patrick.net

hrhjuliet says

We used that calculator before. A fantastic tool, but I forget where "it lives" on this site. Do you have a link? Thanks. (:

It's at the very bottom of Patnet. Click the "House Value Calculator" link. Be sure to "change assumtions" to adjust for your personal situation, but make *conservative* assumptions. Also do a "worst case" analysis.

There have been spikes. Late 2006 to mid-2007. 2008.2009. The first time buyers tax credit. Almost every spring. So far they have all been follwed by declines. Can we really even debate statistics when foreclosures have basically been frozen for over two years?

Yes, this will be a bottom in some areas. In others it will be another bear market rally.

Calling this a bottom when we are still 100% higher than the start of the bubble is simply wrong too. Crashes usually dip lower than the prices the bubble started at. With government manipulation, perhaps we avoid that fate. Fundamentals say we go back to the mid-90's prices. Factor in property taxes, insurance, upkeep, etc are triple from that time and we could overshoot it even more just to get back to affordable levels...

Ive lived in the Bay Area long enough to know that trying to apply any sort of mathematical, sensible logic to the way the housing market behaves here is a lost cause. It simply doesn't act as "It should".

edvard2 says

Note that I have no interest on what home values do. We bought a house to live in and hopefully do so until we're old. I could care less what its worth. I also would actually welcome a more normal housing market because that's better for everyone-including me.

Absolutely agreed. Home is not an investment - it's a consumable good. You need to eat. You need to drive places. You need to live somewhere. Roof will deteriorate, basement will crack, new building technology will obsolete your home, etc.

When times were normal people would work and save to buy a house. Then things went nuts and people would buy a house to use it to get money.

What can't continue has a tendency to stop...

Banks have been stalling for years, even in California. That state has had local politicians creating laws to stall the process too. California is still in the top ten for deliquent mortgages. There is shadow inventory. However, with the current spikes, many of these owners now have equity. Whether they can refi or sell for a profit is unknown. If not, the banks may stop stalling and foreclose on these....

"....Fundamentals say the cost of housing is RIGHT NOW far below the mid 1990s......."

In 1998 I could buy a brand new 3/2/2 on an acre of land for $110k in my area. Taxes were $1300. Gas about $1. A 15oz bag of dorittos for $1.69. Today, that 15yo home sells for $160k. Taxes are $4000. Gas almost $4. A 10oz bag of dorittos for $4.39. Insurance, hoa, upkeep all triple. Back then savers were making billions from interest that went into the economy. Debtors could actually get credit. Yeah, we have low interest rates today. It is because our economy is so low. I'll take the mid-90's with 7% mortgage rates and costs that were 1/3 what they are today. Those were affordable times compared to today. Still not as affordable to what we had before the Federal Reserve destroyed our dollar.....

"....If you're claiming we're 100% higher than the bottom, then you're also claiming housing has to lose another 50%...."

I am claiming that prices simply lost their gains back to 2003 levels. And in the decade before 2003 many areas saw prices go up by 100% and greater. Meaning we are still overpriced. Walmart can jack up the price of milk to $10 today. Mark it down to $7 next week. Is it a great deal now that they marked it down 30%? Or do you remember that just last week it was selling for $3?

Real estate has fallen much more than this recent disinflation. Japan is an example. We saw it too last century.... And can we compare rents when they too have risen so much?

"...never been a 2-year moratorium on new foreclosures in any state......."

You can find charts all over showing inventory levels and finalized foreclosures. Going into 2010 they were ramping foreclosures. Then something happened towards late summer. You then see inventory falling. That was when robo-signing was exposed. The banks stopped most of their foreclosures until the recent settlement this year. Even today they have to try and work out refis and short sales. You can look at the charts and line the decline of inventory up with the dates of robo-signing....

The chart also shows that areas with high-paying jobs are holding up better. Not surprising. DC won't go down since it has the power to tax. The NYC financial sector owns DC. Movie stars in LA still make lots of money. Boston and SF have high-tech industry. Vegas? Atlanta? Not so much.

edvard2 says

trying to apply any sort of mathematical, sensible logic to the way the housing market behaves here is a lost cause. It simply doesn't act as "It should".

I have heard stories of those who would risk life in prison to own a pair of sneakers.

Value is simply a measure of the number of people standing in line, ready, willing & able to complete a purchase. Supply in the Bay area is restricted by water and steep hillsides. That shortage in supply restricts ownership of subservient peasants.

Cheeseus Sonofdog says

Real estate has fallen much more than this recent disinflation. Japan is an example.

Of course. Japan had a much bigger bubble.

Look at the graphs. The bubble is over. Sure there could still be some slow deflation. But the exteme movements are over.

The USA is relatively stable. We have the worst economy, except for all the others. Europe is a clusterfuck, as we all know. China has a massive RE bubble and ghost cities. Nations supplying China with metals (like Australia and Brazil) will get hit when China goes down.

"..I'm not sure where you live, but property taxes are not generally 3% ......"

I live in Palm Beach County Florida. Our budget was $1b a decade ago. They jacked up impact fees by 450%. Then we had the housing boom. The budget went to $4b within five years. When the crash brought home prices down 50%, the county just jacked up our milage rates by 40% over a three year period. Maening they still get $4b every year, even though that should have been a one time windfall due to the bubble.

In 1998, mortgages and subprime were availble to most. Todays 3.5% you mention is not. Hence, the majority of homes being bought are by cash investors. Hence, most overpriced fannie mae homes are coming back on the market when the buyer can't get a mortgage or the appraisal comes in.

Upkeep costs can certainly be triple. I would love to replace my roof for what it cost me 15 years ago. I would love to buy a gallon of paint for $8 again.....

Cheeseus Sonofdog says

Upkeep costs can certainly be triple. I would love to replace my roof for what it cost me 15 years ago. I would love to buy a gallon of paint for $8 again.....

I would love to buy gas at 89 cents a gallon as it was back when I was in college in 1998-1999.

edvard2 says

Ive lived in the Bay Area long enough to know that trying to apply any sort of mathematical, sensible logic to the way the housing market behaves here is a lost cause. It simply doesn't act as "It should".

I have not been interested / paying attention nearly as long as you have (not calling you old or anything), but this looks like all anyone needs to know. The BA has a very limited supply of housing, NIMBY and enviro craziness preventing new development, high paying jobs and more people that want to live here than available space.

The whole thing resembles an unstable, spring-loaded machine that that defies the second law of thermodynamics* by re-compressing some springs when others come loose, keeping the thing in a constant state of volatile tension. You don't know what it will do next, or why.

*For those not familiar, it is basically the law that says that perpetual motion machines are impossible.

".blind assertions and actually present some data."

You have the internet. Charts are a plenty. Just note that robo-signing became exposed late summer of 2010 and the settlement was this spring. Note that most foreclosures were being done by gse's like fannie/freddie/hud, and they pretty much stopped in all states, judicial and non-judicial. Note that many states saw foreclosures go up 50%, 100% this spring compared to last. Even California saw a 20% spike last month....

Going into 2010 we had rocket docket. Many states ramping foreclosures. That is the spike you see. Mid 2010 rumors of robo-signing. By late summer most banks froze foreclosures. GSE's kept them stalled in judicial and non-judicial. Inventory starts crashing by 2011.

Rocket docket was exposing factual shadow inventory. It was coming out. Robo-signing stopped it. Let's pretend this is March of 2010. Looking at the chart, would you be buying here? No. You would see that inventory is spiking. Did inventory come down because everyone decided it was a great time to buy, or because foreclosures were stalled. To buy now, one is assuming that all past foreclosures have been cleared.

I didn't say foreclosures were stopped. I said they were stalled. Banks canceling most, but not all, courthouse sales. Freezing current cases. Not filing new notice of defaults. The increase after the settlement clearly proves they were doing this. Past press releases from Fannie, etc, shows they were slowing down to a trickle.

Cheesus,

I am with you in hoping that the shadow inventory gets liquidated and we all get cheap houses. There are mountains of logical reasons for why housing prices should go lower and the shadow inventory should be released to individual buyers for the long-term health of the nation.

However, I am not counting on it, at all. Most underwater government loan owners will be given no-doc refinancing opportunities, and I am more than willing to bet that the government will do some number principal write-downs for people with government loans. If there is a large sell-off of foreclosures, most of which are held by the GSEs, they will be sold to large institutional investors that will work them to maximize their own profit. Reality is dictated by the government and big banks, and regardless of how abhorrent or unsustainable it may prove in the long run, it is and will be the case for a very long time as far as you & I are concerned.

My advice is to stop searching for the light at the end of the tunnel and focus on learning to live IN the tunnel. The next decade is going to be interesting.

You guys fret, but low interest rates, or easy money juiced the RE market back to life, just like it did the equities market. Now RE is getting more expensive just like it is supposed to when you've got to much easy money chasing fewer goods.

The next downturn will come when the easy money runs out.

Also, regarding property taxes.., states are all different regarding that so you can't really argue over it without differentiating them individually. In my state, I can rent for less than twice what I would pay just in property taxes on your everyday 3 bedroom home.

bmwman91 says

Reality is dictated by the government and big banks, and regardless of how abhorrent or unsustainable it may prove in the long run, it is and will be the case for a very long time as far as you & I are concerned.

Sick, isn't it? But as my late grandmother always said, "don't fight city hall."

Cheeseus Sonofdog says

In 1998 I could buy a brand new 3/2/2 on an acre of land for $110k in my area.... Today, that 15yo home sells for $160k.

If you go by the notoriously conservative CPI inflation calculator, 110K in 1998 is equal to 155K today. Is the 5K discrepancy (155K vs 160K) much more than a rouding error? What do you think that 3/2/2 going for 110K 14 years ago "should be" today?

freak80 says

Sick, isn't it? But as my late grandmother always said, "don't fight city hall."

Yup. You can't beat the system. All you can do is understand it and either operate within it as best you can, or be clever and find ways to operate outside of it.

We're still in the downturn. Just bouncing along in it.

bmwman91 says

The whole thing resembles an unstable, spring-loaded machine that that defies the second law of thermodynamics

It's only because of your USA-oriented frame of reference. For immigrants from crowded parts of the world, The Fortress prices are Bargain Prices.

bmwman91 says

or be clever and find ways to operate outside of it.

That's what the Mexican drug cartels did.

Of course, by now, the ARE the system. ;-)

B.A.C.A.H. says

It's only because of your USA-oriented frame of reference. For immigrants from crowded parts of the world, The Fortress prices are Bargain Prices.

It may be a bargain for *wealthy* immigrants. How many Chinese peasants do you know who can afford to live in San Jose?

bmwman91 says

I have not been interested / paying attention nearly as long as you have (not calling you old or anything), but this looks like all anyone needs to know. The BA has a very limited supply of housing, NIMBY and enviro craziness preventing new development, high paying jobs and more people that want to live here than available space.

LOL! Its ok. I'm actually in my 30's, which I guess is sorta... "old"
But anyway, The only reason I waited as long is because when I first moved here I didn't make much money and so buying was totally out of the question anyway. When I started making more dough the housing bubble was going like mad and so the more I made, the more the prices went up and by that time I said the heck with it and waited it out.

So in reality the bubble more or less forced me into saving and waiting out of necessity. In the end I sort of got tired of trying to make sense out of something that will never make sense: Bay Area housing.

Inventory came down because existing inventory was being bought while new inventory was being kept from entering the market. If walmart sets out a dozen TV's for sale and doesn't add more, the inventory on the shelf will become depleted. But if they have a hundred more TVs in the warehouse, did inventory fall?

freak80 says

How many Chinese peasants do you know who can afford to live in San Jose?

I don't know any.

But that's not who it is. It's the kids of their 1%'ers (in a poor country of a billion, there's millions of them), their parents sending them to the top universities in North America to get'em out of Dodge before the coming next Great Unraveling.

And it's not San Jose. Except for a tiny polyp of amaeba-shaped San Jose that protrudes into the school district of a coveted Fortress Community, they are not interested in San Jose.

And yes, considering what you get, and how many hours of your engineering salary you have to trade each month for the mortgage payment and property tax bill, compared to where they came from housing in the coveted Fortress Communities in the big urban areas along the Left Coast are Bargain Prices.

B.A.C.A.H. says

But that's not who it is. It's the kids of their 1%'ers (in a poor country of a billion, there's millions of them), their parents sending them to the top universities in North America to get'em out of Dodge before the coming next Great Unraveling.

I get it now. That makes sense.

B.A.C.A.H. says

And it's not San Jose. Except for a tiny polyp of amaeba-shaped San Jose that protrudes into the school district of a coveted Fortress Community, they are not interested in San Jose.

I guess I misunderstood what "The Fortress" was. I thought it was just a synonym for Silicon Valley and/or San Jose.

B.A.C.A.H. says

And yes, considering what you get, and how many hours of your engineering salary you have to trade each month for the mortgage payment and property tax bill, compared to where they came from housing in the coveted Fortress Communities in the big urban areas along the Left Coast are Bargain Prices.

True that. I've heard it takes 50 years of an average Chinese salary to buy an apartment/condo in Shanghai and other coastal cities.

Maybe part of the Chinese coastal RE bubble is being "imported" to the Bay Area, Vancouver BC, and other West Coast areas.

B.A.C.A.H. says

freak80 says

How many Chinese peasants do you know who can afford to live in San Jose?

I don't know any.

But that's not who it is. It's the kids of their 1%'ers (in a poor country of a billion, there's millions of them), their parents sending them to the top universities in North America to get'em out of Dodge before the coming next Great Unraveling.

And it's not San Jose. Except for a tiny polyp of amaeba-shaped San Jose that protrudes into the school district of a coveted Fortress Community, they are not interested in San Jose.

And yes, considering what you get, and how many hours of your engineering salary you have to trade each month for the mortgage payment and property tax bill, compared to where they came from housing in the coveted Fortress Communities in the big urban areas along the Left Coast are Bargain Prices.

So to add insult to injury, first they pillage our manufacturing jobs, then they made homes less affordable in the fortress! Bastards!

November, maybe sooner. Droughts are no, doubt will affect everything. Food prices will go up.

More worried about overall economy.

FortWayne says

Food prices will go up.

..and some people think home prices will go up too....while good paying jobs are gone...I have to see how that works out.

hrhjuliet says

I've been following a lot of very knowledgeable people on Patrick.net for a long time.

Ha

Again- the problem with trying to apply logic to places like the Bay Area real estate is in some ways a lost cause. Prices out of line with incomes? Surprise surprise. Its been that way literally for decades. Prices have also been ob average 2 or 3 times higher than the national average. People also tend to spend higher percentages of their incomes on houses.

As someone who waited for well over a decade, in my opinion the single biggest reason for this is because of the lack of supply either due to the prevalent NIMBYism that permeates the area or from physical limitations due to the area already being heavily developed and built-out.

Looking at this from another perspective, take collectibles for example. Sometimes valuable items are based purely on their rarity. It might be the most boring, plainest, most uninteresting item. But if only 10 are known to exist in the world then it can also be extremely valuable. Its all about the rarity.

The same goes for houses. Now- where my parents live in the Southeast they've been throwing up cookie-cutter Mcmansions as fast as they can build them and they stick them anywhere and everywhere. You could go have your pick of 2 story, 3 car garage, giant plastic siding coated Mcmansions for under $150k. Not because the house itself is any worse than a house anywhere else, but because there are 100's of new subdivisions filled with these houses and more are being built all the time. On the other hand a 60's single story 2 bedroom tract home in the more desirable, commutable Bay Area city is 500k or so. Not because the house is necessarily nice, but because its rare. Throw in lots of high-paying jobs and there you have more people with the financial means competing over less homes overall and thus why these ordinary homes in the Bay Area become by economic default become precious commodities whereas anywhere else they would be boring starter homes.

Its pretty much that. Trust me- It makes zero sense to me either and as mentioned- I bought.

edvard2 says

Its pretty much that. Trust me- It makes zero sense to me either and as mentioned- I bought.

As history always has shown, time has a funny way of eventually making sense out of anything financial. The problem is people think a few months or a few years is a long time horizon. I'm willing to wait this thing out for the necessary period. In the meantime, I'll keep saving faster than I could as an owner. Easy as taking candy from a sleeping baby. ;)

RentingForHalfTheCost says

edvard2 says

Its pretty much that. Trust me- It makes zero sense to me either and as mentioned- I bought.

As history always has shown, time has a funny way of eventually making sense out of anything financial. The problem is people think a few months or a few years is a long time horizon. I'm willing to wait this thing out for the necessary period.

How long is that? I ask because I happen to know someone who did not buy in 1989 because home prices were "ridiculously inflated". 23 years later, he is still waiting...

RentingForHalfTheCost says

As history always has shown, time has a funny way of eventually making sense out of anything financial. The problem is people think a few months or a few years is a long time horizon. I'm willing to wait this thing out for the necessary period. In the meantime, I'll keep saving faster than I could as an owner. Easy as taking candy from a sleeping baby. ;)

Well, in that case the situation we're in right now has been going on in the Bay Area for well over 30 years. So had that been the mantra of those waiting then they would have been waiting and probably continue to wait for perhaps many more decades.

Also- as someone who rented dirt-cheap for well over 17 years, I can also say the exact same thing: My mortgage is the same as rent at this point thanks mainly to having a very low interest rates. Thus I too save money and yes- as you say- its as easy as " taking candy from a baby"

I'm not saying that no- one day home prices in the BA won't come back to earth and "behave" itself. Personally I could care less. As mentioned I bought the house to live in- not view as an investment, nor is my financial success tied to it. But I've lived here long enough to see that the market here does not perform as it "should".

edvard2 says

in my opinion the single biggest reason for this is because of the lack of supply

Although, supply and demand work together. In this case, society keeps the demand always high. People are dead-set on buying houses. So I agree that if the supply is somehow limited in the Bay Area, then prices would tend to be higher compared with other areas. I haven't read anything showing lmited supplies, but I'd believe it for certain kinds of houses because you just don't see them everywhere in San Francisco, for example.