patrick.net

Skibum,

The types of listings that I believe I was referring to belonged to "Rip Van Flipper" where it looked like the guy had slept for a hundred years woke up all of a sudden and decided if everbody else was makin' money then he should be able to cash in too! I think Randy H would refer to this as a "me too" listing. Just throwing my hat in the ring kind of a thing. Some of them I've seen didn't even bother to mow the lawn let alone slop paint on. Now that's confidence!

Peter P,

"There will be heartbreaks, lots of them"

I couldn't agree more. It may well tun out that other than "cashing in" and walking away (or staying put on the sidelines) that it's ALL heartbreaks! I was reading that over 1/2 of the mortgages in the country are under 3 years old. My guess is that if someone went to the trouble of doing a re-fi that they went to the trouble of taking the equity out. People keep harping on equity like it's a totally personal thing. It can be, but if your neighbor has none and he's selling b/c of it that won't be of any help to you.

Skibum,

You bring up some good points. Who knows how much equity extraction has gone on in some of these neighborhoods? In more traditional times it would have been limited to the incomes in those areas, but now with shady appraisals and creative financing it just may be possible that someone actually owes 1/2 mil on a South Central bungalow! I'd believe it! I'm sure we'll hear "poster child" cases as this unravels but some of the asking prices appear to an Oregonian anyway that they were just drawn out of thin air.

DinOR,

Good metaphor to the equity markets circa 1999-2002. Similar to that fiasco, what I mean by "soft landing" zones is simply that parts of the BA will probably come out with between 0% and 15% nominal losses (bigger real losses as infl rises). It's the dot-coms of houses that will see the +50% nominal losses.

Take a nice, not super wealthy but quality neighborhood like Menlo Park west of El Camino. Good schools, coherent community, lower turnover than nearby Redwood City or Mountain View, and the bulk of housing stock is owned by very high income families with significant wealth beyond just their home equity. As prices drop fast in Redwood City, prices in Menlo Park will be very sticky on the way down. Many people won't have to move in a bad market because they can afford to wait it out (not all, some will leave for logistic job reasons and sell off the peak). But the hold outs will keep inventory down and prices higher for longer. At worst, nominal prices go flat and then start to dip slowly as the normal turnover starts to produce inventory.

In the shorter term, prices may actually go up in places like Menlo Park. I'm seeing this in parts of Marin right now. What is happening is people are paying a premium because of the "me-too" crap that's hitting the market in droves. If I just looked at 9 houses in Redwood City for $1.2M, and all of them are crap, then I see a $1.25M home in Menlo Park that is _comparatively_ very nice, me and 2 or or more others bid on that, perhaps even a small amount over (say $1.28M). I think this is the Spring Bump Realtors(tm) will crow about, even while ignoring the crash going on around them. This is also a sign of a soft landing for Menlo Park.

*Note, I'm not looking in Menlo Park, just extrapolating recent Marin experiences to the Peninsula (and I used to own in Redwood City).

Scott,

October has been the host to several crashes (while epic) also sporadic. Just about every April sucks. Tax time, etc. Then it's, "sell in May and stay away" the summer doldrums.

skibum,

Just throwing my hat in the ring kind of a thing. Some of them I’ve seen didn’t even bother to mow the lawn let alone slop paint on. Now that’s confidence!

I have seen way too much of these in Mill Valley. I have come to loathe Sundays because I get to see about 1:10 (optimistically, more like 1:20 these days) reasonable homes to crap. We're talking about serious crap. Leaks that haven't been attended to since the 1950s kind of stuff. Unretained slides 5 inches from the foundation. Neighbor encroachments that have long since become legally permanent (I saw one where the neighbors built a garage 80% on the for-sale home's front yard, but the absent owners never complained, so now it's permanent). Or the famous Mill Valley "42 steps up to your front door" cliff dweller, but with the added feature of 40 year old rotten timber steps that are so bad you have to go to REI to buy hiking boots just to get to the front door.

These things usually pop on the market at $1.3M+. Zillow shows, if anything, that they paid an order of magnitude (that means drop a zero) less. These homes will drop, or be taken off the market. No one is buying them. I've tracked about 20 of them now in Mill Valley/Corte Madera. None have sold from what I can tell since last Fall. A few have fallen out of escrow, but none have closed.

HARM, sorry for the OT comments. I exhausted my creative side earlier in my short Haiku attempt. Let me direct any investment-minded discussion for the week here if you want to talk ETFs and hedging against the RE bubble, among other things.

Guys,

I request again. Shouldn't we start a sticky thread to post our anecdotes, experiences - the RE market as we seet it. No predictions, no guesses, just report on RE in BA.

Maybe I can start my own blog to do ONLY that.

Mine is not Haiku...it's a sing-a-long!!
Now everybody...to the tune of the 60s show Flipper!

They call him Flipper! Flipper!
Faster than lightening
We all can see
his idiocy!

They call him Flipper! Flipper!
Isn't it frightening
Creatingtroubles
inflating bubbles!

Here's a different tone...

Let those specuvestors
Those lying jesters
Californicate
On fudgepack Mountain

And another tone...
Dedicated to all of you at Patrick.net :P

Brilliant blogging bears
Peraphrasing praise in prose
Hoarding Hahas happily

Randy H,

Going into this thing I think we all had a sense that there would be one area of the country that would somehow be "immune" or less prone than all of the others. My guess early on would have been New York, but when Boston started imploding it became obvious the "spoiler" would not come out of New England and all eyes and $'s focused on the BA. I will differ slightly (and respectfully) that the BA in general will see a downturn. Because some will have net worth beyond their homes isn't going to make it any less unpleasant.

To BA Or Not To BA,

I don't know WorldPress well enough to know how to make a sticky thread. I know Patrick can make links, therefore he could just link to a specific thread from the main page. What I fear is that many just have the blog page bookmarked (http://patrick.net/wp), so they'll never see that "sticky link". Also, people using RSS feed readers will miss the sticky thread, as will anyone jumping here from syndicates (automatic links from other blogs).

You could start your own and just drop in links here time to time and put out a request that everyone else here with blogs link to you. I recommend either Blogger or Typepad as fast ways to start up a blog for minimal HaHas.

Randy H,

What I meant to say is that I for one am not going to feel in the least bit guilty for getting clients out of REIT's early on and talking as many as would listen into not buying homes from 2004 on just b/c a few high end neighborhoods out of an entire country were spared. I feel bad that they happen to be in your area but look at how many doors it WILL open!

No haiku. Just a realtor's e-mail. Isn't he honest?

"Spring is here and we are already in day-light saving hours, but the weather is unusually wet and we are breaking records with consectutive days of rain. What this weather does to the market is forcing some sellers to delay putting their homes on the market, perhaps due to unfinished work and try to maximize the weekend open houses in better weather. Home inventory in most areas are higher than what it was last year and expected to increase in the next 2 months. Despite the wet weather, more buyers are getting into the market but on the average. The average DOM (Day on Market) has increased compared to last year. The average percentage-over-asking-price statistic is still over 100% (buyers paying over asking price) for cities such as Sunnyvale, Mountain View and Santa Clara; but in Cupertino, the average was under 100% in both January and February. The interest rate has gone up and will reduce the buying power for some buyers. Coupled with the cool-off period and price adjustments, we are in a neutral seller/buyer market. If you have not come across the 'perfect' home or are still waiting on the side-line, pay attention to homes that have just reduced price or have been on the market for over 2 weeks, chances are the sellers are more motivated and willing to negotiate."

I'm surprised to see this:

"but in Cupertino, the average was under 100% in both January and February"

I thought everyone wanted to live in Cupertino, no? Condos in Cupertino should've appreciated another 50% by now.

http://tinyurl.com/o2h2v

Insurance group: Area home prices could slump within two years
GREATER CHANCE OF DECLINES IN EAST BAY, S.F. AREA

I believe that OLDER neighborhoods, not necessarily richer, will have a softer landing.

It is a myth that Los Altos doesn't crash, down here in South Bay, Los Altos and Los Altos Hills crashed the hardest in the last round, down more than 25%. These neighborhoods are already looking at a much thinner support group.

I quoted a few months back the historical data of median price in different neighborhoods, Los Altos Hills and Atherton both crashed in 2001, coming down in price as much as 33% in 2 years! Then they got saved by the credit bubble.

Older, solid middle class neighborhoods with a high percentage of PAID OFF homes will have a soft landing. Exclusive neighborhoods may not fetch better, because people move there for prestige, and as I found out on foreclosure.com, you'd be surprised to see how many of these "owners" in Atherton or Los Altos Hills are living on the edge to put up the facade.

I don't know the data from the top of my head, but I would expect any OLD, traditionally middle-class neighborhoods with a higher percentage of families near "poverty line" to do better. Why so? Because the households that can afford to live in such neighborhoods with a "near poverty line" income are usually retirees, with an entirely paid off home. I have a neighbor like that, they own the place free and clear, have an old Mercedez Diesel that still runs, and lives on pension plus SS income. They have a small household expense, and can defer their property tax till they die, what else can knock them out of their homes? The retirees are the true cushion of a neighborhood, they have no reason to go anywhere, and they can afford to stay as long as possible.

The types of listings that I believe I was referring to belonged to “Rip Van Flipper”

Yeah, why shouldn't the guy who bought a place for $50K 20-30 years ago cash in? They didn't invent the boom. As long as they're planning to retire somewhere far, far away where housing is still affordable...

I sent this one to my "futureme", 3 years from now:

Blood is in the streets
Don't be afraid to buy now
Be glad that you sold

Los Gatos and Cupertino did very well in the last 89 crash, because both were sort of undiscovered from price point of view. I am afraid this is not going to be the case this time, because the mix of residents have changed.

Since I did househunting in the heat of last RE bust, so I will just talk about anecdoto stuff I encountered.

Los Gatos and Cupertino were sleepy retiree towns last time, the houses were generally small (

Oops got cut off, gotta start again.

Los Gatos and Cupertino were sleepy retiree towns last time, the houses were generally small (

what is the problem here? How come my message got cut off?

Try again to see if it works this time.

Los Gatos and Cupertino were sleepy retiree towns last time, the houses were generally small. When I was househunting, the sellers were typically long-time occupants, the home was paid off, and acquired for $20K or so. An average home that you see on the market in these neighborhoods for 1.2-1.3M today was selling at ~400K. Back then, a typical ~200-220K household of today was making around ~140K for the comparable jobs. So you see, the ~400K home was not unaffordable at all.

Saratoga was decisively more expensive, and outta my budget. But if I applied today's financial sense (or the lack thereof), I could still stretch it. A 2000sf home with 15K lot was selling for ~550K, newer ones for ~600K.

Los Altos actually crashed pretty hard, so a home of 2000sf on a 14K lot was only going for 480K or so, the comparables that I was looking at had a 20K premium over Cupertino (foothill) or Los Gatos equivalents.

ps,

the question depends on the following things.

1) How many new buyers have moved in Saratoga in the last few years. From my househunting experience in the last bust, the new occupants who got in at the top were the ones dropping price like nuts. The old occupants just held on.

2) How much greenbacks the Fed starts to crank out. Well, as you know, 1M today is not the same as 1M tomorrow, adjusted for money supply.

3) How many buyers like yourself are eyeing that piece of Saratoga property

I frankly don't know the answer (duh!), and I am not eyeing any neighborhoods that everybody is eyeing on, so I am certainly hoping for far less competition when the time is right.

Call now and let me show you how I’m more than just a loan officer — I’m a personal Home Mortgage Consultant!

I am more than a code monkey -- I am a computer software professional! Engineers get less respect than an illegal alien nowadays. Oh well, free market.

Scott,

yup, that was it, I took it off my last message. Thanks.

The question is. Are housing prices really coming down? Or is the media and internet really hyping a crash up?

It seems that apartment inventory is shrinking but condo inventory is growing. If this is sustained, the crash may be cushioned for certain property types in certain areas.

Check out this place I was bidding on. It is in ‘The Gold Box’, but on a very busy street. I offerred asking price, and got rejected! It’s only about 1,150 sqft. Went for $1.14 mil!

It is a shame that it does not even reach $1000/sf, isn't it?

Speaking of condo vs. SFH, I have to say most of the SFHs built after 2000 are just condos in disguise, no difference whatsoever.

When you look at a place like the trailer park development called Creekside Village in Los Gatos, you and your neighbor can have a pretty good exchange of conversation just sitting at your respective living rooms. And if you care to the second floor, you can kiss your neighbor from your respective bedrooms. There is of course no yard, no parking space in front so your friends cannot visit, no view, what else am I missing?

I would rather live in a condo than a SFH like that. Speaking of SFHs, shouldn't there be a minimum ratio of buildable space to land to qualify? I don't consider SFHs 3 inches away from thy neighbors SFH.

I went to a Toll Brothers sales office last weekend and the saleswoman said that housing never goes down in California. When we gave examples in the 1990's she said that housing does not go down over longer timeframes.

I think they are inviting lawsuits.

I would rather live in a condo than a SFH like that. Speaking of SFHs, shouldn’t there be a minimum ratio of buildable space to land to qualify? I don’t consider SFHs 3 inches away from thy neighbors SFH.

I think they only need to be detached. Well, at the quantum level everything is detached but entabgled, hmm... :)

The Marina apartment being across the street from a lawn area that actually had so much liquifaction that little mud volcanoes formed on it in the Loma Prieta quake may have something to do with the condo have sold so far under the average (December’s average anyway) square foot cost.

Thanks, now I feel like a volcano cake (chocolate souffle cake).

George,

ehh, the problem is, a lot of folks on this site are not looking at the fringe neighborhoods that will drop like a rock, there will be plenty of those in the Bay Area. Quite a number of them are like ps, looking at premium neighborhoods like Saratoga where the notion of "they are not making more land" is sort of valid. Hence comes the question soft or hard landing.

We all know that the US is heading for a general RE bust, most likely the biggest one in history. We are just not sure for our target neighborhoods, how big the bust will be.

Not a haiku, but a Ragtime show tune:

The minute you closed my loan
I could see you had no lending standards
A real risk taker
Well capitalized, so carefree
Say, wouldn't you like to know
What's underneath my balance sheet
So, let me get right to the point,
I don't sign my name to ev'ry promissory note I see..

Hey, big lender!
Wouldn't cha like to lend-a
a little money to me...me...me!

Now three years later I'm in foreclosure
Don't you wish you had required a down payment
A real big risk taken
Undercapitalized, security free
And now you know
What's underneath my balance sheet
So, let me get right to the point,
Every creditor in town has a lein on me...

Hey, big lender!
Wouldn't cha like to lend-a
a little money to me...me...me!

I am not at all surprised that average selling price is less than 100% asking price in Cupertino. I have seen empty open houses, with bored RE agents. The reason, is the asking price is WAY too much. Don't know how to exactly write this. Let me try ... IT IS WAY OVERPRICED. They have been priced with the assumption that RE market is what it was last year.

The sellers who get it quick, make a deal. 2 houses (actually a townhome, and a condo) had an asking price in the range of $400/sqft. They went in a couple of days - I did not even get the chance to go for open house as the house got sold before the weekend. I gather there were multiple offers and went over asking.

The ones that have asking price around $550/sqft and above, get almost no visitors. So the truth is somewhere in between.

At this rate Cupertino may be one of the early parts of BA to see a decline in YOY per sqft value.

Actually I have an idea of estimating the degree of bust.

We have access to public transaction records in each neighborhood right? We also know the total number of SFHs or condos in each neighborhood. 2003 seems to be the year that RE started to take off like mad. So we can tally the number of SFHs and condos transacted from 2003-2006, and compute the % of these transacted units in the entire pool, the higher the %, the higher the likelihood of a hard landing. I don't know if anyone knows how many houses in a neighborhood are entirely paid off, that will be one single most important indicator.

Then we can come up with some kind of peripheral risk profiling of neighborhoods. # of preforeclosures and tax liens in 2005 as a % of entire housing stock.

I think all these indicators can be rather reliant in predicting the magnitude of bust.

Owneroc,

The View From Sillicone Valley web site would give you the transaction information.

Yuck !

NOT Sillicone
= Silicon

>> I am more than a code monkey — I am a computer software professional! Engineers get less respect than an illegal alien nowadays.

I call myself “The Architect” — learnt after Matrix …..

Do you work for [the] Oracle? How are you going to deal with NEOs (negative equity owners)?

George,

I absolutely agree with you. Exclusive neighborhoods may not do better at all. If you log on to foreclosure.com, you will find plenty of pre-foreclosed homes (relative to the entire housing stock) and tax liens oweing 50,000+ in some "exclusive" neighborhoods. I even find people there I know who were known to be "doing well".