patrick.net

BayArea says

Redfin raised my home price estimate by $50k this past week.

It's only real wealth if you do something with it. The "wealth effect".

BayArea says

Redfin raised my home price estimate by $50k this past week. Huh?

Not one of these estimation services is remotely accurate. They're worse than political pollsters by a long shot. Your house, outside of a HELOC is technically worth nothing until someone writes a contract to purchase it and you get the cash or pay off the mortgage. Until then, the value is a roof over your head and running water and sewer/septic.

The estimation game from the likes of Zillow, Redfin, etc. is all a game to get leads for brokers. It's what I did for 15 years. They give zero shits if they're accurate. None. Estimating even a rough value on every residential property is not realistic. Commercial RE is different as it's math and not emotional. Residential will never be predicted well. The exact same houses next to each other in a tract subdivision could sell for 10's or even 100's of thousands different just based on landscaping and how the home was maintained, looked or was decorated by stuff the new owner doesn't get to have.

And not a knock on you BayArea, but RE agents hate estimated values based on an algorithm. Someone like you suggests that my house is worth X because I saw it on Y. It's much more nuanced. My buddy sold for less than he should have because he has a Hawaii/Tiki theme in his house. It totally clashed with suburban Chicago area style. He probably lost $20-30k (small by CA standards) but $30k is $30k tax free. He was too stubborn to pull down all his shit and it cost him. And sure you might get the random that liked the style, but that's rare.

Here in IL something like a pool reduces the buyer's that might light your place by 50%. They won't even look at it because it's time and money to maintain a pool. You can always buy a house and add a pool if that's a need. You don't buy a house with a pool if you don't want it. Zillow and the likes don't and likely never will have an algorithm to figure that out.

WookieMan says

Zillow and the likes don't and likely never will have an algorithm to figure that out.

I agree the estimations are sometimes wildly inaccurate (but usually they are actually pretty close) and biased a bit high to create selling excitement and get leads. They are far more accurate for homes that are actually for sale, or were recently sold, because a real listing has much more data input for them to use to predict with than a home off the market for decades. I disagree about the pool affect on price not being accountable by an algo. It should be relatively straight forward to do it, as this is right up modern machine learning's alley. It's exactly the type of thing it can usually do well.

They have structured data and can usually tell if a listing has a pool (assuming correct data entry, which often is the case).

When they do analytics and machine learning, what's really going on is they look at each independent variable and look to see how that variable affects other variables. If a pool results in less interest, and
1) they have a variable for if the home has a pool (they usually do)
2) they have a variable that lists how many people are interested in a given house (they usually do, via web interactions)

Then they can crunch that data and find how those variables are related and what predictive abilities, if any, each relation has. They will not stop there, and they will likely analyze the interaction between ALL other variables, and then between incredible numbers of combinations of variables to find predictive opportunities. Since real estate is very local, and a pool might be a plus or a minus in different parts of the country, they would likely find that including a variable for location into the relation gives them better predictive ability, and likely home style, price range, and other features of the home would be other useful variables. And then poof: you can make a decent guess as to how a pool will affect the sale. You wont be right in any particular case, but you will tend to be right over thousands of cases.

I'm not saying they currently do predict based on pool, as I dont work for any of them. But they easily could, and likely do, and have probably done so for many years by now. It's possible the pool variable doesn't often provide useful predictive abilities though.

WookieMan says

BayArea says

Redfin raised my home price estimate by $50k this past week. Huh?

Not one of these estimation services is remotely accurate. They're worse than political pollsters by a long shot. Your house, outside of a HELOC is technically worth nothing until someone writes a contract to purchase it and you get the cash or pay off the mortgage. Until then, the value is a roof over your head and running water and sewer/septic.

The estimation game from the likes of Zillow, Redfin, etc. is all a game to get leads for brokers. It's what I did for 15 years. They give zero shits if they're accurate. None. Estimating even a rough value on every residential property is not realistic. Commercial RE is different as it's math and not emotional. Residential will never be predicted well. The exact same houses next to each other in a tract subdivision could sell for 10...

I have been following the home sales for homes that were on zillow and the estimate usually turns out to be fairly accurate.

WineHorror1 says

One aspect of their business is lead generation, yes. Is Zillow a nationwide broker?

When I was there, almost all of their revenue was payments from realtors for betraying innocent buyers.

ad says

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https://finance.yahoo.com/news/pimco-kiesel-called-housing-top-160339396.html?source=patrick.net

Bond manager Mark Kiesel sold his California home in 2006, when he presciently predicted the housing bubble would pop. He bought again in 2012, after U.S. prices fell more than 30% and found a floor.

Now, after a record surge in prices, Kiesel says the time to sell is once again at hand.

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I just don't understand it when the wealthy do this. Selling primary residence and moving into a rental is a HUGE headache. Not to mention transaction losses and tax implications, which there are if you don't buy within what, a year? (he waited 6 years) You may save/make money in the end with accurate timing, but you still pay with time, labor, and (temporary) reduction of quality of life. If you have a family then it all gets multiplied many fold. It probably makes sense in a situation with no kids and limited resources, but a bond manager should be reasonably wealthy and probably have a family. It just doesn't sound worth it to someone who's time is valuable. If life gives you bunch of crap and you are forced to move out that's a different story, but voluntarily? I just don't see it. Yet it's apparently exactly what happened. Go figure.

Edit: I can see it in a corner case that it's time to upgrade anyways, but market analysis screams that it's a wrong time to buy. So the "upgrade" may include that intermediate rental state, in which you rent something that's bigger/better than the house that you sold.

Patrick says

WineHorror1 says

One aspect of their business is lead generation, yes. Is Zillow a nationwide broker?

When I was there, almost all of their revenue was payments from realtors for betraying innocent buyers.

If they aren't a nationwide broker, why not? Wouldn't it make sense? They could compete directly with the NAR.

Patrick says

When I was there, almost all of their revenue was payments from realtors for betraying innocent buyers.

Patrick, please elaborate on this. I want to learn. Also, I did order your book today.

mostly reader says

ad says

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https://finance.yahoo.com/news/pimco-kiesel-called-housing-top-160339396.html?source=patrick.net

Bond manager Mark Kiesel sold his California home in 2006, when he presciently predicted the housing bubble would pop. He bought again in 2012, after U.S. prices fell more than 30% and found a floor.

Now, after a record surge in prices, Kiesel says the time to sell is once again at hand.

.

I just don't understand it when the wealthy do this. Selling primary residence and moving into a rental is a HUGE headache. Not to mention transaction losses and tax implications, which there are if you don't buy within what, a year? (he waited 6 years) You may save/make money in the end with accurate timing,...

This 100%. Makes no sense to go through all that work and headache.

The ups and downs are fleeting, but the trend is up because people want to buy houses.

They can’t help it.

Look at Lowes and Home Depot, they’re huge businesses.

Look at the numerous TV shows about selling, buying, fixing, flipping houses.

I’m stuck seeing them sometimes in a doctor’s waiting room.

Today things are slowing down a little bit, which is expected.

Interest rates rising and consumer confidence falling have a downward effect on houses.

Using possible rental income on loans is the same as stated income loans back then.

Mortgage delinquencies have not played out yet as many states still in forebarences. Add student debt moratoriums in that and it could be a lot worse than the last bubble.

Booger says

Using possible rental income on loans is the same as stated income loans back then.

Mortgage delinquencies have not played out yet as many states still in forebarences. Add student debt moratoriums in that and it could be a lot worse than the last bubble.

Interesting point...I think natural gas prices will have a minor impact as well in regards to electricity and heating for big houses that are overleverage by owners.

Booger says

Using possible rental income on loans is the same as stated income loans back then.

Mortgage delinquencies have not played out yet as many states still in forebarences. Add student debt moratoriums in that and it could be a lot worse than the last bubble.

thats why they went on loan forgiveness, preventing collapse

clambo says

Home Depot

Home Depot has been among my best stocks. Even now with the downturn I've averaged an annual 15% return on it with it over 11 years or so.

FortwayeAsFuckJoeBiden says

thats why they went on loan forgiveness, preventing collapse

Schemes like loan forgiveness come at a cost, the cost is printing money? Its a ponzi scheme.

porkchopexpress says

This 100%. Makes no sense to go through all that work and headache.

What was the name of that Phoenix slumlord math teacher that used to post here? He did exactly that, sold his house at the peak, bought rentals after the crash, made bucks, retired and lived happily ever after.

Now I remember his name, ROBERTO!

gabbar says

FortwayeAsFuckJoeBiden says

thats why they went on loan forgiveness, preventing collapse

Schemes like loan forgiveness come at a cost, the cost is printing money? Its a ponzi scheme.

They haven't caved on loan forgiveness, it's forbearance at this point. I'll sue for forgiveness on loans I paid.

Booger says

Same type of person that expects or had student loans paid off by government.

https://nypost.com/2022/06/20/capital-economics-reports-us-home-prices-to-sink-by-2023-as-mortgage-rates-hit-6/

Booger says

https://nypost.com/2022/06/20/capital-economics-reports-us-home-prices-to-sink-by-2023-as-mortgage-rates-hit-6/

A whole whopping 5% huh?

HunterTits says

Booger says

https://nypost.com/2022/06/20/capital-economics-reports-us-home-prices-to-sink-by-2023-as-mortgage-rates-hit-6/

6%!

That's IMPOSSIBLE, @Booger

PatNet 'experts' earlier this year said so. And when I said (basically) "Hold my beer and just wait!", I got lectured how that wasn't going to happen based on their self-proffessed 'expertise' in the housing market which - their 'expertise' -had nothing to do with the Fed or macroeconomics.

But what do I know?

How much will prices decline?

WineHorror1 says

A whole whopping 5% huh?

I'm expecting them to periodically revise this number upward.

I had family in Long Island (NY). They've mostly left either dying off or fleeing to no-state-income tax Florida. We used to look at ®eal Estate ads in the local papers when we visited (in those days there was no internet). A key attribute was the Property Tax. Those small classified listings would include sq ft, bed/bath, and annual property tax bill. Just saying.

Here in SJ where I was growing up, during high school my best friend's family moved from SJ to San Carlos in Q2 of 1977. I remember the huge headline in the SJ newspaper during that time. In April of that year, SJ house prices had zoomed up 30%already from the first of the year 1977. That amazed me at the time so I began following the ®eal Estate ads in the local SJ newspaper.

In those days before the S&L crisis, late '70's to early '80's, mortgage loans, and the terms of the original mortgage note were assumable. After Volcker was appointed the mortgage rates on new loans went sky-high. The terms of the original assumable loan would be displayed right along with the sq ft, bed/bath. The listing showed the loan balance and interest rate for the assumable loan. The seller would sell a second, smaller mortgage for the difference between the loan balance and asking price, or the buyer would get a smaller, new mortgage to finance that portion, at the new Volcker-high rate. This scheme created a floor under the prices, preventing a crash.

When I borrowed to buy a home after the S&L crisis, I asked the loan officer if the mortgage would assumable. He told me that absolutely it would be. I asked him to show me the language in the paperwork that said so. He pointed it out to me. Yes indeed if I sold the place the original mortgage could be assumed by the buyer.... so long as the buyer qualified for the mortgage (income or whatever), then the terms (interest rate, etc) would be reset for the assuming borrower... in other words, it meant nothing.

Some day I'm gonna go to the public library to get a print of those old classifieds because some Bay Area Cool Aid Drinking Smugsters will likely accuse me of fabricating this story about all the used home listings with original mortgage terms listed with sq ft, bed/bath, etc. It was a floor for house prices (and therefore, Property Tax Assessments) that we no longer have.

What could go wrong?

BayArea says

SFH is king.
I don’t see any new ones going up

That is good for you, but remember, ANY of your neighbors can subdivide by right (due to SB9) and build another house on their lot. They're literally making more land in California...

EBGuy says

BayArea says

SFH is king.
I don’t see any new ones going up

That is good for you, but remember, ANY of your neighbors can subdivide by right (due to SB9) and build another house on their lot. They're literally making more land in California...

Sure it happens, It’s particularly common near downtown areas. However, it’s only an option on larger lot size plots which means older homes. Lot size have gotten smaller with time as new developments tend to have smaller and smaller yards.

WineHorror1 says

How much will prices decline?

I look at it this way. My family bought a townhome (3 bedroom/2.5 bath/2 car garage) that was brand new.

They bought it in summer 2016 for $187,000 and it is about 2 miles from the beach in the Florida panhandle.

I would say its fair value is $187,000 x 1.04^6 = $187,000 x 1.27 = $237,490

Right now older but identical townhomes are selling for $300,000. The peaked around $320,000 about 3 months ago.

I suspect they will bottom to $220,000 (not near $237,490) as any speculative asset (housing, stocks, crypto, etc.) always over-sells and over-corrects based on group psychology and herd mentality. So there will be a bloodbath like in 2008 to 2012.

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EBGuy says

What could go wrong?

I figure it will stay within the trend line when it drops. Likely bottom at or just above the last peak since it is in a highly desirable area (San Fran Bay Area). That means about a 30% to 40% drop.
;
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I remember back in Warren County, VA (Linden and Front Royal) in 2006 to 2012. An honest local real agent said it would take about 15 to 20 years for housing prices to return to peak levels set around 2006.

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It really depends what you price them in.

If you price houses in Bitcoin they are skyrocketing.

The Japanese are kinda befuddled at US real estate prices. Who woulda known Japanese real estate in Yen kinda looks inviting compared to US real estate. Now there's a government who really hates savers. The Japanese citizens were absolutely stupid for saving 10% on average for years upon years. The Yen is down about 18% vs the dollar from the beginning of the year and the Japanese government wants it to go down even more.

I guess that's still better than if you were counting on your Apple stock options.

Something different about this housing bubble is that rents are skyrocketing, which didn’t happen in the last one. So when I did my rent vs buy analysis before purchasing our home in TN, it still made sense to buy. Historically, I believe it’s rare or nonexistent to see rents drop significantly at a systemic level. Ultimately, everyone needs a place to live, so the demand for either renting or buying will always be there.

Any thoughts on this?

porkchopexpress says

Something different about this housing bubble is that rents are skyrocketing, which didn’t happen in the last one. So when I did my rent vs buy analysis before purchasing our home in TN, it still made sense to buy. Historically, I believe it’s rare or nonexistent to see rents drop significantly at a systemic level. Ultimately, everyone needs a place to live, so the demand for either renting or buying will always be there.

Any thoughts on this?

Agree, rent and inflation going up countering the housing crash that should be happening. Rates going up will slow down new buyers but isn't going to do anything to people with lots of equity without a 30+% crash.

porkchopexpress says

Ultimately, everyone needs a place to live, so the demand for either renting or buying will always be there.

Yes, as long as population grows and banks don't do fucked up financing to unqualified buyers. Don't think we'll see a housing crash like we did in our lifetimes again.

I don't think people realize how much money banks pissed away foreclosing on people. The banks totally understand what happened. We had a deal where a foreclosure had a contract on it, they didn't want to budge on some inspection issue. Killed the deal. Shitty construction and a pipe blew up during the winter when it was cold. They lost $80k on the eventual sale and more with carry costs (taxes, insurance, etc.).

If housing/employment hits the shitter I think banks will do more forbearance and work with the borrower to keep housing prices up. Remember banks are usually paid back in the first 2-4 years with amortization even during a bust. They're not in the business of land lording, so it's beneficial to not foreclose.

I cant help but wonder if we're going to serve a rash of foreclosures like '08. I think not. Not only are there fewer NINJA loans out there, the morgatge industry hasn't pushed ARMs in over a decade, most SHOULD have locked in a low rate by now. Plus a larger portion of SF homes are held by institutional investors compared with the last time. There should be a moderate uptick as COVID protections expire, but I don't expect nearly the carnage of the prior bubble.

I expect proces to drop a bit, then stabalize similar to 05 to 07. If people can't get top dollar, they won't sell unless they have to. Market will slow but prices will be buoyed by inflation.

The bigger question is when will wages finally rise? At some point the dam breaks and companies have to pay more for talent, it's just a matter of when that occurs. I think by Q3 2024 you'll start seeeing major salary increases among middle class wage earners.