patrick.net

Yes, for the simple reason that demand is overwhelming supply. Unlike anything seen for a long while.

Demand = Confidence up, rents been up for two 1/2 years and back to pre recession level, interest rate are near record low still, stocks are back to 2008 levels and buyers have more $$ than ever. More people are coming off the fence. It's already showing up in pending sales despite below:

Supply = Simply pathetic supply. In areas with no distressed sales, bidding for whatever inventory is fearsome. I just don't see supplies materializing in 2012. Sellers have collectively decided to not sell this year. Inventory will not reach 75% of last years level.

The theory and significance is whether we reach the inflection point. I believe so. Case-Shiller coming out tommorow am but that still reflects negotiation in the field around Oct-Nov-Dec. in three months, you will see CS flip as well to reflect what is happening in the field now.

edvard2 says

would disagree. 600k is still basically at a nosebleed level. I say this as someone who makes 6 figures. If using traditional means of measuring affordability, the buyer of a 600k house would need to be pulling in a total of 200k per year and do so consistently. Last time I looked the medians even in the most expensive Bay Area locations is nowhere near that high.

A family making 200K buying a 600K house would be saving at least 50K after tax. even with a 4K a month budget in addition to the PITI of around 2,600-3K net of MID. And that's before a typical modest 25% 401K match to take it to around 55K. That's not nosebleed, that is better than 95% of America. That doesn't even count Stock options and RSU's for most private employers who pays salary in that range in the SFBA.

Unfortunately, housing is priced/demanded at the margin not %. That is why the 200K household competes to buy the 800K - 1M house and have to lower their savings margin.

dunnross says

tdeloco says

Buster says

per the case shiller index, it is back down to 2002/2003 price levels

That's why I've been saying that the index should stabilize. Maybe a few points above or below the current level, but it can't be too far off.

And, yes, big bubbles like that don't go bust without an over-correction. How much it will over-correct, I can't say.

The bubble started in 1975, not 2003.

You pulled that 1975 number out of your ass... Unless you think dual income families and women in the workforce will cease to exist moving forward.

1997 was the bottom of the late 1980s housing bubble in Los Angeles.

LAO says

Unless you think dual income families and women in the workforce will cease to exist moving forward.

They already have. Besides, the two income trap is a well documented vicious cycle.

I don't understand why it's so lost on folks: the American middle class is a dead letter. Why do you think there are so many retail level speculators in things like RRE? Because upward mobility in any sector of labor is an increasingly shrinking phenomenon, and that dynamic is not going to revert in your lifetime. It's all about safeguarding capital!

By the way, there was no bubble in LA in the late 80s. It was overheated, but not a bubble!

LAO says

dunnross says

tdeloco says

Buster says

per the case shiller index, it is back down to 2002/2003 price levels

That's why I've been saying that the index should stabilize. Maybe a few points above or below the current level, but it can't be too far off.

And, yes, big bubbles like that don't go bust without an over-correction. How much it will over-correct, I can't say.

The bubble started in 1975, not 2003.

You pulled that 1975 number out of your ass... Unless you think dual income families and women in the workforce will cease to exist moving forward.

1997 was the bottom of the late 1980s housing bubble in Los Angeles.

No, 1975 is when people started to get the notion that housing prices doubling every 10 years is the norm. This is has never been the norm prior to 1975.

My husband and I are closing on a house in Danville tomorrow. It is slightly over $600k and we make over $200k/yr. No debt or kids. We are going FHA due to not having wealthy family to "help out" and are getting a 3.5% 30 year fixed loan. We currently rent a house in Danville where the rent and yearly income taxes we pay equals the mortgage. We are in our 40's and have rented for the past 8 years. We do not want to wait another 2 - 5 years or longer for the market to further correct (if it will in good areas). We do not want to buy/rent in Concord or other "cheaper" areas. You only live once and I do not want to be buying a house when I am going into retirement! Who knows if prices will further correct by large amounts in the Tri-Valley (I know many of you perma-bears believe it will), but we can't afford to wait. Getting older every day! Believe me I have been a perma-bear for a long, long time and am totally out of the market because I think it will crash again... There are too many foreigners in the Bay area which push up prices for it to really correct significantly further in good areas. With the low interest rates going on for another 3 years and more Chinese, etc. moving in (look at San Ramon which is really becoming Chinese) it will only stop the fall of prices. Also, foreclosures in the Tri-Valley are going close to market prices and aren't really good deals. The house we are buying was worth $1.2 near the top of the market. We are getting it for 50% off the price. Plus if you look at Craig's list rents are running $3,000 - $5,000/mo. in the area (NO, I don't want to live in a cracker-box in a marginal area for $1,500/mo.).

We are coming to closing with $16k and are planning on paying the house off within 10 years. Life is too short to be chronically angry (like most liberals/occupiers) and we are going to move on with life...

Realtors Are Liars says

sheltielover1 says

My husband and I are closing on a house in Danville tomorrow

You're going to lose money..... ALOT of it.

My money - not yours.. A HOUSE IS A PLACE TO LIVE NOT AN INVESTMENT!! I don't want to be in retirement buying my first house...

You don't lose money unless you sell which we are buying for the long term. We are originally from the Mid-West where you don't move every 3 - 5 years...

85% of the 30 homes for sale around where we are buying are pending. I guess there must be more fools out there who are buying...

fewy says

Is Bay Area housing crash over?

Bay area homes should balance out between $160K and $240K. Depending on whether you live in Solano or Marin counties, and income levels are stable.

In decline, Real Estate moves at a much slower rate than the stock market . Value is lost in either, but you may continue to enjoy other benefits of real property.

I agree with edvard2. We are in almost the exact same situation, and it stinks not having a yard, but we just can't bring ourselves to overpay for a house when we feel it's accepted value is over it's intrinsic worth. We're also trying to follow the 3 times income rule. To whoever said, "oh, that's only for 7-8% interest rates," That 7-8% interest rate probably also included a minimum downpayment that was above 3%. We figured out our budget and 2-3x salary really is about right (especially on one income.). Unless maybe you don't drive and have to pay for a car or cars, don't figure in the rising cost of groceries, buying clothes for your kids or saving for their college or buying furniture, and paying property taxes. i'm not sure how people even pay the rents here they do. We are renting for under 1500 in a marginal area. (thankfully it's a nice little pocket that's quiet for the most part), and it feels like our budget is just about right.

Sheltie lover,

Not to be a jerk, but you and hubby make $200k plus, with no kids or debt, and you're in your 40's and you haven't been able to save a lot of cash.

You're not very good savers. With that income and no kids/debt, you should've been able to save $50k+ per year in your sleep.

What's changing that makes you think you're going to be able to pay off the home in ten years? I hope you like to and your job let's you, work well into your 70's.

Good luck.

edvard2 says

ssuming you're one of those well-paid professional couples making 200k a year, they would be taxed approx. 15% federal and 9% State, thus 200k minus 25% = $50,000 in taxes, thus they have $150,000 to spend on everything else.

You're not even close. Sorry!

Could be worse, could be Brooklyn where an itsy bitsy little row house in an improving area goes for $800k. People like us iwth a young family are really pressed because renting starts to SUCK. Where all these people got all this money I just don't know.

Incidentally, the OC housing news blog features a 600k house today, with an economic analysis for the would-be buyer. The analysis does recommend $174k in savings (to cover 20% down and an emergency fund). The recommended income is 118k. I think this is pretty reasonable, and probably representative for many 600k house buyers in the Bay Area as well.

Link is here, scroll down below article to see house and analysis.

http://ochousingnews.com/north-oc/orange/dwindling-resale-supply-will-not-cause-house-prices-to-appreciate

ih8alameda says

Sheltie lover,

Not to be a jerk, but you and hubby make $200k plus, with no kids or debt, and you're in your 40's and you haven't been able to save a lot of cash.

You're not very good savers. With that income and no kids/debt, you should've been able to save $50k+ per year in your sleep.

What's changing that makes you think you're going to be able to pay off the home in ten years? I hope you like to and your job let's you, work well into your 70's.

Good luck.

Luckily we have a lot of money in 401k and I have a vested pension which is pretty stable...

illustrateth says

We figured out our budget and 2-3x salary really is about right (especially on one income.). Unless maybe you don't drive and have to pay for a car or cars, don't figure in the rising cost of groceries, buying clothes for your kids or saving for their college or buying furniture, and paying property taxes.

Comments like this make me wonder if you really have crunched the numbers. How do you figure 2-3x without factoring in the interest rate? Really, you can afford 3x with interest rates at 4% just the same as if they spike to 8%? So the fact that your P+I is $1900 @ 4% and $2900 @ 8% doesn't matter at all?

sheltielover1 says

My husband and I are closing on a house in Danville tomorrow. It is slightly over $600k and we make over $200k/yr. No debt or kids. We are going FHA due to not having wealthy family to "help out" and are getting a 3.5% 30 year fixed loan.

more money than brains.

at $200k/year with no debt or kids it should be easy to save $120k (20% down on a $600k house).

this would lower monthly cost of ownership (better rate, no PMI) for a substantial savings.

this confirms my "more money than brains" assessment. another dumb republican.

Life is too short to be chronically angry (like most liberals/occupiers) and we are going to move on with life...

tiny tina says

I'm not saying people should go nuts and overspend, but using 3x without factoring other things such as 4% interest rates is just plain wrong.

I agree. If we were using reason, we'd definitely not borrow anything at all to buy a house. Like buying a candy bar, or a loaf of bread.

drtor says

I think mortgage payment vs rent is a more relevant metric than total mortgage vs income. Both investors and would-be buyers look at this.

This might work for investing, but not for living. Unfortunately, the costs of taking financial responsibility for a house only start with the mortgage payment, where rent is pretty close to the max you pay for a house each month.

tiny tina says

Just so you know, if you go to redfin, input a minimum price of $600k, select sales data for the past year, and zoom out so it shows green bubbles of numbers over the cities, supposedly 700 people in Fremont disagreed, 3000 in the SJ area disagreed and 1170 in the MV/Sunnyvale area disagreed.

They love stress!

Hysteresis says

sheltielover1 says

My husband and I are closing on a house in Danville tomorrow. It is slightly over $600k and we make over $200k/yr. No debt or kids. We are going FHA due to not having wealthy family to "help out" and are getting a 3.5% 30 year fixed loan.

more money than brains.

at $200k/year with no debt or kids it should be easy to save $120k (20% down on a $600k house).

this would lower monthly cost of ownership (better rate, no PMI) for a substantial savings.

this confirms my "more money than brains" assessment. another dumb republican.

Life is too short to be chronically angry (like most liberals/occupiers) and we are going to move on with life...

Hysteresis says

sheltielover1 says

My husband and I are closing on a house in Danville tomorrow. It is slightly over $600k and we make over $200k/yr. No debt or kids. We are going FHA due to not having wealthy family to "help out" and are getting a 3.5% 30 year fixed loan.

more money than brains.

at $200k/year with no debt or kids it should be easy to save $120k (20% down on a $600k house).

this would lower monthly cost of ownership (better rate, no PMI) for a substantial savings.

this confirms my "more money than brains" assessment. another dumb republican.

Life is too short to be chronically angry (like most liberals/occupiers) and we are going to move on with life...

Well your "Man" in the WH has blown out the debt so much none of us will have any money! Just love you Libs - All TAX & SPEND!

JodyChunder says

It'd be a lot cheaper to be into dudes, if you could make it go that way.

I don't know, man, some of those guys dress for success. The warddrobe alone, in some cases, could cost a fortune.

SFace says

That's not nosebleed, that is better than 95% of America.

Which is working so well!

FunTime says

drtor says

I think mortgage payment vs rent is a more relevant metric than total mortgage vs income. Both investors and would-be buyers look at this.

This might work for investing, but not for living. Unfortunately, the costs of taking financial responsibility for a house only start with the mortgage payment, where rent is pretty close to the max you pay for a house each month.

Of course you are right that rent vs mortgage is just a starting point for the analysis. You need to factor in RE taxes, house repairs/utilities, the principal component of the mortgage (savings), the opportunity cost of the down payment, and the biggest difference at all: that the mortgage payment is locked down but that the rents can be expected to go up with inflation.

The great news is that we now have online calculators that can do this for you (I think the NY times one is pretty good). Have you actually tried running one of these calculators for a 600k house with current interest rates and comparable rentals? I have.

Btw I find it a bit funny to find myself on this side of the debate since I have been a huge housing skeptic since before the bubble crashed (thanks to Patrick and other bloggers). But today after 30-40% depreciation in many areas and super low interest rates the economics really have changed.

tiny tina says

How do you figure 2-3x without factoring in the interest rate?

Think past a month.

drtor says

The great news is that we now have online calculators that can do this for you (I think the NY times one is pretty good). Have you actually tried running one of these calculators for a 600k house with current interest rates and comparable rentals? I have.

Yeah, I have too. Every six months, or so, since that NYTimes calculator published. It's great! And I agree that there are some reasonable numbers at this point that make even a higher price seem to make sense. (my wife reminds me of this often now, since we went through the exercise together a few months back)
I'm not comfortable, though, with the numbers for appreciation that make it work even over periods of ten years or more, even when those appreciation numbers make sense in the historical context. I'm really not comfortable with what $600k buys in San Francisco, so I'm usually looking at $800k and up, thinking it would be nice for two kids to have their own bedrooms. I still can't figure out why I'd make buying a house a higher priority than where I live. Where I live matters a lot to me and I really love my neighborhood. I live there for what feels like dirt cheap. When our refrigerator and furnace both died this last year, it was pretty sweet to have the landlord, who is excellent, come in and pay the nearly $400 and the nearly $500 to have them both repaired.

1sfrenter says

What I am seeing right now (in SF proper) is low inventory and many buyers for anything decent under 600K. Open houses that we have attended are mob scenes, with dozens and dozens of people filing in to look.

I can definitely confirm this from my own observation in SF proper (I usually look in PotreroH, BernalH, SOMA etc.). Anything which is below or close to conforming sees huge interest. Open houses are packed.

There are essentially two kinds of buyers right now who bid and win: Those who will try to get an FHA loan with 3.5% down and those all cash buyers who do not seem to care about actual value of a place. You can easily identify the FHA loans based on how long a place has been in Contingent Show status. It usually takes about 2-3 months, whereas all cash goes pending after a couple of weeks or so.

Of course it's always young couples where the wife tries to convince the husband about how nice the place is or mothers and their daughters you see at open houses. It's hilarious to watch these scenes. The nesting instinct is alive and well.

For giggles I also pass by 'mid tier' open houses in the $800K-1.2M range. There is very little traffic to say the least. Realtors are usually really happy to see me :-) I wonder what type of people buy these places in the end. From what I can gather from talking to the realtors these places are much harder to finance. Usually they start out like this: "If you can't put down 10%, that is really no problem. We can figure out a creative solution for your situation." No thank you. On the other hand these places are in most cases not nice enough for a person who has lots of cash.

FunTime says

tiny tina says

How do you figure 2-3x without factoring in the interest rate?

Think past a month.

When the analysis throughout the thread has been about monthly payments, why should I switch? Affordability can be compared pretty easily using monthly numbers.

FunTime says

Yeah, I have too. Every six months, or so, since that NYTimes calculator published. It's great! And I agree that there are some reasonable numbers at this point that make even a higher price seem to make sense. (my wife reminds me of this often now, since we went through the exercise together a few months back)
I'm not comfortable, though, with the numbers for appreciation that make it work even over periods of ten years or more, even when those appreciation numbers make sense in the historical context.

Yes appreciation assumption is a key point, isn't it. Historically, long term rents and houses go up with inflation so I simply assume 2-3%, same for both. I think that is pretty "fair and balanced".

Of course animal spirits could take us higher or lower but I like to focus on long term fundamentals...

sheltielover1 says

Well your "Man" in the WH has blown out the debt so much none of us will have any money! Just love you Libs - All TAX & SPEND!

This says a lot about the validity of your assessment--if you don't know how we got here, how we will get out, how the debt grew, etc without resorting to blind Faux news rhetoric, you'll likely not be right about this purchase either.

tiny tina says

Comments like this make me wonder if you really have crunched the numbers. How do you figure 2-3x without factoring in the interest rate? Really, you can afford 3x with interest rates at 4% just the same as if they spike to 8%? So the fact that your P+I is $1900 @ 4% and $2900 @ 8% doesn't matter at all?

heh. Well, my husband works in finance, so yes, we have, pretty carefully actually.

sheltielover1 says

Well your "Man" in the WH has blown out the debt so much none of us will have any money! Just love you Libs - All TAX & SPEND!

As opposed to the prior administration's policy of lowering taxes while overspending?

illustrateth says

heh. Well, my husband works in finance, so yes, we have, pretty carefully actually.

That's great. Then can you explain how $1k/mo difference is completely ignored in your analysis?

ttt says

For giggles I also pass by 'mid tier' open houses in the $800K-1.2M range. There is very little traffic to say the least. Realtors are usually really happy to see me :-) I wonder what type of people buy these places in the end. From what I can gather from talking to the realtors these places are much harder to finance. Usually they start out like this: "If you can't put down 10%, that is really no problem. We can figure out a creative solution for your situation."

Haha yes wife and I went by a $1.6MM house (out of our range, we didn't realize price until we were inside and then we decided to play the part). Two other parties there, one Chinese and one Japanese. Realtor seemed genuinely happy to see us and asked (almost with a tone of desperation) if we were seriously interested. This segment is still quite overpriced IMO, it does not compare well with rentals at all.



Curious to hear about the 10% comment. I thought banks were pretty strict with non-conforming loans these days. Anybody knows what kinds of $1MM mortgages get approved (and not) these days?

drtor says

Curious to hear about the 10% comment. I thought banks were pretty strict with non-conforming loans these days. Anybody knows what kinds of $1MM mortgages get approved (and not) these days?

Good question. I placed a bid on a foreclosed property back in January and the bank wanted a pre-approval letter from their own mortgage department. This sounded unusual, but I sucked it up and got the hard inquiry on my credit. To my surprise I was told I would qualify for a jumbo loan (I gather something in the $850K-900K range) but insisted that the pre-approval letter be conforming only. %4.05 with 20% down, 15 years fixed. Probably not a good deal. Not sure what the interest rate would have been on that jumbo or how much downpayment it would have required.

I assume the realtor with the 10% comment was full of it and simply tried to lure me in. That's not how you make me a customer.

FunTime says

tiny tina says

I'm not saying people should go nuts and overspend, but using 3x without factoring other things such as 4% interest rates is just plain wrong.

I agree. If we were using reason, we'd definitely not borrow anything at all to buy a house. Like buying a candy bar, or a loaf of bread.

I wish everyone looked at real estate this way. Save until you can buy, or at least have a reasonable downpayment (>30%). Live way below your means in a crappy rental until you can move to your own place.

sheltielover1 says

Stupid, stupid, stupid... I think I am done with you libs.. Too much stress for reading your idiot posts...

Make sure to thank "the libs" for your FHA loan ...

"FHA insured loans are a type of federal assistance"

http://en.wikipedia.org/wiki/FHA_insured_loan

tiny tina says

illustrateth says

heh. Well, my husband works in finance, so yes, we have, pretty carefully actually.

That's great. Then can you explain how $1k/mo difference is completely ignored in your analysis?

Typical realtor scam of trying to focus the subject on the monthly payments. In a realtors world where interests rates are at 0.00001% and you can get a mortgage for a trillion dollars they would still say, "forgot the trillion, you 5000 yr mortgage payment is only 2500/mth". I, and many like me, like to look at the full cost. I would like to eventually pay off the mortgage on my home. At a trillion dollars that is impossible for me to do, it makes no difference how low the monthly payment becomes. Realtors probably are rolling their eyes right now and can't really grasp this thought. People paying down their mortgage, that is just crazy talk.

Ok, apparently some of you don't want to discuss things in monthly numbers...what do you propose, instead?

Let's stick with the $600k house example. How are you going to purchase it? Cash? Ok, how much do you have saved up now, and realistically, when will you have $600k cash? How much do you pay in rent?