patrick.net

OK fancy pants you win, you got me, I can't get one over on you.
Now leave me a lone.

Hello, not sure who to reply too. I took no offense by anyone's comment(s).

About the possibility of still 'bubble' area's falling further. This owner is willing to take a $134K loss... http://www.redfin.com/CA/Woodland-Hills/21650-Burbank-Blvd-91367/unit-318/home/3983668

Like Software testing, we can analyze every possibility for quite a long time. Maybe he/she hit the lotto, lol! Good for them. To me, it's a big red flag not to buy in this area right now. There are other listings like this too.

What is the draw with condo living?
Especially a building as ugly as that, at that price. That building looks like Dentist Mall.

It wasn't terribly long ago, $250K bought you a nice spread in Turnberry Isle.

Dan8267 says

Vicente says

Yes, let's return to those times.

I'm with you. The late 90s were great. Hell, I'd blow Clinton to get back that economy.

Me three

Los Angeles Renter says

1997 Interest Rates were 7.5% on average
2012 Interest Rates will probably average 4% at the highest the rate things are going..

At 7.5% banks were very willing to give the money,now even at 4% banks are very unwilling to give the money. Go figure.

Bay Area Home Sales Up, Prices Down from Year Ago

October 14, 2011

http://www.dqnews.com/Articles/2011/News/California/Bay-Area/RRBay111014.aspx

Thomas, you live in Si Valley right? Can I ask, do you own your house? If so, and you think prices will fall to 1997 or lower, why not sell? just curious.

I own, I don't think prices will go up anytime soon, but I don't think they will fall to 1997 levels either, based on higher salaries in high tech than prevalent in 1997. Plus, there's still some .com money that people have, enabling home purchase. I know, I still have some of it. Didn't spend it all on Hummers and cosmos.

but if I thought prices would drop by 50%, I would sell and rent; the inconvenience would be worth a few hundred K.

SiO2 says

I own, I don't think prices will go up anytime soon, but I don't think they will fall to 1997 levels either, based on higher salaries in high tech than prevalent in 1997.

Interesting question. I think prices will stay mostly flat nominally and inflation will make housing cheaper (i.e. wages theoretically should go up, although they haven't been doing that so much lately). I think we would have had a lower drop during the initial part of the bust, but the government softened the blow with massive stimulus. We're still seeing massive stimulus right now with the ridiculously low interest rates, although even those historically low rates haven't greased the market back to record sales.

The real crisis is that prices are staying artificially high due to stimulus. This can create a never-ending cycle of stimulus if politicians feel as if they need to continue to create a false floor in housing prices. Even if this means that people have the same payment as a much lower price at 8%, it will still take people a lot longer to pay off the massive principal balance, on average, than that lower price at 8%. In addition, this can prolong the so-called crisis -- if people are still buying $800K houses in areas with good schools on the Peninsula at 4% or less, and those people later want to sell those $800K houses for a nominal profit, the economy is going to have to be pretty damn good (or wages must rise quite high) to compensate if interest rates rise to 8%.

Low prices are good. Low prices mean more potential buyers and more transactions. Low prices mean those who didn't pay absurd bubble prices still make a reasonable profit, albeit not as much as they expected on paper. Low prices mean fewer fees to realtorsused house salesman and banksters. Low prices mean less principal to pay off. Low prices mean less money gets wasted on housing and more gets used for either other necessities or more productive things.

SiO2 says

Thomas, you live in Si Valley right? Can I ask, do you own your house? If so, and you think prices will fall to 1997 or lower, why not sell? just curious.

Owner in Los Gatos since 1992. They can fall as they have fallen from 1989 peak to mid 90s bottoms.

Corrections eventually happen. Mid 90s prices represent 1985 prices plus inflation. 2010 below was simple the second shoulder forming.. Soberity is a b*tch.

SiO2 says

based on higher salaries in high tech than prevalent in 1997.

Higher salaries were due to $150B of venture (Rich People) funding small startups. Currently we are back to mid 90s levels regarding $funding, but fewer deals.

Back in the mid 90s we had some 315 or so public companies, 400+ by 2000, and today dropping near 200 public cos. (employers). We were employing lots here to lots everywhere else around the globe..... What does it tell you ?

Go all the back to the 80s where we had real fundemental growth in job creation and incomes,... did prices of RE jumped by equal magnitude as we seen post 2000.

Yes, eventually everthing falls back to a norm.

"1997 home price $270K at 7.5% interest rate (20% down) = $1527 principal/int month
2012 home price $400K at 4% interest rate (20% down) = $1527 principal/int month"

This analysis is foolish for the following reasons:

1. Run a simple loan amortization and you'll see that at the lower price your gross cost to own the house free and clear after 30 years is $597,709 vs $629,982 if you buy it at the higher price.

2. Your net (after tax) cost to own the house free and clear is even lower at the lower price because you have more interest to deduct each year.

3. You don't run the risk of your home's value dropping to $270,000 when interest rates do increase to 7.5%.

A lower price at a higher rate is the better way to go.

Proverbs, it really is that simple isn't it? buy low, sell high. It is always better to buy at a low price than a high one.

Proverbs227 says

A lower price at a higher rate is the better way to go.

And that will be Affordibility 2.0 from the NAr.

Proverbs227 says

A lower price at a higher rate is the better way to go

Actually, a lower price at a lower rate is the best way to go.

:-) Yeah! 1997 prices at 4% will work. Here in the San Fernando Valley, some non-prime cities like Canoga Park, Van Nuys, Reseda, etc. are at pre-recession 1993 prices. (Which in my opinion are higher than 1997 prices)

David9 says

at pre-recession 1993 prices. (Which in my opinion are higher than 1997 prices)

1997 was probably the bottom of the market after the 1990-1991 peak during the 90s housing bust. It is probably more than your opinion that 1993 prices are higher than 1997 -- probably fact for the market as a whole, especially when you adjust for inflation.

Big :-) Yes, even at work everyone says how diplomatic I am.

Hi, Thomas, sorry to keep on you, but I am curious. If prices will go back to 97, that's perhaps a 50% drop from today in higher-end areas like LG. So, why not sell if your asset will drop in price by 50%? If I knew that a stock, or a house, would drop like that, I would sell. Tell you what, I will even pay you 1999 price for your house; that should be a great deal, since that was higher than 1997.

Regarding salaries, my experience is that salaries are higher than in 1997. Not only for me personally, but for a given title (e.g. Sr Engineer). The company where I work is profitable, and is hiring even now (and even in the US). I understand that this is not the case for everyone, and I am fortunate - but, I am not the only person who is employed and making more money than in the past, as evidenced by the fact that people are still able to buy Fortress houses at prices higher than 1997.

SiO2 says

If prices will go back to 97, that's perhaps a 50% drop from today in higher-end areas like LG.

Not if you adjust for inflation, is it? At least, when I did this calculation recently on this forum for Marin County's median sales price (not that median tells you the whole story), I got a much lower percentage -- maybe 20% when adjusted for inflation.

SiO2 says

Regarding salaries, my experience is that salaries are higher than in 1997. Not only for me personally, but for a given title (e.g. Sr Engineer). The company where I work is profitable, and is hiring even now (and even in the US).

Friend of mine was a Vp at 3Par, its hard to say how long before he will pick up a gig. HP bought out 3Par. Others have seen their job vanish and they took jobs they once had some 10-15 years ago with paycut. Controller to Accounting Manager, Accounting Manager down to Sr Accountant or Some Consulting gig.

Engineers ? There is a glut of them in the US. Especially since there are currently fewer employers in SV and many options to relocate elsewhere. Half of my employers R&D is overseas. Im not pleased with any of that.

SiO2 says

If prices will go back to 97, that's perhaps a 50% drop from today in higher-end areas like LG. So, why not sell if your asset will drop in price by 50%?

Asset ? My financial assets which I started by saving back in '82 have and are doing well. When I bought, LG was a city in SCC like many others. My focus has been career, not trying to get rich. Nothing special about LG when I bought. But it was far enough from work. Of course, some people from elsewhere believe its special. Where were they back in the 80s?

Corntrollio - I'm not sure if the claim of 1997 prices should be inflation adjusted or not. But even if so, if you look at Thomas Wong's chart, the SJ index is now about 580, but the inflation line is 300. So if it will go back to that line, that's almost 50% drop.

Thomas, I'm sorry to hear about your friend. Like I said, not everyone has a job. Maybe that's part of the widening separation between Fortress and elsewhere - those with jobs are doing well or better than before, those without, not so much. So if the average salary is increasing, it will create demand in certain areas, but if the number of jobs is declining, the area with demand will shrink.
If the number of jobs decreases by a lot, the salary will ultimately decrease based on supply and demand, but for now at least it is still difficult to find skilled engineers, therefore they can command a good salary.

I consider the house to be an asset, as it has some value, and I could sell it. Unlike some clothes, even if I spent $1000 on a suit I couldn't really sell it for $1000 or even $500. If I thought my house (or any other asset) would drop in value by 50%, I would sell it. I don't think the house will drop that much, therefore I keep it. I wonder why people who think prices will drop by 50% would keep a house; I suppose that the enjoyment of ownership (which has been discussed before) outweighs the financial loss.