patrick.net

You tell me.

http://www.doctorhousingbubble.com/california-has-nearly-9-years-of-housing-supply-58-county-mls-supply-and-foreclosures/

odds are that prices will fall this year. nobody knows by how much.

only retards are predicting price increases this year, then again retards have been predicting price increases for the last 5 years so that's nothing new.

fewy says

We might get a good rise in housing prices.

Yeah right.

fewy says

The inventory is half of what it used to be last year and it seems like the inventory that comes onto the market is quickly bought up.

That's exactly the reason why we haven't had authentic price discovery yet. All of the folks who would be for sale (as either short sales or reos) are stuck in loan-mod limbo.

If the extend-and-pretend shenanigans ever stop, expect supply to rise and prices to fall again. Of course, they might never stop and we're just going to be stuck in neutral for another decade.

What do I think RE: Bay Area houses?
1. Foreigners pooling capital and buying. Particularly Chinese and corrupt Chinese officials. The Bay Area and Vancouver are popular, and California in general.
2. Foreigners and nerds working in well paid high tech buying so they can attract and please females. Females want to see a "nest", this is their normal behavior.
3. Clueless among 1&2 above who have been here in USA a short time and think it's not unreasonable to pay $700K for a place having no historical reference except falling prices if they have not been here that long. H1B visa guys who have high salaries may not care.
I may have left some people out.

I don't believe so, although flat housing prices with inflation means lower prices over the next few years.

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.

Crappy over-priced places sit and then get price reductions, anything in good shape that is not fantasy priced gets multiple offers within a week. We've been outbid twice in the last month and the all cash buyers, whoever they are, are out there in force.

I guess that's the "pent-up demand" at work. I know we've been waiting to buy, and apparently so have a lot of other people. Rents are crazy here and the rental market is tight.

I can only speak for my experience, which is limited to houses in the 400-600K range in the city.

1sfrenter says

I guess that's the "pent-up demand" at work. I know we've been waiting to buy, and apparently so have a lot of other people. Rents are crazy here and the rental market is tight.

Demand seems high only because Supply is so low.

clambo says

Females want to see a "nest", this is their normal behavior.

When you boil just about everything that men do down to it's most basic level - where they live, what they drive, how they dress, where they work, what they eat, etc. - it's almost always to attract and keep a woman. Deep down, we're all cavemen.

gregpfielding says

Deep down, we're all cavemen.

lol. nice one.

RentingForHalfTheCost,

Do you have any new data, this seems to be 3 years old. Since they are using the cure rate from 2009 with NOD from 2010. This website http://bayarearealestatetrends.com/2012/01/24/california-foreclosure-activity-tumbles-in-2011/ states that we had 61,517 NODs filed last quarter. Which is about 20,000 a month. In December we had 37,734 home sales in California. Lets assume inventory didn't change since your article was published at 468,833. So 468,833/(37,734-20,000) gives us 26 months of inventory. But if the inventory number is less than 468k and we get a NOD cure rate higher the zero the months of inventory number will drop fast.

I am beginning to believe that the great crash in the nicer parts of the bay area where people with families would "ideally" love to reside will never happen. I am basing this on my own experiences in visiting a lot of open houses (I have visited over 120 open houses over the past 1.5 years in 3 local cities) in certain parts of the bay area where anything around a million is snapped up with multiple offers (hint, hint - houses in school districts with sky high APIs and in cities with "clueless foreign investors and rich FOB immigrants" as per many threads on patrick.net).
It seems that I need to wait until I am old and gray for there to be a 50% - 65% price drop until I can go shopping. By which time, I may not need a house in the bay area at all. I might need to shop around for retirement homes. So, a lot of $$$ saved for my retirement!

fewy says

RentingForHalfTheCost,

Do you have any new data, this seems to be 3 years old. Since they are using the cure rate from 2009 with NOD from 2010. This website http://bayarearealestatetrends.com/2012/01/24/california-foreclosure-activity-tumbles-in-2011/ states that we had 61,517 NODs filed last quarter. Which is about 20,000 a month. In December we had 37,734 home sales in California. Lets assume inventory didn't change since your article was published at 468,833. So 468,833/(37,734-20,000) gives us 26 months of inventory. But if the inventory number is less than 468k and we get a NOD cure rate higher the zero the months of inventory number will drop fast.

No, nothing yet to reference. Thanks for the updated data. I think these numbers are key to understanding where we are going and it will be interesting to see the next few quarter. The inventory and NOD cure rate could really help us out of this mess for sure. That NOD cure rate will unfortunately come at taxpapers expense you can be sure. ;)

Guys, we'll continue to update that chart as DataQuick releases the data. It'll be posted at http://bayarearealestatetrends.com/

I think "Bay Area mid range" (say up to 600k) is pretty reasonably priced compared to local incomes and rents. I don't expect a lot of additional falls.

On the high end (>600k or for that matter >1MM) I would expect some further falls (10-20%?). Lots of strategic defaults, lack of move-up-buyers, and still a bit high price-to-rent ratios.

drtor says

I think "Bay Area mid range" (say up to 600k) is pretty reasonably priced compared to local incomes and rents. I don't expect a lot of additional falls.

I 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.

The problem is that due to the bubble, 600k sounds "cheap" to a lot of people simply because they've grown accustomed to outrageous pricing. 600k was way too much during the boom and its still too much now.

edvard2 says

drtor says

I think "Bay Area mid range" (say up to 600k) is pretty reasonably priced compared to local incomes and rents. I don't expect a lot of additional falls.

I 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.

The problem is that due to the bubble, 600k sounds "cheap" to a lot of people simply because they've grown accustomed to outrageous pricing. 600k was way too much during the boom and its still too much now.

Word!

edvard2 says

I 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.

Why do people keep repeating the 3x salary requirement when that requirement was based on interest rates being 7-8%? 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.
As far as 600k being nosebleed, I've never seen a metric that shows the median income of recent purchasers. Median incomes of cities which includes grandmothers who have no mortgage, people who bought 15 years ago at more reasonable prices, renters with a low rent, etc. gives you no information about how affordable a house is.
The best metric is PITI versus rent, and even that is questionable in some of the more expensive cities where people are loaded with money (i.e. Los Altos Hills).

gregpfielding says

Demand seems high only because Supply is so low.

Agree. Multiple offers are somewhat artificial. The same prospective buyer makes several offers. Especially true with short sales. In consequences, accepted buyer in short sale withdraw, because found a better deal or can’t wait, then short sale is left without a buyer, back on market or fall into foreclosure.
drtor says

I think "Bay Area mid range" (say up to 600k) is pretty reasonably priced compared to local incomes and rents. I don't expect a lot of additional falls.
On the high end (>600k or for that matter >1MM) I would expect some further falls (10-20%?). Lots of strategic defaults, lack of move-up-buyers, and still a bit high price-to-rent ratios.

Agree with that also. True investors don’t buy here unless it’s cheap junk. Current tenants with saved down payment are able to find replacement but not easy (that also explain multiple offer for attractive priced houses).

gregpfielding says

it's almost always to attract and keep a woman

That is hetero-normative language!

REpro says

Why do people keep repeating the 3x salary requirement when that requirement was based on interest rates being 7-8%? 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.

This is an interesting point. Do banks look at total mortgage vs income or just monthly payment vs income when they decide to approve loans? Anybody knows?

fewy says

I have been waiting for the prices in the bay area to come falling back to earth

Define "bay area". There have been huge crashes in east bay, and in less attractive areas of the south bay and peninsula.

I think there are now two clear markets: places that are coveted by "real" money - call it the 1% if you like - and those that are not. I suppose there is sort of a third market of "fringe" where those with money don't really want to go, but have settled for in the past. During the bubble these fringes spread to even the undesirables - that is over. And I think these fringes were also pushed up by the ARM, pick-a-pay, and other wannabe loan instruments.

But I repeat, define where you are looking. If it's a coveted zone, the little 10-20% drop I have seen anecdotaly may be it. If it's a fringe that has been hanging on it may go further. If it the dregs, it's probably mostly done - and by the way, never really "coming back".

tiny tina says

Why do people keep repeating the 3x salary requirement when that requirement was based on interest rates being 7-8%? 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.

Ok, so let's break down the math. Let's say that someone somehow has absolutely stellar, perfect credit. They buy a 600k house and get the current rate, which is around 4.65%. Your payments would still be over $3,000 a month, which of course doesn't include taxes, insurance, repairs and maintenance, whatever HOA fees might be required, inspections, and so on. Assuming 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. As anyone who lives here knows, life is expensive in the Bay Area and when all is said and done there would be little wiggle room if the said couple bought a 600k home.

Secondly, what if one of the people in the couple loses a job? Their income gets drastically reduced. How well would that work out for them then? Hence why in my opinion nobody should buy a house with dual incomes being counted on to pay for the house.

Lastly, in a real world scenario you will probably need to plunk down a 20% down payment, thus $120,000 immediately. Now- I know for fact that nice houses are still renting for anywhere from $1,500- $2,500 a month around us. So figure that it would take you close to 5 years of renting a $2,500 house just to compensate for that down payment alone.

I dunno... Like I said, I do pretty well and there's no way I'd pay 600k for a home... Anywhere.

tiny tina says

I 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.

Absolutely agree - but with rents for a 500-600K house running about 3K month, if you have 20% down you are looking at roughly the same cost per month.

Yes, this is too much, but unless rents collapse, this is where we are, at least here.

tiny tina says

Why do people keep repeating the 3x salary requirement when that requirement was based on interest rates being 7-8%? 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.

Just a reality check: SF Mayor's Office of Housing offers interest free down payment assistance (if you qualify, and the income limits are not that high)

BUT

here's the catch: your monthly PITI costs must be more than 33% of your monthly GROSS income.

When I questioned them about this (ie., most people's monthly gross is WAY different from their monthly net) and that this 33% amount is too high, they told me that Fannie and Freddie set the rules.

They are doing everything possible to keep housing costs inflated.

1sfrenter says

They are doing everything possible to keep housing costs inflated.

And, apparently, to perpetuate debt slavery.

edvard2 says

drtor says

I think "Bay Area mid range" (say up to 600k) is pretty reasonably priced compared to local incomes and rents. I don't expect a lot of additional falls.

I 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.

The problem is that due to the bubble, 600k sounds "cheap" to a lot of people simply because they've grown accustomed to outrageous pricing. 600k was way too much during the boom and its still too much now.

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. And 600k houses in the bay area look OK if you run a buy vs rent calculator.

It is true that things could change if interest rates go up - but how likely is this? And under what circumstances would that happen? High inflation? Then buying is better. Economic turnaround? Then prices will probably stay.

edvard2 says

Ok, so let's break down the math. Let's say that someone somehow has absolutely stellar, perfect credit. They buy a 600k house and get the current rate, which is around 4.65%. Your payments would still be over $3,000 a month, which of course doesn't include taxes, insurance, repairs and maintenance, whatever HOA fees might be required, inspections, and so on. Assuming 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. As anyone who lives here knows, life is expensive in the Bay Area and when all is said and done there would be little wiggle room if the said couple bought a 600k home.

First of all, I think your 4.65% rate is a bit high. Secondly, as you say at the end of your post, you have to put at least 20% down (this isn't 2007 anymore). If you put ~30% down and get it to 417k, the rate is 4%.
Then, as far as your tax math, you say they have all of these expenses, some of which are one time, cheap expenses like an inspection, or non-expenses like HOA fees (don't exist for a SFH usually). You conveniently leave out the mortgage interest deduction which basically offsets your property taxes for the first few years. When you boil it all down, your total expenses on that $600k house may be close to your rent. Anyway, that was my point, the only thing to look at is house payment versus rent.
These other bogus metrics - 3x income and median income are useless without factoring in other things like incredibly low mortgage rates and the effects of Prop 13.

As for a couple and one losing his/her job, that's something that is hopefully taken into account when they buy. People should always have a reserve just in case. Is that really a factor you consider when deciding whether to buy? Hmmm...bob and joan use both their incomes and one day one bob may lose his job, and I don't know how much reserve they have, and what if his unemployment last 3 months, and he finds a job in 2 months, but what if it takes 4 months, and ... ughh... tired.

Your down payment - as long as prices don't plummet - isn't gone. So, I'm not sure what you mean you need 5 years of renting to compensate.

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. And 600k houses in the bay area look OK if you run a buy vs rent calculator.

Then again finding a new rental doesn't require a $100,000+ down payment either, and this is fairly substantial. Also missing from the comparison are the costs of owning beyond mortgage costs compared to that of a typical renter where the operational costs are paid via the landlord.

As repeated earlier I make a 6 figure income and 'could' afford a 600k house. But that isn't to say that I think 600k is at all acceptable. That said, If most in the Bay Area's home-buying hopeful populace 'thinks' 600k is OK then we're basically doomed to perpetual bubble prices. But I think its becoming more and more clear by the day that all the money we think everyone had to afford these prices is far less a reality and thus those prices will continue to lower as a result anyway.

tiny tina says

As for a couple and one losing his/her job, that's something that is hopefully taken into account when they buy. People should always have a reserve just in case. Is that really a factor you consider when deciding whether to buy? Hmmm...bob and joan use both their incomes and one day one bob may lose his job, and I don't know how much reserve they have, and what if his unemployment last 3 months, and he finds a job in 2 months, but what if it takes 4 months, and ... ughh... tired.

You would think so but reality shows that an awful lot of people who do buy are totally counting on their dual incomes; they are maxxing out their total incomes on their houses.

But stepping back for a second, the example I used above was for couples earning at levels at closer to the top of the area's income bracket; 200k. That's using an absolute best case scenario when it come in regards to buying a 600k house, which in this conversation is being claimed as the "New normal", or some ordinary middle class house. Yes- I can see how it would be possible for someone earning 200k to buy a 600k house.

But In reality, how many people are there that actually make that kind of money? We're talking even those in the 150k range. Not many. So when we're talking about a 600k house, we're talking about a price level that even now can only be afforded by a small demographic of above-average wage professionals. Thus my initial assertion that no- 600k isn't acceptable.

By that logic, a one-income family should never buy a house?

edvard2 says

Thus my initial assertion that no- 600k isn't acceptable.

Ok, I understand your view. 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. I'm not sure how these numbers compare to the past, but there's roughly 5000 people in the south bay and fremont, that think $600k+ is a-ok with them.

Ok, well I suppose we can agree to disagree then. I am a fairly conservative and careful person with my money and 600k definitely bridges the acceptable limit for me even though I could technically pay for a house such as that. My opinion also comes from having experienced being laid off not once but twice and even though I've been fortunate and gotten good jobs including the one I have now, I also realize that fortunes can change quickly and thus putting ourselves into a situation where we have this huge debt hanging over our heads that is relentlessly due regardless is daunting and concerning.I am simply not really a fan of taking major risks, which an expensive house to me most certainly is.

That said, I am sure that what I think as being more reasonable- as in the 350k-450k range- is equally absurd in most of the country's eyes where 200k or less buys a decent house in a nice area.

edvard2 says

The problem is that due to the bubble, 600k sounds "cheap" to a lot of people simply because they've grown accustomed to outrageous pricing. 600k was way too much during the boom and its still too much now.

Case-Shiller actually breaks down the MSA into tiers, and the top third (by volume) of the market begins at $579,803.

http://bayarearealestatetrends.com/2012/01/04/tale-of-two-markets-breaking-down-case-shiller-tiered-indices/

tiny tina says

edvard2 says

Thus my initial assertion that no- 600k isn't acceptable.

Ok, I understand your view. 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. I'm not sure how these numbers compare to the past, but there's roughly 5000 people in the south bay and fremont, that think $600k+ is a-ok with them.

They will be the first one in the lineup for handouts if the market keeps tanking. They'll claim that they checked on redfin and saw thousands of other people doing it. That alone was enough proof that it was okay. Beware following the average IQ level of large groups of people. Chances are people here are much above that range. Follow your own analysis and resist the urge to just step in line. ;)

gregpfielding says

When you boil just about everything that men do down to it's most basic level - where they live, what they drive, how they dress, where they work, what they eat, etc. - it's almost always to attract and keep a woman. Deep down, we're all cavemen.

Some very fine observating here Mr Fielding. It is all about having a little leverage over the other dudes on a bunny run. Sometimes this as as simple as a moustache. For others it is a big McMansion on a hill with a pool and granite counter tops a APPLE computer a big TV and a designer dog.

I might just add that I got to an age whereabouts the ladies I wanted to attract were no longer into the razzle dazzle. The closet full of silk shirts, the Cadillac and the solid gold chains just weren't cutting it. It's a weird thing when that happens to a guy. My dream girl ran off with my diabetic half brother. This is a guy who changed his pants only once a month and gapped his spark plugs with hes teeth. A renter with no prospects for success or $$$. No matter how rich I got over the years or how much free frozen yoghurts I give her, she still wound up choosing this pig over JODY on account of his being able to make her laugh or something stupid like that. Still burns me to this day.

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

Right off of patrick.net's front page: http://www.local10.com/news/money/A-new-recession-seems-inevitable/-/1717308/9005556/-/9nlvjr/-/index.html

fewy, I'll let the article do the talking for me. If you read it and conclude differently, then so be it.

But just a few quotes:

ECRI is one of the more widely respected firms on economic recessions, as it has never been wrong when forecasting that a recession would start, or failed to predict a recession well before it was widely accepted.

He said the time it takes employers to increase staff means that job growth is a so-called lagging indicator, which reflects economic conditions in the past rather than pointing to future growth.

[ECRI] is sticking with the forecast it made in September: A new recession is inevitable, despite improvement in high-profile economic indicators, such as job creation and unemployment, and a stock market rally.

I don't know why everyone continues to say that the market in SF has not crashed? per the case shiller index, it is back down to 2002/2003 price levels. Prices are literally now on par with a straight linear inflation rise. I just purchased a SFH. Literally 40% off the high in 2007. Yes, perhaps it will over correct and go down more but I would not count on another 40% if that is what folks are waiting for.

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.

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.

Buster says

I don't know why everyone continues to say that the market in SF has not crashed?

Because it hasn't. It's being artificially propped up. It is pretty simple, Buster.

per the case shiller index, it is back down to 2002/2003 price levels. Prices are literally now on par with a straight linear inflation rise.

But there hasn't been any true inflation outside of energy and other commodities; certainly not in real wages/salaries. In fact, they have been lagging.

I just purchased a SFH. Literally 40% off the high in 2007.

This is like me buying a widget priced at 40% off only to get home and peel back the price tag to see that it was originally priced at 70% less than the discount price.

Yes, perhaps it will over correct and go down more but I would not count on another 40% if that is what folks are waiting for.

Why not? Because you finally got tired of watching water boil and hopped in and purchased?

Way I see it, if you can afford to shrug-n-say-fuck-it, then go for it. It might sting a little when ten or fifteen years from now you are seeing the exact same model of house selling to young first time buyers who are paying a third less than you did and have a lot more discretionary cash left over to start up businesses or travel. That is the most likely scenario.