patrick.net

Patrick so generous of you to put 600000$ as fair price.

I think it should be 400000$ because it has YEAR BUILT: 1956 which means its a 55 year old crap. I'm sure the new generation folks will not like this old house so it has to be rebuild from scratch.

Also how foolish this house which has 3 beds and 3 baths. They could have made the extra bath as bed or something like that.

All I want to know is what it would rent for. From that, I can decide what it’s worth.
Hey, I actually know what it would rent for, by looking at my own Compare Rents service. The median rent for the nearest forty 3br detached houses is $2,197/month. This is not a small sample. I can see that rents are a little higher as you get closer to 1610 Marina Way, so let’s be very generous and say it would rent for $3,000/month.
That would mean that the house is worth about $3,000 * 12 / 0.06 = $600,000. The 6% pretty much takes everything into account.
So it’s overpriced by at least $240,000! The current asking price of $840,000 is definitely much higher than the house is actually worth.
And it’s not just me and my assumptions. The NY Times housing calculator says it’s NEVER better to buy this house at $840,000. It’s much better to rent it: http://www.nytimes.com/interactive/business/buy-rent-calculator.html

350-400K yes it makes sense. Thats what incomes can support. They bought at 820K and listed at $840K.. already underwater and sinking fast! You really gotta be stupid to pay that much. I suspect they may sunk a couple hundred thousand in renovations when it peaked at $1M.

It is affordable to many. The key is how much more than the 6% Patrick suggests paying per year is worth it. If you can rent it for $3000, is paying 200K premium worth it?

With financing, it is affordable to many.

Willow Glen is a cute area, but the school district is terrible. Families can't afford to send their children to private school in this economy. 2000 sq foot Homes in Santa Clara with Cupertino Schools are currently selling for that price.

myeastbayhouses says

Good luck this obviously isn’t the right house for you it is for someone who wants to make it their home not their investment.

Wow, does that line still work? My jaw dropped when I read it. I wonder if my friends who put 30% down and now are underwater are smug with the satisfaction of their "home". Since the topic of real estate is no longer polite conversation at their parties, I'm going to say probably not.

"Families can't afford to live in Willow Glen and send their children to private school in this economy? "

Families still live in Willow Glen? Last time I checked, the DINKS (double income no kids) and the retired owned Willow Glen.

Where did all the families go? Hmmm...I'm sure the educated families figured out where to go.

And this home is located in the Campbell School District, not San Jose Unified, so it is a more desireable home to rent.

That would mean that the house is worth about $3,000 * 12 / 0.06 = $600,000. The 6% pretty much takes everything into account.

Well, my spreadsheet is saying that a carrying cost of $3000/mo willl support a $850,000 price tag.

$850K purchase
$165K down

IO $2200 @ 3.88%
Tax $900 @ 1.23%
Schedule A ($900)

Subtotal: $2200

Insurance $170
Maintenance $230
Lost interest on DP $400

Total Other: $800

Nominal Cost: $3000/mo

Actual Expense $6000/mo

Mortgage balace will be under $300K in 2020, reducing the interest expense to under $1000/mo and the carrying cost to under $2000/mo.

Rents on this might actually be under $2000/mo by then, who knows, but it can go either way, can't it?

Value is subjective. Price is not.

This property is actually priced very well (@840k) for its market, size, amenities, condition etc. It comps at ~$1m based on recent sale data.

Full disclosure: I am a San Jose commercial broker. I manage and own a piece of an investment company that invests in cash flow properties out of state, both residential and commercial. I have conducted dozens of BPOs for banks and major servicers in Santa Clara county.

I too am a "data" driven person. However, I am able to make a distinction, when called for, between the different appraisal methods and when each should be used.

Using the income approach (a pseudo-derivative of which is being used by many site-goers here) is fine and appropriate when evaluating a property to be a landlord or investor for. I use it everyday when evaluating investment properties.

In this particular case though, the income approach is not appropriate. Using it is disingenuous at best and plain ignorant at worse.

The land in this particular neighborhood (I live a few blocks away) is not income producing; at least not for a landlord. For the banks and tax collector, sure. But the desirability and thus, value and price of this land and for the Bay Area in general is driven primarily by the high incomes of individuals living here. High because that's what the local economy (bio, eng, tech, etc.) pays. Mix high incomes and land scarcity and what do you get? No cash flow, that's what.

So why evaluate land known not to cash flow by cash flow/income appraising methods? Ridiculous.

The "price" is right, the "value" is up to each individual to decide. But if someone is going to take out a 30-year fixed at historically low interest rates, raise a family and stick around for the next (at least) 30 years, has a very secure (if possible?) job(s) that pays six figures--then I would say it's not a terrible deal. Will the market continue downward? Maybe. Probably. I don't know. I don't have a crystal ball, just my opinions and at least as much data as the rest of you.

You want cash flow in California? Don't mind war zones? Fine, buy in the east bay, valley, Sac or various parts of L.A.

Don't mind investing out of state? Great, take your pick. Western NY, IN, NC, SC, TX, Nash, LA, KanCity, Clev, Balt, Omaha, Linc, AL, etc. etc. etc.

I have homes in San Francisco and Hercules and fully understand this dynamic. Very well written thanks.

LOL! Anything above $400K is insane! This home is priced at $800K because
the buyer screwed up big time paying $800K back in 2002, and wanted a cool $1M, but no one interested. Sure there were people still justifying even 900K as they trying to justify 800K

Numbers of employers and salaries are down from 10 years ago. Its still a $300K home, adjusted for inflation, anyway you cut. Dual incomes (DINK) and all of the rest of reasons applied decades ago. Still prices dont "double" in a few years. Why fix someone elses mistakes?

Property History for 1610 MARINA Way
Date Event Price Appreciation Source
Jul 27, 2010 Price Changed $840,000 -- MLSListings #81004838
Jul 27, 2010 Price Changed $840,000 -- EBRD #40448042
Jul 15, 2010 Price Changed $915,000 -- MLSListings #81004838
Jul 15, 2010 Price Changed $915,000 -- EBRD #40448042
Jul 02, 2010 Price Changed $922,500 -- EBRD #40448042
Jun 15, 2010 Price Changed $929,000 -- MLSListings #81004838
Jun 15, 2010 Price Changed $929,000 -- EBRD #40448042
Jun 03, 2010 Relisted -- -- MLSListings #81004838
May 25, 2010 Delisted -- -- MLSListings #81004838
May 25, 2010 Price Changed $975,000 -- MLSListings #81004838
May 25, 2010 Relisted -- -- MLSListings #81004838
May 25, 2010 Price Changed $975,000 -- EBRD #40448042
May 25, 2010 Relisted -- -- EBRD #40448042
Feb 19, 2010 Delisted -- -- MLSListings #81004838
Feb 02, 2010 Listed $949,000 -- MLSListings #81004838
Feb 01, 2010 Delisted -- -- EBRD #40448042
Jan 28, 2010 Listed $1,050,000 -- EBRD #40448042
Nov 14, 2006 Delisted * -- Inactive MLSListings #3
Oct 04, 2006 Listed * -- Inactive MLSListings #3
Sep 23, 2006 Delisted -- -- Inactive MLSListings #2
Jul 22, 2006 Price Changed -- -- Inactive MLSListings #2
Jun 09, 2006 Listed -- -- Inactive MLSListings #2
May 30, 2006 Delisted * -- Inactive MLSListings #1
May 06, 2006 Listed * -- Inactive MLSListings #1

Feb 05, 2002 Sold (Public Records) $820,000 12.9%/yr Public Records
Mar 01, 1994 Sold (Public Records) $313,000 1.2%/yr Public Records
Dec 05, 1991 Sold (Public Records) $305,000 -- Public Records

I won't touch it at $400k, let alone $840k.

Whoever buy this crap is just dumb.

lennon says

The land in this particular neighborhood (I live a few blocks away) is not income producing; at least not for a landlord. For the banks and tax collector, sure. But the desirability and thus, value and price of this land and for the Bay Area in general is driven primarily by the high incomes of individuals living here. High because that’s what the local economy (bio, eng, tech, etc.) pays. Mix high incomes and land scarcity and what do you get? No cash flow, that’s what.

Incomes are down as are the number of employers in the region. Why pay someone 100-150K here when you can easily pay less for equal work in lower cost state. Companies are holding tight every nickle they earn. Time and time again we see in SV, employers who piss their money on over-compensation dont last long (Silicon Graphics+Sun Micro).

lennon says

Don’t mind investing out of state? Great, take your pick. Western NY, IN, NC, SC, TX, Nash, LA, KanCity, Clev, Balt, Omaha, Linc, AL, etc. etc. etc.

Thats what home owners in California did, took equity out and bought up homes in many other states as "investments" and vacation homes. Now they defualted and put their primary residence in CA at risk. Recall how NAR was tooting how many buyers were actually buying up their 2nd and 3rd home. Time to pay up!

Troy, lennon and myeastbayhouses,

You guys are sad. Troy, your calculation does not make sense. How can the monthly mortgage payment be $2200 at 3.88%? Yeah, how can the subtotal be $2200 with the tax of $900? How did you come up with $165K? How can you even get the 30 years fixed interest rate of 3.88%? How can you reduce the principle balance to a half in 10 years by just paying $2200 a month? Google the mortgage payment schedule or do the log scale on your spreadsheet. You will see the balance will come down significantly only toward the end.

Sure, lennon, house should bring us happiness and joy. How can we be happy knowing that value of my house came down substantially? Do I know the housing market is going to tank? Yes, I do. That is unless the US government is going to rain down on my parade. I am looking to buy a house. But guys like you totally turn me off. You need to take it at what it is. Don't twist it. Don't cover. Don't sugar coat. Don't even suggest that I can get 3.88% on the jumbo loan. Acknowledge that the banks are holding many properties on mortgage limbo. My real estate agent is candid. I am committed to working with her.

HOUSING MARKET STILL BURNING DOWN
Posted on July 27, 2010 by Foreclosureblues
The Residential Housing Market is Still Burning Down

July 27th, 2010
From ‘The Mad Hedge Fund Trader’

http://foreclosureblues.wordpress.com/

1) The Residential Housing Market is Still Burning Down. Today, the Commerce Department reported that June new home sales, at 330,000, were up a blistering 24%. So is the crash in residential real estate over? It’s off to the races, right? Wrong! Much of the gains were cancelled out by whopping great downward revisions which caused April to shrink from 504,000 to 422,000, and May to shrivel from 300,000 to an unbelievable 267,000, a 60 year low. Every time I update my prediction that home prices are either going south or nowhere for a decade, my inbox gets flooded with angry emails from real estate agents around the country and other industry apologists screaming that I am missing record home affordability and historic low 30 year mortgage interest rates. Over the weekend I received an assist from Barrons (click here for the link), which highlighted an unexplored angle in the real estate crisis. The coming demographic curve predicts that there will be a shortage of those aged 35-49, prime first time home buyers. At the same time, there will be an oversupply of those over 50, like me, who are looking to downsize their housing requirements. The net effect is for national home ownership that peaked in 2004 at 69% to fall as low to as 64% by 2015, its 1993-94 bottom. The flip side is that renters will soar from 32.8% to 36% during the same time period. Needless to say, this is terrible news for house prices. It also explains why low end multifamily housing, where newly formed young families and immigrants reside, is one of the few sectors of the housing markets showing a pulse. If you want more depth on this politically sensitive issue, please read my notorious piece on “The Hard Truth About Residential Real Estate” by clicking here.

FORECLOSURES IMPLODE HIGH END REAL ESTATE
Posted on July 28, 2010 by Foreclosureblues
With the expiration of the first-time buyer tax credit on April 30, there are now two main props keeping the housing market afloat. One is the growing percentage of home sales financed by Federal Housing Administration (FHA) loan guarantees. The other is the refusal of banks to put on the market foreclosed homes over $300,000.

In this article, we will take a look at the second factor. A future report will examine the role of the FHA in keeping the market from collapsing.

Chicago and Cook County, IL

Let’s begin with Chicago. Cook County is comprised of Chicago and its contiguous suburbs and has a population of roughly 5.3 million residents. It experienced a huge bubble during 2004-2006 and has suffered a substantial drop in both prices and home sales.

RealtyTrac.com has the most comprehensive database on foreclosures. It claims to have specifics on over 1.5 million defaulted, auction-ready, and bank-owned properties. The information is updated daily. You can organize listings of defaulted properties; those scheduled for auction, and repossessed homes (REO) by date as well as by amount. The website also provides a separate listing of those properties which have been put up for sale by the lender.

As of July 15, RealtyTrac listed 28,829 properties which had been foreclosed and repossessed by lenders. Some have been owned by the bank as long as 2½ years without having been placed on the market. Roughly half have been repossessed by the lender since late January 2010.

This year, banks in the Chicago area have foreclosed on a huge number of expensive homes. RealtyTrac lists 2,650 repossessed homes for more than $300,000 and 169 for more than $1 million.

Here is where it gets really interesting. Out of 28,829 repossessed properties, there were only 1,292 listed by lenders as “for sale.” The vast majority of these available homes were inexpensive. A mere 29 homes over $300,000 were for sale. In other words, the banks have withheld from the market 2,621 properties listed at $300,000 or higher.

There are probably two important reasons why banks have pursued this strategy. First, they are concerned that placing these more expensive homes on the market will severely weaken an already thin upper tier market.

Even more crucial is that selling substantial numbers of expensive homes at discounts of 50% or more would compel the lenders to take substantial losses which have been avoided by keeping them off the market.

To give you an example, one repossessed home in the upper income suburb of Glencoe was purchased in January 2004 for $850,000. Though not listed for sale yet, its opening bid price is $2,819,000. This suggests that the foreclosed owner had refinanced the property to the tune of $2.8 million. If the holder of the first lien put a home like this on the market, it could be forced to swallow a loss approaching $2 million or perhaps even more.

One big problem with this strategy is that the banks have also ramped up their placing of seriously delinquent borrowers into default – the first step in the foreclosure process. RealtyTrac listed 39,963 defaulted properties in Cook County as of July 15. All of them have been placed into default since August 2009 and half of them since early February of this year. That is nearly 4,000 per month for the past five months and nearly 10,000 in the last two months alone. Of these defaulted properties, there are 7,550 listed over $300,000. Sooner or later, these homes are coming on to the market either as foreclosures or short sales.

What does the market for non-foreclosed properties in Cook County look like now? As of July 15, trulia.com posted 38,877 properties for sale of which 14,866 were listed for $300,000 or more.

Sales of all new and existing homes and condos totaled only 9,057 in the first quarter of 2010 according to DataQuick. That is an average of slightly more than 3,000 per month for a county with over one million owner-occupied units. Since the peak in early 2006, home sales in the Chicago area have plunged by nearly 75%. Median sale prices for Cook County slid to only $175,000 in the first quarter, down 10% from a year earlier according to DataQuick.

With so many homes listed for more than $300,000 now languishing on the Cook County market, it is somewhat understandable that the banks would be reluctant to add their foreclosed homes in this price range to a weak market. When you add in the 7,550 defaulted properties in this price range which have not yet been repossessed by the banks, you can get a sense of the soaring number of homes that is ready to inundate an already glutted market. When these homes come onto the market, as they eventually must, prices will inevitably plunge.

Current home sellers may have been taken in by all those reports lately which have been claiming that the housing market is “stabilizing.” Only 35% of all the homes listed for more than $300,000 have had their asking price reduced since posting on Trulia. So these homes just sit … and sit.

Miami-Dade County, FL

Most readers know that the collapse of the housing market in south Florida has been more severe than anywhere except perhaps Las Vegas. A recent REAL ESTATE CHANNEL article reported that banks have been repossessing south Florida homes at a rate of 4,000 per month in 2010. That would seem to suggest that the foreclosure debacle might soon stabilize. Let’s see.

According to RealtyTrac, on July 16 there were 10,858 repossessed properties in Miami-Dade County. More than 2,100 have been held by the banks for more than a year without having been placed on the market and 600 for more than two years. Over 1,400 of these foreclosed properties were listed at more than $300,000.

Out of 10,858 bank-owned homes, a mere 983 were listed for sale. Nearly all were very recently placed on the market — after June 1 of this year. Only 11 of the 1,400 homes listed for at least $300,000 were actually on the market. Same as in Cook County. The problem is very similar. Trulia posted 13,114 Miami-Dade County non-foreclosed homes for sale at asking prices of more than $300,000. Only 21% have lowered their asking price. As with Cook County, most just sit … and sit.

Banks in the Miami area are also very reluctant to dump these higher-priced homes onto a still weak market. But they have the same problem that banks in the Chicago area are facing. RealtyTrac listed 22,753 defaulted properties for Miami-Dade County as of July 16. All have been put into default since late January of this year. Over 500 were defaulted in one day – July 15. More than 1,500 of these defaulted properties were listed at more than $300,000. All of these defaulted properties will be coming onto the market either as foreclosures or short sales.

The situation is even worse than in Chicago, however. Loan Performance, a division of Core Logic, tracks those metros with the highest percentage of seriously delinquent prime mortgages. This included loans that are either delinquent for more than 90 days or in the process of foreclosure. The Miami metro had the highest percentage of any metro in the country at the end of this year’s first quarter – 28%. This means that more than ¼ of all outstanding prime mortgages in Miami were either in the foreclosure process or almost certainly heading there.

The cure rates tracked by Core Logic tell us that practically all of these serious delinquencies will eventually follow the 22,000+ defaulted properties into foreclosure or short sales. The reluctance of banks to put higher end foreclosures onto the market will do nothing except delay the inevitable collapse in prices of homes purchased for $300,000 and above during the bubble years.

Orange County, CA

Orange County is situated between Los Angeles and San Diego. With a population of roughly 3 million, it includes such cities as Irvine, Santa Ana, and Anaheim as well as the tony towns of Newport Beach and Laguna Beach.

Like so much of California, the housing collapse after the bubble peak has been severe.

As of July 16, RealtyTrac listed 6,270 repossessed properties. Although 3,200 of them have been taken back by banks within the last six months, 650 have been in the inventory of banks for more than two years without having been placed on the market. As with Cook County and Miami-Dade County, very few foreclosed homes in Orange County are listed for sale – 227.

More than 3,800 of these repossessed homes are priced above $300,000 and 650 for more than $1 million. Yet not a single home over $1 million is currently on the market. Only 85 of the 3800 bank-owned properties priced at more than $300,000 have been listed for sale. This strategy is looking familiar, isn’t it?

There are 5,694 defaulted properties listed by RealtyTrac as of July 16. Although banks accelerated the foreclosing of properties in 2010, they have placed delinquent homes into default at an even faster pace. Half of the 5,694 defaults occurred in the past two months. More than 2,400 defaulted properties are listed at more than $300,000.

Are there a substantial number of non-foreclosed homes for sale at more than $300,000? You bet. Of the 15,599 homes listed for sale on Trulia, 12,249 have asking prices more than $300,000.

The inventory of homes for sale rose steadily in the second quarter of 2010 according to the Orange County Real Estate Blog. Short sales now comprise 20-30% of all sales in most cities in Orange County and this has put downward pressure on home prices. Had the banks placed more of their REOs on the market, prices would have very likely crumbled on the upper end. When banks finally release these repossessed and defaulted homes to the market, which is what will happen.

Bergen County, NJ

Finally, let’s take a look at the Northeast. Bergen County is made up of fairly affluent communities which are located in northern New Jersey just west of the George Washington Bridge. Although home prices have dropped rather substantially since the peak, it has not been nearly as bad as in California or Florida.

RealtyTrac listed 615 repossessed properties as of July 16. Roughly 120 have been owned by the banks for more than a year without having been placed on the market. Two-thirds have been repossessed since the beginning of 2010.

Similar to the three other counties we have reviewed, many of the foreclosed properties in Bergen County are expensive homes. More than 100 are listed on RealtyTrac for $500,000 and above. More than 350 of these homes are listed for at least $300,000.

Are the banks withholding most foreclosed properties from the market as banks have in the other three counties? Absolutely. On July 16, there were only 31 repossessed homes on the market. A total of four were listed higher than $300,000. That is four out of more than 350 foreclosed homes in Bergen County that are listed on RealtyTrac for more than $300,000.

Bank Withholding of High-End Foreclosures from the Market is Nationwide

The four counties which we have looked at reveal a clear pattern on the part of banks to withhold most repossessed homes from the market and nearly all of those listed on RealtyTrac for more than $300,000. Is this occurring throughout the nation? Take a look at the following table and judge for yourself.

Will this bank strategy keep the market for homes over $300,000 from imploding? Not a chance.

Fannie Mae now requires an average down payment of 30% for securitized loans which it purchases or guarantees. According to Fitch Ratings, mortgage delinquencies for prime jumbo mortgages soared to 10.3% in May as underwater owners walked away in droves. That spells serious trouble for the five states which account for 2/3 of all outstanding jumbo loans – California, Florida, New Jersey, Virginia and New York. The problem goes well beyond these states, however. Housing markets throughout the United States for $300,000+ homes are in for rough sailing and prices are extremely likely to be headed for a real plunge.

myeastbayhouses says

Patrick,
When the property was rented the sellers were getting far MORE than $3000 per month and it as rented because they were relocating and the market was flat. With that said real estate is local and I have found unless you look at this are and this area only rent calculators, price estimators don’t work. Real Estate is LOCAL and sometimes even local to a neighborhood you shoud know that you signature says you are in Menlo Park and I know that a house in Menlo Park isn’t the same value as one in Portola Valley or Atherton even if they are the indentical house.

Good luck this obviously isn’t the right house for you it is for someone who wants to make it their home not their investment.

At least he admitted houses are not viable investments. I think $600K is overpriced. I wouldn't pay more than $400K tops.

Ditto

It might be 'worth' $600k now, but give it some time and I'd say $350-400k. That's being generous too, considering how much the bay area bubble still has left to bleed out. I lived right next door to a house that sold in 2004 for 1.2 million that they could not get a bid on for $700k during the middle of the recent bump, and thats a better neighborhood with better schools than quaint Willow Glen. Out of irony Willow glen is where I went to grade school.

Also why do we have spambot realtors here? I thought the majority of us browse this site to escape that.

I'd value it at just over 300,000, but only because it's in California and everything there is overpriced. In other parts of the country it would go for something more like 150,000-225,000

Lennon is right that for whatever reason, people are willing to pay more to own a home than to rent the same exact home--especially around here. That doesn't make a lot of financial sense, but as a consumption item, there are worse things to spend money on than your home.

However, the MLS history on this property shows that even with its current price, and the "what people are willing to pay" method of appraisal, this house is overpriced. The realtors and brokers around here should remember that.

"What people are willing to pay" is obviously not $1,000,000, and it doesn't look like it is $840,000 either.

The cash-flow method says it should be much less than that.

5 whole choices for rentals in that zip code and you wonder why there's a premium to own?

And this one looks like a condo
Jun 05 0.27 1616 Sparkling Way San Jose, CA 95125 3 BR $2,800 6

Put whatever asking price you want on it. The smart move is to rent a comp used house in the neighborhood. Once hundreds of families in the area do the same, rents will go up and sales prices will be somewhat supported. That's my take on Patrick's POV at least.

Nobody says

Troy, your calculation does not make sense. How can the monthly mortgage payment be $2200 at 3.88%? Yeah, how can the subtotal be $2200 with the tax of $900? How did you come up with $165K? How can you even get the 30 years fixed interest rate of 3.88%? How can you reduce the principle balance to a half in 10 years by just paying $2200 a month?

1. The $2200 "subtotal" was interest plus property tax, less their itemized deduction value. It is the "IT" in "PITI".

2. $165K is 20% of $850K (less the fee kickback redfin gives)

3. This was a 15 year loan.

4. Actual cash outgo is $5600/mo, or $6000 if you count the lost 3% interest on the downpayment.

Yes, my POV is that if it's clearly much cheaper to rent the same thing in the same neighborhood, you should rent it. But I don't think rents will go UP, I think prices will come DOWN to the point where a landlord could actually make a slight profit.

Rents are determined by local salaries, not by lending. Since salaries have been falling, rents are not likely to rise.

There is a "warm fuzzy" factor to owning, but I get a warmer and fuzzier feeling by having all that extra cash still in my hands to improve my life while still living in the same quality house in the same neighborhood.

Ladies and gentlemen that are trying to converse with "myeastbayhouses"!
I do not know about you, but I (and I am an immigrant) can not give any serious consideration to a "realtor" that writes in English like a 11 year old child. It is ridiculous!

Realtor, Robot, Tomato, ToeMahTo....

MLS # 80812990 states that this home was rented out for $3,950/month on 7/2/2008. The agent remarks said this is a 'Courtesy Rental', whatever that means. I'm assuming an insurance company paid the rent while someone's home gets repaired by their insurance.

Two loans were taken out on 11/16/2005 for the amounts of $1 million, and $170k. Owner has been paying their mortgage. But look out. His 5/1 ARM is resetting in a few months :)

The owner attempted to let someone else foot the bill by listing it for $1.35 million in May 2006. The price dropped all the way to $1,198,890 before it was removed from the market in November of 2006 (This is when the owner realized he's under water).

I agree with Thomas. All these prices are set because 'owners' need to net a certain amount. They are taking no consideration as to what it is really worth. Of course the bank approved the short sale for one buyer already per the MLS remarks. The buyer walked because he realized the deal is no good I'm presuming.

@Vain

Not all owners NEED the money to cover the loans. We should see people listing for WAY WAY WAY less, but we don't because those people are also going to list for the maximum they can get. Some people can't sell for less, some can, but choose not to. Either way, the price is set for a reason.

If you had something you bought for a $10, you could sell it for $5 and take a loss, hold it or sell it for $100. If people are willing to pay $100, why sell it for $10? You've made a good investment. If there aren't people willing to pay your price, don't sell it.

In this particular case though, the income approach is not appropriate. Using it is disingenuous at best and plain ignorant at worse.
The land in this particular neighborhood (I live a few blocks away) is not income producing; at least not for a landlord.
lennon, You realize you just made an excellent case for why it would be better to rent in this neighborhood instead of buy. Ultimately, this is what these metrics are about.
You can quantify the Buy premium (probably $250k+ in this neighborhood), plug it into your own ownership satisfaction equation (security + nails in wall + no landlord + pride of ownership - inability to move) and decide if it's worth buying it. I will add that price/median income for the region is also important to verify that the current value assigned to these homes is sustainable.
Vain, thanks for the research! Their original loans were so reasonable... sigh...

Yeah but the market is just full of distressed properties. I've been looking around for more than 1 year, and can only recall 2 properties that interested me that did have further room to go down in terms of price. All others usually get listed for a while with no price decreases, then gets delisted. It comes back months later with the help of another agent as a short sale.

Majority of the buyers now are just in the market because it is a second chance at home ownership since they were priced out by the boom previously. They experienced getting priced out and they had all lost hope. They are willing to pay anything they can afford. I'm betting this trend will stop soon as this pool of buyers get depleted. Those people are probably in their 40's and 50's and have never owned a home. This is the last train to the 'American Dream.' It's departing soon.

It sounds like the guy is on the hook for 2 recourse loans thanks to the refi.

I'd be surprised if the bank even approves this short sale.

my POV is that if it’s clearly much cheaper to rent the same thing in the same neighborhood, you should rent it. But I don’t think rents will go UP, I think prices will come DOWN

I share this. With a rent of $36,000/yr, this place has to come down from list just ~4% a year to make renting "free" by this metric.

Unfortunately, I think it's pretty likely that 30 year rates will go to 3% this decade, while this may not boost prices "up", it will afford the opportunity to refi from a 15 @ 3.88% to a 30 @ 3%, which would lower the monthly amortizing nut from ~$5500 to ~$3500.

And I don't think interest rates are going to go up from here without bona-fide wage inflation, which this area, being a semi-fortress, will catch first.

So buying if things stay the same, rates go down, or rates go up is probably not a bad strategy even at $850,000, though the buying window could in fact last 5-10 years, like Japan.

First of all, I live in this area and Campbell Union School District is nothing to get excited about. This home's neighborhood elementary school, Blackford, has terrible test scores. (greatschools.net gives it a 2, API is 714). The two nearest Willow Glen elementarys are a 6 (API 714) and a 10 (API 906). I love how people assume that because it's Campbell it must be better...not true! San Jose Unified is a huge district and accordingly has some great schools and some terrible ones. Any potential buyer that does their homework isn't going to be fooled on the school issue.

Secondly, I have been looking at 3bd rentals in this area for several years and I simply don't believe that this house rented for more than $3k unless it was a short term deal.

Now tell me who can afford/is willing to pay $840k in this economic environment (lay-offs, foreclosures & lack of "creative financing") for what is essentially a nice starter home?

wgrenter says

Now tell me who can afford/is willing to pay $840k in this economic environment (lay-offs, foreclosures & lack of “creative financing”) for what is essentially a nice starter home?

The beauty of real estate is that we can just watch the market, it will tell us soon enough.

im surprised no one is discussing about the age of the home which is 40+ years.

wgrenter says

Secondly, I have been looking at 3bd rentals in this area for several years and I simply don’t believe that this house rented for more than $3k unless it was a short term deal.

It sure was a short term deal. It was rented for $3950. It was called a 'Courtesy Rental'. The previous tenant probably got it like a Courtesy Car when you get your car serviced. This home was probably fully furnished as well for $3950, and was short term. Nonetheless, an individual wouldn't pay $3950 for it. But a large corporation renting it for a customer for short term would definitely do it, and write it off.

It's truly bizarre that people argue income isn't a useful metric to measure asset values.

Assets must be bought out of income. There is no other way. Money that has been saved is still income. The stock market is down from a decade ago so the old canard of "investments" can no longer be used.

People pay for their houses on a monthly installment plan. This MUST match up with their income to be sustained. Yet every day people comment on here that income has no or little relevance.

The bubble is still well and truly alive in people's heads.

The nice and expensive "Willow Glen" homes are in Willow Glen, within a couple of blocks either side of LIncoln Ave, except at the extreme north end of Lincoln. Those homes are older and the trees are bigger and the neighborhood is swankier and the people are Hipper and Cooler and more Beautiful than that location which is more like "Blackford". Calling it WIllow GLen is like saying Brentwood is in the Bay Area.

I think Tomas sales listing history is most useful. It seems to me that the 1994 sales price is about right. That was before all the financing price distortions began and was based on real income and the ability to pay. That's all I would pay. If that means I buy nothing, I buy nothing. Real estate isn't all that important.

Lets see where this BROKE state is in say 3 years, and this house is asking for another short sale by then and I suspect that one will be able to buy it. Unless they want to live in an area with no local gov. services. (by then) and or a TAX rate that will erode buying power along with a loan rates by then. I hope we move to must have 50% down, and 7 year terms ought to be the rule, and that way one is working to be a slave to a home, This is a POST baby boomer economy and the sooner you see what is HIGHLY likely the better off we all will be, with the aging of the LARGEST BABY BOOM and costs of healthcare it is going to be unlike anything anyone is even thinking about, not pretty and not nice to admit, but PLEASE GO FORWARD and see what happens in say 2015 - 2020 and beyond WHO IS GOING TO PAY for the care? Housing will be a distant thought as it should be... I will never again want to own a home, been there done that burned the Tee Shirt...