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Will prices go down in SF Bay Area?


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2013 Mar 19, 5:06am   29,913 views  84 comments

by meetyaks   ➕follow (0)   💰tip   ignore  

Hi,
I wanted to buy a house last year, but could not. Now I can, but market is up at least 20% in the areas where I am looking.
Is it the right time? Can they come down? Please suggest.

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1   meetyaks   2013 Mar 19, 8:13am  

Any insights are appreciated...

2   SFMikey   2013 Mar 19, 8:40am  

Of course not - buy now or be priced out forever!

3   evilmonkeyboy   2013 Mar 19, 9:08am  

Everyone knows that prices only go up! Buy now or will have to sell a kidney to afford a house later.

4   RentingForHalfTheCost   2013 Mar 19, 9:18am  

evilmonkeyboy says

Everyone knows that prices only go up! Buy now or will have to sell a kidney to afford a house later.

I'd say sell a kidney now, and then another one later. That'll get rid of the issue about buying an overpriced house in the SFBA.

5   gbenson   2013 Mar 19, 9:33am  

Keep in mind that the reason Chinese money is coming to the US, is cause in China (particularly cities like Shanghai), $200k gets you a 600sqft cockroach invested concrete bunker that was built 30 years ago. Something 'nice', like a 3000 sq ft villa runs a meager $4M. SFBA is positively cheap in comparison.

6   meetyaks   2013 Mar 19, 9:39am  

gbenson says

Keep in mind that the reason Chinese money is coming to the US, is cause in China (particularly cities like Shanghai), $200k gets you a 600sqft cockroach invested concrete bunker that was built 30 years ago. Something 'nice', like a 3000 sq ft villa runs a meager $4M. SFBA is positively cheap in comparison.

Why US govt allowing that to happen? Isn't is bad for the economy?

7   RentingForHalfTheCost   2013 Mar 19, 9:54am  

gbenson says

Keep in mind that the reason Chinese money is coming to the US, is cause in China (particularly cities like Shanghai), $200k gets you a 600sqft cockroach invested concrete bunker that was built 30 years ago. Something 'nice', like a 3000 sq ft villa runs a meager $4M. SFBA is positively cheap in comparison.

Yah, much nicer. The cockroaches here are human size and drive large SUV and will run over anyone in their path. Been to Oakland lately? In Shanghai at least you can defend yourself with some quick side-kicks and round houses. Trying to outrun a EPA bullet to the head is a different story. Oh, but the schools are awesome. ;)

8   New Renter   2013 Mar 19, 12:36pm  

Cons : house deteriorates over time. Cannot move if housing market goes down.
Or if you lose your job, or if your needs change, or if gangbangers move in. If an earthquake destroys your house you will be the one on the hook.

On the bright side desperate beautiful women will throw themselves at you! No beautifful young thing can resist a man with a house!

Or so a realtor once told me.

9   rufita11   2013 Mar 19, 1:37pm  

Of course the prices CAN come down. It's just a matter of when. Just like during the California gold rush in 1849, prices were exorbitant for housing, food, and basic services, but the ones who were raking in piles of gold didn't feel the bite. On the other hand, the majority who weren't finding anything but fools gold were just eating up their savings. If your wage or wealth doesn't justify being able to pay a price that's really out of sync with reality, don't buy the house. If you are wealthy and paying $1.2M for a house in a decent neighborhood with decent schools is not much of a burden for you, go ahead. Otherwise, rent in the same school district for half the cost and save until either prices go down or you can retire to somewhere cheaper.

10   taxee   2013 Mar 19, 2:35pm  

New Renter says

On the bright side desperate beautiful women will throw themselves at you! No beautifful young thing can resist a man with a house!

Q: What do earthquakes, fires, tornadoes, hurricanes and women have in common? A: Sooner or later they get your house.

11   meetyaks   2013 Mar 19, 4:51pm  

New Renter says

Cons : house deteriorates over time. Cannot move if housing market goes down.

But aren't prices supposed to go up over the years due to inflation?

12   meetyaks   2013 Mar 19, 4:58pm  

chanakya4773 says

meetyaks :Think of a house like signing a 30 year rental lease.

suppose you are buying a house and have to pay $3000/month mortgage ( after property taxes, tax benefits..etc) for it. would you rent the same house for $3000/month if the rent is guaranteed to not change for 30 years ?

benefits : Rent remains fixed ( assuming the rent is reasonable)

Cons : house deteriorates over time. Cannot move if housing market goes down.

during the last housing bubble, people were signing up for 30 year rental leases ( per my house buying analogy) at rents that were double of what they would normally pay.

I can bring down the rent to 3k (ie mortgage) if I shell out all my savings to get a decent home with good schools. Not sure what to do.

13   bg   2013 Mar 19, 6:20pm  

meetyaks says

can bring down the rent to 3k (ie mortgage) if I shell out all my savings to get a decent home with good schools. Not sure what to do.

What you wrote here makes me nervous. I don't think it is a good idea to ever buy a house that puts you in a position of shelling out all of your savings. That seems financially dangerous. Let's say the market stays flat or creeps up. So what. You are still in a financially precarious situation.

I personally have decided to wait until I can pay a down payment and retain at least 6 months of emergency funds. I also think prices have bubbled up again in SFBA. If it were 18 months ago, maybe it was an OK time to buy if the rent vs own ration was looking OK. Now, seems a little inflated to me. I am OK renting forever rather than over-paying for a house or putting myself in a bad financial situation.

My 2 cents worth. YMMV.

14   thomaswong.1986   2013 Mar 19, 7:13pm  

meetyaks says

But aren't prices supposed to go up over the years due to inflation?

or adjust down back to inflation inflation ...

15   thomaswong.1986   2013 Mar 19, 7:16pm  

chanakya4773 says

Its very difficult for anyone to predict whether the house price will go up or down in future. this is because there are too many variables and nobody truly knows how things will change. What this means is that making decision based on future house price will be called speculation. if you want to make a non speculative judgement- use the rent versus buy calculator.

and when you actually do the numbers.. you find what robert shiller found that over time adjusted for inflation, home prices are essential flat. As for Rents used .. that too is used to factor inflation index and overall inflation has been minimum.

Robert Shiller - On Home Prices Always Going Up

https://www.youtube.com/watch?v=d__GPqOVNbE

16   SiO2   2013 Mar 20, 1:04am  

thomaswong.1986 says

meetyaks says

But aren't prices supposed to go up over the years due to inflation?

or adjust down back to inflation inflation ...

Thomas, according to this chart, sf and sj prices haven't tracked inflation since 1988. 25 years. After how many years would it be a trend that some area's houses don't track inflation? 50? 100? Long term thinking is good, but let's not get carried away.

Regarding case-shiller, the statement about houses tracking inflation is for the entire US. So, sure Atlanta and Detroit are now below 2000 prices. But, since is for the entire US, that means that other areas must have gone up more, to make the average work out.

I do agree that ultimately SF/SJ will fail, nothing lasts forever. But it could go for a very long time. NYC has had a good run since around 1700, with a dip in the 1970s, but a resurgence since then. But waiting forever is a long time.

17   edvard2   2013 Mar 20, 1:25am  

All that really matters is what you can afford. How much of a down payment can you make? How much do you have saved? How stable is your job/career? If you bought, would you have an emergency cash fund? Can you afford the mortgage AND the property taxes?

The problem with timing the market is that nobody knows what will happen. If you simply can't afford to buy at current prices then you probably shouldn't regardless if the condition of the market. If you can, then weigh your options.

All I can say is that I've lived here for 13 years. We bought last year, but prior to that there were several up and down housing markets. When I first moved here the dot-com had driven up rents and prices. Then it crashed and prices fell. Then money got cheap with low interest rates and prices rose and formed the infamous housing bubble from around 2003-2006. Then it crashed and was in the doldrums from 2006-2011 or so. And now it seems to be going into another bubble phase. But the one thing thats seems to happen is that there are severe up and down cycles in the bay area market. That and with each passing bubble, a previously cheaper area that wasn't totally desirable before becomes gentrified. Perfect example: parts of uptown Oakland are fillin' up with hipsters, which means rich people will probably follow them.

No promises, but in the 13 years I've lived here it seems that the bubble and pop cycle comes in 5-6 year cycles. If you look back to the years prior, there was a late 80's, early 90's bubble that popped only to start inflating again in around 1997.

But as mentioned, its all about individual situations. It took us over 10 years to save up for a good down payment and to save up cash for an emergency fund. If we were younger I'd say we would not have been able to afford even last year when we bought. But I waited out the last bubble because at the time it seemed so obvious that it was a bubble. That and I simply couldn't afford anyway.

Good luck.

18   RentingForHalfTheCost   2013 Mar 20, 2:28am  

meetyaks says

New Renter says

Cons : house deteriorates over time. Cannot move if housing market goes down.

But aren't prices supposed to go up over the years due to inflation?

So do taxes, insurance, house maintenance, etc. and the cost to keep that beautiful women you attracted. ;)

19   FortWayne   2013 Mar 20, 2:43am  

Bay Area is irrational when it comes to real estate, it's like some sort of mini bubble. I don't know why it is that way as I don't really live there.

20   FunTime   2013 Mar 20, 3:14am  

If you're asking, you can't afford it. Rent and save.

21   exfatguy   2013 Mar 20, 3:27am  

Part of the reason I'm waiting is because I don't have enough down payment money. The other part is I feel the homes aren't worth the prices asking (that's my opinion, and one not shared by many, apparently).

I'm also somewhat of an aberration. I make very good money as an engineer, but I'm the sole wage earner in my household (wife is stay-at-home with kids, as is our choice). Single-earners in the bay area are at a severe disadvantage against households with two high-wage earning people.

I also don't have any money (or houses) to inherit from older parents, so that's another disadvantage.

But I'm not bitter. I used to be, but I know what I/we have to do to compete for a house, and we choose not to at this time.

22   Hysteresis   2013 Mar 20, 3:41am  

exfatguy says

Part of the reason I'm waiting is because I don't have enough down payment money.

The other part is I feel the homes aren't worth the prices asking (that's my opinion, and one not shared by many, apparently).

I'm also somewhat of an aberration. I make very good money as an engineer, but I'm the sole wage earner in my household (wife is stay-at-home with kids, as is our choice). Single-earners in the bay area are at a severe disadvantage against households with two high-wage earning people.

you could afford a house.
you just don't want to make certain compromises - like safety.

you can buy a house, not a condo, a house, for under $150k in oakland.
yes, you might get shot, while someone steals your car but there are affordable houses.

what you mean to say, is you can't find the perfect house for $150k, which is true.
that's price discrimination, people will pay more for more amenities (like not being murdered). go figure.

as an engineer, i expect you are able to price must-haves/deal-breakers and the most you'll pay for these.then see if there's a house in your range.

must-haves are just that, not want-to-have, like-to-have and nice-to-have.

to identify must-haves, ask yourself this:
"this house is missing this feature. would i live in it for free if everything else was perfect?" if the answer is "no" then the feature is a must-have.

a way to identify must-not-haves (ie is a deal breaker) is to ask yourself: "this house has this defect. would i live in it for free?" if the answer is "no", then the defect is a deal break and this is a must-not-have.

i suspect you will have very few deal-breaks and must-haves.
that's great, the fewer requirements the better.
then you just need to price how much these items are worth to you.

23   David9   2013 Mar 20, 4:11am  

I'm in pretty much the same scenario. I wanted to buy 3 years ago, did not see housing bubble # 2 coming, but, however, see no rational reason other than market manipulation (i.e. price fixing) where all of a sudden prices skyrocket here in Los Angeles 33% or more.

I wasn't comfortable buying in California in 2005 and I am not now either.

24   OnTheFence   2013 Mar 20, 6:15am  

@SFace

Hi, followed some of your comments/threads and even advice over that last couple of years (V was a great buy). Curious if you'd be open to providing me some guidence as I enter into the Bay Area housing market.

PM if you are open to it, or take a look at this thread:

http://patrick.net/?p=1222907

Thanks

25   gregpfielding   2013 Mar 20, 6:21am  

meetyaks says

Is it the right time? Can they come down?

Unfortunately for you the current rally is only gaining momentum, and prices should keep rising through the year. Even if Supply began to increase and Demand began to wane, we will still drift higher for some time.

This is what happened in 2005-2006. Here's that story:
http://www.bayarearealestatetrends.com/2013/03/when-will-the-home-price-rally-end/

26   RentingForHalfTheCost   2013 Mar 20, 8:01am  

gregpfielding says

meetyaks says

Is it the right time? Can they come down?

Unfortunately for you the current rally is only gaining momentum, and prices should keep rising through the year. Even if Supply began to increase and Demand began to wane, we will still drift higher for some time.

This is what happened in 2005-2006. Here's that story:

http://www.bayarearealestatetrends.com/2013/03/when-will-the-home-price-rally-end/

It'll go to where the Fed feel it should. No one really knows. A quick rise in interest rates can really affect any positive momentum. The "buy now before rates keep rising" will not have the effect it used to have. We are at the price point and economy where increased ownership cost will stall things. Just my take.

27   myob   2013 Mar 20, 8:24am  

I'm in the same boat as you are, meetyaks. I even made a bid on a place, at 15% over asking and was over-bid by a cash offer that bid more like 50% over asking. It's nuts.

The real estate market here is extremely hard to predict. Right now in some areas, say, most of Mountain View, a dual income family with both earning a tech-level salary can't afford to buy an SFH without having at least a few hundred thousand in cash available on top of the loan.

We have the Fed making it very cheap to borrow, driving up prices on housing where people max out their monthly payment. We have tech companies generating tremendous wealth, driving up the values of places where those people want to live. We've got Wall Street buying a lot of houses as a way to make profit off rents, which is pushing up the prices in the less expensive areas around here, thereby removing alternatives from buyers in the more expensive places, also driving up the overall price level.

If interest rates go up, which is inevitable at some point, housing prices will come down. If the current stock bubble pops, housing prices will come down, if we get an earthquake, housing prices will come down. If prop-13 is gutted for investment properties, as the legislature is trying to do, housing prices will come down.

Will any of these happen? When? It's really hard to say. Interest rates going up must happen, or we will have big inflation. They're starting to edge up as it is despite the Fed's best efforts. The key thing to realize is the Fed exists for only one reason - to backstop banks which have over-leveraged themselves and all their behavior is based on saving them. Right now, in my opinion, their policies are the biggest factor in both housing and stock valuation, so their policies would by my primary focus when predicting housing prices.

Fundamentally, though, it's hard to tell. For me, the answer is simple, I've been priced out of the market, so I rent.

28   bmwman91   2013 Mar 20, 8:24am  

As long as inventory stays low, no prices will not come down.

An agent I talked to at an open house this weekend made the following three points:
1) If interest rates jump 0.2-0.3%, supply may jump as people that are waiting for rising prices before selling all panic and dump. His recent experience with sellers indicates that there is a HUGE attitude that they should wait to list because of wild appreciation potential. It ends up being a self-fulfilling prophecy, up until some event causes them to start selling, which then causes a cascade of listings as people try to jump ship.
2) If you try to time market events that are thoroughly controlled by the Fed and government, you will probably not win.
3) We are probably in a bit of a bubble right now, but it's anyone's guess what will cause the next down-turn and when. Either way the crash wouldn't be as hard as the last one.

So, keep saving and whenever you do buy, buy what you can comfortably afford. Duh, right? Doesn't help much when shit-shacks are pulling $500k minimum and you work a day job.

29   myob   2013 Mar 20, 8:34am  

Inflation doesn't work that way. Generally, incomes trail inflation, so over time, your purchasing power drops.

Say you have $10k today and a loaf of bread costs $1, but in 20 years, you have $1M, but a loaf of bread costs $500. Are you better off?

Don't confuse nominal values with real values.

I've lived through inflation in another country, and it makes people a whole lot poorer, whether they're renters or owners. The one set of people who do well are the guys in control of the money creation, since they have first access to it. To remind myself of this fact, I have a little envelope with $100,000,000,000,000,000 Zimbabwe dollars. They tried to print their way out of trouble too.

30   meetyaks   2013 Mar 20, 8:55am  

myob says

Inflation doesn't work that way. Generally, incomes trail inflation, so over time, your purchasing power drops.

Say you have $10k today and a loaf of bread costs $1, but in 20 years, you have $1M, but a loaf of bread costs $500. Are you better off?

Don't confuse nominal values with real values.

I've lived through inflation in another country, and it makes people a whole lot poorer, whether they're renters or owners. The one set of people who do well are the guys in control of the money creation, since they have first access to it. To remind myself of this fact, I have a little envelope with $100,000,000,000,000,000 Zimbabwe dollars. They tried to print their way out of trouble too.

Are you saying its better to buy some tangible asset (like house) to guard against inflation?

31   Hysteresis   2013 Mar 20, 9:10am  

1. don't predict prices.
2. save for retirement, kids school fund, rainy day fund first
3. decide down payment + mortgage payment you are comfortable with (based on whatever is left over from 2).
4. find a house you like; that fits your budget and buy it.
5. if you can't find a house within your budget, don't buy. keep saving/investing.

simple.

noticed how we started with identifying what you are comfortable paying?
then we see if any houses fit that criteria. if none fit, you don't buy.

each year you wait, you should be saving, investing and (hopefully) getting raises. as your net worth and earning power increases you increase the amount of house you can buy.

32   rufita11   2013 Mar 20, 1:33pm  

taxee says

New Renter says

On the bright side desperate beautiful women will throw themselves at you! No beautifful young thing can resist a man with a house!

Q: What do earthquakes, fires, tornadoes, hurricanes and women have in common? A: Sooner or later they get your house.

There are way too many men on here who act like women don't earn money and pay their own way. Where do you meet these no-good, money grubbing, uneducated females? I certainly don't know them or work with them.

It seems like Patrick.net has become the "He Man Woman Haters Club"
http://www.youtube.com/embed/wBIC8JTQMMQ

33   myob   2013 Mar 20, 2:50pm  

meetyaks says

myob says

Are you saying its better to buy some tangible asset (like house) to guard against inflation?

No, it's best to buy some asset that does well in real terms when adjusted for inflation. Sometimes that's housing, sometimes that's other stuff. Inflation is non-uniform. Milton Friedman's dropping money from a helicopter analogy doesn't work, because in today's world, money is spent into existence by the central bank, and it's better to put your money into something closer to where the money is spent into existence. It's difficult to predict what is the right place, but it's definitely better to own a house during inflation then it is to hold money.

I personally believe we are in for another market and housing crash, which will be very deflationary in our credit based economy, and inflation will come when the Fed really opens up the spigots to save the banks which will be hit hard by this.

34   dunnross   2013 Mar 20, 4:13pm  

gbenson says

Keep in mind that the reason Chinese money is coming to the US, is cause in China (particularly cities like Shanghai), $200k gets you a 600sqft cockroach invested concrete bunker that was built 30 years ago. Something 'nice', like a 3000 sq ft villa runs a meager $4M. SFBA is positively cheap in comparison.

People who buy houses in the BA, don't realize how much nicer other cities are compared to the BA, and how prices are much much lower everywhere else in the US. BA is basically an overblown, hyped up village with not much culture and diversity, where there is not much life outside of the office and the long commute. Prices in real cities like Chicago, Boston or Washington DC, should be much higher than those in the Bay Area. Instead, because of this hype, they are much lower. There is no precedent anywhere in the world, where a village can have higher prices than the big city or the capital. Take France, for instance. Prices in Paris, are much higher than in a small town of Nimes, although Nimes has a much better weather than Paris. Why is that? People pay a premium to live in a place which has diversity, culture, shopping, museums, nightlife, etc. The Bay Area has none of these advantages to a big city. Even fashion is almost non-existent in the Bay Area. So, why pay the higher price?

35   dunnross   2013 Mar 20, 4:21pm  

One more thing. If the Chinese want to live in the Bay Area - they can keep it. If they like living in cockroach infested concrete bunkers, and their plan is to turn the Bay Area into Shanghai, then, I would guess, that there won't be many white people living here, after that. I guess, the Bay Area is already 70% there, and there is not much reason for trying to save it.

36   xenogear3   2013 Mar 20, 4:27pm  

myob says

Inflation doesn't work that way. Generally, incomes trail inflation, so over time, your purchasing power drops.

Say you have $10k today and a loaf of bread costs $1, but in 20 years, you have $1M, but a loaf of bread costs $500. Are you better off?

Don't confuse nominal values with real values.

I've lived through inflation in another country, and it makes people a whole lot poorer, whether they're renters or owners. The one set of people who do well are the guys in control of the money creation, since they have first access to it. To remind myself of this fact, I have a little envelope with $100,000,000,000,000,000 Zimbabwe dollars. They tried to print their way out of trouble too.

US is a little bit different. Wage keeps up with inflation.
As long as you have a job, you should be ok.

Federal Reserve just printed 3 Trillion dollars.
Did you get a big wage increase?

37   dunnross   2013 Mar 20, 4:28pm  

robertoaribas says

yeah, there is zero diversity in the bay area... it's not like it has a china town, or any other minorities!!!

Diversity where only Chinese and Indian people live, is not much of a diversity. Now, is it?

38   dunnross   2013 Mar 20, 4:29pm  

robertoaribas says

and, as what, the 11th biggest metropolitan area, it is hardly a village...

No, it's not a village. It's just a collection of villages.

39   dunnross   2013 Mar 20, 4:39pm  

robertoaribas says

bay area is I believe 58% white... so chinese, indian, white... oh wait it is about 10% hispanic, and 10% black...

Looks like you might be having old data, there. It's been getting skewed over to the Asian side, more and more over the years. I guess I am not the only white person who thinks that Bay Area is becoming like Shanghai #2.

http://www.bayareacensus.ca.gov/bayarea.htm

40   Bigsby   2013 Mar 20, 6:16pm  

dunnross says

robertoaribas says

and, as what, the 11th biggest metropolitan area, it is hardly a village...

No, it's not a village. It's just a collection of villages.

Which is what many say London is...

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