patrick.net

robertoaribas says

sell now, before prices go up more...

Come on Roberto,we are talking about SF market and you are talking about your little Phoenix market with less then 100K properties - that is not even DP in SF market.

robertoaribas says

WHen those factors are in play, holding out for more price increase is the smarter move.

Sure, to a point. That's what everyone thought in 2006 too. Personally, and I guess I am just a financially conservative guy, if I had bought a house, it was above-water again and I had been thinking of selling, I would sell now while I know I can break-even at the least. Yes, waiting a year might net me some extra cash, but it might also get me back underwater. I think that it was Rockefeller that said that his secret to weathering the depression well was, "I sold too early." The ridiculously low supply we are seeing now won't last forever, and when supplies do return to historic norms, the generally weak economy will push prices back down to some level.

It's anyone's guess what will happen, really. The whole market is completely manipulated, top to bottom, and trying to guess what will happen with textbook economic principles doesn't seem to work out so well. Knowing that it is manipulated is a good start, but from there I really don't know how the tremendous downward price pressure from market fundamentals will reconcile with the tremendous upward pressure from various government and central banking policies. That's the big question here: for how long can reality be defied via financial engineering? I am starting to think, "indefinitely, or at least until the entire system comes crashing down, at which point buying a house will be very very low on my priorities list."

gregpfielding says

Here’s a bold prediction: There will be a record number of new listings in San Francisco this September.

There will be a record low in the number of new listings. I have never seen so few homes in the market in SF from 11 years living here.

You can't time the TOP or the BOTTOM. All you can do is look at the fundamentals of the market, and most importantly the fundamentals of your own financial situation.

Right now, the job situation is become more acute, wages have stagnated, and hiring forecast are minuscule. HP announced this morning that they are going to lay off 29,000 people (almost 1/3 of the job growth claimed for the entire U.S in August).

Does this sound like a good platform for higher housing prices?

Greg may be right. Unless the government starts subsidizing $1,000,000 mortgages, I don't see it.

robertoaribas says

holding out for more price increase is the smarter move.

Haha. Thanks for the laugh. Holding out for a 1 million $ shack to be 2 million $ shack? Not a even a chance for another two decades. For BA it is all about holding the bag of high mortgage for life time and hope for the best that there will be no major downward movement in economy in next 10 to 20 years.

bmwman91 says

indefinitely, or at least until the entire system comes crashing down, at which point buying a house will be very very low on my priorities list."

Funny. I said that in another thread - fall of the Roman empire!

robertoaribas says

maybe at some price points in the bay area it makes sense to sell. However, multiple real world home buyers have come to this forum, and complained about lack of inventory, bidding wars, and rising prices even in parts of the precious bay area. WHen those factors are in play, holding out for more price increase is the smarter move.

I wish my parents would take Greg's advice and sell now, while the gettin' is good. I tried my best to convince them when their hood was selling for 500K to 650K (and they do live in the Concord hood--just sad what it has become).

When house prices are this insane AGAIN, they have nowhere to go but down. My folks have watched their hood values go from 150K low back up to around 250K. My siblings and I just dread having to watch them live in a declining area just like they watched their parents refuse to move out of San Pablo.

Once the kiddos are settled into their "fortress" neighborhood schools, prices must fall.

robertoaribas says

greg you are kind of like all the realtors who kept saying 'buy now' as the market clearly pointed otherwise.

Robert,
It's the exact opposite. I've been blogging about the bubble since 2005 and over the years Patrick has linked to scores of my articles. I'm happy to have been on the right side of everything.

Prices will probably still drift a little higher in SF and some of the other hottest markets, but this uptick isn't based on fundamentals. Here in the Bay Area, inventory is down 60-70%. Of course prices have responded.

The truth is that if the inventory was the same as last year, we'd be down another 10%, not up. I don't know when inventory will begin to increase, but everyone who didn't sell in 2012 will be an additional seller in 2013 or 2014.

Things could turn back down again just as quickly as they turned up.

rufita11 says

I wish my parents would take Greg's advice and sell now, while the gettin' is good.

I'm happy to talk with them. Lemme know.

gregpfielding says

Here in the Bay Area, inventory is down 60-70%. Of course prices have responded.

Maybe you have better information since you are in the industry, but I would assume that a huge part of the reason for the low inventory is underwater loaners holding on in hopes of loan mods, free government refi's or enough price juicing so that they can sell to at least break even. Some may well be underwater enough that they can't afford to sell, but I am not sure how many people are in that category. I'd assume that most just don't want to eat the loss and are hoping that election-year shenanigans will rain free money upon them and Ctrl+Z their unfortunate financial decision to buy the wrong house at the wrong time in the wrong place.

That, and I have to assume that some are waiting for the lock-up on FB worker bees' stock awards to be lifted. Despite the price declines in the stock, there will still be a couple thousand 25-35 year olds running around with a few hundred thousand dollars that want houses all along the peninsula (none of them are going to LOSE money on their awards, regardless of the stock price).

bmwman91 says

Maybe you have better information since you are in the industry, but I would assume that a huge part of the reason for the low inventory is underwater loaners holding on in hopes of loan mods, free government refi's or enough price juicing so that they can sell to at least break even. Some may well be underwater enough that they can't afford to sell, but I am not sure how many people are in that category. I'd assume that most just don't want to eat the loss and are hoping that election-year shenanigans will rain free money upon them and Ctrl+Z their unfortunate financial decision to buy the wrong house at the wrong time in the wrong place.

My best theory as to why inventory is down so much: OPTIMISM

Yes, foreclosures are delayed, but they were a year ago. And underwater sellers can do a short sale just as easily today. Robo-signing didn't cause the drop.

The only factor that could have such a dramatic, uncoordinated effect on hundreds of thousands of would-be sellers at once is simply that the herd has become optimistic.

Beginning last winter, inventory was so low that we started to hear about multiple offers. Ever since, I think that a ton of would-be sellers have been holding out and watching. A run-up of 10% or more could give an underwater owner equity again. Or make it worth it for a potentially strategic-defaulter to hang on a while.

No policy is different-enough in 2012 to have caused the inventory plunge. It has to be herd's social mood changing to believe that, at least for a little while, prices are going up.

What's worrisome about this theory is that it means there are scores of sellers who will probably list their homes the minute it looks like the rally is ending.

Anyone got a better theory?

APOCALYPSEFUCK is Shostakovich says

It's never been a better time to dump your crap on the next biggest sucka!

My money is on early 2007.. late 2006 as being the best time in history to dump property...

NOW, not so much.

Call it Crazy says

I believe that's the reason. They would like to sell but can't afford to come up with the difference. Plus, they need money to pay commission, closing costs, move and put down as a deposit on a rental or new house. That's a lot of cash needed....

I don't think many know of the short-sale procedure or are afraid of what a short-sale will do to their credit... so they sit and wait for the housing fairy to make their houses rise in value..

I think they have a long wait.....

That's just it.. they will get to WAIT for free while you keep paying rent. :) They may have enough cash after a few years to buy a property somewhere else in the US outright.

Call it Crazy says

Waterfront property on its own private island now available. Call soon, this property is going fast!

robertoaribas says

Prices are going up because of low inventory, but if inventory was high... they wouldn't be going up... wtf? seriously?

Economics 101. Supply and Demand.

Seriously.

robertoaribas says

So, we have all kinds of less incentive for people to walk or short sale today, with prices trending up, and still very little supply....

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.

gregpfielding says

Beginning last winter, inventory was so low that we started to hear about multiple offers.

What area are you specifically talking about? I was searching for a home starting in 2009, and just about every home that we offered on from then until we purchased in 2010 had multiple offers. This is in the South Bay. Maybe I misinterpreted what you said, but you make it seem like multiple offers began in early 2011. From my experience, they began in 2009.

tiny tina says

Maybe I misinterpreted what you said, but you make it seem like multiple offers began in early 2011. From my experience, they began in 2009.

Sure. Every area is a little different. I work mostly in the East Bay and we saw a real shift in the market last Winter that only accelerated this Spring.

Available inventory is still down considerably in the South Bay versus a year ago, so I would guess things are even worse now.

robertoaribas says

Supply is low, demand is high those are REAL QUANTIFIABLE FACTORS....

Yes, supply is low right now, but if a lot of people start following Greg's advice and sell would that not increase the supply and perhaps lower prices?

...but...

If they ignore Greg's advice then the inventory will probably remain low and prices may continue to creep up.

robertoaribas says

Supply is low, demand is high those are REAL QUANTIFIABLE FACTORS....

Dude.

You've got to ask yourself WHY those things are happening.

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

Supply is depressed because of a host of government extend-and-pretend programs and, lately, the herd optimism that prices will continue to rise.

Both factors can be explained and neither explanation inspires me to believe that this is a legitimate, organic recovery.

I agree that demand is up and supply is low, but that's backwards-looking. The sky could be quantifiably-blue today, but that doesn't prove it won't rain tomorrow.

Roberto you should listen to this guy, I think he might get the private island way before you.

Is housing actually in short supply, or is government/bank diddling causing temporary faux scarcity?

Before this thread devolves to the usual, let us keep in mind the OP article is talking about San Fransisco.

All too often, it seems people on this blog generalize their local market as if real estate wasn't subject to local phenomena

If this were a weather blog, roberto would look out his phoenix window, and observe it to be 104 and sunny, while I would simultaneously look out my pennsylvania window and see snow, and then we could argue ad nauseum that it is hot n sunny/snowing outside

Real estate is very much local, and I'm pretty sure we all know that prices didn't run up in the bubble because of supply/demand of housing stock. They ran up because of accessability to leverage! They plummeted, once the rug got pulled out from under the mortgage market

I think that the recent run up is a result of infestors levering their way into RE in search of returns in this zombie zirp wonderland. I have also heard of some laxing of credit standards (automobile financing with sub 500 credit score etc), so parlayed with the large drop in interest rates.

robertoaribas says

selling today is foolish, as prices will be higher 3 or 6 months later

I do agree that prices here in the Bay Area will continue to drift higher for 3-6 months, even if the supply/demand balance began to normalize today.

So is September the absolute near-term top? Probably not. Are we getting close? I believe we are.

Look back to the Fall of 2008... CA's first foreclosure moratoriums began in August and inventory began to dry up. But prices still generally fell for another six months before hitting bottom.

errc says

Is housing actually in short supply, or is government/bank diddling causing temporary faux scarcity?

Higher demand and lower supply absolutely from government diddling.

robertoaribas says

Prices are going up because of low inventory, but if inventory was high... they wouldn't be going up... wtf? seriously?

It seems to make sense to me. What about that doesn't make sense? Certainly at the limit it makes sense that more inventory means lower prices...for example, if there were 600 trillion houses on the market right now, I would expect prices to be lower. So if inventory doubled, what would you expect prices to do? Unless there was a coincident increase in demand, I wouldn't expect prices to go up, and probably would expect them to go down. Am I thinking about it wrong?

swebb says

Unless there was a coincident increase in demand, I wouldn't expect prices to go up, and probably would expect them to go down. Am I thinking about it wrong?

No, you are exactly right.

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...

Nobody is saying you should never buy a home. But considering the amount of money at stake, it is absolutely prudent to carefully understand the forces driving our local markets.

It's a fact that we have low inventory, but that low inventory is not sustainable and will normalize at some point soon. Then the rally will end.

The storm is coming... you can argue that it's a guess as to when, but it is coming.

Darrell In Phoenix says

SF housing demand is CRATERING

But today prices are still rising, so BUY! BUY! BUY! ;)

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.