patrick.net

Truthman says

Supply and demand don't matter in real estate. Prices have always been determined by pet appraisers working directly for real estate agents and that's why prices have always gone up in the past.

I agree with the first part. Supply and demand don't matter.

You need a high appraisal to get the high loan, but the loan is really the sticking point. All that matters is lending. More lending = higher prices. Less lending = lower prices.

Most people will borrow as much as the possibly can. They don't do the math to determine whether they can afford it. They generally don't even understand the math. So the only limit on prices is how much money buyers can borrow.

Pretty much the entire mortgage market has been socialized so that taxpayers take all the risk instead of banks. Nearly all mortgages are sold to Fannie and Freddie. But this also means that the ultimate control over housing prices is now with the regulators of Fannie and Freddie.

Yup. It is rigged, and us middle class folks are the cattle being prodded toward the slaughterhouse. Hell, they have us dumb bastards RACING each other to get there!

What is your question? Are you asking if prices will go up? No, except maybe in some particular areas.
Unemployment is sky high. Sky high numbers of houses are underwater. Sky high numbers of houses are in foreclosure.
Can the facts be any clearer?

Forgot about the FHA. If you look at Fannie, Freddie, and the FHA, then 95% of all mortgages are bought or guaranteed by taxpayers:

http://articles.marketwatch.com/2011-02-11/economy/30775547_1_fannie-and-freddie-freddie-mac-housing-market

Including Federal Housing Administration loans, the government has been responsible for about 95% of mortgage origination between 2008 and 2010, according to a Bank of America analysis.

This keeps house prices much higher than they would be without a socialized market for mortgages.

Truthman says

Supply and demand don't matter in real estate. Prices have always been determined by pet appraisers working directly for real estate agents and that's why prices have always gone up in the past.

I agree with the first part. Supply and demand don't matter.

You need a high appraisal to get the high loan, but the loan is really the sticking point. All that matters is lending. More lending = higher prices. Less lending = lower prices.

Patrick,

On margin, within a short time frame, you are right. But step back and Supply and Demand absolutely drive prices. Tons of Demand and limited Supply drove prices up in the bubble, and a flood of Supply brought prices crashing down in 2007 & 2008.

By 2009, Uncle Sam put the lid on the Supply of foreclosures and began bribing buyers. So sure, since then the market is rigged, but it is absolutely Supply and Demand that drive home prices over time.

gregpfielding says

By 2009, Uncle Sam put the lid on the Supply of foreclosures and began bribing buyers. So sure, since then the market is rigged, but it is absolutely Supply and Demand that drive home prices over time.

Yup.

A lot of people point at the market and say that it is broken, and that supply and demand are not functioning. Well sure, a lot of things are "broken" in the market, but the market IS the exchange of supply at the behest of demand. This is why I am not holding my breath for housing prices that a middle class guy like me can afford (and still hope to retire someday) in the BA/SV. Demand in the BA/SV is still irrationally high, and it will probably continue to be into the foreseeable future. Supply is severely limited due to zoning regulations & NIMBYs preventing the conversion of old SFHs into higher-density housing. There are a LOT of foreclosures out there, but the game is rigged and hard working middle class folks will never have access to most of them.

This keeps house prices much higher than they would be without a socialized market for mortgages.

Thanks Patrick, always appreciate your direct statements that make me understand.

Another thought, Fannie and Freddie are bankrupt from all the articles I have read and have not repaid their TARP funds. What investor will invest in a bankrupt company?

I love the comment about a firewall existing between Appraisers and agents. The lender hires the appraiser, not the agent. And they are going through "Appraisal Management Companies" now, so an extra middleman gets a cut of the Appraisal fee. Appraisals have cost about $250-$300for an SFH for decades. Take a look at what the overhead is for an Appraiser and the Licensing requirements, consider that a good appraisal will take 6-8 hours of work including a good deal of driving and then tell me why you expect a good appraisal. When it comes to REO and frequently even Short Sales lenders go with a "Broker's Price Opinion" for which they pay $50. If anyone is surprised by the quality of these opinions they need a reality check,which would probably bounce.

Tom Stone says

If anyone is surprised by the quality of these opinions they need a reality check,which would probably bounce.

Oh? At one time, when the value of my condo dropped and I was not as real estate knowledgeable as I am now, I was told and I quote: "Appraisals are good for one day" Basically, the bank told me: "Sucks Beeoch"

David9 says

Another thought, Fannie and Freddie are bankrupt from all the articles I have read and have not repaid their TARP funds. What investor will invest in a bankrupt company?

They're not private companies anymore. You and I own them now, because we're taxpayers. Which sucks in two ways:

1. Taxpayers like us had to pay more than $150 billion in losses for Fannie and Freddie.
2. What do we get for our $150 billion? Higher house prices!

David9, do you still do business with that bank? Google "Uniform Standards of Professional Appraisal Practice" or just "USPAP" to gain a deeper understanding of how appraisals are supposed to be done. Then hit a few Appraisal blogs and see the reality. I know good appraisers here and was a member of the local association for a few years. As an agent, if an appraisal comes in low it is a valid reason to ask the seller to bring down their price unless it is obviously a flawed appraisal. Sometimes they are, if an appraiser used a bad comp I would catch it and if the "Adjustments" didn't look right I would call them on that. Good agents know their market.

gregpfielding says

By 2009, Uncle Sam put the lid on the Supply of foreclosures and began bribing buyers. So sure, since then the market is rigged, but it is absolutely Supply and Demand that drive home prices over time.

I think lending has been the primary determinant of prices since 1938, when the gov't started guaranteeing mortgages. Since banks were more willing to lend if the gov't would take the risk or buy the loan, prices went up.

Once prices were artificially high like that, it was counted as equity, since the next guy could also get a similar loan and again overpay. Building also went up because it was more clearly profitable in a time of artificially high prices. So both demand and supply were determined by lending.

The whole thing was capped by salaries, taking the maximum possible chunk of each worker's salary and making him dependent on his job (or face forclosure and eviction). So workers were normally trapped very well by their boss and the banks, but they expected as much.

When loans were securitized and sold without the need for Fannie and Freddie at all, paying back the loans became irrelevant, lending standards went to zero and prices went to infinity. Mortgage-backed bond buyers were screwed, but they didn't know it until the whole Ponzi scheme imploded about 2007.

David9 says

This keeps house prices much higher than they would be without a socialized market for mortgages.

Another thought, Fannie and Freddie are bankrupt from all the articles I have read and have not repaid their TARP funds. What investor will invest in a bankrupt company?

LOL at this comment. YOU are investing in fraudie and phoney! And so am i...by paying federal tax. Its classic fleece-the-taxpayer game. Soon available on ipad! lol

PockyClipsNow says

LOL at this comment. YOU are investing in fraudie and phoney! And so am i...by paying federal tax. Its classic fleece-the-taxpayer game. Soon available on ipad! lol

LOL, so true. Seriously, owned by us or not, still a penny stock, LOL

Truthman says

I predict that the Bay Area / Silicon Valley won't see any appreciable improvements in affordability. Just about any house in livable condition in an area with less than a 60 minute commute to the job centers goes pending really fast, and even some sort of shitty ones seem to sell fast too. The frenzy in this area seems to be undiminished still, and it is (supposedly) the "off" season for buying. There are still a lot more people with either a) a lot of money, or b) that are willing to borrow themselves into oblivion than there are available, decent houses in the SV.

That's definitely not happening out here where we live in the East Bay. Houses are selling, but they aren't selling fast either. I think what's surprising is that a lot of them aren't exactly crazy high either. There was one nice house not far from our street that was for $450,000. It sat for almost 8 months before it sold. Yet another sold for around $360,000. There's another for around $500k that I am seriously thinking about. Its been sitting for 3 months so far.

Now... as far as the uber-bubbleicious areas in SV and SF... well I sort of don't care because I don't really like either of those areas anyway. But from what I can see from the folks who do, well the bubble never really popped in those placed anyway so there wasn't really a change. Just a slight scare during the height of the pop.

Lastly, the crazy lending products that existed during the bubble are long-gone. With those gone the only way people can buy is if they actually have the means to pay. I feel fairly comfortable that prices will likely be sluggish for years, if not downright slow.

They're not private companies anymore. You and I own them now, because we're taxpayers. Which sucks in two ways:

1. Taxpayers like us had to pay more than $150 billion in losses for Fannie and Freddie.
2. What do we get for our $150 billion? Higher house prices!

As they say: "the Road to Hell is paved with Good Intentions"

I can't help but think the conservative side is right about government intervention in the housing markets. Of course, it was Bush that pushed the "ownership society."

I suppose that's just the reality of politics. You can't get elected unless you promise a "free lunch."

First Law of Economics: There's No Free Lunch
First Law of Politics: To Get Elected, You Must Promise a Free Lunch

edvard2 says

Lastly, the crazy lending products that existed during the bubble are long-gone. With those gone the only way people can buy is if they actually have the means to pay. I feel fairly comfortable that prices will likely be sluggish for years, if not downright slow.

In my opinion, just curious, and respectfully, but if you 'know' you can't sell for years, not much is actually selling now, and without a laundry list, you 'know' the game has changed, how could you be considering buying a home for 500K?

bmwman91 says

So, I am going to hazard a guess that the BA/SV will still have far more demand than supply, and prices will continue to make little or no sense to anyone that is categorized as "middle class".

If so, then this place (see below) like many others will have more unoccupied cubicle space in SV... but demand will be much high in similary open cubicles in Oregon, Arizona, and Texas will be much higher.

Jobs are not sacred to SV and can get moved and often do, and prices eventually will correct one way or another.

We saw this happen before, and it wasnt pretty.

David9 says

In my opinion, just curious, and respectfully, but if you 'know' you can't sell for years, not much is actually selling now, and without a laundry list, you 'know' the game has changed, how could you be considering buying a home for 500K?

Didn't say I was going to buy, but I am thinking about it. I'm not exactly concerned about its future value. We've saved up a lot of cash for the last 9-10 years. On the other hand we could just continue to rent and save as that doesn't hurt anything I suppose.

thomas.wong1986 says

If so, then this place (see below) like many others will have more unoccupied cubicle space in SV... but demand will be much high in similary open cubicles in Oregon, Arizona, and Texas will be much higher

If that were so I would be out of here as soon as the bags were packed. Austin was high on my list for years. Until I lost my job here in the BA and decided to strike out for Austin and applied for any job that I was remotely qualified for there simply because there was a tiny fraction of the available jobs compared to here.I was excited simply because there was the prospect of having a tech job in an area with actually affordable houses.

My experience was that at least in Austin, you would be lucky as a senior level tech industry person ( as I am ) to get a low entry level job in Austin. The competition was fierce, and after all is said and done you had better bring a suitcase of cash because its not super cheap in Austin ( cheap compared to the BA) but since you'll probably make a lot less, you will need the money up front for your house.

I dunno... Maybe I'm bitter but the idea of running away to somewhere cheaper is indeed a really nice idea and I still think about it, but so too has a LOT of other people and they are apparently willing to work for peanuts.

edvard2 says

If that were so I would be out of here as soon as the bags were packed. Austin was high on my list for years. Until I lost my job here in the BA and decided to strike out for Austin and applied for any job that I was remotely qualified for there simply because there was a tiny fraction of the available jobs compared to here.I was excited simply because there was the prospect of having a tech job in an area with actually affordable houses.

Most of the orginal AMD is in Austin. AMD SV headcount went from 10K than 2K and now 700-800 employees. But this is growing trend with othe SV employers. Even Apple is setting up a bigger shop. What you or I think dont matter, thats why high home prices dont work in SFBA and never will...

http://9to5mac.com/2012/03/09/apple-invests-304-million-to-add-3600-new-jobs-in-austin-texas/

It would have been better to set up shop in Stockton or some other Central Valley but as you can see thats not the case.

wthrfrk80 says

Of course, it was Bush that pushed the "ownership society."

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

It takes as lead values personal responsibility, economic liberty, and the owning of property. The ownership society discussed by Bush also extends to certain proposals of specific models of health care and social security.

The idea that the welfare of individuals is directly related to their ability to control their own lives and wealth, rather than relying on government transfer payments, is a longstanding one, particularly in British conservatism

Goals:

*patients have control of [decisions on] their personal health care,

*parents control [i.e. have power over] their children's education, and

*workers control [i.e. have some responsibility for the investment of, or explicit property rights in] their retirement savings.

Clearly this is NOT the goals of the Left since THEY want to dictate ownership and NOT allow citizens to take responsibility of their own destiny. Only after the housing bubble popped, especially with the GSE did the left start to blam Bush using the "ownership society" since the GSE which they defended for years, was a far bigger implosion and utter failure. So create a distration for their puppets to spout. The Last part of the NEW DEAL (GSE) didnt work out as well.

Tom,

I wasn't saying all ideals of the "ownership society" were bad.

But the idea of pushing house (or "home") ownership was clearly flawed. Not everyone should own a house...even if they can afford it.

No, I'm not saying Bush was personally responsible for the bubble. I blame that more on ultra-low interest rates, the repeal of Glass-Stegall, and other financial deregulation.

thomas.wong1986 says

Most of the orginal AMD is in Austin. AMD SV headcount went from 10K than 2K and now 700-800 employees. But this is growing trend with othe SV employers. Even Apple is setting up a bigger shop. What you or I think dont matter, thats why high home prices dont work in SFBA and never will...

I am not entirely disagreeing with you. But I've been hearing about these supposed next silicon valleys in Austin, Raleigh, Boise, and so on for years. As mentioned, I made a valiant effort to escape the BA a few years ago and on occasion still peruse the job sites in Austin. The idea of a place where I could have a decent career AND not have to pay out the nose for a house is very, very compelling.

But something I think is worth considering is that if in fact Austin or Raleigh became the "next" SV then of course then you'd likely have the same exact problem the BA has... which is that as soon as that became established, everyone would move there and probably within a decade or two those places would ALSO become prohibitively overpriced places. Austin already isn't cheap. You want a nice old home within walking distance of downtown? You're probably realistically looking at at least $300,000, which sounds cheap until again- you consider that at least from what I could tell you would be lucky to land an entry level job and that property taxes on that house would be anywhere from 2-3% annually AND that amount is in direct relation to the value of your house, whether it goes up or down.

edvard2 says

That's definitely not happening out here where we live in the East Bay. Houses are selling, but they aren't selling fast either. I think what's surprising is that a lot of them aren't exactly crazy high either. There was one nice house not far from our street that was for $450,000. It sat for almost 8 months before it sold. Yet another sold for around $360,000. There's another for around $500k that I am seriously thinking about. Its been sitting for 3 months so far.

I have no issues with the East Bay, and IF I ever buy, it might just be over there since prices are a little more reasonable. My argument was not that reasonably priced houses don't exist in the BA. My argument was that they don't exist without a relatively lengthy commute. How long would the drive be from Hayward (that's where you are, correct) to Mountain View during commute hours? I would guess that, on average, one would be looking at 50 minutes each way, minimum (less on a motorcycle). My fiancee used to work at Plastikon, off of Industrial Pkwy, and going to grab dinner with her in Hayward after work was a real pain in the ass due to the traffic.

thomas.wong1986 says

We saw this happen before, and it wasnt pretty.

I generally agree with you. What is your point with this though? Intel basically has a monopoly on the PC market right now. They are 2 process nodes ahead of AMD, and their CPUs get a lot more done per-cycle than AMD's offerings. I WISH that AMD was still competitive with Intel (used to love my unlocked Athlon XP 2600+), but at this point, given the Bulldozer flop, things are not looking super bright for AMD.

My dad used to worry about the SV "drying up" and all of the tech companies leaving for TX & NC. That was in 1994. So, that old argument has been around for a long time. The tech industry has been growing slowly, and perhaps more in other locations since it is really expensive to do business in CA (especially hardware due to the stringent environmental regulations). The SV & SF seem to mainly have software service companies, which really are not TECH companies, since they have minimal overhead & all of their pollution is remote (power plant emissions).

bmwman91 says

My argument was not that reasonably priced houses don't exist in the BA. My argument was that they don't exist without a relatively lengthy commute.

Its going to differ from place to place. We commute from the Oakland area to Foster city- thus the very tail-end of SV. It takes us around 30-35 minutes each way. That said- commuting from Oakland to Mountain View would be abysmal. I have actually turned down jobs in and around Mountain View and Curpertino just because those areas were too far away and too expensive to rent or buy in. I'd only move there is I were offered a massive salary. So if you live in Mountain View... then I can see your dilemma. Sounds like you are too deep inside the expensive confines of central SV to have any reasonable options as far as commuting goes because all around there is way too pricey.