patrick.net

1234 says

I am surprised and shocked by seeing this trend in Foster City too.

In just last 2-3 weeks, inventory has totally dried up and prices for a condo / town home are 100 - 250 K more that what they were 1 month back.

What happened in just one month? A 1080 Sq. Ft. condo is listed in 485K which was sold in 345K 1 month back.

Another condo listed in 700 K which was sold in 430K one year. ago.

Can someone explain this bubble? what is driving this crazy prices?

Is it only Foster city or other cities too in bay area?

Can we expect to see prices coming down to its normal range?

Thanks

Same with where we bought. They were selling for $150k to $160k, and boom. Now they're selling for $210k to $220k, and all of them are pending.

RentingForHalfTheCost says

All subjective. Until you sell, you never really know what your house is worth.

True, but appraisers for the lenders tend to be more conservative on their valuation when it comes to refinancing. Therefore, Suboink's house may worth more than the appraised value. Of course, we won't know until we put his house on the market.

JodyChunder says

A better way to putit is, wealth effect and debt facility is at an all time high and asset prices have been goosed to an all-time high low.

Sure. However, the "affordability index" doesn't distinguish between a solid economy and rotten bullshit that is totally unsustainable in the long term. Our economy is mostly made up of the latter.

E-man says

True, but appraisers for the lenders tend to be more conservative on their valuation when it comes to refinancin

Not true at all. Where'd you get that idea? conservative since when??? Do you actually know any apprasiers? It's not like lenders are keeping the loans or even a portion of these laons on their books.

JodyChunder says

Not true at all. Where'd you get that idea? conservative since when??? Do you actually know any apprasiers? It's not like lenders are keeping the loans or even a portion of these laons on their books.

I got the idea from refinancing whole bunch of my properties. The loan officer would do a quick CMA and give us the value and ask whether or not we think that's fair. However, when we get the appraisal, it's always lower than they CMA or FMV price. They picked fixer upper properties and compared to our fully upgraded properties and gave them a small premium. WTF? We appeal 3 times on 3 different properties, but lost all 3 appeals.

On new purchase, the appraisal is a little more biased. There is a 3-point hit if we want to get cash-out on any of our investment property during the refi. So you get the best rate just be refinancing. They rape you if you want cash-out.

E-man says

So you get the best rate just be refinancing. They rape you if you want cash-out.

Man I am sorry. That really sucks! It has not been my experience at all. I keep no cash in any of my properties.

Half the countries job is about the same, Starbucks, Bestbuy, Government work pays pretty much the same whether you are in Silicon Valley or Ohio Valley. From that perspetive,median household income tells very little.

The difference between region is the other 25% of the jobs. That is why the better barometer is to determine income at the 75th percentile. The income at the 75% tile is highest in this world for a large metro area.

In Santa Clara, a city of Approx 110K, 25% of the family households makes more than 150K, 14% over 200K. The source is city data.com. That was 2009, its surely a bit higher now. In Victorville, a city of the same size, 2% makes over 150K and 50 household makes over 200K. The demographic and competition is completely different. And as Troy Bellingham use to point out, housing price is taken at the income margin, not a percentage margin, especially in a high competition area where no new subdivision have been built for decades. (population has not changed in two decades)

Note that I use family household because it takes out college students and Retiree which are counted as households. A family household is the primary competition.

In any case, Foster city is a fantastic location as it is right in the backyard of VISA, Oracle, Gilead, Sony USA, etc and halway between San Francisco and San Jose. The weather is perfect and planes landing don't cause noise. In an event of an accident, I would imagine the planes will land in the bay before desending on land. To the west is San Mateo, which is a further steeo step up in price. If not Foster City, where else can you go?

We are not in a deflationary cycle. The proof being the price of gold and silver and even more important the price of gold and silver miners. Look how much the price of the PMs have risen and still the miners are doing poorly.

This means the price to extract PMs from the ground has risen. This means inflation. And housing will do the worst in this inflation since it is way overpriced.

The only reason the price of housing has not cratered is because the banks would be insolvent if we had an honest housing market. And the banks own the government. But people are really starting to get ticked off at the banks.

StillLooking says

We are not in a deflationary cycle. The proof being the price of gold and silver and even more important the price of gold and silver miners. Look how much the price of the PMs have risen and still the miners are doing poorly.

In a deflationary cycle, hard assets are worth more because they keep their value relative to cash and most goods and services. PMs also go up during rampant inflation for the same reason. The reason people don't keep PMs in normal or "Boom" times is because PMs don't pay interest or dividends, so the price sinks as people decide to invest in real estate, stocks, bonds, etc. to get an ROI. By staying in metal during times of growth, one loses out on a lot of appreciation.

The Great Stagflation was an inflationary cycle, and gold and silver soared.
The Great Depression was a deflationary cycle, but gold and silver soared.

Basically, PMs are a safety play. If we DO go to hard currency, make it silver. It's too easy for a few big banks to hoard all the gold and insist you take their paper representation instead. This is an aspect of a Hard Currency economy that Gold/Silver Bugs gloss over. Read any account of Colonial America or the Napoleonic Wars or any Panic in the US in the 19th Century. Many times specie was impossible to get, and you got paid with private bank paper that ended up worthless.

Are we in a deflationary environment? Wages are stagnant, Home Prices are dropping. Assets and Income that the middle class uses for income or wealth is decreasing.

However, food prices, commodities, education, and health care costs continue to outpace growth by an often substantial margin.

What do we call this? Maybe somebody needs to coin a word for this situation, like Stagflation in the 70s.

I'm not so sure that prices will recover - see Japan.

Or Sicily, once a prized destination, the economic powerhouse and breadbasket of the Med, where you needed bags of gold to buy farms and housing. Fought over by Italians, Catalans, Normans, and Arabs. Today, the government literally gives away the buildings of entire towns in the hopes somebody will move in, keep it from falling into ruin, and pay some - any - tax.

We'll see what becomes of Ireland and the UK.

errc says

Always appreciate the discussion, but that chart is crap, and I think you know it. "Affordability" to me, is relative to what people can afford. Not relative to how low interest rates allow the monthly payment debtor to lever himself to the hilt

That's the big disconnect that many on here face. House "Affordability" to most people means, "the mortgage payment is small so I have plenty of money left for everything else that I want." People define it as what they are COMFORTABLE with. The chart you mention is not defined based on individuals' comfort. It is calculated on an absolute basis of how much an average house's would cost vs an average salary (or something like that). Per those metrics, affordability IS near an all time high across the nation due to super low interest rates and lower house prices. I doubt that the chart factors in how many people can actually QUALIFY for mortgages, but based on payments vs income, on average affordability is high across the US. A chart for the SF Bay Area might look a little different, but as of now we only seem to have a chart that aggregates the US as a whole to work off of.

I understand many people in bay area earns $200k plus but still it doesn't justify high prices in bay area. If a couple earns $200k plus then most likely they are both working with kids. Everything is expensive in bay area day care, car payment, restaurants, insurance, utility, etc. Where is the money left for mortgage ?

Leo,

I looked at our family income as it compares to our city. We are in the top 5%. I don't fee comfortable buying a house at these prices. I am going to keep saving aggressively for retirement, emergency savings, and a down payment (in that order). We will see where me market is when I am at the point of feeling comfortable. Maybe we will buy here, maybe not.

You can look yourself up to help put it in perspective.

I think part of it is that maybe families aren't buying these houses, so maybe it helps explain why it doesn't "fit" for me. Maybe there are people out there who don't want to save for retirement.

FWIW, there are 1,200 people in Pacifica with an income over 200k. Are they all buying houses?

http://www.city-data.com/income/income-Pacifica-California.html

BG

Oh, that was weird. Sorry! I usually just go off the homepage. I had wandered into looking Leo up for some old comment of his.

BG

leo9 says

It's absolutely a financial suicide to buy a house now. Prices are highly inflated. There is VERY BIG bubble forming again.

lol

I'd just like to chime in a very simple point that

IN 20 YEARS, FOSTER CITY WILL BE UNDERWATER.

Facebooksux says

IN 20 YEARS, FOSTER CITY WILL BE UNDERWATER.

I'm fairly certain many homeowners will be, but you were talking literally right?

Heraclitusstudent says

Facebooksux says

IN 20 YEARS, FOSTER CITY WILL BE UNDERWATER.

I'm fairly certain many homeowners will be, but you were talking literally right?

Yes, literally.

bmwman91 says

Lots of people argue that affordability is low because prices are really high. Well, you can borrow a lot of money, and given the income distribution in the SFBA, the mortgage + tax + insurance probably falls pretty easily below 33% of gross income.

Well what people do not seem to understand is that... higher prices mean higher real estate taxes which cannot be mortgaged out. In year 2000 a house in Boston area that cost $120K had real estate tax of maybe $1500/year, now the same house costs $600K with a tax of $7000. This is money out of the pockets of the middle class.

It is wonderful to see your only asset in this world go up in value, but what about the expenses associated to it? I can afford to buy, and if I get a mortgage I probably can buy a $1MM home easy, but I do not want to spend all my savings plus a good portion of my income into keeping a house. Americans have gone crazy, that's all I can say. They are manipulated into buying things they cannot afford to buy and keep, future seems scary.

It seem market has slowed a little recently our may be I am hallucinating

Dsdf4 says

Wait, are you really saying that if mortgage rates went to 8%, home prices would go up?

the ride between 3.25% to 8% wil take housing to another level.

Interest rates rise due to market condittions (slow inflation which is always house/rent inflation). by the time you see 8% interest, (which is not possible in the short/medium term anyway), housing price will be a lot higher than today. Then it will be a shitty time to buy.

High interest rates are always the shittest time to buy. Think (cycle) peaks of 2008, 2000 and 1990. Prices zoomed in 2003-2008, 1997-2000 and again 1987-1990. If you are waiting for high interest rate, you will be devastated.

leo9 says

It seem market has slowed a little recently our may be I am hallucinating

How long do you think it will take for this property to drop back down to $650k? What dynamic do you see that would make this house drop back to that price? How likely do you think that will happen?

E-man says

leo9 says

It seem market has slowed a little recently our may be I am hallucinating

How long do you think it will take for this property to drop back down to $650k? What dynamic do you see that would make this house drop back to that price? How likely do you think that will happen?

How long do you think it will take for this property go to 1 million ? What dynamic do you see that would make this house raise to that price? How likely do you think that will happen?

Rates usually go up during periods of high inflation. Under high inflation, houses become a more attractive place to put money as property has intrinsic value that rises with inflation. Also, high rates discourage those locked into a low fixed rate mortgage from selling.

wave9x says

Rates usually go up during periods of high inflation. Under high inflation, houses become a more attractive place to put money as property has intrinsic value that rises with inflation. Also, high rates discourage those locked into a low fixed rate mortgage from selling.

It's valid point and it's true only if economy in general is doing well and people have jobs.

leo9 says

It's valid point and it's true only if economy in general is doing well and people have jobs.

It is pretty unlikely to have stagflation. In the 70's, it was a unique combination of events that caused it (oil embargo combined with the fall of the gold standard). If the economy remains sluggish, rates probably won't go up much.

Wow he thought Bay Area prices were in a bubble in 2012? I hope he didn't slit his wrists.

Leo,

I believe this house has a very good chance of going up to $900k - $950k in the next 3 to 4 years. It might have to wait until the next cycle before hitting $1M+. If you are in tech and you don't see the dynamic to drive prices higher, I'm not sure what to say. There are still a lot of multi-billion dollar companies in the Bay Area that haven't gone public yet.

Well, you missed it at $550k, at $650k, and now it's about $800k. That was an opportunity once in a lifetime. However, you're not the only one missing it so you're in good company. What I keep on hearing from people is that "the housing market in the Bay Area never stop amazes me" so you're not alone.

Good luck.

E-man says

Leo,

I believe this house has a very good chance of going up to $900k - $950k in the next 3 to 4 years. It might have to wait until the next cycle before hitting $1M+. If you are in tech and you don't see the dynamic to drive prices higher, I'm not sure what to say. There are still a lot of multi-billion dollar companies in the Bay Area that haven't gone public yet.

Well, you missed it at $550k, at $650k, and now it's about $800k. That was an opportunity once in a lifetime. However, you're not the only one missing it so you're in good company. What I keep on hearing from people is that "the housing market in the Bay Area never stop amazes me" so you're not alone.

Good luck.

You may be right. We will see how future unfolds.

Tim Aurora says

thunderlips11 says

I'm not so sure that prices will recover - see Japan.

You are forgetting the dividend aka equivalent rent

Right, but you gotta be a property owner beyond your own place to collect rent, which has to be a well less than half of the population.

Tim Aurora says

I said equivalent rent. So if you rented the property you own, and if the property would rent for X dollars, then count it as equivalent rent,

About 40% of American households aren't homeowners, either.

Japan has the aging problem, but it didn't end up creating jobs or increased wages. Instead Japanese companies outsourced and automated more aggressively, as well as employing more "Flexible" workers - ie Temps.

I hear that hundreds of thousands of young Japanese basically live in internet cafes.

thunderlips11 says

The Great Stagflation was an inflationary cycle, and gold and silver soared.

It didn't exactly soar until the very end.

When the Nixon closed the window, Gold went from $35/oz to $190/oz, from '71 till mid-'78. That was the majority of Gold's bullishness. Basically, it was an inflation tracker for much of the decade, with peaks/valleys.

And then ... suddenly, it went parabolic, from $190/oz to $850/oz by '80. Afterwards, came the crash, however, gold never touched $190/oz, ever again, despite the multi-decade bear market which followed.

leo9 says

I understand many people in bay area earns $200k plus but still it doesn't justify high prices in bay area. If a couple earns $200k plus then most likely they are both working with kids. Everything is expensive in bay area day care, car payment, restaurants, insurance, utility, etc. Where is the money left for mortgage ?

Actually, including RSUs and bonus, more like $500k per year, for folks with 15+ years (those late 30s/ early 40s).

leo9 says

It seem market has slowed a little recently our may be I am hallucinating

True but didn't show up in statistics yet. Foot traffic is considerably less, asking prices are not so aggressive and not as many over-bidding.

E-man says

Well, you missed it at $550k, at $650k, and now it's about $800k. That was an opportunity once in a lifetime.

If you are right, E-man, maybe it is true what realtors say. Maybe I have been priced out forever.