patrick.net

pkennedy says

You posted an interview which clearly states momentum is the most important factor. That other factors such as the government might come into play, but momentum is still the strongest factor.

No, Shiller said he had a model for Wall Street back in the '90s, he did not mention it was the strongest or most important factor. His model from the 90s wouldnt work because of government interfence, that is why he is unsure.

thomas.wong1986 says

And where are the fundementals like incomes to home prices ? Unless the public somehow believes we doubled or even tripled our salaries somehow?

I would agree with this comment if it were 2006, but many, many places have already corrected. Perhaps not where you are looking... That's why I asked to where are you referring with your comments.

thomas.wong1986 says

No, Shiller said he had a model for Wall Street back in the ’90s, he did not mention it was the strongest or most important factor. His model from the 90s wouldnt work because of government interfence, that is why he is unsure.

That's not at all what he said. He said the model emphasizes momentum over everything else. Then he went on to say that the government intervention is somewhat unique to this housing market so he's not sure how that will affect the market when it is removed. He in no way said that the model wouldn't work. He said that the conditions are different this go around--but they always are. No two situations are exactly the same.

Down the street where I purchased my home in Los Gatos went from low 300s to well over $1M by the end of the decade in 2000.

Jim Klinge thinks the spring selling season is all but done, and prices will be heading lower again (San Diego).

http://www.bubbleinfo.com/2010/04/09/random-observations/

tatupu70 says

That’s not at all what he said. He said the model emphasizes momentum over everything else. Then he went on to say that the government intervention is somewhat unique to this housing market so he’s not sure how that will affect the market when it is removed. He in no way said that the model wouldn’t work. He said that the conditions are different this go around–but they always are. No two situations are exactly the same.

Unless you have solid fundementals no government intervention will stop further corrections. What we have from the Government is a political move, based on assistance so people keep their homes, it isnt built on solid grounds of income to prices. If you dont have enough income, we will politically force the banks to forgive part of your mortgages. Are your going to do this for everyone ?

BUY BUY BUY
http://www.redfin.com/CA/Concord/1151-Carey-Dr-94520/home/1609878
How long until we are in the lower 200ks?
Always heartening to see FEDERAL DEPOSIT INS CORP RECVR on the Trustee Deed. The bank took it back for less than $200k, so it could get interesting. That neighborhood is a disaster zone. I noticed 1130 Carey Drive (1380 sq.ft. 4/2) is also headed for the auction block soon; bought in 2000 for $233,500 with a FHA loan -- with perpetual refies from World Savings Bank starting in 2002 through 2006. This is what we're up against folks...

thomas.wong1986 says

Unless you have solid fundementals no government intervention will stop further corrections. What we have from the Government is a political move, based on assistance so people keep their homes, it isnt built on solid grounds of income to prices. If you dont have enough income, we will politically force the banks to forgive part of your mortgages. Are your going to do this for everyone ?

Of course not. The government's assistance really isn't to help people, anyway. It's to help the banks and the broader economy. Stopping the economic freefall was the primary motivation behind the intervention.

Remember also that the 3x income is a broad guideline and doesn't necessarily apply to more expensive houses. Most other expenses don't increase linearly with income, so the 3x rule underestimates what you can afford

Like I said earlier, I would have agreed with you in 2006, but not now.

E-man says

thomas.wong1986 says
Down the street where I purchased my home in Los Gatos went from low 300s to well over $1M by the end of the decade in 2000.
Interesting. Can you give us just one address of any home in the Bay Area that was bought in the low $300k in 2000 and recently sold, 2009 or 2010, for $1mil?

End of the decade, as in the year 2000.

tatupu70 says

Remember also that the 3x income is a broad guideline and doesn’t necessarily apply to more expensive houses.

Its was very broad when it came to safe lending standards. The higher the x the higher the risk. Without real incomes, you get what we just saw happen, people buying homes they otherwise were unable to afford. It may have taken 3 years for home prices in 89-92 to declline, but we are in a much bigger bubble today. Perhaps mediams at 300-400K is too much to ask for?

It still has positive cash flow if you rent it out for $1,500.
That certainly is a safety margin. Just for kicks, though, I found this 3/2 renting for $1500. The landlord's tax basis (according to PS) is $69,024. He's the SOB that determines the market rate if things get ugly. How low can you go...

There may well be a dearth of renters going into the future, if the government has anything to say about it.

I was at a wedding at the ritz there a few months back. I think our party (50 or so) where the only guests staying there, and the price was non ritz and discounted for our wedding

Some of the posters on this thread might as well believe in unicorns...

What moron would build a man made lake in the middle of a desert?

Oh Save Me, Obama

http://www.youtube.com/watch?v=D5Oc-E5ZzZ8

Actor J. Carlton Adair conceived Lake Las Vegas around 1967 for Lake Adair. At the time he purchased the land and water rights. The property was acquired by Transcontinental Properties in 1990 from Ronald Boeddeker who had acquired 2,000 acres (810 ha) in 1987 from the US Government when Adair went bankrupt. http://en.wikipedia.org/wiki/Lake_Las_Vegas http://www.homesparadise.com/homes/nevada/las-vegas/desert-shores/ http://en.wikipedia.org/wiki/The_Lakes,_Las_Vegas http://en.wikipedia.org/wiki/Lake_Dolores_Waterpark#The_beginning And, let's not forget Lakes Mead & Powell

from a front page story on PatNet from the centralvalleytimes link:

""Also in Merced, the mortgage delinquency rate has increased, according to First American CoreLogic’s data for February 2010. It says nearly one out of fine homes --19.46 percent -- were 90 days or more delinquent compared to 16.77 percent for the same period last year, representing an increase of 2.69 percentage points.""

we have a ways to go folks

Some of the posters on this thread might as well believe in unicorns…

Well, they'd certainly possess richer imaginations than some of the small-time charlies on here who fancy themselves land barons. Honestly -- why overextend yourself speculating on houses to play landlord when government policy (not just this administration) is designed to safeguard and aggressively proliferate home ownership? You would be better off taking that HELOC and buying rare baseball cards.

Another sign things are "picking up."

"Method-Ology" rates really high on the B*llsh*t Meter when its used instead of more correctly, "method".

But Method-Ology is more Cool Hip and Beautiful, been used a lot around here in the Bay Area since the dotcommers came, sounds more important, than "method".

This should give you an idea of the job market out there.....

Office vacancy rate rises in San Francisco

An amount of office space equivalent to 13 Bank of America buildings sits vacant in San Francisco today as companies continue to shed more square footage than they rent - a trend that won't change until employers start putting more people behind desks.

The 13 million square feet of available space in the first quarter of 2010 translates to a 17.7 percent office vacancy rate, up from 14.7 percent a year ago and nearly one percentage point from the previous quarter ending in December, according to data released Friday by the real estate firm Jones Lang LaSalle.

Read more: http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2010/04/10/BUDV1CSC61.DTL&source=patrick.net#ixzz0ksCsFCnp

And down south...20% vacant! Are we shooting for 25% by year end.

Silicon Valley office vacancies to remain high this year
Posted: 01/17/2010 04:00:00 PM PST

Nearly one-fifth of Silicon Valley's commercial office buildings stood empty at the end of 2009 — the worst vacancy rate in at least 15 years — and that figure is only expected to increase in 2010.

Vacancies in research and development space — the most plentiful workplaces in the valley — are the worst in four years. That's 44 million square feet of office and research space — about 83 San Jose City Halls — in need of tenants, according to data from brokerage NAI/BT Commercial.

E-man,

>> I agree on 1987-2010 time frame

Good.

>> Also, he showed that home prices were under-valued prior to mid 1988.

Case-Shiller (the index itself) makes no representation of whether houses are undervalued or not. There is no subjective judgement in *calculating* the index. That is all in how people interpret the values, yes?

E-man - the OFHEO charts only cover conforming loans. Until recently that was something like $350k or less, it's just in the last few years that the limit went to $729k. So it means that OFHEO doesn't mean a lot for Santa Clara County since it covers less than half of the purchases.

Thomas Wong - Are you saying that a Los Gatos house sold for $300k in early 90s, then for $1m in 2000? I can believe that. And it was even supported by fundamentals, in the sense of newly rich dotcommers who wanted to live in Los Gatos. I remember a house in Palo Alto that was listed around $2.5m and sold for $3.5m!

But that's very different than talking about the 2000s housing bubble. I don't think we can find many (if any) houses that sold for $300k in 2000 and sell for $1m now. Excepting remodels and rebuilds of course. In Santa Clara County, the lower end places doubled or a bit more, the higher end places are now maybe 50% higher, the middle is somewhere inbetween. So there's probably some more to go down, particularly if interest rates rise. But saying that prices should go back to the early 90s is a little extreme. Particularly if you consider that some of the money made in the dotcom boom is still here, I know some of it is still in my bank account. Plus the semiconductor business seems to be picking up again. It's true that there's few if any fabs left here, but there's plenty of designers, engineers, and management, and stock increases will help those folks.

E-man says

camping says

E-man:
If the low end (less than $500k) is stabilized, what’s your opinion of ranges above that, say $600k-$800k range and $800k+ range.

There are still a lot of activities in the $600k - $800k range due to artifically low inventory. I guess people in the Bay Area got a lot of $$. I know you’re looking for a place in Sunnyvale, right? I just looked up a 3/2, 1,450 sq.ft. home on Waxwing in Sunnyvale that my friend bought in 1995 for $270k. Actually, his dad bought it for him. Zillow has it value at $750k. HOLLY SH*T! 3/4 of a million $ for a 55 year old home? Sounds so affordable to me, NOT!
Here are my two cents. At $650k for a similar house, you’re downside risk is minimal. At $750k, your downside risk is quite high. If I were in your shoe, I would hold-off on buying until next year or even into 2012. So what if interest rate will be a little bit higher. You might be able to buy it for a little bit cheaper. If you bought it cheaper, then your property tax is also lower.
I think it’s cheaper to rent than to own in your situation at this point. I wouldn’t touch anything greater than $800k unless I get a good deal (10% or more below current market value). You might want to check out Milpitas. It’s not a bad town, and the property tax is cheaper here too (1.1%) since we don’t have a lot of bonds and special assessment taxes. I think the schools are half way decent. Don’t get too hang up on the $18k tax credit. You will get it all back and more if you strike a good deal down the road.
Hope that helps.

Interesting view. Thanks.

SiO2 says

Thomas Wong - Are you saying that a Los Gatos house sold for $300k in early 90s, then for $1m in 2000? I can believe that. And it was even supported by fundamentals, in the sense of newly rich dotcommers who wanted to live in Los Gatos. I remember a house in Palo Alto that was listed around $2.5m and sold for $3.5m!

LOL! now thats a good one. I hardly think the newly rich tech workers made their millions from fairly valued stocks. The PEs on stocks were into the 100s and were not fundementally supported. And to make the point many CEOs will tell you what happened back in the late 90s with tech stocks will never happen again. So now that they have their 2-3M diggs, what happens when they sell, who will pony up that kind of scratch (money) to make that kind of purchase? Without another external bubble, even the high end PA and LG homes will correct further. You wont find much in stock options these days to fuel a similar fire since stock options are now expensed to the financial statements. So that game is long gone.

But saying that prices should go back to the early 90s is a little extreme. Particularly if you consider that some of the money made in the dotcom boom is still here, I know some of it is still in my bank account. Plus the semiconductor business seems to be picking up again. It’s true that there’s few if any fabs left here, but there’s plenty of designers, engineers, and management, and stock increases will help those folks.

No, what we are saying is 1997 prices plus inflation.. if you want to factor in 1993 prices plus inflation, the trend comes out the same. And yes the fabs are long gone and so are the design engineers, you can find plenty of AMD/Intel/ and other chip engineers in Texas and in the Oregon. The same is true with other tech workers.

EBGuy says

Do I think 3/2’s are going to go from ~$200k to ~100k — unlikely; however, falling to $150k is a distinct possiblity. YMMV…

FWIW, low to mid 300s seems reasonable. You will find many homes back in the mid 90s were around mid 200s for that region. If you get it at low 300s, you certainly are safe over the long run.
If it was purchased at 1993, for $69K is was most likely a foreclosure back then. And we had lots of them back then.

SiO2 says

E-man - the OFHEO charts only cover conforming loans. Until recently that was something like $350k or less, it’s just in the last few years that the limit went to $729k. So it means that OFHEO doesn’t mean a lot for Santa Clara County since it covers less than half of the purchases.

ahh yea, conforming loans is what we typically had before the bubble, even in Santa Clara County and rest of the Bay Area.

Sorry thomas.wong1986, I posted without the refresh (which is funny, as you also mention 1993). My posts are referring to certain neighborhoods in Concord where folks are buying rentals.

>> I disagree. The shaded yellow area is saying “Remaining Bubble Still to Deflate”. If this doesn’t mean home prices are over-valued, what does it mean?

E-man,

The annotations on the graph are not attributable to the Case-Shiller index, nor the persons behind it. Nor is the graph itself an un-adulterated representation of Case-Shiller data. Specifically, someone *else* (see link further up) has divided the price time series with an inflation time series to make a specific point.

So, I repeat, Case-Shiller (the index itself) makes no representation of whether houses are undervalued or not.

You can agree or disagree with the viewpoint behind the annotations, which is that house prices in the long term must reverse to the mean

On top of that, these are 10-city and 20-city composite graphs, not SF or any other metro area. To argue about specific metro areas use specific
curves

Personally I think the bottom will occur well into the yellow band. Exactly where will depend on how successful the Fed is in creating (housing/consumer) inflation. In fact, one could even argue that the higher the CPI inflation relative to housing inflation, the lower the curve has to go! One always must be careful when contemplating inflation-adjusted curves and the future. I hope this clears things up.

ThomasWong - Median home prices in Santa Clara County in 99 were too high for conforming loans as measured by OFHEO. Conforming doesn't mean 30 yr fixed interest 20% down, it means that they were under a certain value, and had some underwriting standards.
Check it out - conforming loan limit in 1999 was $240k: http://ethicalhomes.com/1333/historical-conforming-loan-limits
Median SCC home price in Nov 99 was $400k. So with 20% down the mortgage would be $320k, over the conforming limit. So even if it's a 30 yr fixed rate 20% down, it's a jumbo loan.

Also, you are right in that stocks with a p/e of 100 were not fundamentally sound. Absolutely true. But, the dotcommer who got the cash from his IPO didn't really care at that point, and his cash was fundamentally enabling him/her to buy, raising the prices of houses around here.

So the run up in 98-00 was not a housing bubble, it was a dotcom bubble. But, the run up in housing prices from 01 to 07 was a housing bubble. Housing prices fell from 00 to 01, but not to pre dotcom bubble levels, then rose without fundamental reasons. (although some of the rise was due to money still sloshing around from the dotcom - as I said I still have some of my dotcom money today.)

Forgot the link showing median home price at $400k
http://demopedia.democraticunderground.com/discuss/duboard.php?az=view_all&address=104x4152167

it's a copy of a Mercury News article.

OK, I'll ask you a question. How did the world operate when we WERE on the gold standard? Low inflation, fiscal responsibility, no currency debasing? I don't know - thats sounds good to me.

BTW - GOLD DOES NOT FLUCTUATE WILDLY IN A FREE MARKET. WHAT IS FLUCTUATING IS THE WORTHLESS CURRENCY. This is a basic principal. Housing prices have NOT gone up, the value of our money has gone DOWN. In other words, it takes more money to purchase the same item because our loving government has debased our currency. I'm sorry, you really need some BASIC help in understanding "how money works".

1) It's pretty simple. You allow gold to circulate as a competing currency. This does not eliminate the dollar and other fiat currencies as they exist today. It allows you to keep the current system in place and simply add a new player to the game in the currency market. If individuals would like to accept or make payments in gold, they should be free to do so. America's economy did fine with dozens of competing currencies throughout the 1600s to 1800s. By allowing a competing currency, it will naturally restrict the governments temptation to overheat the printing presses.
This is not really a gold standard but it does allow gold to function as money. I have yet to hear a legitimate response from anyone as to why we can't led the dollar still exist in its current form and allow gold to circulate independently of the Federal Reserve.

This would be no shock to the system and it would be no different than the mechanism in place that allows someone from Europe to use their credit card to pay for something in America right now.

2) This hypothetical scenario would be irrelevant because the dollar will still exist as an independent currency if you followed the solution to #1. Besides, how much did this happen when America was on a gold standard? It didn't.
3) You are wrong here. Gold prices do not fluctuate wildly. The dollar price of gold fluctuates wildly. If you price anything in gold, you see an full order of magnitude less in standard deviation over several time periods (months, decades, centuries). Price oil, wheat, the stock market, or anything else in gold. Then stack it on the same thing priced in dollars. The gold chart looks smoother.

The analogy that "gold fluctuates wildly" is wrong. The old illustration to prove the consistency of the value of gold: one ounce of gold bullion in 1920 would buy top quality men's suit. That same one ounce of gold bullion would accomplish the same today. This illustrates the point that it is not gold that is changing in value, it is in the purchasing power of the fiat dollar. Gold has maintained its purchasing power, whereas the dollar has not.

A return to a semi gold standard in which the amount of dollars printed would be limited in proportion to the amount of gold held by the Treasury. The amount of dollars allowed to be printed would be in direct relation to a fractional amount of gold held. For example: for every trillion dollars in paper money in circulation, the requirement would to be to have at least $100 billion in gold reserves (purely hypothetical). That would be a return, somewhat, to the original intent of the Bretton Woods agreement. As far as establishing the value of gold in relation to the dollar, I would think allowing the value of gold to float on the open market would further serve as a brake on the printing of money and maintaining its value. If the price of gold bullion were to rise, that would force the Treasury to raise interest rates and diminish the supply of currency. That would at least establish some control over the amount of money that is being printed, and would force politicians to reign in on their reckless spending.

So the run up in 98-00 was not a housing bubble, it was a dotcom bubble. But, the run up in housing prices from 01 to 07 was a housing bubble. Housing prices fell from 00 to 01, but not to pre dotcom bubble levels, then rose without fundamental reasons. (although some of the rise was due to money still sloshing around from the dotcom - as I said I still have some of my dotcom money today.)

The same was true with Japan pre-1990. The stock bubble fueled the RE bubble, back to back. In the case of SV, the money cashed from from stock options and highly inflated stock prices fueled the home prices. It was after all free money! There was nothing legit regarding prices back in 2000. They were unsustaible. Its no wonder over 60% of post 2000 sales were using ARM loans.

Publication Date: Wednesday, Sept. 20, 2000 & Friday, Sept. 22, 2000
Breaking into the market
Yes, Virginia, it is possible to buy a first home in this area–if you’re willing to make compromises
by Jocelyn Dong

So you’re looking to buy your first home in Silicon Valley. How do you get into the market?

“Stock options,” says real estate agent Chuck Atwell dryly. “Being a multi-millionaire.”

http://www.paloaltoonline.com/news_features/real_estate/fall2000/2000_09_22.lowmarkt.php

………………………………………………………………

Fall Real Estate 2000
Publication Date: Wednesday, Sept. 20, 2000 & Friday, Sept. 22, 2000
It’s a seller’s market
Prices haven’t leveled off yet as buyers compete in a hot market

Advice to potential buyers

“If I were going to live in the area for a long time, I’d buy now,” Dancer , Coldwell Banker, Woodside, advised would-be buyers. If plans call for moving out in two to three years, he’d hesitate and possibly rent.

“No one wants to recognize it, but between 1989 and 1992, prices dropped 30 to 40 percent. There’s no question that could happen again. Everything has a cycle and real estate is no exception. It’s foolish to think prices will go up forever. In the longer term they will, if you can weather the downturns in between. There’s no way to know,” Dancer said.

“If you need to buy a house, you need to bite the bullet and do so,” added Shirley Bailey, Alain Pinel Realtors, Los Altos. “Christmas is a great time to buy–if there’s anything on the market.”

“There is no bad time to put a house on the market. A home always looks best around the holidays and people have more discretionary time then,” noted Biorn.

“If you are not part of that success story (no stock options) and are not benefiting from the high-tech boom, it’s tough. You have to start as soon as you possibly can, anywhere in the Bay Area,” advised Pinel. “It’s brutally expensive not to buy.”

http://www.paloaltoonline.com/news_features/real_estate/fall2000/2000_09_22.trends.php

SiO2 says

as I said I still have some of my dotcom money today.)

Sure, but YOUR gain, was someone elses near 90% loss if they held it today. And there are many examples of that.

SiO2 says.

Thomas Wong - Are you saying that a Los Gatos house sold for $300k in early 90s, then for $1m in 2000? I can believe that. And it was even supported by fundamentals, in the sense of newly rich dotcommers who wanted to live in Los Gatos. I remember a house in Palo Alto that was listed around $2.5m and sold for $3.5m!

What your saying is the highly inflated stock prices which helped buy up home in 1998-2000 at what ever price the seller wanted were justified, by some fundemental valuation? And Yahoo and other stock like Ariba really were worth $350/share and $400/share! Thats a good one! That is why so many came here post 2000 from the East Coast to ride the next gravy train as the next tech boom happens.
Good luck with that one!

Stock options definitely helped create a lot of new buyers and buyers with a lot of cash. There were a lot of companies that went public, a lot of people cashed out their options, and used the money. A lot rode the market up and then down again. A lot weren't even part of the bay area, they had just invested in the stock market. Yahoo at $350 doesn't need to be justified, it just needs to be understood that people sold their options, and used that money.