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Latest Insanity in Palo Alto Housing Market
2013 Jun 9, 12:59am 20,136 views 93 comments
by JFP follow (0)
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What it all means is your paying twice as much for half as less, even
based on other near by cities.
So whats so special about Palo Alto.. you cant list enough reasons
to justify such a high price.. After all why werent PA home prices
astronomical decades ago. Its all just uber-hype today by migrants.
There's more money out there now, and Palo Alto is a lot more fashionable. LIke all fashions, it may not last, but that's the way it is for now.
Sorry JFP... but like so many old time residents of these parts.. that isnt true..
Money -- Tech has been around for decades, so how do you justify not seeing
such insane prices before ? or given we dont have a stock-IPO bubble (1999) where
is the money coming from ?
Fashion -- perhaps if you consider we may have been invaded by New Yorkers or worse yet
by SoCal Hollywood pimp types.
Sorry JFP... but like so many old time residents of these parts.. that isnt true..
Money -- Tech has been around for decades, so how do you justify not seeing
such insane prices before ? or given we dont have a stock-IPO bubble (1999) where
is the money coming from ?
Fashion -- perhaps if you consider we may have been invaded by New Yorkers or worse yet
by SoCal Hollywood pimp types.
Money - Yeh, there was tech before, but you apparently don't understand the immense concentration of wealth we are now seeing in the internet sector. Apple, Facebook, Google, LInkedin, Twitter are all immensely valuable companies, and they are just the top of the list. Don't confuse the physical tech that used to dominate the Valley with the new internet tech which generates more money, and takes less people.
Fashion applies to everyone, not just New Yorkers. Like it or not, it's fashionable to live in the Peninsula/Valley, etc. now.
Sorry JFP... but like so many old time residents of these parts.. that isnt true..
Money -- Tech has been around for decades, so how do you justify not seeing
such insane prices before ? or given we dont have a stock-IPO bubble (1999) where
is the money coming from ?
Fashion -- perhaps if you consider we may have been invaded by New Yorkers or worse yet
by SoCal Hollywood pimp types.
In addition, low yields elsewhere has driven a huge amount of money into VC firms. So, there's more wealth. Just look at the ridiculously expensive cars you see everywhere in Palo Alto now.
Also, buying in the Peninsula is fashionable in India and Mainland China. Compared to Mumbai, Palo Alto looks cheap, and that's driving sales.
Finally, just as a disclaimer, I'm not saying I like it, or that it's sustainable. But, right now, it's what it is.
In addition, low yields elsewhere has driven a huge amount of money into VC firms. So, there's more wealth. Just look at the ridiculously expensive cars you see everywhere in Palo Alto now.
actually we had more exotic car dealers in the past then present. There are more in So Cal and Miami than Peninsula.
yes.. all this makes sense if your talking about the great tech boom from 1970 to 2000.. but we are in a great decline of a tech revolution which is ending. The number of public companies boomed to 300 in 1994 and 400 by 2000 .. now its down to 200. The number of VCs and deals is also down after 2001.
Seriously, if your some Millionaire from India/China, you might be looking at Australia.. not some dinky town not many heard of.
Finally, just as a disclaimer, I'm not saying I like it, or that it's sustainable. But, right now, it's what it is.
LOL.. i know of some Indians who are not to pleased to have spoken to me.. i really dont think many like to talk to old timer Californians.. I just laugh at when they told me how they spent 1M for a 1200 sq ft 50s shack in Cupertino. Oh god.. what suckers they are.
actually we had more exotic car dealers in the past then present. There are more in So Cal and Miami than Peninsula.
yes.. all this makes sense if your talking about the great tech boom from 1970 to 2000.. but we are in a great decline of a tech revolution which is ending. The number of public companies boomed to 300 in 1994 and 400 by 2000 .. now its down to 200. The number of VCs and deals is also down after 2001.
Seriously, if your some Millionaire from India/China, you might be looking at Australia.. not some dinky town not many heard of.
We are just going to have to agree to disagree. I see a lot of Chinese and Indian money, and I see a lot more exotic/expensive cars just in the last 5 years. And, I know from personal experience that there is a lot more VC money (not talking firms necessarily) available right now than there was 5 years ago.
Finally, just as a disclaimer, I'm not saying I like it, or that it's sustainable. But, right now, it's what it is.
LOL.. i know of some Indians who are not to pleased to have spoken to me.. i really dont think many like to talk to old timer Californians.. I just laugh at when they told me how they spent 1M for a 1200 sq ft 50s shack in Cupertino. Oh god.. what suckers they are.
Whether or not they are suckers or not remains to be seen. The "suckers" who bought that same shack for $500K in 2006 are sitting pretty well right now.
Finally, just as a disclaimer, I'm not saying I like it, or that it's sustainable. But, right now, it's what it is.
LOL.. i know of some Indians who are not to pleased to have spoken to me.. i really dont think many like to talk to old timer Californians.. I just laugh at when they told me how they spent 1M for a 1200 sq ft 50s shack in Cupertino. Oh god.. what suckers they are.
Whether or not they are suckers or not remains to be seen. The "suckers" who bought that same shack for $500K in 2006 are sitting pretty well right now.
Also, just because you remember when prices were reasonable doesn't mean it will ever get back there. I feel the same way about my old hometown on the East Coast. I remember when it was cheap to live in. Now, the town that "was too far from Boston" for anyone to buy in has a Bentley dealership, and all the orchards are gone. Times change.
Also, just because you remember when prices were reasonable doesn't mean it will ever get back there. I feel the same way about my old hometown on the East Coast. I remember when it was cheap to live in. Now, the town that "was too far from Boston" for anyone to buy in has a Bentley dealership, and all the orchards are gone. Times change.
you forget that home prices only appreciate at rate of inflation, as was the case in SoCal and SFBA which saw prices rise only to fall back to the norm (1989 to mid 90s)... as far as wealth and fashion...there is probabaly more to be found in So Florida than SFBA.... certainly lots of Bentleys, Ferrari, Lambo dealers than anyone else.
you forget that home prices only appreciate at rate of inflation, as was the case in SoCal and SFBA which saw prices rise only to fall back to the norm (1989 to mid 90s)
Inflation where? If we look at inflation globally, then there are multiple rates we could pick. Also, that's a long term average. There are plenty of places where prices have diverged from that average, and in each case it is because the area has become part of a global market. New York, London, Singapore, all provide examples.
My point is that, at this time, the Bay Area is part of a global property market, not just the US one. That could change, but for now it's the reality.
JodyChunder
2013 Jun 9, 8:07am
I was drinking home made Peet's coffee.
That was your first mistake.
Yet, given the SoFla RE declines, RE bulls no longer talk about as it also declined back to normal prices.. 1975 prices plus inflation.
Why would 1975 prices plus inflation be normal? I'm not arguing with you over whether the bay area is in a bubble, I'm just trying to make a simple point to you:
You can't base your judgement on what is "normal" when we now have a completely different global monetary and economic system.
LOL.. i know of some Indians who are not to pleased to have spoken to me.. i
really dont think many like to talk to old timer Californians.. I just laugh at
when they told me how they spent 1M for a 1200 sq ft 50s shack in Cupertino. Oh
god.. what suckers they are.
Whether or not they are suckers or not remains to be seen. The "suckers" who
bought that same shack for $500K in 2006 are sitting pretty well right
now.
Also, just because you remember when prices were reasonable doesn't mean it
will ever get back there. I feel the same way about my old hometown on the East
Coast. I remember when it was cheap to live in. Now, the town that "was too far
from Boston" for anyone to buy in has a Bentley dealership, and all the orchards
are gone. Times change.
True. In many ways, his comments remind me of what I heard about the Hamptons outside of NYC. Apparently up until the late 50s, the Hamptons were a haven for middle class. Then, it became fashionable for the financial crowd to go there, and that was it. Suddenly the Hamptons were no longer affordable to anyone but the very very wealthy - a situation that continues to this day.
His comments make me wonder. In the early 1960s, im sure there were some old time residents of the hamptons arguing that it would all "revert to the mean". I wonder if there is some (now octogenarian) blogger, telling people the high prices in the Hampton are only "temporary" and they should continue to wait before they decide its OK to buy.
So for $1823888(list price minus purchase price)they built that place? Any estimates on how much they could make? That doesn't seem like much money for all the materials and labor I'd think it takes to tear down the old place and build that one. It took over a year. However, I don't know much about that subject.
If the house cost $500 square foot, then it would cost ~$1,000,000 to build. Add in any loan costs, etc, and you can see how they go to that price, but it's still out of whack with the rest of the neighborhood.
$1,000,000 to build isn't bad. I figured it would be higher based on what friends have told me they're spending on renovations/improvements. Seems easy to spend $100k. Adding a garage that involves excavating a hill in San Francisco costs a multiple of $100k.
$1,000,000 to build isn't bad. I figured it would be higher based on what friends have told me they're spending on renovations/improvements. Seems easy to spend $100k. Adding a garage that involves excavating a hill in San Francisco costs a multiple of $100k.
Of course, if they spent $800 square foot, then they are in a much worse situation :)
$1,000,000 to build isn't bad. I figured it would be higher based on what friends have told me they're spending on renovations/improvements. Seems easy to spend $100k. Adding a garage that involves excavating a hill in San Francisco costs a multiple of $100k.
I guess what we are saying here.. is that "inflation" of materials and labor costs went the way of Argentina as it relates to construction costs in SF prime.
I be glad to sell you the Golden Gate Bridge really cheap...
Live-Work Law for Artists Roils San Franciscans
By JOHN McCLOUD
Published: April 27, 1997
A report released this month by the National Association of Home Builders put San Francisco's median residential price for 1996 at $285,000. With prices beginning at $175,000 to $200,000, lofts are the cheapest nonsubsidized units on the market, according to David Becker, a broker with Ritchie Commercial Real Estate. They are, nonetheless, still too expensive for the artists for whom they were intended, Ms. Hestor said.
http://www.nytimes.com/1997/04/27/realestate/live-work-law-for-artists-roils-san-franciscans.html
Why would 1975 prices plus inflation be normal? I'm not arguing with you over whether the bay area is in a bubble, I'm just trying to make a simple point to you:
You can't base your judgement on what is "normal" when we now have a completely different global monetary and economic system.
No we have irrational exuberance, and you could have said the same in late 1999 as it relates to inflated stock prices of recent IPO tech stock. We can still see today 13 years later its still couldnt hold water.
No matter, Robert Shiller has pointed out since 1890s prices regardless of different global and economic systems.. home prices barely keep up with inflation. You can compare that to the Japanese and German RE boom and bust. Bust being a "correction".
No matter, Robert Shiller has pointed out since 1890s prices regardless of different global and economic systems.. home prices barely keep up with inflation. You can compare that to the Japanese and German RE boom and bust. Bust being a "correction".
I will try and explain this to you again. Even if it is true, as a general average, that home prices track inflation, you are missing two points:
1. The way we measure inflation has changed over time. If we still measured inflation the same way we did in the 1980s, then current inflation would be close to 10%, so by your own argument, we would expect 10% price appreciation per year. So, any tying of real estate prices to inflation has to specify which measure of inflation and why that is the correct one.
2. Schiller's argument is all about averages. Individual real estate markets can diverge greatly in either direction for long periods of time. For example, London property price appreciation has been well above that average for a long time. So, has Hong Kong's. Detroit's property market has diverged and sunk well below average. It could be that the Bay Area is early in a sustained divergence from the average, and that it will never return to what you consider the "correct value."
This is not to argue that Bay Area house prices will continue to rise unabated, but I would argue that there is little reason to expect them to return to the value you seem to think is the correct one in any reasonable period of time.
I will try and explain this to you again. Even if it is true, as a general average, that home prices track inflation, you are missing two points
What is there to point out ? were you here in California as prices fell back from peak 1989 back to long term trend by 1995 even in most desired areas of California be it San Diego or LA ? Do you even recall that or where you somewhere else ?
2. Schiller's argument is all about averages. Individual real estate markets can diverge greatly in either direction for long periods of time. For example, London property price appreciation has been well above that average for a long time. So, has Hong Kong's. Detroit's property market has diverged and sunk well below average. It could be that the Bay Area is early in a sustained divergence from the average, and that it will never return to what you consider the "correct value."
You left out Germany and Japan,,, but how can you include it as they too fell back from peak and never edged higher again. But that is the nature of bubbles.. never to return to go back up.
no... there is no bubble.. not at all. This is all sustainable... in fact price should be about 3.8 million by next month..
I will try and explain this to you again. Even if it is true, as a general average, that home prices track inflation, you are missing two points
What is there to point out ? were you here in California as prices fell back from peak 1989 back to long term trend by 1995 even in most desired areas of California be it San Diego or LA ? Do you even recall that or where you somewhere else ?
They fell back, and then went back up again, and then fell, and then went back up again. Overall, they are still well above trend. Unless, you measure inflation according to Shadowstats. As near as I can tell, according to Shadowstats, a dollar in 2013 is worth about 1/8 of what it was in 1987, therefore house prices should be eight times higher than they were in 1987. That's about right.
Detroit's property market has diverged and sunk well below average
I sometimes look around what some consider the Fortress Areas of the SFBA and think how Detroit went from being an Industrial Powerhouse and "The Paris of the West" to being a post-industrial wasteland in 50 years.
The stucco cheese and glass-curtain crap that comprises much of Silicon Valley would make for less interesting ruins.
Schiller's argument is all about averages. Individual real estate markets can diverge greatly in either direction for long periods of time.
Sigh. I didn't leave them out. My point was (again) that trend is an average:
"Schiller's argument is all about averages. Individual real estate markets can diverge greatly in either direction for long periods of time."
Again, I'm not saying that the Bay Area is not in a "bubble." I'm saying that even if the bubble bursts, it still may not fall to what you consider a "reasonable price."
Detroit's property market has diverged and sunk well below average
I sometimes look around what some consider the Fortress Areas of the SFBA and think how Detroit went from being an Industrial Powerhouse and "The Paris of the West" to being a post-industrial wasteland in 50 years.
The stucco cheese and glass-curtain crap that comprises much of Silicon Valley would make for less interesting ruins.
I totally agree. They'd make a lot less interesting ruins than Rome did also.
JodyChunder
2013 Jun 11, 1:32pm
New stuff doesn't ruin well. We are a Forever Young, newness-obsessed culture, but the problem with new is that when it ceases to be new, it ceases to have any purpose.
I sometimes look around what some consider the Fortress Areas of the SFBA and think how Detroit went from being an Industrial Powerhouse and "The Paris of the West" to being a post-industrial wasteland in 50 years.
The stucco cheese and glass-curtain crap that comprises much of Silicon Valley would make for less interesting ruins.
Sadly we are closer to Detroit today vs say anytime between 1980 to 2000 as we saw growth in employers, employee, incomes etc etc. Today, its more of shrinking economy and workforce as more jobs are sent elsewhere.
"Schiller's argument is all about averages. Individual real estate markets can diverge greatly in either direction for long periods of time."
Again, I'm not saying that the Bay Area is not in a "bubble." I'm saying that even if the bubble bursts, it still may not fall to what you consider a "reasonable price."
Shiller does not measure avg but tracks the same individual resell of homes.
http://en.wikipedia.org/wiki/Case%E2%80%93Shiller_index
The indices are calculated from data on repeat sales of single-family homes, an approach developed by economists Karl Case, Robert Shiller and Allan Weiss. Case developed a method for comparing repeat sales of the same homes in an effort to study home pricing trends
Robert Shiller draws some key insights from his analysis of long term home prices in his book ‘Irrational Exuberance’. Contrary to popular belief, there has been no continuous uptrend in home prices in the US and the home prices show a strong tendency to return to their 1890 level in real terms. Moreover, he illustrates how the pattern of changes in home prices bear no relation to changes in construction costs, interest rates or population
Shiller notes that there is a strong perception across the globe that home prices are continuously increasing, and that this kind of sentiment and paradigm may be fueling bubbles in real estate markets. He points to some psychological heuristics that may be responsible for creating this perception. He says that since homes are relatively infrequent purchases, people tend to remember the purchase price of a home from long ago and are surprised at the difference between then and now.[6] However, most of the difference in the prices can be explained by inflation. He also discusses how people consistently overestimate the appreciation in the value of their homes. The US Census, since 1940, has asked home owners to estimate the value of their homes. The home-owners’ estimates reflect an appreciation of 2% per year in real terms, which is significantly more than the 0.7% actual increase over the same interval as reflected in Case–Shiller index.
For example, London property price appreciation has been well above that average for a long time.
Mean reversion awaits London property
http://www.ft.com/cms/s/0/be2ba05e-f8e0-11e1-b4ba-00144feabdc0.html#axzz2VyIHmF48
International buyers have pushed prices into unknown territory but the capital cannot move out of kilter with long-term trends indefinitely
Reversion to the mean is one of the most reliable concepts in finance. Paradigm shifts are rare. Usually when prices move out of kilter with their long-term trend, they eventually revert to their mean.
The concept has limits in an era when the response to the crisis has left short-term rates at unprecedented lows. But it would be dangerous to ignore it. Those surfing the rise of London home prices, in particular, should take note.
During the bubble of the late 1980s, London prices topped out at 5.8 times average earnings, according to Nationwide, after which they savagely reverted to the mean and beyond, bottoming out at 2.6 times.
On the eve of the credit crunch, this multiple hit an even more ridiculous 7.2 times, but the subsequent correction only ever brought it as low as 5.4 times earnings – roughly the 1988 peak – before it started growing again.
Comparing London prices with the US cities that had the biggest housing bubbles, LSL Property Services Acadametrics index shows London prices rising roughly fourfold since 1995, or threefold in dollars.
Shiller does not measure avg but tracks the same individual resell of homes.
You clearly don't understand what "average" means if you argue that a composite index doesn't track average house prices. It can't do anything else.
During the bubble of the late 1980s, London prices topped out at 5.8 times average earnings, according to Nationwide, after which they savagely reverted to the mean and beyond, bottoming out at 2.6 times.
On the eve of the credit crunch, this multiple hit an even more ridiculous 7.2 times, but the subsequent correction only ever brought it as low as 5.4 times earnings – roughly the 1988 peak – before it started growing again.
Right, it crashed, but didn't revert to the previous mean. It could crash again and not revert to the mean again. It could take a 100 years to revert to the mean. If you look at the Chase-Schiller graph in the Wikipedia article you reference, you can see it took about a 60 years for house prices to go back to their 1890 values in real terms. In the intervening years, real prices were either above or below the mean for extended periods of time. And, they've only touched it again once. So, what use is that mean? That's my point.
Shiller does not measure avg but tracks the same individual resell of homes.
You clearly don't understand what "average" means if you argue that a composite index doesn't track average house prices. It can't do anything else.
Averages or not, we can see from past history prices barely outpace inflation.
Ok, with real rents even today in phoenix paying 5% to 7% after expenses, if you take his pessimistic assumption that both the house price and the rent, over the long term, increase with inflation, housing is still an unmatchably fantastic investment.
Dr. Shiller owns a house, by the way.
I own a home as well.. but that isnt going to be my meal ticket during my retirement. It is wrong for many reasons to start calling homes as an investment. ill-liquid and un-diversified concentration. Many gambled wrongly and lost both their investment and home. Today, those who stashed their excess cash into real investments are doing much better. An index fund in top 100 companies paying cash dividends will do very well over the long run vs RE prices.
Shiller did well with both books he published- Irrational Exuberance edition 1 and 2... and most likely he haggled over price knowing far better what prices normally fall back to.
. The best index funds over the last 30 years are in fact REIT index funds which invest in real estate.
commercial real estate.. fine with me. Its not some residential SFH as investments.
Besides that fact, unless under very specific curcumstance, owning a home in the long term is never the wrong choice. I know, all my elderly neighbors are millioniares.
Of course owning a home is a good idea... but that has been perverted and abused by parties who have a vested interest in seeing inflated prices. what would you say about your SF neighbors back in prior decades as prices in SF were much more reasonable ? But lets sober up, those vintage homes in SF are not what one would call worth million dollar homes. The world has gone nuts.. thats all!
how the hell do you count equity build but totally ignore the housing dividend?
there is no housing dividend, its my cost of living, keeping it low. Equity is nothing more than 'intangible' right to borrow more. Yes, my real assets are doing fine, and I will be much better off with my investment than some homeowner sitting in some fabled $1M bubble home.
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I went to an open house in Palo Alto yesterday. It was beautiful new construction (they tore down the old crappy house), but it's on sale for $2.8 million in a neighborhood where the most expensive existing house is less than $2 million. Here's the craziest part, the agent told me they had already rejected two offers, because they had contingencies.
You can see the house at http://www.zillow.com/homedetails/816-Ames-Ave-Palo-Alto-CA-94303/19500444_zpid/
#housing