patrick.net

Serpent,
I am with you on the stock option crowd. Like thomas.wong86, I am a lifelong resident of the area, had many such colleagues/friends/relatives who have been optionees over the decades, and have been one myself, I suspect you & thomas.wong86 have been, too.
That is why, to the way I see it, the only rational explanation for the herd of folks like the chip_designer, is that they already had their moneybags with them when they came here from other parts of the USA and other parts of the world.

^ I don't really see a bubble here. Housing prices will always be what the market can bear, and the fortress buyers can bear a lot.

The beautiful thing about real estate is that it's a good that is required to be used continuously. No matter where you go, you're using it.

Excepting boats and aircraft, I guess, but even then it's hard to use an aircraft without using someone's real estate : )

But I don't know where fortress prices are going. 15% down from here is possible I guess, but I wouldn't count on it.

I agree it is not a bubble. I also think it is horribly overpriced, unless a buyer thinks its worth that price to 'own' their residence in such an Enclave.
I am skeptical though that folks can just buy/borrow their way out of the challenges of the urban life.
http://www.mercurynews.com/ci_15919301

Call me crazy, but I think prices in the fortress will actually drop back to 1998 prices, slowly, over the next decade. Very much like the Japan experience.

Things are still so crazy compared to rents that I know two families that dumped their houses in the area and are renting now, just to save the extra, oh, $3000 per month or so. They just can't pass up that much money, while living in the same area and same quality house.

you don't see a bubble? well I guess you don't see a recession either and everything is just fine. Banks are not in trouble, there's no double digit unemployment and there are no US tanks in Baghdad.

Patrick, because of the remark you made, I changed my post from "live in such an Enclave" to " 'own their residence' in such an Enclave.

Good point.

if you don' t think there is a bubble then why are you wasting time posting on patrick.net?
trying to convince people to buy? good luck!

Very much like the Japan experience.

Japan's fortress is actually still rather f---ing expensive. I lived in it 1995-2000 as a renter. I think my LL was getting utterly slaughtered since he bought in the late 80s, and rents haven't gone up since.

But thanks to the 2% interest rates there's not really a rent-buy gap. . .

Here's the building. Owner-occupied first floor, son in one unit, 3 more to rent @ $50K/yr, with Japan's 2% cap rate that's a $2.5M valuation with the partial occupancy, $5M with full occupancy.

Lots in the general area are listed for $2M or so.

http://used.realestate.yahoo.co.jp/bin/cdetail?rps=6&pf=13&md=key&key=%C6%EE%CB%E3%C9%DB&code=1125000101U1005

Serpent,

I am not trying to convince any one to buy, but I have tried to talk people I know OUT OF buying. The one I persuaded has told me he's glad he did; he needed the moral support at the time considering all the pressure he got from his inlaws to buy in 2006.

Others who I didn't persuade have told me that they wished they had listened, or else they don't say anything about it anymore.

To me a bubble would be like two standard deviations or more above the "real value", (ie, not the mean); I dunno what that should even be. But if prices collapsed in The Fortress like they did in my neighborhood, which really was in a Bubble, it would be a buying opportunity for investors. I don't wanna live in The Fortress or any other neighborhood where people with the arrogant swapper like chip_designer dominate the community. But because such people covet Fortress type appellations and are willing to pay dearly for the privilege to do so (either in rent or in borrowing costs), and seem to covet a few higher points in the margins of the mean API scores of the schools their kids attend, well, yes, a total collapse of prices in The Fortress would be The Buying Opportunity of The Century for investors, so I don't think prices will collapse like that, so I don't think it's a bubble.

Horribly overpriced? Yes. But not a bubble.

When horribly overpriced meets horribly overpaid, you have an equilibrium

nobody said fortress will drop down to Milpitas levels, pricey areas will go down to pre-bubble levels. they will still be expensive but the gains of the previous decade will be lost, it may be a slow painful decline like Japan or it may crash. I have no idea if Japan had the same ridiculous lending standards but with the foreclosures appearing in the "prime" areas, I got my bet on the latter.

As for people waiting on the sidelines to buy, don't forget all the people waiting to put their houses on the market "as soon as the market turns around"

sybrib, Troy,
I live in a good part of east san jose too , wake up to chriping of birds and absolutely no problem BUT i use the good facilities available within 15 miles from me.My hospital is Good Sam, Don't have to goto eastridge mall , just drive little bit more to hit santana row. Agreed there is no WholeFoods nearby but i go shop at one in campbell/cupertino whenever i have to otherwise costco and the Trader's Joe work well for me and way cheaper.
I guess the only fly in the soup is schools here and I'm pretty sure there is money to be made by setting up a network of affordable private schools better than public one- Basically decouple zipcodes and education.

cloud13,

how connected are you to the community? It varies neighborhood by neighborhood, block by block, but some of the schools around here can be academic power houses for kids with the right ethic. You just really have to know your section.

One of my kids graduated from one of the K-12's here, the 2009 class had lots of kids going to the UC's, at least two that I know of went to Stanford, a handful to the Ivies; my kid got accepted to all the UC's except Berkeley and some of the lower tier ones my kid did not apply to. People I know who live in The Fortress may sneer when they learn where my kids went to K-12, but my partner and I have extra cash now to help pay for grad school when the time comes, because we did not flush it down the toilet for the privilege of going to K-12 with the highest API scores.

Another experience that will come in handy later in life is spending the K-12 experience with a broader slice of American culture instead of a Ghetto of grade grubbers.

Troy says

When horribly overpriced meets horribly overpaid, you have an equilibrium

what happens when the pay goes down? like its been said before, nobody's getting rich off stock options anymore and the Apple and Google people have already made their money.

Thanks sybrib, that is good to know.

And on a side not , i got good options and was expected to make about 250K after toiling for 5 years but guess what i made close to 50K with my options and need to pay taxes on top of it. Even if a company goes to finish line, only a handful of VP's and Directors make money ......So the ability of this area to create rich people have diminished completely. There won't be too many buyers to pay the crapertino price.

Cloud,

Know your schools! Don't take it for granted that your kids have the opportunity to excel just because I said so, it depends on the precise elementary, middle and high school, as the East Side is highly variable.

But don't get obsessed with the API. That is an average or median or whatever, but it is not a good predictor of how an individual student will do, nor should it be.

Troy says

Here’s the building.
http://used.realestate.yahoo.co.jp/bin/cdetail?rps=6&pf=13&md=key&key=%C6%EE%CB%E3%C9%DB&code=1125000101U1005

I clicked on the link and google translated it for me. Under the description of the "Current State" it says, "Has good shit." What does this mean, marble bathrooms? Or maybe a lazy listing agent? or one who wishes to get away from the "light, bright, gorgeous location" twaddle? [JK!]

not subscribing to pay TV
So, are nerds the only ones who know about OTA DTV broadcasts? I finally convinced a guy I know to hook up an antenna to his TV (just an indoor Radio Shack model, mind you); he canceled his Comcast the next day. Penny saved as they say...

there are a ton of live tv streaming online these days if you don't care about picture quality.

Cautious1 says

Under the description of the “Current State” it says, “Has good shit.”

I see that too. That's funny! Normally 上物 means "quality merchandise" but in RE parlance it means there's a building on the lot.

Troy says

When horribly overpriced meets horribly overpaid, you have an equilibrium

Yep.

Troy says

But I don’t know where fortress prices are going. 15% down from here is possible I guess, but I wouldn’t count on it.

What is your metric to determine housing price? Please clarity it first. 15% of what? Median price? Price per sqft? Comps?

As you mentioned Palo Alto, I picked zipcode 94306.

Price per sqft dropped from $904 to $785 between 2008 summer and 2010 summer.

My favorite is of course, comparing the current sale/listing price with 2004-2008 sale prices.

Here one nice 3BR/2BA in Palo Alto: 3948 La Donna Ave
2006 purchase price: $1221K
Currently listed: $1190K
That's only 31K less, right?
But it is already 50+ days market with 2 price reductions. I don't think it will even sell above $1100K, it it sells at all. $1221K was 2006 price. I am pretty 2008 price for similar comps were much higher than $1.2M.

So I do see 10-15% drop (some area even more) already in some of these fortress areas.

Call me crazy, but I think prices in the fortress will actually drop back to 1998 prices, slowly, over the next decade. Very much like the Japan experience.
Things are still so crazy compared to rents that I know two families that dumped their houses in the area and are renting now, just to save the extra, oh, $3000 per month or so. They just can’t pass up that much money, while living in the same area and same quality house.

Patrick. When you say 1998. The rents should also fall back to that level. Isn't it?

No amount of real data is going to convince these guys. The myth of the Fortress is like a religion to them.

dadab says

Call me crazy, but I think prices in the fortress will actually drop back to 1998 prices, slowly, over the next decade. Very much like the Japan experience.

Things are still so crazy compared to rents that I know two families that dumped their houses in the area and are renting now, just to save the extra, oh, $3000 per month or so. They just can’t pass up that much money, while living in the same area and same quality house.

Patrick. When you say 1998. The rents should also fall back to that level. Isn’t it?

I think rent in some parts are down to 98 levels inflation corrected. I think corporate housing is below 08 levels in absolute terms. When I moved to CA in 97 my company paid for a few months of corporate housing. I was shocked at how much it cost. It was like 2500/mo for a one bed room small furnished apt. A 2bd was like 3k according to my neighbors.

Serpentor says

dadab says

Call me crazy, but I think prices in the fortress will actually drop back to 1998 prices, slowly, over the next decade. Very much like the Japan experience.
Things are still so crazy compared to rents that I know two families that dumped their houses in the area and are renting now, just to save the extra, oh, $3000 per month or so. They just can’t pass up that much money, while living in the same area and same quality house.

Patrick. When you say 1998. The rents should also fall back to that level. Isn’t it?

I think rent in some parts are down to 98 levels inflation corrected. I think corporate housing is below 08 levels in absolute terms. When I moved to CA in 97 my company paid for a few months of corporate housing. I was shocked

Good point. I just did the math on my rent in 1998. $675 1 BR unit. It now rents now $950. That comes to 3% YOY increase. Does this seem in line with inflation?

P2D2 says

What is your metric to determine housing price? Please clarity it first. 15% of what?

uh, Selling Price?

Let's take this random house on the market:

http://www.zillow.com/homedetails/3001-Bryant-St-Palo-Alto-CA-94306/19504084_zpid/

Here's the 10 year history:

In the current interest rate environment it wouldn't surprise me to see this house get beat down to the 2003 level.

Should 3% interest rates become available, we should see an upswing in the value. If bad things happen and interest rates hit 8%, we're probably in a wage-price spiral and $1M will soon be the bid on EPA homes, just like the 1970s-80s inflation added a 0 onto home prices.

Serpentor says

There were plenty of people that got rich before the bubble, IBM, HP, the old Apple, Cisco, Yahoo, etc etc. hence the price premium compared to the rest of the country. The bubble portion of the price must drop just like every other part of the country.

Its rather a myth that public companies were given out stock options before 2000. I have known lots of Apple folks all the way back to early 80s and they are not rich by any measure. Many are still struggling today and cant afford not having a job today. Stock options were more common with small pre-public companies, where a handfull went public, 1 out of 5. However since SO need to be expensed and many SV got stung with 'Back Dating Scandal" such practice has been replaced with "restrictive options".

Google itself had to reprice its many "restrictive stock options" since many were underwater... worthless.

Troy says

Here’s the 10 year history:

It would be nice to have 20-25 years... we been in a bubble well over 10 years now.

Serpentor says

I think rent in some parts are down to 98 levels inflation corrected. I think corporate housing is below 08 levels in absolute terms. When I moved to CA in 97 my company paid for a few months of corporate housing. I was shocked at how much it cost. It was like 2500/mo for a one bed room small furnished apt. A 2bd was like 3k according to my neighbors

Lots of money floating around from private funding-VCs. So companies were burning cash like toliet paper. Rents did decline by 30% after 2000-2001 and so did corporate housing costs.
Demand was cut severly.

thomas.wong1986 says

Serpentor says

There were plenty of people that got rich before the bubble, IBM, HP, the old Apple, Cisco, Yahoo, etc etc. hence the price premium compared to the rest of the country. The bubble portion of the price must drop just like every other part of the country.

Its rather a myth that public companies were given out stock options before 2000. I have known lots of Apple folks all the way back to early 80s and they are not rich by any measure. Many are still struggling today and cant afford not having a job today. Stock options were more common with small pre-public companies, where a handfull went public, 1 out of 5. However since SO need to be expensed and many SV got stung with ‘Back Dating Scandal” such practice has been replaced with “restrictive options”.
Google itself had to reprice its many “restrictive stock options” since many were underwater… worthless.

Restricted stock options? I've only heard of restricted stock units (RSUs) basically stock grants that gets vested. Much less potential for gains but you are sure to make SOME money unless stock price drops to 0.

Troy says

uh, Selling Price?

Let’s take this random house on the market:

http://www.zillow.com/homedetails/3001-Bryant-St-Palo-Alto-CA-94306/19504084_zpid/

Here’s the 10 year history:

Great! Your chart itself demonstrates that prices are down quite a bit. For that specific home, 2009 value was around $1.15M. Now it is above $1M. What is your rational that it trend will not continue?

I think corporate housing is below 08 levels in absolute terms.

Oops I meant 98 levels

Serpentor says

Much less potential for gains but you are sure to make SOME money unless stock price drops to 0.

Yes, you can make some money but they are adjusted based on some conditional performance.

def:
Restricted stock, also known as letter stock or restricted securities, refers to stock of a company that is not fully transferable until certain conditions have been met. Upon satisfaction of those conditions, the stock becomes transferable by the person holding the award.

I think we're talking about the same thing

Owned

At what point do you finally realize it is not possible to know the future? By the way, did you all know the Titanic is unsinkable?...oh wait a minute....

lets just keep that train of thought going and ask: why won't rent in Fremont go down? Just because a scenario sounds too terrible to YOU doesn't mean it won't happen. 50% of $1.5mil is still $750k, much more then a tract home in Fremont is going to cost ie $200-300k.

Nothing would surprise me at this point. There may be unprecedented government intervention, propping prices up forever or there may be half-assed intervention, or they run out of bullets and everything goes to shit. Lets keep in mind if mark to market wasn't suspended, every single bank who holds a mortgage business would be insolvent right now.

And why would these rich investers want to buy homes that would drop, as you say "as much as 20%" if they can safely make money in a bank account? Who's going to manage and maintain these individual homes? that sounds pretty damn expensive and labor intensive to me.

Serpentor says

lets just keep that train of thought going and ask: why won’t rent in Fremont go down?

Two years back you could not find this kind of rental below $3000 in Monta Vista neighborhood. Yes, rental price has gone down already.

it won't require an all out collapse to cause 50% decline. It just means price going back to pre-bubble levels just like its neighbors. Not very hard to believe since the world operated fine before the bubble.