patrick.net

"I don’t see this changing unless there’s some big infusion of new housing, but that’s not in the cards."

It's already changing. Sales volume has declined every month for a year. In San Ramon, for example, converters of 2 complexes are now offering incentives due to lack of demand. Nothing lasts forever. What more anedotes do you want? I've got plenty of them!

The problem with most people is that they look only at the rearview mirror and assume that things will continue the way they have been thus distorting their already high and inflated expectations.

You think incomes don't matter? How low can affordability go? 5% 2%? 1% whaere's the "tipping point"? Have we reached it yet? Arguably, it;s getting very close...

Face Reality:

Here's another anecodate for ya:

Out in Dublin, arguably one of the fastest growing areas in the Bay Area and has a reasonable commute to boot, there is a ton of new development. A year ago lotteries and drawings were the only way one could get their feet in the door. Broker participation was non-existent. They clearly didn't need it.

Now? Developers are begging to pay broker coop fees, offering plasma TVs, offering closing cost incentives, offering $5K to refer a friend, etc.

This isn't Sacramento. This is Dublin. A 45 minute commute to either SF or Silicon Valley.

I'm actually quite shocked how much sentiment has changed so quickly.

As you can see, just this area alone in TN is making the most out of an almost dire situation in some of the bubble stricken states. The message is clear. They can and will provide what CA, NY, and MA cannot provide, which are viable means to support a family in a traditional american way, meaning a house, garage, and a yard, and all at a price that a middle class or even lower middle class working person can afford without taking serious financial risks.

nomadtoons,

You've made some good points here, and I myself am looking to bail from CA, mainly for reasons of overall degraded quality of life and the high population density here. I found myself generally agreeing with you until I came to this part:

Of course I don’t expect CA to simply empty itself into the interior of the country since doing so will surely cause the real estate prices to crash. The 300% increase in baby boomers in 20 years will assure that prices, though perhaps partially deflated somewhat over the next few years, will stay high for years to come. It is the baby boomers that are most responsible for the spectacular gains in places like Florida, CA, and NY.

How will baby boomers "increase 300%" in 20 years? Baby Boomers, by definition, were people born between 1946-1964. All the Boomers that will ever exist have already been born, and as time passes, their numbers can only go one direction: down. Add to that the fact that the oldest Boomers are close to retirement age, and the trend we're most likely to see play out in future years is the "empty nest" syndrome, where Boomers will sell their needlessly large & expensive homes to trade down and move somewhere cheaper. There is some truth to the idea that baby boomers "are most responsible for the spectacular gains" in the big bubble states (because they are such a huge demographic group), but, again, it's not the NEED for housing that's been driving recent purchases --it's low rates, NAAVLPs and speculation.

What makes you think that the current RE bubble is permanent or that prices cannot crash? They have in previous cycles and no doubt will do so again. In fact, as others have pointed out, we are already seeing clear evidence of price reductions and skyrocketing inventory in places like SD & Sacramento. These may well prove to be the "canaries in the coal mine" for the rest of the Bubble coasts. RE moves glacially, and I like most others, fully expect this trough to take years to fully hit bottom.

@PS --fixed it for you!

"Dublin may be a 45-minute commute when there’s no traffic, but it gets much worse than 45 minutes often. It’s on the periphery of the Bay Area, and I agree that there’s some price risk in those locations."

True, but Dublin also has a BART station, the area has a lot of companies in its own right and I would hardly call it the "periphery" of the BA being that it's in Alameda County just over the hill from Castro Valey. Don't kid yourself...Dublin/Pleasanton/San Ramon is a highly sought after area with good schools and low crime.

"By the way, have prices actually dropped there, or are we just talking about a “free” plasma TV?"

Who knows? They don't seem to be selling much! I will say that the Crestview condo conversion in adjacent San Ramon was starting from the high 300Ks in the Fall to now the low 300Ks (1 bedroom condo)

Hi Davis Renter,
Well it is good to know someone else knows about the I-85 area. The ironic part is that the main reason I moved out to CA was that I am a graphic artist and found that jobs were more plentiful here, and the pay was higher. This was true 7 years ago, and even though the houses and cost of living was higher, the wages almost compensated, albeit it was still seemingly substandard to what I was used to paying in TN. So I didn't buy because I didn't see the value at the time. That was 7 years ago, and now the prices are even beyond being a value at all. The whole housing fiasco was a mystery to me until I realized that A: baby boomers had no savings and thus the housing boom provided swift cashflow for their possible relocation to places like AZ, WA, and FL. B: the onset of panic it caused in the younger generations who wanted to get a piece of the pie before " it was too late", at ANY cost. and C: the almost snakeoil salesman business it drummed up for lenders taking advantage of financially irresponsible young couples.
In the meantime, I have friends who either stayed home, or friends who have moved from here to other cities like Austin, Dallas, Nashville, Raleigh, and they seem to be doing better. A few even claimed that they were almost kicking themselves for not jumping at the opportunity before. One of my friends who lives in Chappel Hill NC simply bought his house outright and works at a engineering firm in Raleigh.
The way I see things happening is that for one, CA will NOT be affordable for decades. The same is true for NY. There is already a massive amount of out of staters in these new areas, and I only expect these new areas to grow not only in population, but in intellectual influence as a more diverse population from all over moves in. Interestingly enough, nashville has one of the largest Turkish populations in the country. It is also increasingly becoming a new area of intrest from other recent immigrants from Latin America and Europe.
When I tell Hard-core Californians that the biggest threat to their future isn't Asian competition, but rather other states that can easily take advantage of their unfavorable conditions for young middle class families by offering a more reasonable lifestyle, I get some very strange looks. Whether CA will eventually turn into the state with a 2-tier class system is yet to be seen, but the technoligically inclined, inventive, and educated and diverse CA we know now may not bear that resemblence in the future.
As for me, the odds are looking better all the time in my old home state. Thus I'm teetering on the eddhe of simply moving back and buy a home with what I have saved up for the last 7 years and be done with it so me and my family can enjoy life without the crushing mortgage we would face if we decided to buy here.
By the way, one of my brother's professors at UT Chatanooga was a former UC employee. The guy makes 20k less, but still claims he's coming out ahead and ownd an old victorian in downtown chatanooga.

Hi HARM,
Sorry about the lack of clarity on the part pertaining to the baby boomers. What I meant by that is the number of baby boomers moving into the aera will increase by 300%. Where did I see this? AT my local library in the refrence section. The report was 2 years old. Perhaps it is now out of date. That said. the baby boomer population is the single biggest chunk of the US population. They also have the most money. When they retire, they will have a massive impact on the economy, mainly in the transaction of something like 3 trillion dollars.
Where are they heading? to FL, CA, AZ, and other warm areas. These are the richest of the boomers, and will IMHO flood CA for years to come, and hence keep the prices out of reach for younger generations for years. Perhaps I am wrong, but in every instance that boomers made transitions in their lives, major economic changes occuured, from the massive urban developments of the 50s and the subdivisions it created, to now with most of them retiring in 2-5 years. Batten' Down the hatches!

In order for an actual crash (say a sustained >10% YoY drop), you will need higher mortgage rates in the 8 or 9% range, tighter credit standards, and loss of job-security.

PS,

Why are any of these things so out of the realm of possibility?

RE: mortgage rates in the 8 or 9% range, I guess mortgage rates have been so low for long enough that people are starting to think this is *normal*. I can remember 18-20% rates in the early 80's.

As far as tighter credit standards, we're already seeing this happen. It's mostly just jawboning/saber-rattling by the Fed at this point, but they have the power to put some teeth into their "recommendations" if they so choose.

Loss of job security: Well, when you consider that some 50% of job gains over the past 5 years is directly or indirectly related to the RE boom, I think we can all picture what may happen when that mighty job-creation engine begins to stall. It doesn't take a lot of imagination really.

With Vin Diesel playing the part of Heli-Ben!

Fuck, just when i think I've broken my blog addiction DinOr comes up with this! You are the devil Sir. :evil:

The main advantage of South Beach for me is that it is within walking distance to my office in SF.

Well, then you have the answer. :)

If you can afford it you can surely buy. Luxury properties (higher $/sf) have a market of their own. But if the rent/buy relationship makes sense even without factoring-in appreciation, you should buy.

I have brought up the idea of Boomers moving into senior housing

Davis_renter, you are dangerously close to plagiarism, I came up with the "Autumn of Love" boomer retirement home last year. Picture it, Hendrix at the Fillmore posters everywhere, golf carts that look like 65 Mustangs, daily functions (orgies), boomer medications given in little plastic bags reminiscent of "dime bags". Daily reaffirmation of their greatness. Led Zep 24/7, tie dies, didn't go to Woodstock? Don't worry, at Autumn of Love everyday is your own personal Woodstock. :eek:

I don’t think the people who were standing in line with me at the condo sales offices in SF were median-income. One guy I chatted with there is a partner in a law firm, for example.

Lawyers can be very well off or they can be in serious financial problems. :) I have lawyer friends who happen to be horrible investors.

Why do you assume that a law partner is necessarily wealthy?

My point is that the fact that housing in SF is unaffordable to median-income households doesn’t mean that prices will crash.

This is why I never use affordability in my argument. Rent/price relationship and cap-rate/bond-yield relationship are sufficient.

But affordbility issues do help create the tipping point.

nomadtoons2,

There's no disputing that boomers constitute a huge chunk of the US population, that as a demographic group, they have a major impact on the national economy, and that many of them are rapidly approaching retirement age. These are facts. The rest beyond that is mere speculation.

How do we "know" that Boomers are all heading to FL, CA, AZ, and other warm areas? How do we "know" that the rate of net inflow will increase by 300% over the next 20 years? Regardless of what polls or other data these forecasts are based on, Nobody can project that far into the future with perfect accuracy.

I'd also like to point out that in order to tap all that vast homeowner "wealth" by selling/relocating, the retiring Boomers will need SOMEONE ELSE TO BUY THEIR HOMES. If all the younger buyers are "priced out", how is this supposed to happen? I have an idea: through much lower prices.

As far as Boomers go, well in the case of my parents and many others, older people are simply more healthy and vibrant than they used to be. Thus I would expect soon-to-retire boomers to have at least another 10-15 years of very active lifestyle and the typical demands of the average american. When they finally bite the dust, it could be an opportunity, or it could be a disaster, but this won't happen for a long time.
When I was home last time I saw a LOT of phamplets for retirement communities in FL. Florida will be screwed come the end of the boomer era since there are literally entire cities built t serve retired people going up every year.

"Sounds like I need to remember to bring my passport with me…

Kidding aside, I know it’s a good area, but it can be a tough commute."

You think Dublin to SF/Silicon Valley is brutal? Try Tracy, Manteca and beyond! There are thousands that do it. Makes the Dublin commute seem like a walk in the park ;-) And Dublin even has BART (soon to be 2 stations).

@PS,

I've often heard the reasonable argument that "desirable" areas are less susceptible to nominal price declines during RE busts (Jack makes this point all the time with his "intangibles" posts). Even so, I'm skeptical of any blanket claims to the effect that "my area is immune to price declines because _______(fill in the blank)".

As has been said before so often, none of these areas were completely immune to price drops in prior busts (though I believe NCAL may have fared a little better than SCAL in the early 90's). Nor do I believe any of the above are necessary preconditions for the bubble to burst --though of course they would help.

As Peter P has pointed out time and time again, in a speculative bubble all you need for a bust is for prices to fail to keep rising. When people are already overextended on NAAVLPs on the assumption of forever rising prices, flat prices in and of themselves are a disaster that can trigger a panic sell-off. Since only a small % of the total housing stock actually gets sold each year, and it is this small % (recent comps) that determines prevailing "market price", a relatively small amount of panicked speculators can trigger a relatively big crash, just as these same speculators were able to trigger bidding wars and double-digit price increases on the way up.

Why are any of these things (higher mortgage rates, tighter credit, loss of job-security) so out of the realm of possibility?

I never said they were out of the realm of possibility. I just said that I believe these will be necessary for the desirable parts of Cup/MV/Sc/SV to crash.

PS, all these things lead to one another, and they reinforce the downtrend of one another. All we need was a change of prevailing psychology, then the fundamentals will be changed by the wonderful power of reflexivity.

One clarification: any desirability would have been discounted by the market long ago, so it does not have any "value" advantage in the future.

One may say: but the demand for desirable places will increase when prices "dip"

I would say: do not judge tomorrow's market with today's psychology

But will “tomorrow” ever come? Would you care to predict when I can get my SF condo for less than what I would need to pay now? I’m up for another bet with you…

I will bet a modest sushi meal if you will actually take it. :)

But will “tomorrow” ever come? Would you care to predict when I can get my SF condo for less than what I would need to pay now?

@Face Reality,

Please see the August 2005 thread: FuckedCounty.com
http://patrick.net/wp/?p=55

...I ask everyone to name which CA counties (if any) they believe will see year-to-year nominal price drops by end of June, 2006. Turn in your predictions by 12:00 am, Saturday, August 13, 2005 –after that it won’t count. And no “do-overs”.

Someone mentioned above how that the desireability over value disapated a long time ago. Figuratively, perhaps. But as someone from one of the "Red" states, there exsists a certain type of fear and psychology that intertwines in the political mindset of many hardcore californians I've met here. A fear of these flyover regions that they've read about and seen movies, made by hollywood, that portray southerners in particualar as backwards Haysees. Sounds ridiculous? well the number of insane comments I hear from sound minded people who have mdae comments to me like:" We're the good guys here, those people in the rest of the country are about 10 years behind." Seriously. One of my co-workers made this comment. It is this common underlying perception that keeps people here and with a certain degree of fear that IF they do not buy, then they might have to consider other areas where perhaps some people might not agree with their political and long grounded foundations of right and wrong. trust me. There are TONS of people in these overpriced areas that will cut off their arm rather than think of living or visiting an out-there region. Sound silly? Well NYC has some of the nastiest weather in ther country, yet the real estate is the highest on record.. so perhaps the weather isn't a factor. Secondly, are there ANY tradionally liberal areas that ARE NOT overpriced? Not a single one. nada. zero. So that aught to tell you something. Ad to the fact that prices acclerated the fastest after the election and bingo- The red state blue state invention did it's trick to rekindle old hostilities and further strike fear into the inhabitants of the overpriced areas.
Meanwhile, new areas like Austin and Memphis are fast becoming the new young person liberally minded artistic communities. Whether they remain affordable is yet to be seen. I highly doubt it.

Face,

You'll note that most people (including myself) predicted very modest nominal price declines for June, 2006, because I believe we will only be at the START of a very long correction cycle that will take years to fully play out.

But I want to have sushi anyway. Let's bet something. :)

The free market will determine the true fair commission.

But first it must be a free market.

OpenMLS, Banzai!

@HARM,

As has been said before so often, none of these areas were completely immune to price drops in prior busts

I think the more sapient point here is that truly upper income communities (like Atherton, Belvedere, etc.) are far less exposed to price drop effects *in terms of impact on wealth*, than the rest. If an Atherton mansion sells for 3.85M instead of 5.5M, that's a huge amount, but it has less effect on the owner's wealth than the 1.2M McMansion selling for 850K--in fact the McMansion owner may be forced to walk away and take the default while the Atherton guy has old money and real assets, and often owns a much larger equity stake in the house (or he has a private wealth manager who has helped him to diversify his assets so as to marginalize his home-equity-wealth exposure).

As to Realt-Whores making commissions.
unfortunately, like stockbrokers, they rely upon th commission for income.

Unlike the realtor(tm) broker crime family syndicate, stockbrokers operate in a largely open market. Without a cartel, they have faced very serious competitive pressures on transaction fees; thus the flat-fee/flat-rate brokerages.

So most transactions (pretty much all retail transactions) are unit-priced. The lexus-leasee cartel instead gets to perpetually price on a deal-value rate. They *only* get away with this by breaking US antitrust laws and using their lobbyists to keep from getting brought to due justice.

In case anybody was wondering, the partners at my husband’s large, first tier law firm make between $300,000 and $3,000,000 dollars. So they can be quite well off or barely able to get their foot in the door of a nice SF condo (at 3-4x income).

It really depends on whether the firm is making money. Some specialties really got hit hard by the tech bust (e.g. immigration). Some are doing really well.

PS, there is no particular problem with the "resilience" theory. However, it may not be immediately clear that which market segment is resilient.

On the other hand, resilience may not imply that prices will not crash; it may merely suggest that prices will rebound and exceed prior peaks sooner.

Here is a NYTimes article on online services which provide much of the info horded by realitors:

http://tinyurl.com/e4bfr

Specifically zillow.com and redfin.com

@zeke --thanks for the article!
Great stuff. Hopefully this will be the first nail in the coffin for the Realt-Whore MLS cartel.

And, remember, you are entitled to it.

They have earned their equity inflation too!

SQT,

I almost have to wonder if that wasn't a gag-listing:

I have two week before i loose my houses
Ok, buddy i'll be right over to "tighten up" those houses.

No Mortgage Brokers or loan officers Please, I cant Refinance, I am a broker Myself.
Huh?? You're supposedly a "mortgage broker", but you can't even refinance yourself?

I have two week before i loose my houses

I know this is a no-no, but I can't refuse:

loose Audio pronunciation of "loose" ( P ) Pronunciation Key (ls)
adj. loos·er, loos·est

1. Not fastened, restrained, or contained: loose bricks.

(apparently passing the rigorous examinations to become a mortgage broker are only marginally harder than become a realtor(tm))

Tip: For zekes' NYT article (above), use BugMeNot.com.
An excerpt:

Redfin, though less well financed than Zillow, is perhaps even more ambitious in its aim to take on the work of agents. The site, which maps listings with other sources of real estate data for Seattle, added a feature last week that allows a visitor to buy a property online.

Redfin shows the potential savings on every listing. For instance, the "direct savings" on a $699,000 house currently for sale in the Queen Anne district in Seattle is $13,980. The buyer gets the money at closing so it can be used for the down payment or to pass to the seller if it was used to sweeten an offer.

Has anyone out there personally ever used any of the online MLS/Realtor competitors (ZipRealty, Help-U-Sell, Zillow, Redfin, etc.)? If so, what are your impressions?

I have only used zipreality but never bought. I used a realitor for a while and got access to cleanoffer.com which gives me good, accurate mls info in Marin. With that, and a tool like zillow I don't see much value for a realitor...except the contacts for closing, inspecting, etc... However the way the system is set up unless you find a house for sale by owner, it is hard as a buyer to get any price reduction by not using a broker.

Since the seller realitor will snag the full 6% (which basically gets passed on to me the buyer) and will split it with my agent if I choose to go there, there is really no benefit in not having a realitor...unless one of these online realitors gives you 2% back of their 3%.

In such a scenario I can definately see the value of one of these brokers.

But to answer HARM's question, I've not really used them.

Regarding the "buying without an agent, but seller has one problem": what I've done is set up an Excel spreadsheet (as any informed buyer does), but added in a commission structure iterative calculation to reflect a reduction of the commission structure in my final offer price. This has worked for me in every purchase I've made, but then again I've always walked away from ridiculous situations (like multiple offer bid wars).

Zillow.com is great technology (using googlemap), but I see one fatal flaw: the data is market lagging. Perhaps this holds up well in a normal, slowly rising market, but it is way off for the present.

I checked a home I've tracked in Corte Madera. Zillow shows it valued at 1,333,875. This home listed for 1.4M late last spring, and sat without a single offer. It eventually relisted 3 times, the last for 1.15M, and still didn't move. My estimate is the home is worth 850-925K in a normal market, but it's been driven up by the silliness of all the comps in the neighborhood over the past couple years. In fact, I really think they're just averaging comps with some dimensional aspects (probably sqft and #BRs), but I'd have to spend more time there to be sure.