patrick.net

November, maybe sooner. Droughts are no, doubt will affect everything. Food prices will go up.

More worried about overall economy.

FortWayne says

Food prices will go up.

..and some people think home prices will go up too....while good paying jobs are gone...I have to see how that works out.

hrhjuliet says

I've been following a lot of very knowledgeable people on Patrick.net for a long time.

Ha

Again- the problem with trying to apply logic to places like the Bay Area real estate is in some ways a lost cause. Prices out of line with incomes? Surprise surprise. Its been that way literally for decades. Prices have also been ob average 2 or 3 times higher than the national average. People also tend to spend higher percentages of their incomes on houses.

As someone who waited for well over a decade, in my opinion the single biggest reason for this is because of the lack of supply either due to the prevalent NIMBYism that permeates the area or from physical limitations due to the area already being heavily developed and built-out.

Looking at this from another perspective, take collectibles for example. Sometimes valuable items are based purely on their rarity. It might be the most boring, plainest, most uninteresting item. But if only 10 are known to exist in the world then it can also be extremely valuable. Its all about the rarity.

The same goes for houses. Now- where my parents live in the Southeast they've been throwing up cookie-cutter Mcmansions as fast as they can build them and they stick them anywhere and everywhere. You could go have your pick of 2 story, 3 car garage, giant plastic siding coated Mcmansions for under $150k. Not because the house itself is any worse than a house anywhere else, but because there are 100's of new subdivisions filled with these houses and more are being built all the time. On the other hand a 60's single story 2 bedroom tract home in the more desirable, commutable Bay Area city is 500k or so. Not because the house is necessarily nice, but because its rare. Throw in lots of high-paying jobs and there you have more people with the financial means competing over less homes overall and thus why these ordinary homes in the Bay Area become by economic default become precious commodities whereas anywhere else they would be boring starter homes.

Its pretty much that. Trust me- It makes zero sense to me either and as mentioned- I bought.

edvard2 says

Its pretty much that. Trust me- It makes zero sense to me either and as mentioned- I bought.

As history always has shown, time has a funny way of eventually making sense out of anything financial. The problem is people think a few months or a few years is a long time horizon. I'm willing to wait this thing out for the necessary period. In the meantime, I'll keep saving faster than I could as an owner. Easy as taking candy from a sleeping baby. ;)

RentingForHalfTheCost says

edvard2 says

Its pretty much that. Trust me- It makes zero sense to me either and as mentioned- I bought.

As history always has shown, time has a funny way of eventually making sense out of anything financial. The problem is people think a few months or a few years is a long time horizon. I'm willing to wait this thing out for the necessary period.

How long is that? I ask because I happen to know someone who did not buy in 1989 because home prices were "ridiculously inflated". 23 years later, he is still waiting...

RentingForHalfTheCost says

As history always has shown, time has a funny way of eventually making sense out of anything financial. The problem is people think a few months or a few years is a long time horizon. I'm willing to wait this thing out for the necessary period. In the meantime, I'll keep saving faster than I could as an owner. Easy as taking candy from a sleeping baby. ;)

Well, in that case the situation we're in right now has been going on in the Bay Area for well over 30 years. So had that been the mantra of those waiting then they would have been waiting and probably continue to wait for perhaps many more decades.

Also- as someone who rented dirt-cheap for well over 17 years, I can also say the exact same thing: My mortgage is the same as rent at this point thanks mainly to having a very low interest rates. Thus I too save money and yes- as you say- its as easy as " taking candy from a baby"

I'm not saying that no- one day home prices in the BA won't come back to earth and "behave" itself. Personally I could care less. As mentioned I bought the house to live in- not view as an investment, nor is my financial success tied to it. But I've lived here long enough to see that the market here does not perform as it "should".

edvard2 says

in my opinion the single biggest reason for this is because of the lack of supply

Although, supply and demand work together. In this case, society keeps the demand always high. People are dead-set on buying houses. So I agree that if the supply is somehow limited in the Bay Area, then prices would tend to be higher compared with other areas. I haven't read anything showing lmited supplies, but I'd believe it for certain kinds of houses because you just don't see them everywhere in San Francisco, for example.

This is more of a where question, than a when question.

FunTime says

Although, supply and demand work together. In this case, society keeps the demand always high.

Delving into this further, another totally unscientific , undefined element would be the absolute intense desire for real estate that exists in the BA and other places like it. This too would add to the lack of mathematical, economic sense when it comes to prices.

pazuzu,

How reliable is "shadowstats.com" as a source of information? It looks like a typical conspiracy-theory website.

What do you mean "the next downturn"?

Housing prices are falling in every statistical area in the country.

This guy again

We never left kiddo.

freak80 says

Are they? I'm not rushing out to buy a house, but nationally the bubble is mostly deflated:

http://www.multpl.com/case-shiller-home-price-index-inflation-adjusted/

True, I should have said specifically in the BA. Right now the only area that I care about.

I guess I don't understand the reasoning behind these arguments. Obviously those who invest in real estate and have a financial interest in seeing it rise are going to likely put a positive spin on things. Those that rent and want to buy obviously have an equally compelling reason to see prices fall. But in the end if all you want is a place to live in then it boils down to dollars and cents and that is going to depend on individual financial situations. If you can afford to buy and want to, have your ducks in a row, then you can do so. If you'd rather rent, then do so. If you can't afford to buy then continue to save money. Its really as simple as that.

In the meantime, prices are falling.

Phil -- when interest rates go down, asking prices go up. That has been my experience over nearly 40 years as a home buyer

Philistine says

So, for me, nothing's changed. We continue to sock away our money because it's always been roughly $1500 month cheaper to keep renting.

If I tell you to keep renting I'm just gonna sound like a landlord preaching his sermon, but if I were in your shoes, I would keep on with the deal you got now. I told my daughter the same thing, and she's all worked up about owning a house so she can have herself a sewing room.

Like the guy says in that link I posted, we don't have a succulent bottom.

JodyChunder says

Like the guy says in that link I posted, we don't have a succulent bottom.

The ladies seem to like mine, so speak for yourself.

CL says

The ladies seem to like mine, so speak for yourself.

I lost my ass both in the financial sense and the anatomical sense in my liftetime. I got the first one back but I fear the second one is probably gone forever. : (

Philistine says

So, intrigued by all this Rah Rah the Bottom's In stuff, we went tirekicking last weekend in our preferred neighborhoods in LA.

Even with 3.5% interest rates, our estimated mortgage comes out to $3500/mo all in for a house of the same quality and location of the house we are currently renting for $2000/mo. Just our experience, though; anecdotes are anecdotes.

We have paid $2000/mo since 2008. Never had an increase.

I have the same experience. I'm renting in a gated community for about 60% of the PITI to mortgage the home. My rent has been stable since 2009.

edvard2 says

I guess I don't understand the reasoning behind these arguments. Obviously those who invest in real estate and have a financial interest in seeing it rise are going to likely put a positive spin on things.

I hope you stop this fallacy. No, investors don't want to see prices going up. We invest for income. We like a stable/flat market. Rising prices are putting us on the fence because the yields are getting squeezed.

You guys, the buyers, are the ones that drive home prices up. We, investors, like to buy them cheap. The cheaper, the better. You guys, the stupid speculators, the tree huggers, the environmentalists, the bought and paid for politicians, the anti-development, and the NIMBYs, are the ones that drive home prices up to unaffordability. You have no one to blame, but the person that you look in the mirror every morning. Why is it always someone else's fault when things don't work out the way you want it?

Nicely wrapped.

Real Investors are not the same as those who Invest in RE.

E-man says

You guys, the buyers, are the ones that drive home prices up [not] we investors,

Exactly! I agree 400%. That's four times more than is necessary, but I still agree that much! The infestors like us are the ones who simply want to collect what some turkeys like to call 'unearned income' by way of supplying interim shelter for people who think they are too wise to leverage up and buy a propped-up asset. I am providing a service in the way of a haven for the sane and frugal and I THINK I SPEAK FOR ALL LANDLORDS WHEN I SAY THAT I WOULD LIKEY SOME GRATITUDE!!! It's the maniacs that are actually buying and holding right now that are driving up prices!

Delurking says

I'll raise you. ^_^;

That's 0.6% for 1-year fixed, 1.18% for 5-year fixed, and 1.58% for 10-year fixed. I suppose they don't ened to offer a 30-year fixed, because at these interest rates any prudent buyer should have their loan paid off in much less time than that!

I don't think we'll see massive swings down or up. Just a slow permanent deflation in the markets. Possibly another crash around 2014.

Probate sales are starting to tick up, buyers are obviously are not financially set to handle mortgages where they are now. Add to that higher unemployment and looming economic crisis, especially the big one with the drought and things aren't looking good for our nation in every aspect... forget housing... housing isn't an issue anymore.

As a student of the markets I'm well aware how interest rates keep RE markets afloat. And everyone knows that rates will have to jump up. This will really hit investors playing cindirella and some average Americans who got suckered into high prices under low interest rates.

FortWayne says

everyone knows that rates will have to jump up.

I'll play devil's advocate. When do u think interest rates will jump? 5, 10, 15, or 20 years? What's your guess?

In late 2009, many of us here on Patnet predicted that interest rate would go to 6% in 2010. At that time, the housing market made a nice little U turn, and things were looking up due to the $8,000 incentive, the bail out, and uncle Sam pumped all kinds of money into the economy. Interest rate was at 5.25%. Almost 3 years later, we're at 3.5%.

Don't fight it. The current is too great. Go with the flow, or you will get drowned.

E-man says

Don't fight it. The current is too great. Go with the flow, or you will get drowned.

You're a pathetic liar.

E-man says

I'll play devil's advocate. When do u think interest rates will jump? 5, 10, 15, or 20 years? What's your guess?

I'm guessing mid 2014. Fed promised to keep them low until that point. Doesn't mean they'll rise, that will depend on other factors dictating how much can kicking can ensue.

Bottom line is that RE is too risky, because of the inevitable rise of the rates.

E-man says

I hope you stop this fallacy. No, investors don't want to see prices going up. We invest for income. We like a stable/flat market. Rising prices are putting us on the fence because the yields are getting squeezed.

You guys, the buyers, are the ones that drive home prices up. We, investors, like to buy them cheap. The cheaper, the better. You guys, the stupid speculators, the tree huggers, the environmentalists, the bought and paid for politicians, the anti-developm

That statement more or less proved what I had already mentioned: Regardless of outcome, those who invest in real estate have a vested interest in its performance. Either way- house investors "invested" and thus when that happens, naturally that means accepting risk, performance, and outcome. That's a given.

And I don't for one second agree that real estate investors didn't or don't drive up prices. When my Wife and I were looking, there were scads and scads of foreclosures, short sales, and otherwise dirt cheap ( by local standards) houses. Guess who bought almost all of them? Investors and they did it usually with all-cash. We could not in any way compete with that. So what that did was it effectively set the "real" prices for what we could buy higher because anything remotely close to the 300-400k mark was usually bought outright. So yes- investors have a huge effect on the market.

As far as that bit about "Tree huggers" or whatever driving up prices, well if that was the case then it would indicate that conservatives don't buy homes. Sorry- but some of the areas that popped spectacularly were conservative havens.

lastly, I really do not care about the performance of real estate. As often states, anyone who cares to crack open a basic econ 101 book can see that stocks and ordinary stock market investments are a way better way to make money than buying up wooden boxes and slapping on a coat of paint. My house is something to live in. Our investments are in better performing assets.

edvard2 says

When my Wife and I were looking, there were scads and scads of foreclosures, short sales, and otherwise dirt cheap ( by local standards) houses. Guess who bought almost all of them? Investors and they did it usually with all-cash. We could not in any way compete with that.

See the difference? Investors buy with cash. Speculators buy with 100% financing. Why would these people drop $300k to $400k cash for a house? Because the yields are there. If the yields are there, that generally means that it is cheaper to own than to rent when taking into account all expenses.

The investors that actually buy high end houses with low yields are the ones just have too much money, and that's just part of their diversification, inflation hedge or asset protection.

You would be glad looking back 10 years from now since you bought. RE will only get more and more expensive after each boom/bust cycle because of the anti-development reasons I listed above, and because the experienced investors just keep locking up more and more housing supply after each cycle, and they would only sell them once it's over-valued only to buy them back after the bust for 1/2 the price.

It's pretty simple from a math standpoint. After each cycle, the investors go from owning 1house to 2 house; 2 houses to 4 houses, 4 houses to 8 houses, and etc. If you play the numbers correctly, you're looking at 1 to 4 houses, 4 to 16 houses, and etc. after each cycle.

Of course, we have to agree to disagree in our investment strategies so there's no reason for us to compare housing and stocks again. :o)

Congrats on your new home purchase.

FortWayne says

E-man says

I'll play devil's advocate. When do u think interest rates will jump? 5, 10, 15, or 20 years? What's your guess?

I'm guessing mid 2014. Fed promised to keep them low until that point. Doesn't mean they'll rise, that will depend on other factors dictating how much can kicking can ensue.

Bottom line is that RE is too risky, because of the inevitable rise of the rates.

Freedom 1789-2012

I'm afraid that you will be proven wrong again. I was one of those in 2009 predicted that interest would go to 6%. Who would have thought? So I don't mind for being wrong again.

Good luck with your bet. :o)

I'll repeat this for everyone's benefit since its worth repeating. Pull up any chart showing average stock market performance over the last 100 years and do the same with housing. On average, stocks tend to go up 7-10% annually over the long term. As in 30-40 years or more, or about the same amount of time that it takes for the average American to retire. If you pull up a similar chart for real estate, that percentage is about half of that amount.

Now- we're talking about broad general statistics. Of course real estate in different locations might do better than in others. The same goes for stocks. Some of my stocks are now pulling in a little over 15% YOY, which is not bad given the state of the economy. Real estate in the BA seems to be in a weird position but some indicators show it doing better. But if we're talking historical averages, stocks perform better than real estate.

My opinion has not changed after buying. In fact, I'd even got one step further and say that investing in houses seems even less appealing to me given that as a homeowner, these things require maintenance and care that stocks otherwise do not.

But anyway, to each their own.

Not investment advice.

edvard2 says

some indicators show it doing better.

I've never seen you post this when you were renting and looking to buy. :o)

This is the reason why I like BMWman. The guy is extremely honest with his opinions and his observations.

Of course, to each their own. As long as you and your significant other are doing well, it's good for the economy.

Cheers.

Philistine says

I hear you--that's fundamental. The interesting thing is this is the situation I have been in since 2008. So, for me, nothing's changed. We continue to sock away our money because it's always been roughly $1500 month cheaper to keep renting.

Finally, some truth factoring into the thread. Renting ROCKS! Sorry owners, you greedy...

E-man says

I've never seen you post this when you were renting and looking to buy. :o)

This is the reason why I like BMWman. The guy is extremely honest with his opinions and his observations.

Of course, to each their own. As long as you and your significant other are doing well, it's good for the economy.

And why would I have? The market has changed. I have never claimed that I expected everything to remain the same. I fail to see anything dishonest about that previous assessment. Besides- you know what the saying is about opinion, right?

edvard2 says

Besides- you know what the saying is about opinion, right?

That some people's are worth more than others.

hrhjuliet says

When do you think the next real estate downturn will occur? Why?

When the new fallguy/girl has to slam on the brakes!