patrick.net

why so?

Agreed. Especially since you preface this "test" with the descriptives "prime" and "dramatic". Based on that, I'll bet most agree. A killer earthquake might temporarily cause a dramatic reduction but soon or later people will rebuild in beautiful area betting it will be another 100+ yrs another another killer earthquake.

Areas like cupertino, saratoga, mission san jose, burlingame, etc will not go back to the time when the current million dollar + homes were selling for $500K(1997)
In bay area, all of these prime locations, most families have double income, or if not, must be those CEOs or founders with plenty of money.
Contrary to what have been said these days in all media channels about double dip, high unemployment, july lowest number of sales, in these prime areas, there is always a demand and people still buy. If you search mls listings, all the desirable homes are pending. Amazing, but too bad for those waiting for that "dramatic" price reduction (patrick, dr irvine housing blog, etc). You can find dramatic price reductions if you are willing to live in far or undesirable , low class neighborhoods(east san jose, east palo alto, anything with east ).

I disagree, I think we will in fact see 1997 or back to 1993 type prices in all of these areas. Might take until 2014 or so, but when the trickle down goes up to those 6 figure incomes types and knocks them down. Now of course there are PRIME properties, one off's I am not talking about those those are the exception not the rule. I do in fact expect to major declines as I have said before why. But what they heck we all have our own thoughts, and frankly none of us has a crystal ball (I don't anyway) But I feel strongly at least.

Yep. Lots of stuff that was never supposed to happen or be impossible have happened in just the last few years alone.

You're crazy if you think even the "prime" areas will never see a dramatic drop. Oh it'll take longer for it to happen, but it'll happen.

You ought to consider basing your decisions, predictions, and investing on hundreds of years of hard & fast statistical data. Ever seen the 300+ year study of home prices in an area of Europe? Home prices track wage inflation; makes sense cuz that's how people pay for homes (mortgages). Ever seen Case-Shiller's work studying the U.S. housing market back to the 1800s? Same finding: home prices keep pace with inflation, over the long run, and nothing more. If you are a "chip_designer" you are probably drinking the very strong Bay Area (should I say "Real Bay Area"?) Kool-Aid. Hang around and you'll see. No, those areas are not immune and are not "different", over long periods of time. That's what they were saying in Tokyo, too, until prices fell by 60-80%.

tts says

Yep. Lots of stuff that was never supposed to happen or be impossible have happened in just the last few years alone.
You’re crazy if you think even the “prime” areas will never see a dramatic drop. Oh it’ll take longer for it to happen, but it’ll happen.

not in your lifetime.

Quant HF Mgr says

You ought to consider basing your decisions, predictions, and investing on hundreds of years of hard & fast statistical data. Ever seen the 300+ year study of home prices in an area of Europe? Home prices track wage inflation; makes sense cuz that’s how people pay for homes (mortgages). Ever seen Case-Shiller’s work studying the U.S. housing market back to the 1800s? Same finding: home prices keep pace with inflation, over the long run, and nothing more. If you are a “chip_designer” you are probably drinking the very strong Bay Area (should I say “Real Bay Area”?) Kool-Aid. Hang around and you’ll see. No, those areas are not immune and are not “different”, over long periods of time. That’s what they were saying in Tokyo, too, until prices fell by 60-80%.

Like any stock advisor will tell you "past performance is not guarantee of future results",
likewise, its useless to go over past housing data.
The housing in these prime locations mentioned are here to stay in that price, will be flat for a while, but not drop in any dramatically way.
Lets' not compare Tokyo either, because even Tokyo have bad poor undesirable neighboorhoods (shinjuku, kabukicho), and good prime areas as well.
Also, don't forget that all of these high profile economists (Shillers) happen to live in these prime neighborhoods, do you think they want their homes to drop price dramatically? Never will happen.

robertoaribas says

chip_designer, why do you think tts won’t live 4 or 5 years?

pra comentar isso, vc deve ser burro mesmo.

Well I have been looking at houses in the Peninsula for about a year now. While I don't believe they will go under 400k for 3/2 or 2/1 about 1100 sq foot house West of El Camino I can see them dipping to about 490-520k range. Burlingame and Millbrae will always be priced out of the average person's salary.

I feel San Bruno, Belmont, Redwood City, and San Mateo could fall in line pretty soon with what a lot of people would consider income to match your mortgage.

The last year I have seen houses priced around 570-580 for what I specified above and a majority of these houses have not sold for months and have had price reductions (but not enough of a reduction to induce a sell). Sellers are being stubborn right now but they won't have a choice because no one will buy until we hit the mid-09 lows again just because everyone know the prices they are selling them for are not worth it or that they should be lower.

Zlxr says

Perhaps you haven’t listened to Roubini’s latest video - he’s saying higher than 40% chance of a double dip and El Arian from PIMCO is in agreement.
Also - why is even Tony Robbins coming out with a warning about something significant happening in the next few months? Usually he’s giving pep talks.
Also - I heard that CA State Gov’t is going to withhold something like 2 months of payments to the counties and to the schools starting later this fall. Does anyone have any idea if this means business as usual - or will all these services we take for granted disappear for at least a month or so.

I did not say anything regarding the likelihood of a double dip. All I said was that any of these negative news will not have any effect on those prime bay area locations.

let me guess, u just bought a house?

chip_designer says

Areas like cupertino, saratoga, mission san jose, burlingame, etc will not go back to the time when the current million dollar + homes were selling for $500K(1997)

Ok, ok, ok! How lower will it go? 1999 level? 2001? 2003?

Or, do you think the price will not go down at all? If so, I can show right now some properties in those areas you mentioned to demonstrate how price is sliding down.

chip_designer says

In bay area, all of these prime locations, most families have double income, or if not, must be those CEOs or founders with plenty of money.

:) Plenty of money! Plenty of money is nothing new in bay area. People had money in 1980s and 1990s too. That did not stop housing bubble to bust in 1989-1992.

chip_designer says

Contrary to what have been said these days in all media channels about double dip, high unemployment, july lowest number of sales, in these prime areas, there is always a demand and people still buy.

Please put some objective analysis. What is the definition of "demand"? Until total sale become ZERO, would you keep saying "there is still demand"?

chip_designer says

If you search mls listings, all the desirable homes are pending.

Does the above statement require any serious response? The operative word is "DESIRABLE". So, by your logic, any home in MLS listing not selling is not desirable. That makes your statement always right, but nonsensical. Right?

chip_designer says

Amazing, but too bad for those waiting for that “dramatic” price reduction (patrick, dr irvine housing blog, etc).

The above statement pretty much sums up your overall feeling about this forum.

chip_designer says

All I said was that any of these negative news will not have any effect on those prime bay area locations.

If prime areas are so immune, how does this property get foreclosed? After all, it is prime location, right? The last owner bought it for $1.7M in 2007. They must be having lots of money, as you mentioned, with double income. What happen so bad that it got foreclosed? One of them lost job and only one income cannot keep up with the mortgage payment?

chip_designer says

The housing in these prime locations mentioned are here to stay in that price, will be flat for a while, but not drop in any dramatically way.

I think, as homeowner, that is your best hope - inflation will catch up and give you "price is flat" impression.

chip_designer says

Also, don’t forget that all of these high profile economists (Shillers) happen to live in these prime neighborhoods, do you think they want their homes to drop price dramatically?

Very very funny! Actually, you might want to bribe Mr Shillers so that he does not allow price to drop. He is the man!

Troll.

The Bay Area as we see now is different from what it was 10 years ago.
1.) Not many companies are going public.
2.) Even if companies go public, they don't give shit load of stock options like they use to
So the likelihood of many people becoming rich to afford these houses is very less now. You can maintain these high prices only if this area continues to create enough rich people so that they keep on consuming these over valued assets.
And Don't forget the most important factor- "Public Schools", that is the only thing they differ in.
How different is mission san jose from warm springs or even mil pitas ?? Just different schools. More or less same kind of homes, Same kind of people live there. Now keep in mind Schools are going down, because the whole state is going down as you can see.

There can be other developments also, May be some enterprising person may want to develop a network of private schools which are really affordable and are better than public schools in Mission San Jose/Cupertino and completely decouple the Zip Code and the kind of education your kids receive.

A lot can happen- Bottom line an over priced entity always comes down to realize it's true or sane value.

Can someone tell me home owners from what part of US thinks prices will go down in their neighborhood?

Dramatic? No, probably nothing like east bay, but then the appreciation was not as dramatic.

Still, if you look at the pre-bubble (mid 90's) premium paid for a prime location, and compare it to the post bubble premium paid for a prime location, the prime locations in the bay area look about 20%-30% overpriced. They are much less likely to HAVE TO sell or be foreclosed upon, and more likely to try to hold out for a better market. They will still normalize with respect to the whole region though eventually.

LOL @ the OP, probably underwater and behind on payments.

On a serious note, support your claims with data. All the data I see suggests we still have quite the correction coming, still 20-40% to go. That includes the prime locations, as all the surrounding areas will pull those prices down as well.

Haven't you ever heard the phrase "never say never." I can't tell you how many people told me in the mid 2000s that "house prices in California never go down." How many morons are there? I actually didn't count, but it was at least a few dozen. My response was always "what happened from 1991 to 1997?" There's nothing like living in denial, right?

chip_designer says

not in your lifetime.

Housing price trends have been maintained for hundreds of years dude. This isn't just some chartist crap. Its plain old common sense (ie. wages, comps, defaults, etc.).

You're gonna have to show how none of that no longer applies to the ~oh so special~ Bay Area. Which BTW I've seen and it isn't all that special. Nice? Sure. But not near nice enough to justify those prices.

all and I mean all reverts to the mean.... Come on Chip_designer if your name sake reflects anything REAL about you, then you know this, Japan is good comparison to us, not perfect, but a good likely model

cvoc13 says

all and I mean all reverts to the mean…. Come on Chip_designer if your name sake reflects anything REAL about you, then you know this, Japan is good comparison to us, not perfect, but a good likely model

when all reverts back to the mean, you think prices will be dramatically reduced in those prime bay area locations. When that happens, the US will be in a dramatically very deep trouble, with mass layoffs, depressed stock market, overall moral down, deflationary state of economy, and at that time, by human nature, everyone becomes chicken. Do you rather prefer that to happen?

if you have stable job, 20% downpayment, fico > 740, now is the best time to buy your home in those prime bay area locations.

chip_designer says

......deflationary state of economy, and at that time, by human nature, everyone becomes chicken. Do you rather prefer that to happen?

I am constantly amazed by people that confuse predicting that something will happen, with preferring that it will. It's almost a universal among housing bulls.

I don't particularly prefer to die, but I can predict with a fair reliability that I will.

chip_designer says

if you have stable job, 20% downpayment, fico > 740, now is the best time to buy your home in those prime bay area locations.

This comes right from used car salesman's manual. Well, actually realtor's manual.

I am not a realtor. I just stating my opinion , maybe I am the only one in this blog who thinks contrarian to all of you. And seems like I am being treated in a bad way, right P2D2?

chip_designer says

robertoaribas says

chip_designer, why do you think tts won’t live 4 or 5 years?

pra comentar isso, vc deve ser burro mesmo.

Wow, I though that was the drift, but Google translate did a remarkable translation:

"to comment on that, you must be stupid yourself."

Not a particularly clever comeback.

MarkInSF says

chip_designer says

robertoaribas says

chip_designer, why do you think tts won’t live 4 or 5 years?

pra comentar isso, vc deve ser burro mesmo.

Wow, I though that was the drift, but Google translate did a remarkable translation:
“to comment on that, you must be stupid yourself.”
Not a particularly clever comeback.

you just have to find something to amuse yourself!

roberto is my latino friend.

chip_designer says

I am not a realtor. I just stating my opinion , maybe I am the only one in this blog who thinks contrarian to all of you. And seems like I am being treated in a bad way, right P2D2?

Neither did I say that you are a realtor. But your sales pitch "if you have stable job, 20% downpayment, fico > 740, now is the best time to buy your home in those prime bay area locations" comes right from realtor's manual.

The chip_designer has serious logic problem.

P2D2 says

chip_designer says

I am not a realtor. I just stating my opinion , maybe I am the only one in this blog who thinks contrarian to all of you. And seems like I am being treated in a bad way, right P2D2?

Neither did I say that you are a realtor. But your sales pitch “if you have stable job, 20% downpayment, fico > 740, now is the best time to buy your home in those prime bay area locations” comes right from realtor’s manual.
The chip_designer has serious logic problem.

P2D2, you can win with your words. But at the end, it is us, 60% of silicon valley’s scientists and engineers are foreign-born, we are the ones buying in those prime bay area locations. Thank You.

we are the ones buying in those prime bay area locations.

...and you depend upon the Greater Fool Theory to help you sleep at night.

By the way, if you're going to subscribe to the whole contrarian investment meme, I'd suggest a broader set of indicators to flesh out your perspective than the popular sentiment on a housing crash blog.

I'll join in with chip_designer here and say the Fortress is Safe.

By this definition I mean anywhere a GOOG or AAPL employee would want to buy, the PA -> LG axis, plus "middle class" Sunnyvale below (above?) El Camino Real.

The market as I see it is totally screwed up. Anyone who bought prior to ~1997 can just rent the place out and make a killing vs. the tax burden, and Prop 58 will protect this as the OG geezers die off.

I don't know what rents are for SFH, but $40K/yr doesn't sound out of whack, that's implies a $1.3M asset value that is fully inflation-protected.

I certainly screwed myself not buying when I was FOB in 2000. I didn't know what I didn't know back then, I assumed I had to save $100,000 for a 20% down etc. Shoulda just walked into a Countrywide and said, "gimme money!". SISA was a bit rarer, but probably doable. Funny thing is I did darken the door of a Countrywide in late 2001, and they weren't exactly jumping through hoops trying to get my business then.

It strikes me as very interesting and distressing at the same time that Chip's singular headline statement has kicked up so much dust. Believe me, I got fired up. Opinions aside, I wonder if this is a mirror of the seriously growing gap between those that live in the "prime/fortress" neighborhoods and the rest of us, who, let's face it, want to live there too. They are very very nice (and I've traveled our country extensively...the prime/fortress neighborhoods are very very nice).

I grew up in a prime hood, and while getting an advanced degree from a local institution of higher education during the late 1990's, I lived in the home I grew up in. Over a period of a few years, I saw homes all around my childhood home sell. At first, the expected sale price...some where in the mid-700s. Then, word got around that Mr. and Mrs. Soandso just sold for 800k, then 8 months later, people were excitedly talking about the home down the street that sold for 900k--unbelievable at the time. I remember the day my father told me that our next door neighbors sold their home for 930k. They were the original owners of the home that was built in the late 1950's. At that time, I was 30 years old. I distinctly remember saying (and thinking all time), "Where is all the money coming from?" It just seemed too good to be true. With the events of the last few years, the question in my mind is whether, after all these years, it was too good to be true and now people are paying the price. So, to Chip I say this: I think you are being less than objective to think housing prices in the prime hoods won't being coming down.

I think the prices will be coming down. The question is how much? I think it will be one of two outcomes, either a nominal drop (say 5-10%), or a massive drop (50+%). If Chip is right, the drop will be nominal. I am going to put my money on the massive drop. Why? Well, as I think we can see very clearly now, the easy money housing price skyrocket of the last decade was too good to be true. If you sold during the run up, good for you!! My parents sure benefited. However, this has all been a house of cards and it is falling down. Sure, the prime/fortress hoods are taking longer to fall but time is the enemy.

From a "consumerism" point of view, there is nothing different about the prime hoods of Saratoga, Cupertino, Monte Sereno, Palo Alto, Menlo Park, etc. and East Palo Alto and East San Jose. The only marker is available funds, meaning, do you have enough cash available to "buy into" a prime hood? Outside of that, many of us made financial decisions, spent money, and purchased homes, in exactly the same fashion, prime hood or otherwise. Over extending and buying more house than you can afford was not a "poor man's move." In fact, chances are that if you bought into a prime hood over the last 10 years, your leverage is amplified. Fortress owners may have higher incomes, but chances are they live pay check to pay check, just like those in East Palo Alto. The mighty fall too and are starting to fall already.

There is a tremendous amount of downward pressure on prime hood home prices, and they are beginning to crumble. The Willow Glen area is a prime example. Not even four months ago, homes would be priced at 1mill, only to sell between 700-800 (generalization, yes, I understand there are still some homes selling at or above 1mill in Willow Glen--globally though that is not the case anymore). In the last two weeks however, similar Willow Glen homes are being LISTED between 700-800k. This, I believe is only the beginning of the drop. Moreover, I take this as the very first sign that prime hoods are going to take a major step down in price. Willow Glen is on the cusp; so it is not surprising to me that it would be the first to drop.

On another note, take a moment to consider the typical prime hood resident. Baby boomers or foreign born owners in their 60s, 70s, 80s, and even 90s!! Bottom line...old people are the typical prime hood residents. The kicker is that the children of old people have already settled somewhere else; so there is no one to "give" the house to. You wait Chip...the years ahead aren't as rose colored as you think. But hey, if they are, good for you. If not, watch out it will be ruthless.

Are you guys saying the monthly mortgage cost will lower? Because interest rates were hovering around 8% in the mid to late 90's. If you put those interest rates to play with today's prices, it seems like the prices are about the same. I agree with everyone that interest rates must go up though. Then you'd see a lowered price to match a monthly cost that wage earners can sustain. You're not really losing that much out of it. Just take your time with your mortgage payment, and do not pay early. If interest rates do go up after you purchase, and you do have the money to pay it off early, you should invest it elsewhere since interest rates have gone up already. Property tax basis will be lowered by the assessor if it is justified.

But if people can't afford it due to cost (because of high property taxes), then waiting will be the ONLY option.

Some may be wanting high interest rates to refinance at a lower interest rate. But I can't see that opportunity coming any time soon. You may as well buy now and hope for a 3% interest rate in the next year or two. Especially for the ones that think double dip may be coming. Once the prices dip, the interest rates will go to 2 or 3% to prop it back to the same price levels. If you want to play a waiting game against corporations and companies that can live longer than you, then you should do so. But I can't...

Define "prime areas" and "dramatic". Go to Google maps and there is an option to show foreclosure listings. There are enough of them in Crapertino to tell me that they are not immune.

It sounds like someone is in over his head with a mcmansion and is trying to convince himself that prices won't crash.

Serpentor says

Define “prime areas” and “dramatic”. Go to Google maps and there is an option to show foreclosure listings. There are enough of them in Crapertino to tell me that they are not immune.

Serpentor. I noticed there are many Preforeclosures where the debt owner falls behind in payments just to try to get a loan mod.

On the side note, I know someone that bought a house long ago for $180k, heloc'd 700k out of the home, and attempted a loan mod. He could have paid the mortgage. They auctioned the house off before he was able to complete the loan mod. I guess he may have been suckered by someone he hired to do the loan mod.

Vain says

I noticed there are many Preforeclosures where the debt owner falls behind in payments just to try to get a loan mod.

Just look at this pre-foreclosure in Palo Alto. I think we should notify those 60% foreign-born "scientists and engineers", so that they can buy this property and save owner and lender from "costly scenario".

LOL Chip_designer. I wonder which chips you design? Frito Lay or Pringles?

You are not contrarian, you are a sheep that still recites the same old tired Realtor's mantras that have been debunked for a while now. go ahead and click on P2D2's link or just go on google maps. I'm guessing that you're still going to be underwater about the time when Justin Beiber songs gets played on the oldies radio stations.

And no one commented on my theory :-( that potential buyers for these properties are decreasing with time:

1.) not many companies are going IPO to create rich people who would be the potential buyers for these properties.
2.) Don't expect someone from Austin, Phoenix to trade their better homes for shacks in crapertino.
3.) Don't expect many move up buyers becuase they themselves are underwater on their present homes.