patrick.net

myob says

What the heck is going on? I have not seen a frenzy like this since the peak of the bubble in '05. Realtors are citing the "Facebook effect" and "google Effect", but I don't buy that, since that can't apply to such a large geographic region.

I'm asking the same question too. My real estate agent told me that inventory is low because sellers think house prices have bottomed and are holding for better prices. House prices could have bottomed since unemployment rate is declining and stock market is buoyant, S&P is pretty near previous ATH.

I have heard the same things from a number of friends and family. It is sort of a weird social feedback loop. Inventories are super low, and demand is about the same as ever. So, that means that there will be multiple interested parties for given properties. Well, word of that starts getting out, and people that thought that they would wait start freaking out and thinking, "OMG the market is reigniting and I need to get in NOW!" So, they go and start trying to make a rush purchase to, "get in while they can." This gets out to more people, who do the same thing, and so on.

By this time next year, I assume that this will not be the case any longer. Inventories are ridiculously low because a lot of people that are underwater are waiting to see if the government doles out free money (loan mods, principal reductions). It is an election year, so expect a full set of shenanigans from the candidates, aimed at buying votes from this large group of people. After the election, it'll be forgotten. There are likely other reasons for the low inventories, but I am blanking on them. Perhaps there are a lot of wishful thinkers out there that think Facebookers will be eager to overpay for their unremarkable wooden box. There are far more of those wishful sellers out there than FB folks with the cash and low enough intellect to grossly overpay, though.

If the market is still nutty by this time next year, and prices are rising for some reason, that is still no reason to buy. Even IF the, "buy now or be priced out forever" BS was true, it would be stupid to overpay for a house now. If the value goes up wildly in a year, you could sell...but everything else went up wildly too and you will end up with just as much debt, or more. The whole system is a huge scam, designed to rob people of their money and happiness.

So, things will either look better next year, or this place will just continue to make less and less sense for middle class families. I am hoping for the former, but there are enough monied fools here that the latter might be reality.

If buying is too expensive then why not just keep renting? I don't understand your logic of not being able to buy. Super low inventory is the main reason for the still holding BA prices - or as some people here thinks,it is the newly monied Chinese. I am sorry,if you are not a Chinese cuz that is the new qualification to buy in BA. :)

Can you afford 10% rent increase every year?

xenogear3 says

Can you afford 10% rent increase every year?

We're building lots of apartments in the SF Bay Area. You can have thousands of units in one small area. How much land do you need to build a thousand single family detached homes? It is much easier to build an apartment complex with a thousand units than a thousand homes. What happens if supply overwhelms demand?

myob says

Often, they sell without even going on the market, or sight unseen by buyers, sometimes with no contingencies! Getting a couple dozen offers isn't uncommon on a nice house, and even horrible housing next to dumpsters goes over list.

Sounds like you believe everything your realtor tells you.

You have even the slightest whiff of proof that they're not just checking how gullible you are?

That's not from my real estate agent. I work in a company where quite a few of my co-workers have big money, and I know that they bought houses sight unseen, but with inspection contingency, and also pre-listing without disclosure. My agent isn't trying to push me to buy a house, nor will I be buying one just to have one, it has to be a place I want to live at a price that I can afford to pay, even though I assume it will depreciate in areas like Sunnyvale.

We have many things to consider when buying a house here; potential depreciation, length of commute, schools, price, etc. Sometimes, some of the other factors can outweigh waiting for the best price. I'm not a happy house buyer, but given how high house rents are, the premium to own a house over renting is decreasing in the neighborhoods that I'm willing to live in, and commute from.

Given how deliberately opaque the housing market is, I don't think you should rely on anecdotes either.

I think the only safe thing is to compare rent vs buy assuming no appreciation at all. Assumption of appreciation was the root cause of the whole bubble.

I'm assuming depreciation and return to the inflation-adjusted static housing price eventually, meaning I'll take about a 25% hit on the house I'm buying if that pans out in the next 10 years (likely).

Yes, the rent vs buy comparison is nice, but needing a larger place, I've been looking for a house for rent for about five months now. I can put up with my cramped place, but not forever. A decent house for rent in a reasonable area of sunnyvale/mountain view/los altos/cupertino will set you back about $3000+, more if it's on a nice lot, or a good neighborhood, less if it's older or from a private landlord who pays low prop 13 tax rates. Compute what you can buy for that on a 30 year fixed at a good credit rating interest of 4.5% amounts to about a 700k house considering taxes. The market price of this house would be closer to a million, so I see quite a bit of overvaluation, however, I've not been able to find someplace we want to live, and it's getting to the point where I'm willing to get financially raped to live someplace we like :)

I cannot comment on the "Silicon Valley" area that the OP references as I decided it was too much for me to handle and don't even look at listings there now. I've now started visiting areas in search of homes (because rent/buy ratios started making sense to me) in far flung areas that still have a reasonable commute option for atleast one member in the family. Having bid on a few houses or watching a few houses that seemed "overpriced", I'm coming to the realization that there is some truth in what the OP commented on. There is hardly anything to look at and realtors/sellers are bringing on inventory when there is minimal competition. A few examples of this house buying hunger:

a) I saw a home that was 41 years old, had a lot of work done by the owner himself (permits unknown and some of it, like the flooring, was of questionable quality on the inside). The house had comparables pointing it in the 490-500k range. It was listed for ~540. Apparently, it has an offer now atleast 1% over list.

b) I posted a review of an Open House in the Edenvale, San Jose area in the OH reviews . Bought in 2003 for 563k, very nice inside with the owner doing a lot of work, listed for 589k (closest comparable was 495k but this house in question was nicer) and went pending within a day after the OH weekend.

This tells me that:
a) There is either no shortage of dual-income couples or well-to-do people in the Bay area or inventory has been controlled to match demand (I don't have proof of this).
b) People do not think too much before taking on a 30 year commitment for half a million dollars (its just the monthly nut they worry about) and they always assume the happy scenarios like career progression, dual-incomes etc. Some folks I speak to don't even think about inflation helping them pay their loan - as in, they are ready to gamble on what seems like minimal information.
c) Anecdotally, my circle of acquaintances don't seem to put down 20% even if they have the money. If another crushing recession occurs and they lose the ability to pay, strategic defaults are available.

Given this and many other factors, it is difficult to see how housing will fall much further in the bay area. The housing casino is open here and people are unable to get in through the doors fast enough.

rent vs buy assuming no appreciation at all.

Exactly. However high the BA home prices may be,I am just not convinced that there will any appreciation to these properties for another 10 years. You can't built a bubble on top of an insane bubble,when there is no correction in between the two.

myob says

Realtors are citing the "Facebook effect" and "google Effect", but I don't buy that, since that can't apply to such a large geographic region.

Google pre-IPO shares are long gone.. no effect. If the google effect has an impact in the past.. it certainly didnt last long.. see the chart. So why did prices fall in recent years.

Facebook stock per SEC regulation ARE NOT ALLOWED to be traded, assigned, other otherswise transfered to any unregistered persons during its registration process.

Fact is FB shares havent even been priced. So how can it be a factor ?

Trying to explain the SEC registration process to a realtor is useless because its all a realtor lie to begin with.

agst says

This tells me that:
a) There is either no shortage of dual-income couples or well-to-do people in the Bay area or inventory has been controlled to match demand (I don't have proof of this).
b) People do not think too much before taking on a 30 year commitment for half a million dollars (its just the monthly nut they worry about) and they always assume the happy scenarios like career progression, dual-incomes etc. Some folks I speak to don't even think about inflation helping them pay their loan - as in, they are ready to gamble on what seems like minimal information.

We had dual income families in Silicon Valley since the 70s, yet we didnt see prices skyrocket to the extent of the recent bubble.

Dual Incomes pretty much is one of the biggest lies i have heard during the bubble in the Bay Area...