps. You can spin it however you like, but I think my point was made. Clearly you wanted end any healthy debate on the issue.

LOL! just love your back-peddling!

Infallible Word of God

tatupu70 says

According to the graph you yourself posted, there is a net increase in population in SF since 1950. And I’ve yet to see any evidence of prices “plunging” during that time period. Care to post something backing up that claim?
And yet you continue to post that others are in error?

So what happened in 1950 to 1980, some three decades? population declined and so did prices. Im sorry you were unaware of the hippie boom and the social unreset in the 60s the early 70s centered in the city of SF but all that drove many out and into the burbs. Did you think those left wing Marxist in the 60s had deep pockets of money or a job that fueled higher home prices. There were plenty of abondoned homes back than. But that has been well known around here for decades.

Trying to rewrite history is foolish.

Yes, prices rose post 1980 as the economy expanded. But even comparing 1950 to today.. an increase of some 25,000 over a 50 year period is laughable! WOW WHAT A TREND!!!!

Guys,

I think the question E-man wrote was asking if Bay Area Homes are undervalued?, not the demographic trend of 1950-1980 SF.

Not sure what he means by "undervalued", maybe he is referring to the tax assessments. Of course some properties that were inherited are undervalued but that is because of proposition-13. Also if some homes didn't change ownership for a long time they are undervalued in the assessment.

But there's also a lot of the underwater homes that are overvalued. That is a big loss of revenue.

Proposition-13 was supposed to help homeowners to stay in their homes, particularly senior citizens and cash strapped working class homeowners. But not landlords. Probably we need to repeal prop-13 and make it for primary residence only.

thomas.wong1986 says

So what happened in 1950 to 1980, some three decades? population declined and so did prices. Im sorry you were unaware of the hippie boom and the social unreset in the 60s the early 70s centered in the city of SF but all that drove many out and into the burbs. Did you think those left wing Marxist in the 60s had deep pockets of money or a job that fueled higher home prices. There were plenty of abondoned homes back than. But that has been well known around here for decades.
Trying to rewrite history is foolish.
Yes, prices rose post 1980 as the economy expanded. But even comparing 1950 to today.. an increase of some 25,000 over a 50 year period is laughable! WOW WHAT A TREND!!!!

Still waiting for any evidence of a price decline from 1950 to 1980.