patrick.net

Appraisals have been a racket long before the boom.

All the houses I knew that sold in the 80s and 90s always appraised for asking price. The appraisers always wanted the asking price before they would get started. This became real obvious when a sale fell through. A follow on buyer from a failed sale needed a new appraisal, even if they used the same loan company. And when the asking price changed, the follow on appraisal changed exactly with it.

You would have two different appraisals on the same house in the same month, each reflecting exactly the asking price at the time of the appraisal.

I presume the reason is that if the appraisal went above asking, it would annoy the bank (because it would lower the cash down - banks used to worry about that). If the appraisal went below asking it would annoy the Realtor (because it would lower commission).

HeadSet,

Hmm. That's funny, given what you've just shared an appraiser is basically useless. Oh, I agree, I'm just trying to get my head wrapped around that. I'm starting to wonder if there ever was a time that appraisals WEREN'T a racket!

The above story reminds me of the old joke where after an "unorthodox" examination the lady exclaims I'll sue for malpractice and the "Dr." says "Go for it lady, I'm not really a doctor!" Sheesh.

Back when lenders actualy cared if they got paid back they cared about the appraisers. Today lenders don't care if the bond buyers ever get a penny after they sell the loans so all they care about getting an appraisal that helps them sell the loan...

It’d be like putting Peter P in a room with sushi and asking him not to eat it!

Huh?

Hey, how is everyone doing? It is now more than a year since I bought a house and also posted in this blog. Does it look like the current housing market in the bay area is more inline with my previous expectations? Or are all the extremist bubbleheads here still in the doom and gloom mood? :p

Hi. I always think it is okay to buy if one can conservatively afford a home that is sufficient for 7 - 10 years. I have recently scaled back my prediction of the correction because of rising rent.

Fake P, prices have not changed much. 30YR fixed rate is still under 7%. The inventory is definitely climbing though. I now worry that I may be tempted to buy at the peak. :-P

I am thin, so I don’t go post on diet blogs.

I am not thin, but I still don't go post on diet blog. Food blogs though... I visit from time to time. ;)

Fake P,

Nice to hear from you again! Sadly, we haven't heard from Jack since last year. Perhaps he will make an appearance at some point.

If by, "Does it look like the current housing market in the bay area is more inline with my previous expectations?", you mean, "Have median prices prices generally held up", then I would answer "yes". Median prices are often lagging indicators, for reasons we've discussed before.

If you are referring to inventory and/or sales (leading crash indicators), then I would say "no". On that score, us "extremist bubbleheads" are well ahead of you :-) . I would say our predictions in terms of when B.A. median prices will start falling in most areas were probably off by about 6 months. We won't see many significant dips until the end of this year at least. After that, I predict a long slow slide lasting several years, similar to the 1990-96 crash, possibly worse.

Fake P,

The guy who bought right at the same time we sold.

I don't know what your your "previous expectations were", but our decision to not buy another home and instead rent has produced a quite healthy percent yield over where we'd have been otherwise.

The home we sold peaked in '05 at our sale price, and has fallen to slightly below what we paid in 2002 in value. Meanwhile, the current owners are paying over $14,000 per year in taxes alone. An old neighbor told me a couple weeks ago that comps in the neighborhood were sitting on the market for months not moving, and many of those are barely over $1M.

I'm tempted to think that things are progressing quite nicely as I had expected too, despite the contradiction in our views.

The Callan periodic table is interesting, and somewhat compelling in its visual appeal. But it is very un-Warrenesque. I'm surprised you would give it any credence. Callan is a purely comparative technical perspective.

@John Haverty,

Funny that 3 of the 4 examples of inflation you presented are --surprise, surprise-- NOT included in the official CPI: food (Big Mac), energy (gas), and house prices (rents or imputed rents are used instead). Which reminds me of my favorite definition of inflation: a rise in the price of anything regular people DON’T need.

I found it interesting that you use the term "Horse Poop Adobe $hitbox" vs. the standard "stucco $hitbox". Actually, adobe (aka mud brick, cobb, rammed earth, etc.) is one of the oldest and most universal types of building material on the planet and has been for millenia. It actually has a number of advantages over the modern "stick built" type of house construction:

a) It's cheap (earth, straw and occasionally manure --hence the "horse poop"),
b) It's abundant (we're depleting our forests pretty rapidly, but aren't going to run out of dirt anytime soon),
c) It requires very little added energy to form/cure bricks or other forms (what environmentalists call low "embodied energy"),
d) It requires only the most primitive technology (even the poorest illiterate peasant can construct a decent adobe house with simple tools and a little training),
e) It is very thermally efficient compared to most modern building materials (much cheaper to heat or cool than wood, drywall & stucco),
f) It has relatively little negative impact on the natural environment because, well, it basically is a PART of the environment.

I wouldn't be too hard on "horse poop adobe", despite the fact it IS currently in vogue among wealthy PC Boomers.

I think everyone here knows I'm a sport and I generally can take it as well as I can dish it out but has anybody else gotten just a little tired of bulls that take great pains to stipulate "the BA"? I mean, I realize that this blog, this very web-site was started by Patrick with specific regards to the BA and all but I'd like to believe that we've grown beyond that?

INVENTORIES DON'T APPEAR TO BE RISING UNCON(TROLL)ABLY......... (in the BA) etc. etc. Well based on the relative firmness in the BA (and looking no further) we could conclude that homes are in fact priced correctly and there is no housing bubble at all!

Please read today's BW article (2nd one down) linked here where David Rosenberg of Merrill Lynch points out that since BB's June 5th speach that housing has cooled even further. The article was written on the 8th so, three days later. Folks (excepting the BA of course) this thing is getting worse BY THE DAY! The stock market seems very unsure and I believe the recent sell off has much to do with investors uncertainity about just how swift and severe the housing correction is going to be (amongst other factors). So please in the future if we wish to make rosy predictions and "sticky" arguments please download my * Caution, Bay Area Biased* icon?

Dinor,
I too am a tad irratated at the whole" BA is bomb-proof" theory. I find it ironic because the assumption is that since everyone swims in money here, they can survive any financial disaster thrown at them. Bull.
I have been noticing a fairly recent severe upswing in "reduced" signs on the houses in my area that have been sitting all winter. One of the houses sits there with the little pamphlet box slowly being filled up with junk mail. Some houses have been taken off the market with what looks like more frantic paint-slapping and flower planting in efforts to make another attempt to unload them. I see a lot of houses that are sitting abandoned around here. Investor houses no doubt, and probably ones that will be on the chopping block soon.
The inevitable slowdown is now starting to happen here in Alameda, just as it did in Sacremento almost a year ago. It will work it's way into the cream of the BA- San francisco- sooner than later.
SFwoman, I have no doubt that your husband's law firm is having problems recruiting people. That said, I think your statement about not being able to afford a place here on a 275k salary isn't the case. I'd say it is more of a case of young lawyers that spent years in college, look at SF and realize that all that college and enormous salary will get them nothing except a smallish loft. If you're a lawyer, I'd imagine you have more expensive tastes and SF won't give you anything close to what you could attain on half the salary elsewhere. A person making 250k in TX,TN, etc would be able to live in a MANSION.
Not tied, but related to your statement over hiring new recruits, I will say that in my field, there is a very important publication made by HOW magazine- the premiere design magazine. This year there were numerous winners from Nashville, Austin, Dallas, and many others not in NY or CA. This was NOT the case just a few years ago.
I predicted that within 5-10 years, there would be a pronounced shift in fresh talent from the old strongholds to new regions. It appears that at least from a graphic deisgner's viewpoint, this is starting to come true.

W2,

"frantic paint-slapping and flower planting" LOL!

While I'll grant you the BA has "intagibles" no place is bomb proof. Oh, slight correction though. The BA (like western Oregon) doesn't really have a winter. I refer to it as the "sit-com re-run season". Chicago has winters.

Dinor,
Are you saying that you've joined the " slight correction" boat? I can rattle off several homes I drove by that have been reduced for over 60k off the asking price. It doesn't sound like a lot given the price was 700k or more, but 60k is a sizeable chunk of change. It doesn't take many 60k cuts to start edgin back into reality.

WW2,

By no means am I in the "slight correction" camp! Traders live for the smell of blood in the water. It doesn't even need to be all that much either. Just a drop tells us there is something wounded in the water. Volatility = profitability. Nobody makes much money on small price swings (unless you have industrial strength volume) so we tend to gravitate towards volatility like moths to light. A slight correction? Don't waste my mutha f@cking time!*

*Al Pacino in the movie "Heat"

Dinor,
My only concern is that when the price drops start occuring at a regular pace, I'll bet that there will be those who think they're getting a bargain. Of course if you can afford, then by all means: snap it up. But in my opinion, people should hold off until prices start poking downwards to 2002-2003 prices.
While still expensive, this is the last time period that real wages could barely eek out the payments without "phunny muney" loans. I think that it has been said many times here before that the RE and financial institutions are trying a hand at damage control. Showing a severe downturn in prices and a slowing of sales would be red lights for would-be buyers, even those who see the reduced price signs. A rampant decline would be a signal for homebuyers to hold off until the action started to subside. Hence the careful, feeble, vauge language.
SFwoman, unfortunatly, I'm not as familiar with the law firm world. At the same time, I think that when the higher paid professionals start showing up on housing blogs, that's a sure-fire sign that the absolute max in affordability has already been breached and the sales have come to a screeching halt. If you think a person making 275k( perhaps add another 60-100k if their partner works) has problems affording something in SF, imagine the bulk of us making 50-85k combined? It ain't happening, and not until those prices are in the 300k range. Truthfully, a young couple making the median income should realistically only be buying something in the 175-200k range MAX. I don't see that happening here anytime soon,if ever. But it just comes to show that prices would need to come down a HUGE amount if the area were to have anything close to a balanced socioeconomic mix of citizens.

I keep hearing that inventory isn't climbing much in the Bay Area. I've been tracking Santa Clara County since last year. Last year at this time we were in 3200 inventory range with sfh/condos combined. Today we are close to an inventory of 5000. Inventory is obviously climbing, just not as FAST as some places. In fact, we have reached a new YOY inventory high EACH DAY since the beginning of May.

George,
As I've mentioned to the point of probably irratating the bloggers here, moving has been on my mind for some time. Moving to me is a given. My problem is more about a race against time. I cannot tell you how many of my friends have already left CA and NY. They're all the same age, income bracket, and marital status; newlywed.
The problem is that everyone else knows about these areas and the intrest is rapidly growing. As a result, the prices are slowly starting to edge up. My plan was/Is to save up enough for the whole house. The whole shebang, no payments, and even some left over for my own business.
I don't have a problem moving. I don't buy into the whole " everyone is better-smarter-more beautiful" in the BA crap. I've lived all over and know from experience. But what concerns me is when these areas start becoming the new hot places to live. I keep a very close eye on the numbers. If those property increases go up faster than I can save, I'm outta here because the whole reason I'm here would be pointless.
You better believe that within 10 years none of what happened here in the BA will be a concern to me. I would have hoped to just simply remember it as a bad dream.

George,
That's a kinda ugly house. Looks like a Prefab. But for 86K? Hell- I could buy that, have money left over for a new car, a little bit of retirement, and start a business. WHo cares if it's ugly? Paint it purple for that matter.
Actually, you think that's cheap? My brother bought his place, a smaller 3 bedroom deal with half an acre for 38k. 38k!

George,
NC seems to be the "Hot" name in places to move to around here. I have no idea why either. It seems kind of random. My guess is that there seems to be a few tech firms around here moving satelelite offices to Durahm.
The only problem with NC is that parts of it are looking more like DC than NC. Raleigh is UGLY! On the other hand, Asheville is really beautiful and quaint. That said, it would remind anyone old enough of 1960's Berkeley because that's the general atmosphere there: Hippies and crappy art work on the side of the road.
The other issue with NC is that it is a very mountainous state. Getting from one town to another can take all day. The roads in many places are very twisty. The towns are mostly blink N miss em'. If you're used to big cities, then NC would be a big change, and one that Californians would probably not like. If you fear christians, conservatives, and stuff like that, then you'll hate it. If you're open minded and like change, then you'll do fine. If you hate hippies and move to Asheville, you'll hate it also.

John,
Unfortunately, the days of orchards everywhere are long gone. My prediction is that yes, the BA is not quite as vulnerable to a HARD crash as other areas, but prices here will still fall along with the rest of the bubble-zones. There's no fundamental reason why this time around should be different than every other RE downturn in recent history. If anything, one could argue that the relative amount of funny money here makes the BA MORE vulnerable that other areas. That being said, I like Eichlers and wouldn't include it in the horse poop category. Just a personal preference.

George,
another reason that those houses are cheap is that there are far less construction requirements. No earthquake codes, and so forth. Half the cost of a new home in Cali is the foundation work. The other diffrence is that these states ENCOURAGE new building. To them, the more people, the better for business. So in many cases, construction companies get tax cuts and incentives to build.

George,
There's clearly been a turn in market psychology. It's amazing how quickly sentiment changed from bull to bear. Everyone's waiting for June 28-29 and the Fed. My wet dream is a 50bp hike at that meeting.

I keep hearing that inventory isn’t climbing much in the Bay Area. I’ve been tracking Santa Clara County since last year. Last year at this time we were in 3200 inventory range with sfh/condos combined. Today we are close to an inventory of 5000. Inventory is obviously climbing, just not as FAST as some places. In fact, we have reached a new YOY inventory high EACH DAY since the beginning of May.

Compared to Sacramento, inventory usn't climbing much. But we will see the days of 5-digit inventory.

Many sellers are waiting for their neighbors to close so that they can price theirs higher. If their neighbors do not sell, they will wait... for now. Until they panic and price theirs lower.

Everyone’s waiting for June 28-29 and the Fed. My wet dream is a 50bp hike at that meeting.

My wet dream would be that + Fed announcing that Mtg. brokers/originators can no longer bundle & re-sell the neg-am, IO crap they've been peddling to suckers as MBSs/CDOs. You loan it, you book it, asshole! And then Congress repealing the mtg. interest tax deduction for "vacation" homes. And then reinstating the "one-time only, over age 55" rule for RE capital gains exemption.

HARM,
You have much higher aspirations than me. Unfortunately, I think the Fed 50bp hike is the only one one your list that has any chance of actually happening, at least in the next 5-10 years. On the other hand, if the correction is severe enough, most of your wish list won't be necessary, as lenders will be gun shy and raise lending standards themselves after getting burned, the secondary market will be much less enticing, and "vacation", er, investment homes will be much less in demand.

On the other hand, I'm always amazed at the creative ways the sleazeball component of the RE/financial/government complex find to get ahead.

Face reality,
I would be paying very close attention to the local economies outside the BA. If other companies keep forming that can do the same thing as any here, then I wouldn't expect companies in the BA to remain competitive unless they start making cuts. As mentioned, there are plenty of award-winning design firms in places like Nashville now where there were none just a few years ago. This coincides with the fact that designers get paid a fraction of what they did just a few years ago: My wage is almost the same as it is in Nashville. That kind of change in the tech industry will have the same effect.

Waiting for a crash in this area has been a frustrating experience for many years now, and it will continue to be so, especially in the core areas. There are typically more fluctuations at the outskirts.

Well, one does not have to wait for the crash to buy. Buy one must not buy something just to get in.

If anything, one could argue that the relative amount of funny money here makes the BA MORE vulnerable that other areas.

I hate to say this but the BA market is less vulnerable than most other areas. BA homeownerships though... they may have to live in a sub-prime starter home for years, paying huge mortgage meanwhile.

In Santa Clara County it went up only 67% from $314K in 1997 to $525K in 2001.

It may simply be suggesting that more engineer-minion housing units have been built here while more upscale mansions have been built in San Diego.

MEDIAN ANYTHING is meaningless.

Eichlers. I like the layout, but the insulation stinks, you need to get the foam roof crap or its a hotbox, and the subfloor water heating stuff is a disaster. Floor plan nice, build quality is (everytime I see) horribly pathetic.

Eichlers? It is a Feng Shui nightmare.

Peter P,
You made a very obvious statement that I think most BA residents aren't aware of because they've been conditioned to think that living in a tiny house or loft paying 4 times the money is acceptable when in fact, the quality of life the avg citizen here is probably less than it is in many other cities across the country.

You made a very obvious statement that I think most BA residents aren’t aware of because they’ve been conditioned to think that living in a tiny house or loft paying 4 times the money is acceptable when in fact, the quality of life the avg citizen here is probably less than it is in many other cities across the country.

Very true. Most people confuses work with life. As a result, they cannot get out of the feedback loop.

On a side note, is it possible to have high inventory and low sales in a housing boom?

The answer is a categorical no.

So we need more illegal immigrants to continue the housing boom?

No amnesty!

You have two choices in what to believe,

You either believe you are the next Warren Buffet because you NAAVLPed your way into a 1.2million dollar shit box in crapatino. Come on now. Really. Crapatino? Isn't that San Hosebag South? You believe your financial prowess is well justified because your crapbox keeps going up and up and up, thus supplying you with a ready tap of cheap money. Hmmm, what happens when there are no more suckers to buy the 12.8mil stucco crapbox in crapatino? The average/median income of the bay area does not justify the housing costs. The logic is faulty. If you believe in this scenario you also believe in turning the BA into little havana/hanoi/whatever, as the only ones that will live there are well heeled BA types, which all data indicates at max what 10% (a truly generous number) of the BA is making enough money to afford the crapatino stucco crapbox? or you believe your servants/burrito folder/cop/fireman/teachers are willing to pay the amazing rent, as you also believe that there is an up tick in rents. You are high, are you a boomer? If not, you have no reason to be high during the day.

Or you believe that housing is a product of easy money and fraud. The easy money is getting turned off, next comes the finger pointing and perp walking.

Come on really, 1.44 mil for a stucco crapbox in crapatino? What were you thinking? How have you deluded yourself into thinking this is normal? How much TV do you watch? You might want to consider turning off the opiatebox and paying attention.

Face Realty back to Craigslist for you. I’ve read your posts over there and either someone is channeling you or it is you. Either way by by.

Fake P,
ARe you kidding? I hope you're being sarcastic and me being too hungry before lunch is playinf tricks on me. Has there been a lot of change in the last 6 months?
Well, going from some of the highest gains in housing history, with the highest sales numbers to one of the biggest slowdowns in over 10 years, with hardly a thing moving is what I would call a fairly dramatic shift. The only thing we're doing is seeing how long people will hold off lowering their prices, which they will because nobody is selling.
By the way- Zillow is a joke.According to Zillow, my parent's house in the middle of nowhere is worth 300k, right after the appraiser valued it at 185k.

HARM:
Hey, when have sales and inventory ever been used by bubbleheads as an important statistic for a housing crash?

Mr. Smarmy,

See "Lagging Vs. Leading Implosion Indicators" from mid-December, 2005. Where, I might add, YOU were the second poster. And this was NOT the first time falling sales/rising inventory were discussed as a leading indicator --just the first time it had its own dedicated thread.

Don’t we all say 40%/30%/20% reduction in median price over a period of time in our predictions? Are you trying to salvage what is left of your beliefs? :p

Some did, while others (including myself) were much more conservative in their guesses because we expect the crash to play out over many years, and we expect prices to be very sticky on the way down. Furthermore, I fully expect some of the real price correction will come in the form of inflation-erosion, just as it did last time. See our original "dead-pool" predictions at "FuckedCounty.com.

Note that even then, I predicted only mild YoY deflation in most B.A. counties. And, yes, as I said before, I now expect those predictions to be off on timing by at least 6 months. Nobody's perfect at precisely timing the future, now are they, Face? Not even your heroes, Gary "15% in the bag" Watts and David Liar-eah. At least the bears got the market's direction right.

On a side note, is it possible to have high inventory and low sales in a housing boom? Or is it possible to have low inventory and high sales in a housing crash? Personally I think that both scenarios are possible… Should I give you guys another 6 months and let reality speak the truth again? So far, I have given you guys 2 periods of 6 months, and things aren’t moving yet. Maybe it will take another housing boom before you guys give up…:p Or maybe you will ask for another 6 months, because median price is “a lagging indicator”? :p

Yes, time will tell, my arrogant friend.