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.

E-man says

You're correct. I'm living in denial. We'll look back in 2015-2017. I'm pretty sure you will be correct.

I give you real arguments and you give me sarcasm.

dunnross says

Investors cannot support any market. They never did and never will.

Agreed, at least for the medium to long term. But core Bay Area prices (e.g., peninsula) never really cratered, probably because most of the folks who own houses weren't forced to sell because they still had jobs.

What happens long term is anybody's guess. Will increased taxes force Bay Boomers to sell their houses and move to less expensive locales? If so, are there sufficient numbers of high income earners to soak up that inventory? I've posted before that a significant percentage of home owners in the Bay Area couldn't afford to buy their own homes right now even if they had a 20% down payment - - - so where do replacement buyers come from when they sell? I wouldn't count on vast numbers of PRC millionaires to prop things up.

In the meantime, renting is still waaaay cheaper than buying. And if you save the differential between your rent and a mortgage payment, you should have enough saved for a very large % down payment on a house in another locale if local prices don't change to your liking.

ducsingle5313 says

But core Bay Area prices (e.g., peninsula) never really cratered

The Bay Area house prices are sitting on top of a double bubble (tech + housing). They never deflated because of the tech bubble collapse, because people in the bay area are still in denial about the "fake" economy which the bay area and the silicon valley represent. When the reality hits these deniers, there will be a huge run for the exits. Remember, prices in the bay area never go up or down, slowly, it's either a boom or a bust. When both the DOW and the NASDAQ collapse, again (and they certainly will), you will never be able to get out from under your RE investment. You will be crushed by it.

E-man says

ow long have you been screaming that home prices will crater to 1975 prices. How's that working out for you?

Remember, the goal of the bubble is to suck in as many of the naysayers as possible. If houses were collapsing at a straight line, everyone would get out and wait for prices to bottom. Instead, prices follow a downward spiral, with big busts followed by mini booms. If you had studied history, you would see the same thing happening in Japan for the last 20 years. Prices there, didn't fall in a straight line, either.

E-man says

Nasdaq crashed from 5,000 to 1,200, and we survived it. DOW crashed from 14,000 to 6,500, and we survived that too.

How did we survive it, if house prices in the bay area are still down 30%, even after this mini-boom? What actually survived the 2 crashes was our denying ego, and this ego must be completely crushed, before we will see a true bottom. The quick Nasdaq crash between 2000 and 2003 was not long enough to crush this ego. These things take decades to permeate through our system. Just the mere facts that there are still people like you who think the way you do, is living proof that this crash is just beginning.

E-man says

Oh god. Did you compare the magnitude of Japan's bubble to our bubble? They crashed for 20 years & prices are still TRIPLE before the market ran up. TRIPLE, TRIPLE, TRIPLE.

Yes, I am comparing it, because the bubble in Japan is still alive and strong. It's not over yet. Also, the bubble in the bay area was actually bigger than what they saw in comparable places in Japan.

E-man says

You think the numbers I provided above are BS? How long have you been screaming that home prices will crater to 1975 prices. How's that working out for you?

You know what the sad thing is about that? In 1980, nominal prices were 56K, roughly 40% higher than the 36K prices seen back in 1975. Thus, in 1980, the adherent to the "prices will revert to 1975 nominal prices" would then say...

What??? 56K for a house that was 40% less 5 years ago??? No way!!! This is a huge bubble, and its all gonna come crashing down eventually... Im gonna wait, rent, and swoop in once prices crash!!!

Sadly, that was now 32 years ago. The 1980 buyer has paid off his place, whereas the 1980 sitter is in his 32nd year of renting with no end in sight...

E-man says

Japan home prices went up 20 folds while we went up 2-3 folds & he's comparing our bubble to them

I think we've been through this many times, already. Japan's house price bubble was actually smaller than that of the US bubble, and nothing, at all, like what we've seen in the bay area. Don't kid yourself.

And prices in Japan only doubled, not 20 times. You pulled that number out of your a*ss for sure.

CDon says

Thus, in 1980, the adherent to the "prices will revert to 1975 nominal prices" would then say...

Problem is that the K-cycle lasts for 85 years, not 5 and not 30, so you can't compare what's going to happen now, with what was in 1980s. That was a K-summer. Now it's K-winter.

E-man says

Where are we on that chart now? 140?

It depends where. In US, we are about 50-60% done with the collapse. In the bay area, less than 30%. The chart below would put a fresh light on it.

E-man says

How's your housing bet working out for you so far?

Very good. Remember, I keep all money in real currency, not the fake currency that you all talk about.

E-man says

So it's an 85 years cycle. Home prices started to go up in 1975. We should see 1975 home prices again in 2060.

I suggest you educate yourself on the K-cycle, before you make outrageous statements like this.

E-man says

At least he's still up on the bet. Although it never went down to $15, it hasn't gotten above $36.

I am still up on my bet, too. House prices never came down to 1975, either. That's why we are still in a bubble.

E-man says

Save your money folks. Don't buy housing now. Man, I start to sound like Darrell. :)

More sarcasm from E-man. I wonder if there will be a day when E-man actually shows us some real data, instead of feeding us with sarcasm.

E-man says

It would be sad waking up 30 years from now and still renting. I just feel sorry for their kids.

This is an incredibly arrogant comment.

There are economic arguments for buying, and there are economic arguments for renting. Whether the renter or the buyer is ahead long term depends on luck, timing, and economic factors beyond any individual's control.

More power to you if you are enjoying home ownership, but go fuck yourself if you want to criticize those who chose to rent.

robertoaribas says

4. stagnant or falling population in Japan, the US population is still growing.

True, but which socioeconomic groups are growing? Poor people can't afford to buy houses. The middle class is shrinking, with more folks becoming poor than wealthy. And class mobility in the U.S. is at a 100 year low.

Of course everyone needs a place to live, but it seems more likely that the increasing number of poor and lower middle class populations will be renting rather than buying.

robertoaribas says

unsubstantiated crap that passed for thinking on here... at a low enough price point, investors will buy every damn home in a city...

Ha, ha, ha. Another stupid remark from the professor. Just think about it. If investors buy every home in the city, and there is no organic buyer to sell it to, then they can only sell to themselves. This type of thinking is exactly why we had the crash in 05-06, and will continue to crash for a long time to come.

robertoaribas says

1. No quick easy foreclosure and debt forgiveness...
2. Sense of honor about debts

Another stupid remark from someone who hasn't done his homework. Japan has been doing nothing but bailing out zombie banks for the last 20 years. This is precisely why we are seeing this slow decline in prices, and this is exactly what we are seeing in the US.
robertoaribas says

3. High degree of correlation between stock companies and real estate.

Look at the house prices in the bay area and stock prices. I bet you the correlation is higher than it is in Japan.

robertoaribas says

4. stagnant or falling population in Japan, the US population is still growing.

That's only because we are about 10-15 years behind Japan. 10-15 years from now, we will have the exact same demographics as Japan.

robertoaribas says

5. Age of the two populations, with Japan being considerably older.

It doesn't take a college professor to figure out why our crash came 10-15 years after theirs.