patrick.net

There is a ton of quibbling about whether we are at a bottom. My own experience (in Oregon) indicates that any property that is attractive to the investor class (something that is rentable), we are past the bottom and prices are rising. Experiences seem to be similar in the bay area. IMHO it would take a pretty sizable event to not only stop this trend, but reverse it and get investors to start backing out of the 'bottom tier' properties. That being said, the 'herd mentality' of people shouldn't be underestimated, and if unemployment ticks up or the markets tank, it sometimes doesn't take much to spook the herd and prices could continue down if the herd stampedes away from rentals. On properties that are 'move up' properties, which likely don't make an attractive rental investment, those are still falling in many areas. The bay area might be the exception to that one though because people seem willing to pay stupid amounts of money for homes there and it looks like a mini bubble is reforming.

The seasonal bump also appears to be vaporizing (as it should), the big question is how far will it fall? Will more inventory show up in 2013? I think if you hold off until Feb, you will have a bit more insight as to how 'hard' the prices are going down and if its just your standard seasonal decline or if we are in for another round of falling prices. The downside of that is its a gamble, will interest rates finally rise? Even a modest jump in interest rates can erase any devaluation that might occur over the next few months if you have to carry a big mortgage over 30 years. There also is a real risk that if supply stays constricted, that by Feb prices may have only risen in that area.

"The Bay Area" is a big place. Some areas are still falling, some appear to be past the bottom (may be a dead cat bounce, who knows?).

It also depends on what kind of house you are looking for. The market for smaller "starter homes" in nice areas is tough on buyers. Inventories are extremely low. People who bought at the peak have no equity and are not selling. This is buoying prices.

I have to think at this point most of the distressed sellers have been pushed through. Where I'm looking I haven't seen a new REO listing in awhile.

"There seems to be no shadow inventory." *facepalm*

"What is the prediction?"

Thanks for sharing. But it seems there are no more shadow inventories. How many are still pending? According you what can cause the decline again. I am looking at San Ramon Contract costa, Sanjose, Santaclara, Milpitas areas in particular.

sullivan says

But it seems there are no more shadow inventories.

There is. It's just that you can't see it. There are millions who are underwater and put off moving up cuz there is simply no such move up opportunity. Super low interest rates have aided this folks in their resistance. Plenty of those bubble years buyers are holding on to their properties - literally living their life just to make the payments with the hope that some day in future they will get their bubble year price(Banks are also included in this list of folks).

Its been about 6 months since we bought so I haven't been paying attention to the market. But this year was pretty weird. We rented the same house for almost 10 years and all around us for well over a year there were probably 4-5 homes for sale and they all sat forever. I'd say around Feb-March or so they suddenly all sold within a short time period. We started looking in May and the market was suddenly on fire. None of the real estate agents really knew what was going on either. The suggestion at the time was that there was less inventory because those who bought at the peak of the bubble couldn't afford to sell at a loss. So hence less houses on the market. It seemed that foreclosures were out of the question: they were all bought by investors.

So its weird out there. Nobody seems to be saying " Bubble", but it sure smells like it. We have a number of friends who basically quit looking because they were out-bid on every single house they looked at.

My guess is pretty non-original: Money is cheap. When I did the basic math, the amount of house you can buy now with the current interest rates is a LOT more than it was even a year ago. People realize that and hence why there has been a sudden rush to buy.

edvard2 says

When I did the basic math, the amount of house you can buy now with the current interest rates is a LOT more than it was even a year ago. People realize that and hence why there has been a sudden rush to buy.

P.T. Barnum bus warning!

Reader says

P.T. Barnum bus warning!

U perma-bears keep saying this, but explain the math on how its going to collapse without some major event? The dire predictions of hyperinflation or massive deflation simply won't occur (too many people pulling stings). There is a built in floor in pricing where investors start moving in to soak up inventory, and at least at the low end inventory, we were at that floor last winter. If prices dropped another 20% here on low end inventory, I'd be grabbing the biggest HELOC I could get my paws on and go on a shopping spree, as would a ton of other investors, and a bunch of wealthy foreigners.

Unless the Euro implodes (unlikely as strings being pulled there too), we start another economic death spiral (also unlikely), or there is some major natural disaster or something that dissuades a whole lot of people from buying.. I just don't see it.

pazuzu says

"There seems to be no shadow inventory." *facepalm*

"What is the prediction?"

Deadcat bounce was experienced in 2009-2010 (related to the home buyer credit). What we are seeing now is deadcat resurrection... whether or not it is a zombiecat remains to be seen.

SkyPirate says

deadcat resurrection

Added for consideration for the next fantasy football team.

@Darrell In Phoenix - I dont know how to analyze the chart, but it seems like a downtrend. It is very interesting to see the chart that you have posted. According to you does it mean that there is going to be a serious decline once again. I would appreciate if you could throw some light? You seem to have some strong data to back it up.

Seems like others are not sure of whether there is going to be any decline.

Darrell In Phoenix says

"Permabears"?

Considering asking prices of resale housing is 40% higher than new construction, you might want to step into reality. It's a much nicer place to be.

Darrell,
do you have examples of resale costing more than new construction, in the same location? It's surprising; intuitively I'd expect new to be more expensive than resale. In the San Jose area, new construction costs more than resale in the same area.

BTW you also mentioned in previous posts that new construction costs $60/sq ft. Where is that? in SJ area it's more like $200. For construction, not including the lot, which itself could be $1m in a Fortress area (Palo Alto, Los Altos, Saratoga, Los Gatos).

We can certainly argue that construction should not be $200/ft, or lots should not be $100k-$1m... but, that's the situation today.

Hi Darrell,
check this out:
http://www.zillow.com/homedetails/20800-Wardell-Rd-Saratoga-CA-95070/19741691_zpid/

The house sold for $920k on Oct 2010, when it was a 1 bedroom on a 9000 sqft lot. Whoever bought it built a new 2650 sqft house, and it just sold for $2.102m. So, the house value is $2.102m - 920k: $1,182,000. Or, $446/ft for construction.

Here's a new house development in SJ.
http://www.tripointehomes.com/Community-Chantrea-at-Silver-Creek-5.cfm
3390 sq ft for $1,260,200.
And here's a 15 year old house, 3200 sq ft.
http://www.movoto.com/real-estate/homes-for-sale/CA/San-Jose/3283-Palantino-Way-100_81228626.htm
Asking $1,088,888.

Same neighborhood, new more than resale. Which makes sense.

By the way, as a housing builder, why would you recommend that people not buy houses?