patrick.net

Everything continues to point to a continued bifurcation in the marketplace. There is no scarcity in housing stock, merely not enough housing in SFBA to go around to all those that have seen the movies and listened to the songs and lived it, because everyone knows calif is so eff'ing cool.

Meanwhile, in everywhere else USA, house prices are usually driven by incomes, and employment sucks, and wages suck even more.

Id wager there is a long line of suckers waiting for their turn to put their neck in the guillotine that is levered, hyperinflated SFBA RE. Id also wager that in aggregate, over the entirety of the USA, there is massive surplus of housing stock. That's ALWAYS a fact of bubbles, that whatever it is that is being bubbled up, will be produced in excess, and in the aftermath we are left to deal with over supply. And that's why the mort banks are fucked, because there's plenty of mortgaged RE that's worth literally nothing

robertoaribas says

Low inventory today is a fact. tomorrow's inventory is a guess... by that same logic, you should NEVER EVER buy a home, because heck, there could be more inventory in the future and prices could fall...

I think that there is a disconnect in your thinking and that of other posters here. What you are saying is perfectly sensible in most parts of the nation. You have to remember that a 1000SF house that needs $50k-$100k in updating sells for $400k-700k in neighborhoods where you have a minimum 40 minute commute to the job centers. If you want to be within 15-20 minutes of those centers, houses of the same size and quality are running $700k-$1MM. This is a far cry from Phoenix where houses in (I assume) similar neighborhoods in terms of commute and quality are now hitting $300k.

Also, Phoenix under-shot the inflation line in terms of prices. The SFBA never even came close to the inflation line. So, people around here have houses priced easily at 5-8x their income and the major correction that took place in much of the rest of the nation never did here. Did you know that you can borrow $726k on 3.5% down through the FHA in these expensive areas? There are more foreclosures than normal listings by a factor of two in all 9 SFBA counties, and the multiple in some is many more than two (data per foreclosureradar). Banks have been systematically foreclosing on houses in order of ascending price. How long will the FHA insanity keep up, and when will banks end up hitting these expensive houses that have not had their mortgages paid? Those are the questions that drive a lot of posters here.

Most of what you say, Roberto, is sensible and correct when applied to many places in the US. P.net is a primarily SFBA-centric board, and I think that a lot of posters here post in reference to this regional market without specifically saying so, under the assumption that most other people do so too. I just wanted to try to clarify that, just in case it wasn't clear.

Darrell In Phoenix says

lmao. Dumb realtor.

Sarcasm dude.

Aah got it. Sure, I agree that the outlying, lower priced areas probably will continue to increase in price since the return on a rental investment there seems to be yielding pretty fair returns, relative to the other options out there (or lack thereof). Those areas are an hour out of the job centers with no traffic, and probably 1.5-2 hours each way when there is. That's why prices were/are lower there and why those areas got hit harder in the bust. Nobody wants to live there and commute. They put up with it in the boom because their house was basically "doubling their salary" up until 2007. When the gravy train stopped, they walked.

That brings up the question, to me, of how long price increases there can go on for, though. There are not all that many high-paying jobs in those areas. I assume that people deal with the rising rents out there by packing more people into a single property. Obviously, they haven't hit max capacity since rents are still rising. I have no idea what will happen out there, nor do I really care to be honest.

Rents in the "hot" areas around the Silicon Valley are obviously low relative to overall incomes and they have been rising since renting is sort of the only option with the super constrained RE inventories around here. On top of that, renting is still a lot cheaper than buying around here, although that seems to have a funny positive feedback loop where more people rent and drive the price back up, negating the financial benefit. I have a feeling that we will see rental parity here in the next 3-5 years, and it won't be because house prices dropped. There's no such thing as a free lunch, as much as I wish there was!

robertoaribas says

I was taken out of context in a quote above, about the bay area... NORTH of $500k, I don't believe price/rent makes buying terribly sensible.

I stand corrected, I just reread your post and now see what you were saying.

robertoaribas says

But, I don't know that I would expect the bottom tier of bay area housing to ever reverse again. I've read enough about concord etc in the east-bay, and even freaking Oakland (where I lived as a poor grad student at Berkeley) to believe the turn around in these areas is real and sustained.

Yeah, the bottom tier of the BA market seems to have pretty much hit *er* bottom.

I think Roberto wants to get as close to the top as possible while Greg suggests that missing another 10 or 20 percent by playing it safe should be good enough for the prudent flipper. But I think he is also talking about the majority of home-owners which are neither flippers nor landlords but took a long-term mortgage and planned to live in their home for a long time if not for their lifetime. And for those a coming reversal and steep price drop can be devastating, esp. if paired with general bleak economic data and possible job losses. So I'd watch out carefully at this point as wages (still) do not support house prices, at least in the bay area.

robertoaribas says

to IGNORE current price trends and supply/demand, because "someday it could be different" is just silliness.

That sounds like a classic "chasing dividends" strategy. Do you teach that in your classes? I think the classic teaching on that is that actually it's the chasing dividends that is silly, right?

FunTime says

That sounds like a classic "chasing dividends" strategy. Do you teach that in your classes? I think the classic teaching on that is that actually it's the chasing dividends that is silly, right?

aka the Sucker's Strategy (I'm not bashing Roberto either, this is what it's called in most MBA programs).

A good time to sell? Does that mean it's a bad time to buy?

How about these Realtors. How can anyone believe these a-holes?

gregpfielding says

Roberto,

That's exactly the point. As long as it looks like things are getting better, struggling owners have rational reasons to hold out. But as soon as it looks like prices have stopped going up again, there is now a backlog of sellers who have rational reasons to list their homes immediately.

Especially f the headlines darken at all this fall and winter, expect inventory to increase and prices to begin to weaken.

Greg, you have to understand. Rob is emotionally invested. And he is also out in some low income neighborhood in Phoenix AZ where you can buy half the state for the price of a Bay Area 1x1 condo. His world is completely different.

But you are onto something here, entire nation thinks it's a bad time to sell, and later it will reverse. Those who are selling now are making a killing, just like those who will be buying later.

I think we will stay up, but moderate until wage growth and inflation starts to rise. So many bought houses at such low rates nobody will ever want to sell, they will continue to buy at these rates, locked in this low, why sell, they'll rent, land contract, keep it in the family, you name it, the RE market has fundamentally changed.

If anything, with starts so low, demand will just be pent up more over the next few years. Rates are going to be low for at least two more years, and will likely never go up, if and when they do, wage growth and inflation will keep home prices up anyways.

Renting is hot, and will continue to be.

2008 was the first time anything like this has happened in RE since the great depression, it won't happen again.

robertoaribas says

until supply and or demand change, and selling today is foolish

Do you define demand as people who want to buy a home or people who have the ability to buy a home?

My friend's house had many offers but it took seven months to sell because three offers fell through even though each time he took the offer that looked like it offered the best shot. The offers were either ridiculously low cash offers or FHA with crappy credit reports. It was a nightmare.

gregpfielding says

Demand is elevated right now because of 3% mortgages and herd optimism that prices will continue to rise.

Herd optimism? The majority of home buyers are

1) Investors.
2) Lower class to Lower-Middle class families living month-to-month.

Both lower the value of their respective neighborhood.

The majority of people that make money and have the resources to pay off a 30 year mortgage are pessimistic about the economy. They are still on the sidelines waiting to see what happens with the job market. Ignore all that "prices are rising now!" bullshit, all that matters is if the jobs are coming back and at what salary. Jobs will make or break the housing market, not seasonal trends.

robertoaribas says

My point is the following: Inventory is low, prices are rising. those are what we call FACTS.

Greg's proposition is that "maybe inventory will rise causing prices to fall later" is what is called pure speculation.

Greg,

It pains me to say this, but Roberto is correct. What you're doing is pure speculation. Ironically, I agree with your speculation. For the housing market to fully recover, two additional indicators must also turn up. Those are unemployment and interest rate. In fact, interest rate has steadily declined while home prices were increasing this year, and unemployment has remained stagnant. In my opinion, the increase in home prices YTD was due to the lack of inventory, lower interest rate, increased in rental cost, some people are somewhat more confident about the economy or their job, some are afraid that they will miss the boat, and some are just ready to get off the sidelines.

I agree with you that home prices will drop when we add more inventory on the market. However, there is that time lag and it takes a while for the inventory to build up so we have time to get out by pricing the property 5% below FMV as suggested by Roberto in another thread. Selling now might or might not make sense because we don't know how the housing inventory will look like in the next 6-12 months.

StoutFiles says

1) Investors.
2) Lower class to Lower-Middle class families living month-to-month.

Both lower the value of their respective neighborhood.

BANG all explained right there and the "dryer cycle" comedy of this is that both groups THINK they are getting a deal!

robertoaribas says

I could probably make a cool fortune just doing the opposite of every piece of advice from you forever!

the good time to sell was 2005 and 2006... Of hey, that is when I sold! funny how that worked out!

You do what you believe in. It's your life.

An attitude of an average man with no ideas or drive is that there is a shortcut in life, that just buying a few properties and renting them somewhere will lead to riches.

But life isn't that way, there are no shortcuts. Those of us who worked and built a business are rewarded for fruits of our labor. But others, permanently looking for shortcuts, end up in a trailer home sitting on a piece of land they can't flip waiting all their life for a wealthy millionaire to fall out of the sky to buy their piece of crap real estate for millions over asking.

Darrell In Phoenix says

ELC says

his offers were either ridiculously low cash offers

Clearly, the house is only worth the amount of those offers.

I was staying at their house so I did every single showing. The offers were from investors that I'm sure needed to add in rehab and profit. Most were ignorant dirtbags. Waste of my time. The other offers were people who could only afford 3.5% down. Out of 12 written offers not a single offer was conventional financing. It sold at the asking price which was the same price as the appraisal. Every credit report I looked at had chargeoffs including the one that bought. They even got some special loan that helped pay the downpayment. It amazed me what FHA was willing to finance. The seller paid the closing costs so a buyer with two charge-offs and no credit granted to them for two years got an almost zero down FHA backed mortgage. They even had to remove the spouse because of his bad credit so it wasn't even joint.

Darrell In Phoenix says

And the truth that Greg is misrepresenting is that housing demand is at 15 year lows and falling.

And housing demand is at 15 year lows because everyone knows it's overpriced.

Home sales here in the Bay have continued to rise year-over-year. That's a marginal increase in demand in the face of a 60%+ drop in supply.

http://dqnews.com/Articles/2012/News/California/Bay-Area/RRBay120815.aspx

E-man says

Selling now might or might not make sense because we don't know how the housing inventory will look like in the next 6-12 months.

I don't disagree. We do know that there won't be more foreclosures on the market because NOD's are still continuing to decline across California. But fewer foreclosures only partially explain the extreme drop in inventory. Sellers holding out to see what happens next make up the remainder. And those sellers could act quickly if the rally begins to fade.

And, let's be clear... I'm not calling the absolute top. I agree that there will generally be some drift upwards even if inventory begins to build. I've made that case myself earlier in this discussion.

StoutFiles says

gregpfielding says

Demand is elevated right now because of 3% mortgages and herd optimism that prices will continue to rise.

Herd optimism? The majority of home buyers are

1) Investors.

2) Lower class to Lower-Middle class families living month-to-month.

Both lower the value of their respective neighborhood.

The majority of people that make money and have the resources to pay off a 30 year mortgage are pessimistic about the economy. They are still on the sidelines waiting to see what happens with the job market. Ignore all that "prices are rising now!" bullshit, all that matters is if the jobs are coming back and at what salary. Jobs will make or break the housing market, not seasonal trends.

Agreed.

robertoaribas says

Greg's proposition is that "maybe inventory will rise causing prices to fall later" is what is called pure speculation.

I agree with you Rob. But I disagree that it's a bad thing.

Yes, Andrew and I are speculating that this recent rally has the potential to fade and that selling this fall may end up being a good move for a lot of sellers.

I owned a home in Modesto in 2005. That September, it was obvious that the market was beginning to change. In October I put of up for sale and we closed in December. While it's true that I possibly could have made an extra $5,000 or $10,000 if I put it on in January, I have zero regrets and am thankful to this day that I sold it when I did.

Every home, neighborhood, and situation is different. We're in a frenzied Seller's market right now... just like 2005. If you have been holding off all year to list your home, now is a good time to consider taking action.

StoutFiles says

The majority of people that make money and have the resources to pay off a 30 year mortgage are pessimistic about the economy. They are still on the sidelines waiting to see what happens with the job market.

The majority of pat.net contributors I'm sure feel that way. But I hear from potential buyers every day and they are overwhelmingly worried that the market is taking off again and they don't want to miss out this time around.

Here in the Bay Area anyways.

Darrell In Phoenix says

WRONG

Sales and demand are down.

Nice try though.

Darrell, here are the actual numbers for Bay Area counties. I'm not exactly sure what your chart shows... For July, SF sales were 27% higher than in 2011.

gregpfielding says

overwhelmingly worried that the market is taking off again and they don't want to miss out this time around.

Sounds exactly like realtor propoganda during the bubble. People who listened to realtors then got financially wiped out.

gregpfielding says

I agree that there will generally be some drift upwards even if inventory begins to build.

I think we're all saying the same thing, but just disagree on the time frame of selling the property. An additional 10% upward from here or 10% downward, especially for San Francisco & the Peninsula, is a lot of money.

Believe me, I have been contemplating on selling a couple of my rental properties where they have appreciated over $100k since I bought during this mortgage meltdown. But then what? Where do I put the money to work after the sales? I don't want to 1031 into other over-priced RE. I've been looking to trade up to 4plexes, but nothing is making any sense around here.

So I guess I will refinance and pull out some more cash from the rental properties and keep my minimal positive cash-flow while the tenants are paying off my mortgages. Since I don't have any skin in the game after the cash-out refi, I'll let it ride. Believe me, I've analyzed the bejesus out of the situation.

Cheers. :)

Darrell In Phoenix says

Given the fact that you're a realtor and all the questionable practices that are involved, post a link to verifiable data.

http://dqnews.com/Articles/2012/News/California/Bay-Area/RRBay120815.aspx

E-man says

Since I don't have any skin in the game after the cash-out refi, I'll let it ride. Believe me, I've analyzed the bejesus out of the situation.

I would do the exact same thing. And, this also makes my point... there are thousands of owners just like you, who are "letting it ride" as long as things are good.

What worries me is that as soon as social mood begins to change, as soon as there are any cracks in the current optimism, there will be a mad-rush to the exits.

Darrell In Phoenix says

Your link shows MoM sales down and doesn't include August. August sales plummeted.

Sales always fall seasonally in July. I'll put some stats from the MLS up here in a bit.

Here's a quote from the DataQuick:

"Home sales in the Bay Area rose on a year-over-year basis for the 13th month in a row in July, the result of increased mid- and up-market buying activity. The median price paid for a home was the highest since August 2008, a real estate information service reported.

A total of 8,461 new and resale homes were sold in the nine-county Bay Area last month. That was down 1.4 percent from 8,577 the month before, and up 22.9 percent from 6,887 for July 2011.

The decline from June is normal for the Bay Area summer season."

Darrell In Phoenix says

The issue is that sales volume began falling in July and accelerated in August resulting in a YoY decline of 3.8%.

Darrell, you are right. Here is data from my MLS - Alameda and Contra Costa counties. Every month was higher on 2012 until August, which showed a pretty healthy reversal.

All the more reason to consider the whole point of this discussion: this Fall may indeed be the best time to sell (or close enough for most of us)

Darrell In Phoenix says

Given the fact that you're a realtor and all the questionable practices that are involved, post a link to verifiable data.

I just posted this at Bay Area Real Estate Trends... some of us realtors are actually trying to give good advice.

And I gave you credit.

http://bayarearealestatetrends.com/2012/09/12/is-buyer-demand-fading/

gregpfielding says

I would do the exact same thing. And, this also makes my point... there are thousands of owners just like you, who are "letting it ride" as long as things are good.

What worries me is that as soon as social mood begins to change, as soon as there are any cracks in the current optimism, there will be a mad-rush to the exits.

Greg,

Why sell when we don't have to? We don't mind if the market dropped 10% or 20%? We have essentially locked in 4.5% fixed interest rate on the property for the next 30 years. If rent dropped 20%-30%, we still haven't lost money yet. Why sell?

The housing supply in the lower-end, sub $350k and I might argue up to $500k for the Southbay is locked in by investors until the next market top. Therefore, I would argue against the rush to sell when supply is building up. Above $750k, I might agree with you. $500k-$750, eh????

At the end of the day, I think we agree more than we disagree.

Cheers.

E-man says

At the end of the day, I think we agree more than we disagree.

Agree.

Agree with Greg.

The Summer rally has ended in a lot of metros. In OC, we're back to early 2011 pricing. So it was a bigger rally than expected mostly because of low inventory. But it's sputtered badly and I expect to see the Case Shiller to be reporting declines for Q4.

APOCALYPSEFUCK is Shostakovich says

It's never been a better time to plant yams.

See, this is what I like about you APOCALYPSEFUCK. You used to religiously push potatoes-potatoes, and then more potatoes.

But, then -- showing what a level-headed reasonable person you are -- when you heard a good argument on how yams are superior, you were able to listen with an open mind, see reason, and change your once tightly held views.

Kudos, to you sir. The world would be a lot better off if more people followed your example!

Just speaking anecdotally, in San Diego there seems to be less inventory, higher asking prices and more competition for comparatively good deals. I could see how people who were waiting to sell would jump in now after seeing it like this for 4-5 months. The question is, will demand keep up with supply if this happens? And the shadow inventory still exists, it's just turning into a heaping, rotting mess.

yams are nice, but potatoes are better for beaning RE agents with when come a knockin.

Where's my pen! LOL

"If you’re looking to buy, it’s really time to get going. ”Well, I was thinking about maybe calling a lender to see if I might qualify…” Nope! Call! If you’d like to buy in this market, get your pre-approval in hand, get your earnest money deposit funds into your checking account, find an excellent buyer’s agent who will represent you fairly and effectively…then get in the car and go! By the way, bring your pen."

Andy Blasquez ~ The last Realtor you’ll ever need to look for.

http://bayarearealestatetrends.com/2012/09/12/very-few-homes-for-sale-in-brentwood-ca-as-home-prices-continue-to-rise-quickly/

During the original bubble-burst, it seemed like northern california lagged behind southern california by about 6 months or so. The market seems slower in SD and OC than in the Bay Area so far.

Will be an interesting Fall and Winter.

E-man says

We have essentially locked in 4.5% fixed interest rate on the property for the next 30 years.

You're saying that as if it's a good thing. You just married your house for 30 years. I hope she's not ugly and is free of disease.

Like a moth to a flame.

Unless you plan to not be in a position to refinace in the future the worst time to buy is when interest rates are low.