patrick.net

It’s a ratchet effect, or ’sticky’ price-fixing effect.

This same effect is why the correction will be less-than-satisfying for many of us awaiting a good timing opportunity to buy in. When price-fixed sticky assets start to deflate, they do so in an uneven, unpredictable, and sometimes counter-intuitive manner. Although the overall trend will be downward, expect to see lots of annoying little up-and-down perturbations as the air comes out of the bubble.

Fundamentals will kill the overpriced Bay Area housing market.

Plain and simple.

You cannot defy the laws of financial physics forever. Sooner or later reality will exert itself.

Perhaps the best that we can hope for is not a return to sanity, simply because it probably never existed in Silicon Valley.

I look forward to a climate of less mass psychosis, with a decrease in--or
perhaps attenuation of--neurosis here and there.

I think we could all live with that.

So is it a demand for a $hitbox-by-the-sea?

Somebody just paid $3.5 million for a narrow hole between 2 buildings at Bondi in Sydney... http://news.ninemsn.com.au/article.aspx?id=88714

I guess it's:
1) demand for desirable locations, such as water views, better neighbourhoods, etc
2) entire cities and areas where the best jobs are, e.g. LA, Sydney
3) new ethnic groups may make a difference, e.g. Sydney doubled partly due to influx of capital from Hong Kong, Melbourne stayed flat, but then caught up probably via a fan-out effect later
4) sometimes just local, possibly even irrational beliefs in property as an investment vehicle, which varies from area to area - N. America has enormous differences in prices over its larger cities, say over 1 million people - I wonder if it just doesn't occur to people in some areas to exploit property in that way, apart from recession effects, such as in detroit, etc...

I just read my last post again. Sounds like I'm losing my marbles.

I think the only thing I'm trying to say is that this sh-t is coming to an end soon.

Thank god.

Nice to see all the good posts.

Regarding Peter P's remarks:

first, I hope you are right that Asian elites will not be able to prop up house prices in the bubble here, like they couldn't prop up the prices in Tokyo and Shanghai. We need a housing crash here. But compared to places like those, this is still a cheap place, and our crowded neighborhoods are the "wide open spaces" compared to the canyons of Asia's crowded cities. Maybe, some real estate crashes in places like Shanghai can pull some hot money out of our market. I suppose that a drop in U.S. demand for Asian-built junk and gadgets could lead to such corrections in Asia. But these are macroeconomic stuffs that are as confusing to me as they are facscinating. We'll see.

Now, regarding your remark that this is not an expensive place, well afraid not. You are comparing San Jose to other high tech employment centers. Would that be high tech employment centers in the US, or high tech employment centers in Asia?

Now, in comparison to other urban places in the US, yes the prices for electronic gadgets and crap and imported clothes and mass produced "groceries" are nearly the same as somewhere like Tulsa. But hey, a of lot stuff costs a lot more here: medical care, "good" childcare, preschool tuition, the going rates for vehicle maintenance, gasoline. Ever try to buy a car here in San Jose? No matter who close you get to the red-state price, that very high sales tax makes the car cost a whole lot more. Probably, it is very much linked to the high cost of housing here. And yes, rent is high here, compared to the red states people are leaving for. Maybe not high compared to your "tech centers", but that's only a small part of the USA.

But compared to places like those, this is still a cheap place, and our crowded neighborhoods are the “wide open spaces” compared to the canyons of Asia’s crowded cities.

It is not exactly easy to immigrate here legally. New Zealand and British Columbia have much better environments for much less than here. And they are relatively easy to migrate.

Visit those places and you will wonder why we are overpaying for this crappy place called silly valley.

Would that be high tech employment centers in the US, or high tech employment centers in Asia?

Adjusted for income, rent is quite cheap here. A family with two income can spend less than 1/8 of their gross income on rent. This means that a single-income family can still have a reasonable 1/4 rent-to-income ratio.

But hey, a of lot stuff costs a lot more here: medical care, “good” childcare, preschool tuition, the going rates for vehicle maintenance, gasoline.

Medical care is expensive everywhere in the US. Childchare is not necessary if one parent stays home. The loss of one income is not as dramatic as one would suspect. You get a lower tax bracket, more deductions, and lower employment related expenses.

Ever try to buy a car here in San Jose? No matter who close you get to the red-state price, that very high sales tax makes the car cost a whole lot more.

Ever try to buy a car in Asia? :) I heard that some places charge more than 100% tax on vehicle purchases.

Interested parties will always try to explain booms with reasons that suggest sustainability. Trust your nose. If it does not smell right, it is probably rotten.

I just check the numbers in viewfromsiliconvalley.com, it seems that San Mateo county is going down while Santa Clara county is holding up. My explanation: Santa Clara county has a higher sheeple-to-population ratio. This is intuitive.

I come down in the middle of the Silicon Valley comparatives. I am generally optimistic and bullish on SV *over the long term*. I do think SV is sustainable *given a significant RE correction*. In fact, I don't think that a correction is avoidable, nor should it be avoided even if possible. It is the very desctruction that such a correction causes that will breed the next wave of creation. Creative destruction. I have an entire discussion focused on SV at http://randolfe.typepad.com/randolfe/2006/03/is_silicon_vall.html Of course, a lot could happen to end SV's run, and IMO many are doing their best to destroy this place.

Interested parties will always try to explain booms with reasons that suggest sustainability.

Bubble-booms can only hold up so long as their supporting psychology remains unshaken. I hear a lot of rumbling lately; could be psychologies shaking.

I was listening to some realtors(tm) talking today. Even THEY were talking about the upcoming correction. This is the first time I've heard THEM admit that there will, in fact, be some kind of correction. Of course this discussion was taking place in a 1400 sq ft chitbox in a questionable part of LA for sale at $879,000. So, yes, rumblings.

Creative destruction.

Exactly. I do believe in this.

Bubble-booms can only hold up so long as their supporting psychology remains unshaken.

In fact, bubble booms and supportive psychology form the reflexive feedback loop. Bubble bust and fear will form another feedback loop. And it will be ugly.

So, yes, rumblings.

Mumbling for now. :)

The guy who raised the price $10k on the unit in my building got exactly ONE person today at his open house (this unit is right down the hall from me). Heh. But I'm sure it was just the bad weather ;)

But I’m sure it was just the bad weather

Must be the weather. Come spring and there will be bidding wars.

(Will sellers keep bidding lower prices for few buyers?)

Fun and games in Marin:

Stroll into one of myriad new construction McMansions having their weekly open house -- the 3500sqft, 3 car garage, $2.6M+ kind -- take along wife and child. Since you'll be the only ones there, tell the agent you want to walk around and get a feel for the place; imagine yourselves living there. Sit on the staged couch, lay for a while on the staged bed. Even take a break in the staged bathroom, if so inclined.

On the way out query the agent about how many serious buyers there have been; how quick will the dream house go? Really? Maybe people are waiting for prices to come down? Hmmm, maybe we should wait a while too. We'll keep our eye on this one on greathomes.org. Thanks for your time. No, we don't have an agent yet. We'll probably just keep looking ourselves, but thanks! We're in no hurry.

Beware the ides of March

Beware the ides of March

But April is the cruelist month.

Whoever says this is perhaps naive or does not have much of knowledge in history.

I refrain comment, for fear of being branded. However, in the spirit of cross promotion, anyone interested in applying genetic algorithms to portfolio optimizations is welcome to visit http://randolfe.typepad.com/randolfe/2006/03/genetic_algorit.html

Now back to the regularly scheduled bubble...

I refrain comment, for fear of being branded.

I thought you were already branded as a left-wing market fundamentalist. :)

RE: left-wing market fundamentalist

Now imagine Stiglitz joining the IMF (not World Bank) and wearing a hat with the IMF logo on it. :)

I doubt 666 refers to a date.

And so have been the doomsayers of the monster housing crash. Maybe those momentous events simply don’t happen all that often…

Wait 2000 years before you declare our failure.

Randy H Says:

"I come down in the middle of the Silicon Valley comparatives. I am generally optimistic and bullish on SV *over the long term*. I do think SV is sustainable *given a significant RE correction*. "

When Randy mentioned Silicon Valley it reminded me of a conversation I had with a friend this weekend. My friend is one of the few third generation valley residents (his Grandparents were farmers and his Dad and Uncles converted their families and other families orchards in to office parks). My friend feels that the SV real estate will drop more than the Peninsula and SF since there are less third generation residents like himself that plan to stay in the area forever and live near their extended family. How about a “What part of the Bay Area will drop the most” topic?

I thought that '666' was in reference to a person, not a date nor a place. On this website, this person states his case about who he thinks that person is. Check it out:

http://www.bushisantichrist.com/

kinda weird...but kinda spooky. I mean the terrorists used familiar American numbers 911 to put together a huge attack. Every American kid knows the numbers 911....they also know 666....but of course that would mean 777 would be our lucky day! Back to bubbles...

Bap33 said: .. maybe we should be ready for anything on June 6th...it will be 6/6/6 … and that might be when the really bad atomic type stuff starts

The Hebrew prophet Ezekiel, writing around 537 BC, predicted that in the last days, there would be a great war involving not only Islam, but dragging an unwilling (Rus) Moscow along for the ride, as if God had put hooks in its jaws, the prophet said. Leading the Islamic alliance, according to Ezekiel, is Persia (Iran). Together with the Islamic nations of North Africa and the Mediterranean Middle East, Ezekiel says they will attempt to invade the nation of Israel. In Ezekiel's day, there had been no nation called 'Israel' for almost two centuries and no sovereign nation of Israel would exist for another 2500 years. There you have it - Iran, Russia putting us on the road to Armageddon. Anyone want to be on a couple of super tankers wedged in the Strait of Hormuz?

- be on a couple
+bet on a couple

Any astrologer in the audience?

Seriously.

I hope you're all kidding about the numerology stuff. The bushisantichrist parody site was amusing, but really, people...

@Peter P,

Ok, you got me on the million dollar Malibu trailer on rented land. Even so, I'd say that's a weird exception. Plus, the morons who paid a cool mil were no doubt paying for the location, not the 1970's double-wide itself. I see a lot of new mobile homes being built out in SBO-Riverside, and they're going brand-new for not much more they were 5 years ago.

There's not much of a bubble in construction/raw materials.

hmmm, what about 6/6/1906, 6/6/1806, 6/6/1706, 6/6/1606, 6/6/1506...

and that the Julian/Gregorian calendar wasn't in use at the time Revelations was written... although you never know with prophecy, do you?

weren't they talking about the Roman Caesar of the time, persecuting Christians? Can't imagine why he'd want to do that, heh....

Then the morning and the hangover comes. And the bearded lady in your bed shocks the hell out of you. She is having your baby.

Fear.

Lawdy. Carnivalé.

Looks like every housing article posted on this site is finally negative.

As the laws of financial physics begin to kick in, and fiscal centrifugal force shakes the market, the weak hands are being shaken out while the greed and hysteria are mercifully coming to and end.

Thank god.

Looks like it's almost time to bust out the Dom.

Where will all the quick-buck-artist, wilted flower children of the great housing mania of 2000+ go? Precious metals?

Who cares...

Michael Holliday,

I began informally tracking the "article sentiment index" almost as soon as I discovered this website about 18 months ago. There was actual frustration on my part b/c so much of the mainstream media coverage would start by acknowledging the possibility of a bubble (and perhaps a serious one) only to conclude that things are still "rockin and rollin" then basically dismiss a crash as paranoia or wishful thinking on the part of JBR's. Although there was a marked change in DEC 05/JAN 06 it has only very recently gone almost completely bearish with virtually NO ONE calling for a continuation of outrageous "appreciation. Statements like, "15% for OC is already in the bag" are looking more like damage control and in the face of overwhelming evidence to the contrary there's always a Bull somewhere pointing to a "last hurrah" bidding war and thrusting it in your face as proof positive.

Harm,

How much money has been made off of the "anti-christ"? From death metal albums to movies and games etc. Whoever this guy/thing is should be getting SOME royalties! Perhaps this is why he/it is so ticked off.

Btw, I believe it's a LAND bubble. Lots in our "up scale' neighborhood top 80K. Then there's about 20K in SDC's (up from 16K last summer). So even here in Oregon you're upside down before you even start pouring the foundation. My wife and I bought our first home in the late 80's for around 69K. That was on a 10,000 sq. ft. lot which was the standard here for years. The "up scale" lots are about 7,000 sq. ft. Dimensional lumber prices did go up during the bubble and certainly post Katrina but not nearly enough to justify 2004/2005 asking prices. The trade pub. that posts lumber prices is called Random Lengths if you're curious.

Good post DinOR.

I think a segment of our working population are addicted to bubbles now.

I think the psychology of the Nasdaq bubble simply moved into housing and found its pathological expression there.

Do you think gold & other precious metals will be the new thing?

You can alread hear the hype about "all the gold ever mined could fit into..." and "the price to mine silver is..." etc.

You gonna bust out some Dom soon?

Maybe a Dos Equis is all I can afford but if the pickens get good, maybe I'll ditch Phoenix for my home town of San Jo.

We shall see!

I'll be honest... Every day that I have to listen to depressed, miserable, overworked people bitch, complain, and moan about their life of whoas, mostly concerning the high cost of living, the high cost of housing, and the loopholes they have to jump through to just live in California, the more I realize that my ultimate decision to go back to my home state of TN and move out of CA was a wise one. I'm so tired of all the silly little under the breath statements about "the bible belt" and those conservatives- whoever they might be- and this and that, and how GREAT the weather is here despite the fact that for 3 years solid, it's rained all damned winter long, and how much culture there is, and how it's all worth it.I fail to see compelling evidence that the intelligence, natural beauty, or diversity is that diffrent here from anywhere else. We ALL have our own perceptions of what a truly diverse area is, and if you make a statement that "there's too many bible bashers there", then you yourself have failed to comprehend the very word " diversity". You must learn to be truly tolerant and open to ALL forms of religion and opinion.. after all, isn't that what SF is supposed to be about?An open minded mindset? If you fit in the above classification, then perhaps you would be better off to simply claim that the local character of certain california regions fits your limited perceptions better than other places. That would be by far more accurate.
What really pisses me off more than anything is hearing people say" golly- lookit' what 300k will getcha' in Palooka Alabama! I could buy 10 of em in a row! Listen. 150k.. 200k... 300k is SERIOUS money in these areas. You go in there sashaying your way around- the big Californian or New Yorker, shell-shocked from years of unrealistic housing prices, and lo and behold- a 200k house with a yard! So it sounds cheap cheap cheap! Forget the local character... maybe you can ignore the so-called ignorant ways that you project on the locals. Perhaps a little coffee shop there.. a little coffee shop here, and maybe.. just maybe it'll look like San Francisco! This sort of crap is what I see every single time I visit Nashville. There's a whole slew of neighborhoods absolutly full of Californians. They live in the most pricey part of town. They are moving there by the thousands.. and they are making the real estate prices go up up up, not because there's a limited supply, but because Californians will pay anything, without haggling on a house that they percieve as "Cheap" by their CA real estate scales, but expensive by TN standards. All I am trying to say here is that I feel that CA, NY, MA, etc muddied there own water. If they want a solution, then the answer isn't to go and start round 2 in another state. I think the change for TN, NC, TX, and VA is GREAT. I see a very bright, diverse, sophisticated, and healthy region coming of age where the other traditional regions are going to have a serious decline over the next several decades.. in essence, CA and NY are the next Detroit, with an industry based in the comfort and retirement of old farts, while the brain power will be long gone. But for those that are simply moving there because it is cheap, and hoping to simply ignore the local traditions and customs, then please stay in your little hovels in SF and LA.
Seriously, I'm just about fed up with all of it. Sorry for the rant. I've had a lot of thinking going on this weekend.

George,

Your "bar metaphor" is nearly perfect except you left out the folks that "know their limits" drink responsibly and left before the only people on the road are cops and drunks. The ones that "cut themselves off" to post their observations on the housing crash blog?

Michael Holliday,

Peter P and others that track precious metals would be a much better resource than myself. I have a lot of things to track and I do not believe trading gold is a casual undertaking. You need the desire and commitment to become a "student" all over again. At my age (late 40's) I'm not sure I have the energy to be the new kid on the block. Additionally I don't really know any commodities guys personally so I don't have an "in" at all (no one that owes me favors anyway). Also, with 2 daughters in college I don't have the liquidity to become a professional traders "new best client" or his "go to guy".