patrick.net

Not sure if you guys are aware of this, the mortgage rate on 30-year fixed is dropping. Someone must be turning on the tap (where did M3 number go)?

I have a friend who is hunting for homes, she is sort of sitting on the fence but actively looking and comparing in the market. She just told me that the long-term mortgage rate has been dropping since about a couple of weeks ago, originally she could only get 6.7%, now she could lock in 6.3% or so. One-year ARM rate is also declining.

http://tinyurl.com/npdxx

Looks like some financial forces out there are trying to make the housing bubble last much longer.

I rent near Cisco for a 2-bedroom apartment and after the last 7-month lease was up in July, the rent went up by 7.5%. So I too have a hard time believing a 20% or 30% increase.

HARM,

You know, before I picked a CA college over Bryn Mawr out of sheer pique, I always had a strong prejudice against CA precisely because of the glamourous image of the CA lifestyle (I'm a pessimist and an introvert, so a lot of happy tanned beach people really didn't appeal to me).

However, your last set of pictures are from SoCal. NorCal does seem a bit better on the traffic and attractiveness front. Lots of fun can still be had on a limited income (anything above 30K a year), if you're single and plan carefully and don't go drinking every night. The problem comes when people start wanting to do ridiculous things like having kids or own their own decent size house or keeping up with the HELOCed Joneses.

private affluence and public squalor -- maybe all the money that could've improved public spaces and increased wages went to the movie stars and charismatic CEOs...

I'm not worried about rent increases; The rents are already high and I'm sure they will try to raise them, but that doesn't mean I have to stay and help them pay for their overpriced mortgages. There are plenty of good places to live elsewhere and the rents are 1/4 of what they are here (I'm in NY). For example, you can get a 2 bedroom 1000sf apartment like this in N.C. Not a bad place to chill for a year or two when most of these homedebtors hang themselves. One thing that is great about renting, you can always move anywhere, anytime. If you don't like the rent increase, don't get mad, do what I am going to do; move!

I think the rental prices will go down as the employment market sours. The low end will get squeezed and move in with friends/family/FBs who need to rent out a room to make ends meet. This increase in low end supply may be enough to stablize most housing prices, except at the high end (those clever housing bears with family and money).

I'm actually hoping the increased rents will drive my boyfriend's upstairs neighbors away. These people are raising 2 pre school kids (and I can definitely hear them when I stay over) in a small 1 bdrm apartment intended for single people or a couple at the very most. I hope that means any rent increase will drive them to seek cheaper housing, maybe by stupidly driving out another 20 miles to do so.

(FAB, if you drop by, feel free to take that example and run with it.)

"California Past (pre-Prop. 13, SMUG/NIMBY, illegal flood):"

I remember Prop 13 but don't know what "SMUG/NIMBY" are--any one care to fill me in? [I now live in "Hot"lanta--can't wait to get the F outta here and get back out West...]

First, great thread topic.

Second, I live in a prime place in Crapertino and my rent is not going up. Also, apartment complexes are notorious for raising rents. I find it better to deal with a private owner. My friend who rents a condo in Mountain View (and is on month-to-month) had a $40 rent increase several months ago - $40, that's it. This is for a nice one bedroom condo in MV - rent $1100. Maybe she and I have just been lucky with our rent? I don't know.

I wouldn't feel safe renting from a private owner unless they've owned the place for 10 or more years and really want to hold onto it til they die (anyone here knowledgable about CA commercial property sales taxes?). Otherwise there's just way too much risk of getting kicked out at some point with no predictability. To me, the higher likelihood of this hassle is worth at least a 10% discount.

Apartment living does suck in some respect, it's almost uniformly cheap materials, zero insulation, and iffy neighbors. Maybe private party rentals would be superior for these things.

My parents' lousy ex-neighbors (sketchy subletting, loud music, not mowing their laws) are selling their place. Funny how the exact same model as my parents' former Loudoun County house suddenly grew by about 1,000 sq ft. I guess they decided to consider their roughly finished basement rec room in the total square footage.

Anyone else notice this trend of including basement sq footage in the house? Do these people just think buyers won't notice and feel hostile when they see a much smaller place than anticipated? Or that the square footage for new construction is recorded with the county and a cinch to verify?

Apartment living does suck in some respect, it’s almost uniformly cheap materials, zero insulation, and iffy neighbors.

Apartment living does suck if you plan to live in one your whole life. You can get bad neighbors, but you also can get bad neighbors when you own. At least if your renting, you can move away from them...If you buy, you buy them too! Not to mention that they also bring your property values down; which makes it even more harder to get rid of them.

I say the best thing to do is to explore different areas. You don't have to find the cheapest place around (my example), but something that is affordable and will make sense for the next year or two. Save up some money and when these FB's are begging you to take their house from them, you can make your kill!

Worst time to buy (aside from the obvious sliding prices), is just before a recession; and I'm sure we will have one. This is the time when good neigborhoods turn to bad ones and vice-versa. People change when they are really hurting for money and I don't want a neigbor who is excessively needy if you know what I mean.

Fact of the matter is that rents will rise if they haven't already. People will do anything they can to hold on to their property (like increase rents), but accepting their increases is as bad (or worse) as giving in and buying because of it. If you stay after they raise your rent 20% or more, you are actually helping the RE industry at your own expense. If enough renters are smart enough and leave the area, the crash will be more severe.

Just my 2 cents...

BTW, the house is priced about 60K below last year's peak but it's sold "as is." I can't imagine how badly the owners/tenants messed up the place! The place is only 7 years old and a former model home by a quality builder. My parents' home sold last year with zero comments on inspection.

Allah,

I wasn't advocating buying, I was laying the pros and cons of renting from an apartment complex v. renting from a private party.

I'm pretty sure my boyfriend could rent a nicer apartment with better neighbors for about 200 bucks more a month. But he claims to be indifferent to noise and the current one has much less noise than his previous apartment and doesn't allow for pets. So the current one would be okay if someone without running children with shoes.

I wasn't being very neighborly when I was there either. I was running the washing machine and dishwasher at 3 AM in the morning. But they started it.

Otherwise there’s just way too much risk of getting kicked out at some point with no predictability.

You should be able to get a lease for a year or two. If you have to stay longer, you shouldn't have to worry as long as you have a good job and some money stashed away. I'm sure when this recession hits, there are going to be alot of renters that fall behind on their rent and people who are good with the rent will be gold. None wants to lose a good tennent when they are very hard to find.

allah,

I agree with all you've said except for a tiny wrinkle. If I rented from a flipper, there's a good chance I'll be forced out (by their foreclosure) no matter how good the terms are. Indeed, even some longer termed investors may want to lock in the current sale price rather than risk a price drop.

You don't have to worry about me buying any time soon. :) My standards call for owning only if renting is 20-30% more expensive than owning (including PITI and maintenance) with a 30 yr fixed mortgage, and then only if I plan to own the property for a long while.

Astrid, I agree, you do have a higher chance of being kicked out if you rent from a private owner. I have a good relationship with the owner of our place, and we sign a new lease every 12 months. Allah makes a good point in saying that no one wants to lose a good tenant when they are hard to find. Owners who own one or a few places have more skin in the game and are more likely to be flexible when it comes to rents. However, there is the chance that they will cash out.

I'll take the other side on CA.

I've lived in quite a few parts of the country, most in the "flyover" regions. I was born in Indiana, mostly raised in Southern Ohio, worked in Chicago, lived in Phoenix, NYC, Atlanta, Cincinnati, Clearwater, and Colorado Springs, as well as Frankfurt Germany and for a shorter time in a small town in Provence France.

California is no utopia and has plenty of problems. But most of the concerns leveled here at CA are equal or worse in other parts of the country. If you want to see a bifurcated society try NE Indiana. If you want to see the hollowing out of the middle class try south suburban Chicago. If you want to see superfund cleanup sites every 3 blocks try NE Ohio. If you want to see intractable social mobility try anywhere in western Europe.

For those of us who can choose where to live -- which itself is a freedom so often taken for granted -- where we ultimately find happiness says as much about ourselves as it does about those places.

If I rented from a flipper, there’s a good chance I’ll be forced out (by their foreclosure) no matter how good the terms are. Indeed, even some longer termed investors may want to lock in the current sale price rather than risk a price drop.

Well, like I said, alot of things change when there is a recession. People consolidate; they pack up and move in with their parents to share with their friends. Parents move in with there children. I believe there is going to be major vacancies in the near future. If you don't want to believe me, then listen to Peter Schiff. Yes, this housing bubble will be followed by a rent bubble. Anyone who is a good paying renter will be able to name their price. People forget what happens when there is a recession, a little research will help remind you of what happens.

A little bit off the topic. Just saw this.

Open MLS Initiative Just Getting Started, Says NAR Nemesis Barry
http://tinyurl.com/lwt29

I tend to lean towards things that are "open" because they usually mean fairer market. But why in this case is there such little support for open MLS?

allah,

However, apartments do provide a bit more predictability than renting month to month during the inital phase of a bubble burst. Getting driven out of your home out short notice, which is quite likely in these times, is not a fun experience. Indeed, not having to move is one of the top reasons to own rather than buy.

I think our wires just got crossed somewhere. I'm really agreeing with the points you've expressed thus far, the only exception I take is that when comparing renting from an apartment complex and renting from private parties in these times, the latter may present a greater likelihood of being forced to move on short notice.

Once the bubble bursts and the market settles, I too am hoping for a non-deadbeat renter's paradise.

Getting driven out of your home out short notice, which is quite likely in these times, is not a fun experience. Indeed, not having to move is one of the top reasons to own rather than buy.

Astrid,

You did make your point and I do agree with you, the same with "apartment complex v. renting from a private party".

Being thrown out is no picnic, however, when there is a recession and your apartment is foreclosed upon, the sheriff isn't going to kick out a perfectly good renter and whoever takes ownership of the house (probably the bank) isn't going to want to lose the income of a perfectly good renter either and who is going to want to go through the legal expense of throwing you out (which costs money and takes time) when they could just keep getting monthly payments from you offsetting their holding costs? When there are mass vacancies, the last thing anyone wants to do is create yet more vacancies.

Rent IS on the rise. A soft-landing for Bay Area real estate is a very real possibilty. This is why timing a home purchase is not necessarily productive.

The good news is, even if rent goes up 30%, it is still quite affordable. On the other hand, home prices are going nowhere, so we still have time.

BTW, I am under the impression that 1BR units are in demand. This may imply new entry-level technology employment. In about 2-3 years, these renters will become potential homebuyers. Keep that in mind.

We should pay more attention to any new business development in the area. Of course, if the recession hits soon, the outcome will be different.

Rent IS on the rise. A soft-landing for Bay Area real estate is a very real possibilty. This is why timing a home purchase is not necessarily productive.

Yes, I'm sure it is, but that won't be for long. The perfect storm is just around the corner. Jobs are already disappearing as we speak. People are opening their monthly mortgage bill and saying "OMG! It went up again! We can't pay this! ". I believe 2007 is going to be a very painful year for many folks.

Not sure if you guys are aware of this, the mortgage rate on 30-year fixed is dropping. Someone must be turning on the tap (where did M3 number go)?

Great! :)

The market is pricing in a future recession.

On the other hand, most people do not use 30YR FRM anyway. We want the interest rate for FBs to skyrocket. We want 30YR FRM rate to go down. Ha Ha.

Jobs are already disappearing as we speak.

Although I hate new hiring activities (more competition for restaurant tables), I have to say that hiring has indeed picked up.

Off topic, somewhat:

I've been having a conversation with someone over on housingpanic (amazing, an actual 'conversation, not the normal xeophobic, sexist shouting that normally goes on over there) about the idea of a Blue Book for Real Estate...

Rather than rely on 'emotional' pricing for houses, have a sq footage price, based on what it would cost to build today (for exstisting homes) and a plus-or-minus system for things like location, access to freeways, school districts, improvements, condition, etc...

So many people think of thier houses as a commodity, in much the same way as they think of stocks and share, rather than an asset that appreciates or depreciates with time, like a car.
Car dealers don't use emotion (well, not as much as REAs or homeowners) in selling used cars. If you don't like the price, you can argue it up or down according to the Kelly Blue Book valuation. If they insist that thier car is 'different' and 'unique', at least you have a baseline figure with which to compare.

It may not be perfect, and not all people base thier asking price on the Kelly Blue Book price when selling a used car, but at least you have some idea of a'ballpark' figure for the make, model and year you want.

Am I on crack? Is this a stupid idea?

Although I hate new hiring activities (more competition for restaurant tables), I have to say that hiring has indeed picked up.

Yes and all those extra waiters and waitresses who used to be Realthores aren't going to get the greatest tips.

Peter P,

I concur with your assessment. Both salaries and employment have been strong for the past 3 quarters and are just leveling off a bit now. But the impact is still working into the local economy. Rents are starting to rise more broadly; they have been rising at the top and bottom ends for almost a year now. Further, the churn has leveled and the BA is now receiving net in-migration. And not just because of Google. I'm not sure how many jobs Google has added to Marin or San Francisco counties, both of which also have net in-migration as of 1 or 2 quarters ago.

Add to that the almost certainty of a "pause" in rate hikes, and we're looking at a very sticky ride. Downward pressures from financial debt stress will be slowed by these fundamentals. Remember, inflation hurts savers and rewards debtors (and usually investors). Tightening does the opposite.

I still give hard -v- soft 50-50 odds. It's fundamentals versus psychology, and I'm afraid I believe in both.

I am sure the BA will be bouyed by the 3000 or so googleaires.

I remember Prop 13 but don’t know what “SMUG/NIMBY” are–any one care to fill me in? [I now live in “Hot”lanta–can’t wait to get the F outta here and get back out West…]

Nik,

NIMBY is an older and commonly used acronymn: "Not In My BackYard". Basically refers to any knee-jerk reflexive reactionary mentality on the part of existing residents against any change that might require some small sacrifice or perceived intrusion on the tranquility of their idyllic lives --especially when it's of benefit to working-class people. Typical examples are: homedebtor opposition to building any new "affordable housing" developments or apartment buildings, opposition to having new power lines or new rail lines built though one's neighborhood, or a new freeway overpass, school, etc.

SMUG = "SMart Urban Growth (see 'Coté-isms' section of the Housing Bubble Glossary)

You left out the “California Future” - a truly scary concept to contemplate. Maybe Ebenezer Flipper will be convinced to change his evil ways and start buying turkeys for all the FB’s…

Excellent point, Skibum! I give you a vision of California Future (a.k.a. "Blade-fornia"):

That’s the unfortunate reality all of us that read this board must face: the possibility that a combination of factors may stall a hard landing. I don’t like that.

I don't like it either. I would very directly profit from a hard landing. The harder, the better. I am currently positioned with a strong bias towards taking advantage of even a harder-than-soft landing. I'm just not so sure I'll get my way. This could yet take a lot longer to play out. I offer one small example from my own little world: last week I had beers with some b-school colleagues. One of these guys who used to do a ton of MBS industry risk management work is now on to a new company which is creating a bunch of new products to market to lenders enabling them to profit by refinancing "thin" equity owners out of adjusting ARMs. Some of this includes the ability to make lending to negative-equity owners within a range profitable. None of this will work if rates go up another 150bps. But they're hedging their bets in case rates don't go up, at least for a while. And if a guy I know is working on shit like this, then hundreds or thousands of others are doing the same. So I'm not so sure the flood of ARM resets will cause the armageddon that would buy me a 6BR estate in Tiburon 25% of today's prices.

> Not sure if you guys are aware of this, the mortgage rate on 30-year fixed is dropping. (...) the long-term mortgage rate has been dropping since about a couple of weeks ago, originally she could only get 6.7%, now she could lock in 6.3% or so.

Treasury yields are decreasing, due to increased expectations of a recession. Fixed mortgage rates follow 10yr treasuries yields.

After the increase in ARM rates, the trend was to refinance into a fixed rate. If the rates decrease again, the ARMs (not option mortgages) wouldn't have been so bad after all, but the mortgage brokers would have collected less fees.

> when there is a recession and your apartment is foreclosed upon, the sheriff isn’t going to kick out a perfectly good renter and whoever takes ownership of the house (probably the bank) isn’t going to want to lose the income of a perfectly good renter either

But they might increase your rent for the rest of the lease, maybe significantly, because they expect that the renter wouldn't like to move out fast at that time.

Blade Runner is one of my favorites.

Peter P Says:

Although I hate new hiring activities (more competition for restaurant tables), I have to say that hiring has indeed picked up.

Let me generalize on this observation. I bet a lot of hirings go to newly arrived immigrants who are willing to work HARD for less pay.

Contrary to many people's wishes, immigration in this country will NOT stop.

The reason is very, very simple.

The economic growth is driven largely by population growth. As the US population ages, there is a (desperate) need to import young and fresh workers to maintain the growth. It does NOT matter what kind of people US imports, as long as they are young and willing to work. Therefore, I believe the anti-illegal immigration stance taken by the politicians are half-hearted.

A hard landing is still in the cards. There is a denial going on right now. I think those wish to profit from a hard landing (myself included) may actually be right on the money.

The problem is: When the majority of the people -- I think the word PEOPLE will have increasingly significant meaning in the coming turmoil -- are suffering, you cannot just go ahead and profit without inciting a lot of envy and anger. It must be done with great subtlety and in some cases, out-right deception.

A word of caution: Do not boast if you ever profit from the hard landing.

But they might increase your rent for the rest of the lease, maybe significantly, because they expect that the renter wouldn’t like to move out fast at that time.

Since when does anybodies rent increase during a recession? When their is a recession, there are many who lose their jobs and do not pay their landlords. There are mass evictions and mass evictions cause rents to fall and when rents are falling and vacancies are rising, the few good renters are gold. I have read stories about landlords during a recession that actually lowered their tenants rent just because they were paranoid that their good tenant was going to leave.

Repost. I used the V word again.

I believe the low-end housing market will do well, because that’s why the new immigrants can afford. The mid-to-high end of the RE market will suffer, because a lot of middle class workers will be squeezed by (1) layoffs, (2) debts, and (3) rising cost of reputable living (which includes Martha Steward living standards, good schools for children, SUVs, latte every day, vacation every year, a Plasma TV in front of the toilet, daily V pill for the aging fathers, ipods for their babies, blah, blah, and blah).