patrick.net

I looked at a complete teardown shitshack in Parkside and it was listed at over 750K. If that's not a strong indication of a top forming.. ;)

mell says

I looked at a complete teardown shitshack in Parkside and it was listed at over 750K. If that's not a strong indication of a top forming.. ;)

My first and late California friend, a native, said exactly the same thing. "The banks are looking for fools." "Don't ever buy when you see this." "Prices go up and down here, it is part of the wealth."

David9 says

mell says

I looked at a complete teardown shitshack in Parkside and it was listed at over 750K. If that's not a strong indication of a top forming.. ;)

My first and late California friend, a native, said exactly the same thing. "The banks are looking for fools." "Don't ever buy when you see this." "Prices go up and down here, it is part of the wealth."

Yeah, and while arguably real estate has been doing relatively well, it has been massively supported since ZIRP policies and buying of MBS have become normalcy in the US. When ZIRP has run its course and they cannot buy any more MBS, then you may see a real, longer lasting correction where prices return closer to their intrinsic values.

mell says

buying of MBS have become normalcy in the US. When ZIRP has run its course and they cannot buy any more MBS, then

Cute, less than 2 minutes video on Mortgage Backed Securities;

http://www.investopedia.com/video/play/what-are-mortgage-backed-securities/

Yeah, that is a systemic change that is still in full effect, as well as the suspension of mark to market accounting, plus quantitative easing, and viola!

I would like to add if someone sees a way to make this setup work for them, go for it.

Renting is your best bet if you plan to be a loser forever

Define loser. I would feel like a loser if I wasn't intelligent enough to come up with anything but childish little one line insults, but maybe you don't hold such high standards for yourself. I guess your home is paid for, so everyone who rents from the bank, and everyone who rents from a landlord is a loser in your mind. Wow, you sound like a really nice guy. I own my home, as in it's paid for, but funny, I don't see everyone who rents as a loser. I was renting not too long ago myself. Spent most of my life renting. That's how we saved, and to be honest I did a lot for my community and family during that renting time of my life. I'm pretty sure you have a very different view on what makes a person a loser. For me, being a loser has nothing to do with where you live or what you own, but I'm old fashion; I still believe being a loser means being a selfish jerk, or a rude idiot, or something along those lines.

Tim Aurora says

Bm05211983 says

Renting is your best bet if you plan to be a loser forever

A blanket statement that makes no sense whatsoever

He's just trolling: ignore

I've been living in the Bay Area since the late 90s and have been renting the entire time. Not that I am a naysayer when it comes to real estate. It is just that I never felt comfortable over-extending myself to purchase a property that, quite frankly, is not very nice.

Most of the homes here are very old and require a large amount of work, with the exception of the glossy mansions. So I never felt I was getting good value for my money. It seemed like I would have to take a massive risk with a singular income.

Would I have made money had I bought? Probably. But at the same time, I also have saved a large amount of money by renting and leveraging other investment vehicles, like stocks.

I honestly have no idea what will happen to real estate in the next few years, but logic tells me to be cautious. If the Fed begins to taper its QE work and interest rates begin to rise, that will put quite a bit of downward pressure on prices. Although at the same time, if the economy is improving, maybe it will be a wash. Only time will tell.

Diomedes777 says

I've been living in the Bay Area since the late 90s and have been renting the
entire time. Not that I am a naysayer when it comes to real estate. It is just
that I never felt comfortable over-extending myself to purchase a property that,
quite frankly, is not very nice.

I felt similar when I lived in the Bay Area. Even if I could afford one of the small million dollar ranch homes, I always felt like why am I paying this much money and only getting this very marginal property in return.

Analyzer says

I always felt like why am I paying this much money and only getting this very marginal property in return.

In my experience, the previous owners often don't have enough money to care for the houses they are selling. They are marginal properties that haven't been cared for in the 50 years since they were built.

Why should I pay top dollar for those?

mell says

Yeah, and while arguably real estate has been doing relatively well, it has been massively supported since ZIRP policies and buying of MBS have become normalcy in the US. When ZIRP has run its course and they cannot buy any more MBS, then you may see a real, longer lasting correction where prices return closer to their intrinsic values.

I hope you are right.

bg says

Analyzer says

I always felt like why am I paying this much money and only getting this very marginal property in return.

In my experience, the previous owners often don't have enough money to care for the houses they are selling. They are marginal properties that haven't been cared for in the 50 years since they were built.

Why should I pay top dollar for those?

Right, somehow you feel like you are getting ripped.

adarmiento says

The people buying homes in San Fran are well above the median income levels and probably make a very large downpayment. I imagine those within or below the median income levels are renting, either renting a room within a boarding house, or sharing an apartment.

Keep imagining. My point is exactly the opposite. If you look at median incomes for the area and compare with media house prices AND you look at ownership rates you conclude that people are buying way more than they can afford.

dublin hillz says

It's almost 3 years since I closed escrow and I have not made a single decision since then that was predicated on the value of my pad. Not even one.

A good indication that you're one of the few who can afford their house!

"If you look at median incomes for the area and compare with media house prices AND you look at ownership rates you conclude that people are buying way more than they can afford"

Interesting that you mentioned that. Virtually all the people I know that purchased homes did so by stretching their finances tremendously. The one egregious example I can think of was a former colleague of mine that literally liquidated everything he had (401k included) to procure the down payment on his house. He told me he was left with $87 dollars in his bank account and nothing else, other than the property.

I just did a quick search for my area (I rent in Los Gatos). The median household income for this area (which is pretty affluent) is currently at around $120,000. The median home price however is at around $1,000,000. Nearly ten times actual median income.

To be fair, I don't think the median income includes proceeds from stock IPOs or people who banked a massive pay day from a startup. But nonetheless, interesting to say the least.

Diomedes777 says

I just did a quick search for my area (I rent in Los Gatos). The median household income for this area (which is pretty affluent) is currently at around $120,000. The median home price however is at around $1,000,000. Nearly ten times actual median income.

To be fair, I don't think the median income includes proceeds from stock IPOs or people who banked a massive pay day from a startup. But nonetheless, interesting to say the least.

Hard to imagine this sustained long-term when mortgage-based financing dominates real estate. However, as long as people get rich quick on startups and don't need financing...

Diomedes777 says

To be fair, I don't think the median income includes proceeds from stock IPOs or people who banked a massive pay day from a startup. But nonetheless, interesting to say the least.

I've drawn similar conclusions looking at net worth numbers.

A lot of you guys don't seem to understand that Silicon Valley is not just startups. Even at a "regular" tech company you have RSOs, stock matching 401s and employee stock plans. Separate from my salary, I was averaging 10,000 shares a year at around 2.50 cost basis (for the stock plan--free in the 401) over 5 years. Stock hit $10 last year. That's half a million that I wasn't planning on.

Sold my condo last year. Bought it 3 years ago to avoid paying rent in SF for $580k. Sold at $850k and moved into my fiance's place.

There's no wrong or right answer. Just be smart for your financial circumstances.

JH says

However, as long as people get rich quick on startups and don't need financing...

Remember, these people don't have to be the bulk of the buyers. Only 5-10% would be enough to push prices up. That is to say, if the inventory is 30, only need 2 of such guys to pay top dollar to cause prices to appreciate. Soon, there would be 50 over $200 millions millionaire from Whatsapp in the market. What is the total inventory in the desirable neighborhood of SF & Fortress (e.g. Atherton, Menlo Park, Palo Altos, Los Altos, Cupertino)? There would be knock-on effect on neighboring cities too.

DukeLaw says

Sold my condo last year. Bought it 3 years ago to avoid paying rent in SF for $580k. Sold at $850k and moved into my fiance's place.

That's actually a time-of-life consideration that has benefited a couple of friends. One who sold a house in SF after his fiancé finished a PhD and got a job somewhere else. Good reason to move, timing worked and made a nice profit selling the house. Same with a friend who bought a place with a fiancé. Took a trip to Italy to see if marriage was really the next step, decided it wasn't and sold the place. Made money.
I looked at buying a place back in 2003. Would have almost certainly involved an ex. Pretty glad I didn't do it as the place doesn't look to have gotten much more valuable and I didn't have to deal with that on top of the other end of relationship trials.

DukeLaw says

I was averaging 10,000 shares a year at around 2.50 cost basis (for the stock plan--free in the 401) over 5 years. Stock hit $10 last year. That's half a million that I wasn't planning on.

I hope you're accounting for your money better than what you wrote suggests.

Diomedes777 says

I just did a quick search for my area (I rent in Los Gatos). The median household income for this area (which is pretty affluent) is currently at around $120,000. The median home price however is at around $1,000,000. Nearly ten times actual median income.

Yep, that's the norm - most people I know are leveraged close to 10x their annual income. If they are partnered, it reduces to 5-6 x combined annual income roughly, still too much.

DukeLaw says

A lot of you guys don't seem to understand that Silicon Valley is not just startups. Even at a "regular" tech company you have RSOs, stock matching 401s and employee stock plans. Separate from my salary, I was averaging 10,000 shares a year at around 2.50 cost basis (for the stock plan--free in the 401) over 5 years. Stock hit $10 last year. That's half a million that I wasn't planning on.

Yeah, but they are outnumbered by those who don't have that extra income and are leveraged 5-10x or more their annual salary. Plus, when market turns options will be mostly worthless for the newcomers (like they were after the dot com bust post-2000) and then they will not be able to afford those house prices.

DukeLaw says

Sold my condo last year. Bought it 3 years ago to avoid paying rent in SF for $580k. Sold at $850k and moved into my fiance's place.

That was probably smart, even if you didn't time the top exactly. I'd be a seller now.

mell says

Yep, that's the norm - most people I know are leveraged close to 10x their annual income. If they are partnered, it reduces to 5-6 x combined annual income roughly, still too much.

That most definitely is NOT the norm. Please tell me where you can get a loan for 10X income.

DukeLaw says

There's no wrong or right answer. Just be smart for your financial circumstances.

Give me a break and admit luck also.

I refuse to believe that more than 10% of people in the fortress are making half a million annually in stock options that are just an added "bonus" of living there. I refuse to believe that the majority of those who do will continue to do so for years to come.

However, I do find it hilarious that people who get boners on the "half million unplanned" are also paying multiple millions for shacks and traffic :-)

tatupu70 says

Please tell me where you can get a loan for 10X income.

As long as your credit score is below 600 and you can sign your name on a line. Wait, wrong decade...

tatupu70 says

mell says

Yep, that's the norm - most people I know are leveraged close to 10x their annual income. If they are partnered, it reduces to 5-6 x combined annual income roughly, still too much.

That most definitely is NOT the norm. Please tell me where you can get a loan for 10X income.

Read the second sentence. Depends on the banks, brick and mortar banks currently lend up to 5x annual income again, online lenders are a bit looser. You get easily to 10 x with a "partner" on combined income. Assuming that roughly 50 percent of partnerships (marriages etc.) fail and then add another xx percent where at least one of the two loses their job, and watch out below.

mell says

Read the second sentence

I did. You said "if" which implies that some are not partnered. If you are combining your income, then it's not 10X--it's 5X.

In any event--the median income doesn't buy the median house, so the analysis is faulty.

JH says

tatupu70 says

Please tell me where you can get a loan for 10X income.

As long as your credit score is below 600 and you can sign your name on a line. Wait, wrong decade...

LOL. Honestly I don't care at what leverage they want to lend/borrow as long as they don't get bailed out. If I were running a bank though I would only go to 2 x annual income from a single person (nothing of this combined crap), a hefty down payment (nothing of this FHA crap), 25 percent absolute minimum, 30+% percent preferred, plus register additional valuables that can be sold as collateral. Or - as AF would say - it's cash or fuck you, America ;)

tatupu70 says

mell says

Read the second sentence

I did. You said "if" which implies that some are not partnered. If you are combining your income, then it's not 10X--it's 5X.

In any event--the median income doesn't buy the median house, so the analysis is faulty.

You do know that jumbo loans are making a comeback?

http://cal-lending.com/california-home-loans/california-home-loans.html

"Stated Income Jumbo Loans ARE available in 2012. No verification of income required for verifiably self-employed or white-collar W-2 persons. Loan-to-value is less than a full doc loan, and caps at $1.5 million. Excellent credit and asset reserves required."

mell says

You do know that jumbo loans are making a comeback?

http://cal-lending.com/california-home-loans/california-home-loans.html

Does anyone have any insight on that Cal-Lending.com site? Their site seems shady to me. Are they just offering these products with super high interest rates? Or maybe just massive PMI premiums for some of them? How do the Cal-Select loans work (for licensed professionals -- CPA, lawyer, doctor, dentist)?

The lenders will find ways to lend, right or wrong their goal is to initiate loans..........Expect the shady practices to continue.

mell says

as long as they don't get bailed out. If I were running a bank

And herein lies the problem. As long as they get bailed out a monkey could run them. And they know they will get bailed out.

mell says

I would only go to 2 x annual income from a single person (nothing of this combined crap), a hefty down payment (nothing of this FHA crap), 25 percent absolute minimum, 30+% percent preferred, plus register additional valuables that can be sold as collateral. Or - as AF would say - it's cash or fuck you, America ;)

I don't know what annual income limits existed pre-Depression, but home loans were essentially 1 year ARMs. Each year you had to convince the bank to re-lend you the money and if rates went up, well hope you found a second job! Sounds reasonable to me. It would create a more reasonably priced market with responsible owners and it would reduce America's dependence on bullshit interest rate manipulation. So yeah, I'm with you...down with the FHA. Although their new PMI rules are hilarious: if you only have 3.5% down, no problem. Pay ~1.2% of the home value annually for 30 years. It's basically forcing people into a 40% downpayment payable over the life of the loan...haha

JH says

I don't know what annual income limits existed pre-Depression, but home loans were essentially 1 year ARMs. Each year you had to convince the bank to re-lend you the money and if rates went up, well hope you found a second job! Sounds reasonable to me. It would create a more reasonably priced market with responsible owners and it would reduce America's dependence on bullshit interest rate manipulation

Not really. It would create a society of renters and bunch of very rich landlords. How would that be better than now? Prices wouldn't go down--there would just be more rental houses and fewer owner occupied.

This should be obvious by looking at what happened over the last 5 years. Hedge funds, all cash investors were prevalent.

Again--how is that better?

JH says

I don't know what annual income limits existed pre-Depression, but home loans were essentially 1 year ARMs. Each year you had to convince the bank to re-lend you the money

Not entirely sure where you got this. The typical loans before the Depression were:
1) 5-year balloon, usually around 50% loan to value, maybe 60% max -- this means that the loan was not fully amortized, and had a substantial balloon payment due in 5 years. Often times, people rolled this into another 5-year balloon, which made sense during a bubble, but could be disastrous in a credit crunch.
2) approx. 12-year amortizing loan -- usually this required less down than the 5-year balloon and fully amortized in 11-12 years or so. This was more often offered by savings & loans. This is obviously a much higher payment than the typical 30-year fixed, so when times were tough, people had trouble paying them.
3) a hybrid of the above two -- you would take a balloon for a portion of the loan and amortize the rest. Often people rolled over the balloon for this too or tried to get an amortizing loan for the balloon, which meant it was also disastrous in a credit crunch.

tatupu70 says

Prices wouldn't go down--there would just be more rental houses and fewer owner occupied.

Of course they would go down - massively. People can only rent for what they can afford RIGHT NOW. No extend and pretend. You cannot find enough wealthy people to charge hefty rents.

tatupu70 says

This should be obvious by looking at what happened over the last 5 years. Hedge funds, all cash investors were prevalent.

This is only due to cheap money and leverage due to favorable conditions if you have more buying power, the hedge funds will bail as soon as there are no renters, In fact they are bailing already.

tatupu70 says

Again--how is that better?

In other countries people save from birth on via special vehicles or regular long-term saving accounts so that you can pay down 50% at the minimum or build your own house on a lot with that money. Much better/stable than taking out a mortgage.

tatupu70 says

This should be obvious by looking at what happened over the last 5 years. Hedge funds, all cash investors were prevalent.

Powered by the government's choice to drop interest rates and make investment in anything other than stocks and RE pointless.

tatupu70 says

Prices wouldn't go down--there would just be more rental houses and fewer owner occupied.

Then the rentals would cost less. Landlords would not be exchanging property as frequently. Purchase prices would then be lower. It would be utopia. jkjk. It would be different, absolutely. And if it happened today, it would wreak havoc. But I really think we need to move beyond FHA bullshit and go with conventional financing as corn tortilla said...at least 20% down.

Tim Aurora says

mell says

LOL. Honestly I don't care at what leverage they want to lend/borrow as long as they don't get bailed out. If I were running a bank though I would only go to 2 x annual income from a single person (nothing of this combined crap), a hefty down payment (nothing of this FHA crap), 25 percent absolute minimum, 30+% percent preferred, plus register additional valuables that can be sold as collateral. Or - as AF would say - it's cash or fuck you, America ;)

You do understand that nobody will come to your bank, pretty soon your bank will fold and use the taxpayer money to bail it out

In 2008 smaller banks and credit unions who did not participate in loose lending practices were ready to take the spot of the TBTFs, but they were denied the change and healthy mobility/rotation was thwarted.

Diomedes777 says

I just did a quick search for my area (I rent in Los Gatos). The median household income for this area (which is pretty affluent) is currently at around $120,000. The median home price however is at around $1,000,000. Nearly ten times actual median income.

I suspect that the median income of buyers is not the same as the overall median income. You can see this effect in the Fortress areas from LG up to Palo Alto and Menlo Park. Older person or couple is in a house that they had bought in the 60s or 70s. In retirement their median income is not so high, pulling down the average. They pass away or move to a retirement home, and sell the house. The people buying the house are one or two-income high-earners.

I can see this on my street - I bought a house like this, and several other neighbors are double-income high-tech workers who bought from older folks. Mix in a bit of magic commie dragon gold (and these people may have zero USA income, pulling down the median) and I can see how this happens. In fact in my immediate neighborhood, 100% of the people that I know that have moved in during the last 5 years are either double-income high-tech or magic commie dragon gold. And the people who have lived there for 15+ years probably couldn't buy their house now on their current income. Anecdotal, yes, but it's something to consider.

SiO2 says

magic commie dragon gold

How many actual Chinese nationals are we talking about? How do you know they are not Chinese immigrants who have been here for a while? When I go to open houses in the Bay Area and see people speaking Chinese (as realtors always say), most of them appear to be either people who were born here or immigrants who have been here for more than a few years. I've seen very little evidence of actual Chinese nationals, at least not to the extent claimed by realtors.

SiO2,

Observed similar anecdotes in my neighborhood. In fact, if they come here recently, many got help from parents.