patrick.net

Markets are reacting to rising chance of another rate hike. Indicators today revealed the strongest inflation measured in over 10 years. I think oil prices are finally working into the inner economy...it just took some time to squeeze all the way through.

RE is going to have a large impact on the job market as more realtors®, mortgage brokers and construction workers are laid off as the market continues to slow down.

Reflexivity - housing layoffs will further depress prices, causing more layoffs and more price reductions.

When it comes, it COMES. 8-O

Peter P,

You've reverted to hard-landing?

You’ve reverted to hard-landing?

The more I learn, the more I do not know. Bay Area is a funny place.

Ever aware of the BA bias to the blog I may agree. Perhaps only 50% of the gains will errode in the BA. However for much of the country there's a very real possibility that we'll actually "overshoot" and totally erase ALL of the gains since 1998? Just yesterday I'd read some of the most ridiculous "reasons" that Phoenix won't tank any further. I mean comical.

You know much of the run up in Bio-Tech stocks in the 90's was built on the same basic premise. Wealthy boomers (wanting to be "forever young") will POUR money into lifestyle and actual legitimate drugs. The story (like all good ones) had an element of truth to it. But valuations and reality parted ways by the late 90's as the "pitch script" got stretched a little thin. Looking back, in order to justify the the stock prices virtually ALL male boomers would have to have E.D. Virtually everyone would have to have alzheimers etc. Different asset class, same tired story.

A buyer’s market is one in which the the sellers are desperate.

Alot of them are already desperate, but it sure as hell isn't a buyers market. Right now, it's a suckers market and Realtwhores are trying everything they can to get to the very last few sheeple who spend too much time in front of the TV set watching reality shows and not nowing a thing about what is happening in the Real Estate. From what my wife told me about one of her co-workers buying last week, I can see that there are still some left.

As far as when it will be a buyers market, when a POS mobile home in a shitty area such as this goes for a few thousand instead of $200K. Then, when that happens, I will re-evaluate whether or not it is a buyers market.

A buyers market is when it is actually a good time to buy and we all know (at least us anti-sheeple folks) that we aren't there yet.

I'm waiting until a 2b/2b with a decent (5000+) lot can be had for around 250 per sq ft. Over here in the San Fernando Valley prices are already starting to halt, but no one has really reduced prices to a point where we can afford a mortgage.

Most places - Sherman Oaks, Encino, Tarzana - are still about 500+ per square foot, so we'll just wait it out until square footage comes nearer to what we can afford. If they don't go down far enough (which is a possibilty as all these areas are 'prime') then we'll look for somewhere in another, cheaper part of West LA (Palms, culver City etc..).

As far as a 'buyers' market, until prices come down to what I can afford (as opposed to what the sellers want/need) then its neither a buyers or a sellers market for us.

Personally, I'd like to buy a place in Topanga (90290) with a little land. Prices are astronomical at the moment...1.5 million plus. however, even Zillow is showing prices dropping there. Those 2.5 million houses are showing on Zillow for 1 million, and dropping. So, give it a year and some of them may be affordable.

I'm still calling for more like 100% reversion to 2001 prices in non-prime neighborhoods.

I offer the anecdote of our first BA home, which we purchased for $365K in 1996. Nice safe neighborhood in Redwood City, terrible schools, 3BR, 2BA, 1800sqft, cute little yard.

That home more than doubled by 2000, and now comps on the block are selling for over 1.1M. I'm sorry, 1.1M for 1800sqft is bubble. But even 915K, a 50% reversion, might fly in Menlo Park or Palo Alto, but not Redwood City.

I’m waiting until a 2b/2b with a decent (5000+) lot can be had for around 250 per sq ft. Over here in the San Fernando Valley prices are already starting to halt, but no one has really reduced prices to a point where we can afford a mortgage.

Currently, you can barely get anything built for 250/sqft in the Bay Area. Construction costs may not go down that much.

I don't think there will be a 50% reduction in gains on housing as a whole. Instead what I think will happen is that housing-boom era housing will take a major hit. Everybody knows that most of those lofts built in SF, SJ, and Oakland are really just the cheapest container that could possibly be built for living quarters. Their appeal was only caused by the bubble. Something.. anything.. built during the bubble was seen as "a great investment opportunity". Now that the bubble is now going away, I see these lofts losing most of their appeal, if not becoming downright undesireable.
A close 2nd place would be all the vanilla homes built 2" from one another in Sacremento and other places like Pleasanton, etc. Those places are unique in only that they ALL look the same. Again, builders realized they could built anything, even if it flew in the face of human intrests, and built the same damned thing over and over again. If things normalize, nobody will want to live in the exact-same-house-as-neighbor-B-. I see these places losing a lot of lustre as well.
But for older, established areas like where I live? Most areas like this are packed full of rich people. Execs, Lawyers, Doctors, etc. These people are smart, and like anyone with a brain, they realize the value of a solid, well organized community. I wouldn't expect to easily stir them out of their hovels. Prices there will probably fall, but probably very... very.. slowly. They have the money, so there's no need to get desperate.
So my take is that the UGLY Super-suburban/ metrosexualloft areas are going to fall, and fall HARD. But the kinds of houses you and I would want to live in will probably take way longer to settle, if at all.

So my take is that the UGLY Super-suburban/ metrosexualloft areas are going to fall, and fall HARD. But the kinds of houses you and I would want to live in will probably take way longer to settle, if at all.

I do not mind living in a nice condo if the price is good. They do have some pretty NEW buildings in the Peninsula, like this one:

http://tinyurl.com/npc4d

WAY out of my price range though. :(

George,

As soon as I sign on my re-fi I will remit to you the amount of $2.50 payable in "bubble bucks" to the account of your choosing!

Currently, you can barely get anything built for 250/sqft in the Bay Area. Construction costs may not go down that much.

I'm not really interested in new places, so I'm using a 250 sq ft guidline on existing properties, as on a 1200ft place, that'll be about a 300K mortgage (with some money down), which is about as much as we can comfortably afford.

We sat out the bubble on the way up (oh, how I wish we could have afforded to buy in 2000. OK. Maybe not), and we're renting a nice place where we can stay indefinately, so for us its just a waiting game. If prices don't come down enough in the places we like the most, then we'll start looking in other less expensive places. We're not buying until we see a house we like and can afford, even if we're still looking in 2008/2009.

SHTF - good luck with the move! We only live in LA due to jobs, but if either of us was to lose our jobs, we'd seriously think about moving somewhere else too. The West Coast is great if you can afford it, but there are beaches galore on the East Coast too!

Well, at least the futures chart has some dots in it now. A good start?

http://www.futuresource.com/charts/charts.jsp?s=SFRK07

TFS Brokers,

Got a link?

DinOR, see my last comment.

When most articles in the mainstream media start by saying it is a rough/soft landing, then follow up with something along the lines of "There is more choice now, plus sometimes there are incentives, so it is a buyer's market now", it is classic spinmeistering, but it is nowhere near to a buyers market. I would classify it rather as a nervous, fearful sellers market, still wearing rose coloured glasses.

When mainstream media says price increases of 1%-5% a year equals a slowdown that equals a buyers market, this is clearly nuts, because a 1% increase in already crazy prices indicates continued unaffordability is the norm. A larger collection of unaffordable housing continuing upward at a slower pace in no way equals a buyers market unless wage growth starts to outstrip price inflation significantly quickly.

A buyers market begins to occur when prices revert to a point that a person/couple with a median income can afford to buy a decent property in an average neighbourhood without creative financing.

If buyers still can't absorb the inventory at that point, then the real buyers market begins.

Real pain has to precede a real buyers market, as sellers will not go there voluntarily. That means the real buyers market, if it ever gets here, will start first in condos and is at least 2-3 years away.

My $.02.

The West Coast is great if you can afford it, but there are beaches galore on the East Coast too!

The East Coast isn't any better!

Hi all,

"The more I learn, the more I do not know."

Isn't that the truth. However, I think we're heading into a recession (if we're not already in one). As a result, seller's of RE will cry uncle and cash will be king for the next couple of years. Unless the fed decides to cut rates, (I look for them to raise rates at their next meeting), the RE market will continue to stall and fall.

I'm not an expert when it comes to the economy, and I'll leave it to those with superior knowledge to correct me if I'm wrong. Nevertheless, I believe it will truly be a buyer's market by early next year.

Seller's market: buy now or be priced out forever
Buyer's market: never a better time to buy

Conclusion: buy, buy, buy :)

not investment advice

Thanks TFS.

You're both an introducing and executing broker for CME CSI Futures? Any way you can hint at what kind of liquidity the options are seeing?

SHTF,

Congratulations. My wife and I made the same decision a few months ago and I look forward to our own move as soon as I have a job nailed down. Life is too short to be put on hold indefinitely, or be held hostage to credit bubbles and NIMBY politics.

Personally, I'm sick of California period. Current bubble aside, living here hasn't been even close to "affordable" or comfortable for working families in well over a generation. It still amazes me how people from other places have such an unrealistic rose-tinted view of the "California lifestyle", as though everyone who lives here is a successful actor, lawyer or surgeon, and we all live in Malibu. Simply put, life here stinks for the average person --shitty substandard housing, extreme overcrowding everywhere, a flood of illegal "free riders" simultaneously driving down wages and driving up taxes, perma-gridlock in most cities, hellishly hot summers (unless you're rich enough to live ~1 mile from the beach), shitty schools and high crime. Who could ask for anything more?

Someone else can take my CA Gold Wonka Housing Ticket the next time that rare, brief window of peasant affordability rolls around (2010, 2015?). I'm done waiting.

You’re both an introducing and executing broker for CME CSI Futures? Any way you can hint at what kind of liquidity the options are seeing?

Wow.

@tannenbaum,

Huntsville, AL, Raleigh, NC & Portland, OR are all top spots on my list. Aside from being very affordable and very livable, I have family and friends in these locations.

@George,

:lol: So, I'd be trading the frying pan for a somewhat more affordable saucepan?

Marin county is really pretty. Perhaps I should get a place in Fairfax near Jack. :)

@Ryno73,

Culture is great when you can afford it. All most CA "natives" have time and money to do is go to work to feed their mortgage(s). I'll grant you, the BA is a whole lot nicer than SCAL or Central Valley --especially along the coast. However, there are plenty of other locations rich in natural beauty where an average wage earner can live a whole lot better.

Peter P,

Thanks for the link. Calling the data sparse at this point doesn't seem to go far enough! I hope the chart "fleshes out" soon! Wouldn't that be crazy, if someone here became a super sharp CME housing futures trader and paid for his/her "post bubble manse" with trading profits?

I've vowed abstinence from this blog. But cannot resist ...

What distinct culture does BA have/offer, other than geek-making-money and mindless health freaks?

I’ve vowed abstinence from this blog. But cannot resist

This is why teaching abstinence may not work. :)

What distinct culture does BA have/offer, other than geek-making-money and mindless health freaks?

It has the very good sushi.

Wouldn’t that be crazy, if someone here became a super sharp CME housing futures trader and paid for his/her “post bubble manse” with trading profits?

Short of raising a minimum of 350M to set up hedge plays using said futures, I'm afraid the rest of us will have to wait for an ETF tracking those futures.

Yes, excellent international food one of the (few) things I'll miss about CA. Sadly, this does not come close to making up for the hellish rat race that life for non-elites here has become.

What distinct culture does BA have/offer, other than geek-making-money and mindless health freaks?

Compared to? Surely not your Heimat designate?

Yes, excellent international food one of the (few) things I’ll miss about CA. Sadly, this does not come close to making up for the hellish rat race that life for non-elites here has become.

To me, food is slightly more important than my life.

HARM,

Good to hear you being angry! More people in SoCal should be. When I was stationed in Long Beach, CA (early 80's) we made around a hundred dollars a week. The truth is though we had MORE disposable income than many of our civilian friends in the area. B/c our "housing" medical and dental plus all of our meals were covered the $400 a month was for partying (save for an occasional haircut).

I'll agree, it hasn't been affordable for most working people at least since then. But I had to light a powder keg under my old buddy to get him the hell out of there. It's like this strange "co-dependency" or weird fear that keeps people paying taxes for things they don't get to use, insurance thru the roof and unreal mo. mort. payments b/c they're afraid that if they leave things will revert back to being "cool"?

Compared to? Surely not your Heimat designate?

Shanghai is way better than BA, hands down, except for the horrible summer weather.

Randy H,

O.K just open the housing ETF's at $10 a share? These guys always seem so hungry for new offerings, I'm giving it 6 months! They don't necessarily have to base it on the Case Shiller model, they'll think of something.

Shanghai is way better than BA, hands down, except for the horrible summer weather.

Isn't it too hot in the summer. The pollution is likely to be worse though.

I heard that food in Shanghai is very good. :)

Not only can you save on the purchase price, but you can have instant equity in your home.

Instant equity?

When people say cultured places in America, NY and New England come to mind. Some parts of old South, too, although I haven't been there.

When we say cultured places on this planet, the old world come to mind. Italy, Southern France, old towns in China and India, blah, blah, and blah.

In cultured places, there are traditions and people know their places in this world.

The world cultured means aged when one talks about certain food items. But the same holds for the culture of a society.

CA has nice coast lines. Nice, but not great. When I was an intern at SGI in 1994, a bunch of intern geeks (mostly from the east coast) went to visit many parts of CA with a BA native. Cool. But I wasn't impressed. The east coast is far better, if not for the insufferable summer.

I don't know why building a mansion on a view cliff is such a grand thing. I for one would be bored by such a dwelling. Occasional weekend hideaways, yes. But primary dwellings? No way.

The so-called beautiful, expensive, scenary places are for middle-class suckers who never had money and struck rich later in their life.