patrick.net

I think that it is safe to say that the SFBA "housing bottom" was in. We'll see where things go from here. I don't think that we'll see the return of insanely poor lending standards, although Inkjet Ben is already whining about wanting it back. This time around, it might be the utter lack of inventory that drives prices to the stratosphere on the few available properties.

I can't believe how rapid these RE boom-and-bust cycles are. If I can keep my wife's housing desires under control for the next 3-5 years, maybe we can score a decent place on the next downturn. For now though, it's starting to look like a real sucker's game in the Silicon Valley again with places selling in excess of their bubble highs. I need to get my wife into some open houses in the areas she likes (Mountain View, Campbell) so she can see just how much she DOESN'T want to participate in a money-spending contest. The other buyers' faces should make it pretty obvious that that game has no winners.

(note: this post is only in regard to Santa Clara and San Mateo counties)

curious2 says

-- Jumbo loans, mortgages above the old conforming limit of $417,000, accounted for 38.9 percent of last month's purchase lending - the highest since November 2007, when it was 43.4 percent. Jumbo loans dropped to 17.1 percent in January 2009. Before the credit crunch struck in August 2007, jumbos accounted for nearly 60 percent of the Bay Area purchase loan market."

Oh f*ck.

It started again. Thank you Bernanke/Obama. Thank you.

bmwman, don't forget Sunnyvale!!

Sorry, not sure about the terminology. Retail level?

So basically, try to time the POP of the next bubble and get out early enough with a pile of cash?

Got it, thanks SFace.

Roberto, I can see good reasons to hold on to the properties regardless of "value." It wounds like it would have to appreciate a LOT to motivate a sale. Personally, I'd take secure cash flow over a one time cash-out any day.

robertoaribas says

I wrote a post on this earlier, and basically, it has to do with how much cash i can take out after tax, compared to how much net rental income I'd lose...

You also posted a comment about inventory, which would make a lot of sense in a free market. Basically, with inventory still scarce, prices are unlikely to fall; however, when inventory begins to pile up, prices become much more likely to fall.

Part of what we're seeing with ZIRP and Wall Street buyers is Bubbles Ben trying to reflate the bubble by sopping up inventory. I don't know one way or the other whether the investors will profit in the long run, though probably they are looking for an inflation hedge against Ben's printing press.

E-man says

these buy-and-hold investors will not sell.

I think they will sell.

If I read the news report correctly today a private equity group was paying $150K per housing unit. They expect to get a 5.5% return for investors.

I think that is all a load of crap, and the purchase prices were much lower.

They may pay 5.5%, but I think they will keep more than that from the renovations they are claiming to do.

In two years I think millions of renters will get letters in the mail asking if they would like to buy the home they currently occupy.

E-man says

Until prices get out of whack again, these buy-and-hold investors will not sell.

Prices are still out-of-whack in most of the bay area. Around where I live, prices are only 10% lower than they were back 2005 at the peak of the bubble. If that's not out-of-whack, I don't know what is.

E-man says

What you didn't factor in are interest rate and rent increase. The house, that you're currently renting, was selling for say $850k at 6.5% interest rate and rented for $2,500/month in 2006. That same house is now selling for $750k at 3.5% interest rate and renting for $3,000/month. Huge difference. Do the math.

E-man, what you didn't factor in are wages. Both low interest rates and rent increases are artificial, because, neither the wages nor the current inflation in staples support them. The FED is trying to create an artificial floor to house prices, but, they will eventually fail, because, ultimately, it is the manufacturing base and population growth which must support these high prices, and we have neither of that.

E-man says

Investors are currently providing support for anything $400k and below. If that same house were selling for $600k now, investors would be all over it. You won't get your chance. Accept the fact and move on, or keep on renting. To wait for that house to drop to $500k-$600k, & you get a chance to buy it, is wishful thinking. If that were the case, you won't have a job to buy that house then.

Investors cannot support any market. They never did and never will. Ultimately, it is the organic buyer who needs to step in, but organic buyers will be ready to sell every $10K that the price goes up. When prices start cratering again, rents will also plunge, investors will be left holding the bag, just like deja-vu 2005, all over again. You are living the life of denial, my friend. You will not make any money on RE investment in the bay area. Better sell while the market is still hot.