patrick.net

It is not a problem.
It is what it is.
Locals here have had their quality of life crowded out since the first white settlers came, then the gold rush, and everything else. I came here
with my folks during one of those gold rushes of Cold War defense spending in the 1960's.
Asians are just the latest wave.

Not is it a complaint.
It is an observation.
I agree with your suggestion to "leave".
I have found that there are other ways "to leave" than leaving. It involves leaving the culture that in the past couple of decades has come to be the dominant one in "Silicon Valley" One can make choices like driving old cars, not trading up for new places, not pushing the kids to be hyper achievers, not "living large". (People who need those kinds of things for fulfillment probably have other issues). With these kinds of choices, a "local" like me can remain living here, at least for awhile, and so enjoy living not so far away from extended family and lifelong circle of like minded friends.

But I didn't say that I wasn't competitive. You said that, not me. The best kind of competition, though, is through teamwork. Some organizations around here still value it (at least for the time being).

CB

You used to live in Hong Kong, then Toronto, now you are..... here (!).

Bay Area is not as clean, and not as safe, but still, Silicon Valley / Bay Area is a magnet, and instead of being in Hong Kong or Toronto, you are attracted to being here.

I think you are making my point about accepting the trade off in order to be here, instead of those cleaner, safer, places.

GC,

Is it important to "being on top"?

I understand, we need to be "on top of our game", which probably means, no more repeats of Dec. 7th, and no more repeats of 9/11, and no more repeats of the Civil War, and no more repeats of the Great Depression, and also probably means civil rights for citizens. On top of our game.

But is it a worthwhile goal to be or remain on "top of the world"? Maybe our social security will be more secure in a world where we solve problems in teamwork with like minded democracies.

It would seem to me like part of that teamwork would be real partnership with our neighbors in Latin America. I mean our neighbors, the peons who live there, not the elites who govern them.

joe_renter,

The sellers don't set the prices for stuff. The buyers do. I enjoyed that photo and got a laugh out of it.

If it really sells for a million $, it won't be because of the local guy cashing out.
It will be the buyer willing to pay for it.

StuckInBA Says:

> The median, as we all know, is what the median
> buyer SPENT on the house, and does not mean
> housing prices are going up or down.
> Now the question is, is cost of similar houses going
> down ? Are buyers getting better houses in the
> same price ?

I was on the Peninsula this weekend and I was amazed at the number of big new homes that have replaced small modest homes in Burlingame. I wasn’t counting but on the drive from the Broadway exit off 101 to a friends house and the drive home via the Trousdale on ramp to 280 on the way home I bet I drove by 100 newer homes built after the older homes were torn down over the past couple years. On some blocks half or more of the homes were brand new huge homes that made the older tiny homes look strange. On some of the lots I remember a single home where there are now two brand new homes. As a kid riding my BMX bike around Burlingame, Hillsborough and San Mateo I can’t remember even a single home that was “torn down” to build and sell a new one. When developers are buying lots of tiny crappy homes in a city and building super nice big homes the rise in the “median price” does not mean that every home is going up in value…

That would depend on your definition of OK. Most BA families certainly gross less than a HaHa. I have friends in the BA who rent and make less than a HaHa together, they seem to do pretty well for themselves. However, they don't have kids and they haven't bought into the cult of luxury goods "must-haves."

I'm seeing homes hit the market in South Marin in the 1.4-1.5m range that would easily have been priced around 2.0-2.1m during the peak. That's the good news. The bad news is these puppies are selling fast, one I know of had 3 bids and most probably went over.

My problem is that even these prices are 30% too high, if you measure by any kind of sane return to the mean. You can actually see homes that sold for around $0.9m in 2002, more than doubled by 2005, and now are "bargains" at 1.5.

I believe the house on Orange has been for sale for over a year now. It's been relisted.

"With 1 HaHa, can a small family live an OK life renting in BA"

Yes, easily.

Because HaHa is special and deserves to own a big house on the hill.

Good wine.

CB:

I'm a local here and ever since college in the 1980's I had lowered my expectations in order to be able chose to live here and keep my sanity at the same time, well, the lady who became my wife knew what I was like.

Sometimes to get a rise out of her, I will accuse her of marrying me just so she could live in Silicon Valley.

Of course, she was a U.S. citizen, didn't need a green card or H1 or anything like that. She coulda moved here on her own.

Now, since you expressed an acknowledgement that there's a lot of tradeoffs to living here, I'm figuring that it is just a coincidence that you have traveled the well trodden road of Hong Kong to Canadian residency, marriage to U.S. green card, relocation to Silicon Valley. So, even if that's not you, certainly you see the irony in it.

Woot. Is this thread going to turn into another backlash against conspicuous consumerism? That's what got me onto this blog in the first place. What ever happened to bragging about your net worth, instead of your possessions? That concept was lost somewhere between generations.

My grandfathers were smart guys--they both enjoyed gardening. Of course, I kind of suck at gardening and other hobbies that require regular attention. Once I came close to killing the plastic plants in my office. Maybe I could have one of those Zen rock gardens where you rake around river stones into interesting patterns.

GC, I already like your taste in wine. That's about my monthly budget for vino rossi. I hope to one day have a wine cellar in which to relax, complete with custom tile, mosaics, stained glass and nice woodwork. Fortunately, I have relatives and friends with some of those skills. :)

Unless you both live less than 15 minutes from work and don't pay for parking, $200 for transportation is way too low, more like $200/person. If you have a white collar job (as opposed to an IT job) $200 for family cloth budget is quite low.

Unless a member of the family works in a certain ancient profession, $100/month for condoms warrants a "huh?"

Also - car payments, student loans, insurance, healthcare copays, any kind of entertainment, electricity for 2-3 could easily run north of $100 even in a small apartment.

The cost really jumps with kids, those ballet classes and cute jumpers cost a lot.

GC:

Do you have a daughter?

Hey, I think ballet is also a torment for most adults.

And don't think home maintenance, cooking, or knitting come cheap! Those enameled cast iron dutch ovens don't materialize by themselves. A decent hard wood spinning wheel will set you back about $1K. And then you need to get a flock of sheep and a farm...

Vino rossi en italiano, vin rouge en francais.

sybrib :

You bring up a lot of interesting points, and I am with you on most of them. The one thing I am not so sure is when you mention the effect of repatriated $. Although I am an Indian I personally don't know anyone who falls in that category. So I am not sure how big a role it plays.

But it does exist. Last year I was amused by the number of for sale signs in a newish condo complex (Montebello) on Stevens Creek / De Anza - near Cupertino public library. I ventured into a couple of open houses. It was completely unvisited and the sales agents were very happy to see me. The prices were completely out of touch with reality. A 2 BD condo just 100K less than a nearby SFH that sold in the same week !

I kept pressing the agent (Asian) about the ridiculous price, and she said it was owned by someone in Hongkong. Their son lives there and they can keep holding it till they get their price. So yes, what you say does happen.

That Montebello insanity still continues.
http://tinyurl.com/3ahlky

This is a 2 BD 1177 sqft condo. For 659K. With 20% down and 6.25 fixed the monthly PI and T comes out to be roughly 4000 per month, minus tax savings to 2600. Add 350 HOA. So at least 3K after all the tax benefits. I rent a very similar condo in the same school district and pay approx 2K rent minus the tax free interest on my down payment at 350 = 1650 per month cost.

So, 1650 v/s 3K. EVERY MONTH. That's a hell of an ownership premium for a condo. Since last year at least, a renter in Cupertino is increasing his/her net worth for more rapidly than a loanowner. And the renter will continue to be richer than the loanowner. But why explain all this to person desperate to buy ?

Also relevant, my friend who got her asking price sold for close to the same price that her neighbor sold for in 2005 - for the same size house, on the same size lot.

Very interesting.

Au and Ag are going back up.

Somehow that did not bring out the Goldbugs. ;-) The precious metal market is simply laughing at Bernanke. Both gold and silver have slowly and steadily crept up. I am not a goldbug even remotely, but the precious metal market seems much more sane to me than the bond market these days.

Ha Ha :

I am amused too since I see all these for sale signs everyday

Aren't those sale signs amazing ? They have been around for over a year now ! You would think that they have got the message by now. I wanted to take a picture and send it to Ben's blog.

About gold and silver. Well, one time the dentist put a silver filling right next to a gold crown in my mouth.

By the time the novocaine had worn off, I was back on the job at my workplace. I could feel the electric current traveling through a common nerve. Seems like the acidic environment in my mouth, with new silver filling next to gold crown, and a nerve, had made a little battery.

I called the dentist and asked him how long this galvanic pain would last. He told me that normally it goes away in a few hours, but he knew of a case that lasted six weeks. He offered to drill out the silver filling and replace it with plastic. Thankfully, enough of the silver got anodized in a few hours to shut down the reaction.

I don't know about the valuation of silver, but probably gold is in the right ballpark in relation to its purchasing power. A couple of weeks ago I compared the gold purchasing power at different timepoints since the devaluation to some 1969 consumer prices for things like tuition, gasoline, and meat. Seems like it is fairly priced for the moment.

On the other hand, if you think things like that will go up a lot, then probably gold will too.

AFTER a credit crunch, it is clear that it is more difficult to find a buyer to sell at an outrageous price but it seems that it is also more difficult for a buyer to get a credit to buy at the fair price even after factoring in the potential price declines….

CREDIT CRUNCH ==> Low sales volumes but NOT NECESSARY easier/better buying conditions for buyers on the sidelines.

Is that where it will stop ? I think your analysis needs to be carried a few steps further. Credit crunch will eventually benefit people with good cash positions. Since they will have more incentive to wait due to their cash earning higher interest, who will lose the waiting war ?

Remember, there are very few people who HAVE to buy. But there will always be more people who HAVE NO CHOICE but to sell. Add foreclosures to your analysis and see where it leads you.

theotherside,

While there's much talk about tightening standards, I've heard little enough about real-world examples. In fact, the 'bubble-proof markets' ads are still popping up on these pages.

But granting your parameters, the bottom bottom line would be that, yes, it is now a bit more difficult to do something stupid in the way of purchasing a house.

Someone mentioned the other day (DinOR?) that we're now at the bottom of the second. Too true.

However, it also seems that as soon as prices drop a little, the number of buyers on the sidelines willing to jump back in increase…

Because credit crunch is JUST started. Once it gets underway in any meaningful way, the springboard vanishes and buyers won't be able to jump much.

Somebody asked about data for 91-97.

We bought in 89. The earthquake didn't matter, but the housing bubble did. By 91 we were under water till at least about 94, probably even in 97.

We paid the ownership premium for much of that time. Eventually rents caught up to our housing cost, but it was only because we could refinance with a lower rate in the meanwhile, because when we bought the rates were 8+ %, so they had room to go down. All the while, our downpayment money was not appreciating. It would have though in even the most conservative of savings vehicles.

Someone Says:

> Remember, there are very few people who HAVE to buy.
> But there will always be more people who HAVE NO
> CHOICE but to sell. Add foreclosures to your analysis
> and see where it leads you.

Don’t forget most of the guys developing the 5,000+ condos (as reported at http://www.socketsite.com/) that will soon hit the market in San Francisco are in the HAVE to sell group and there are a lot of people that “don’t” HAVE to sell but will “decide” to sell (to cash out gains) when prices start to fall (adding more homes and condos to the mix to compete with the 5,000+ new condos)…

Then Joe_renter Says:

> The problem is, you need to also take into account those
> who will come in and buy up “rental properties” with cash
> just to add to their investment. I know there are limited people,
> but they are there. People who live up in Los Altos Hills
> actually work.

I’ve been around the rental property investment world my entire life and the only time I’ve ever heard of a real estate investor paying all cash for a property was on this BLOG when either SF Woman or Randy H mentioned some wealthy wives that were buying nice well located property for all cash.

If you bought a typical $1.5mm SF Peninsula 3br 2ba you would GROSS $24-36K a year (a 1.6-2.4% cash on cash return). With property taxes at ~$17,250, a 5% vacancy/collection loss at $1,200-1,800 and typical expenses (other than taxes) ~$4K the actual annual cash on cash return will drop to ~$2K - $13K (a 0.1% - 0.8% return).

With prices on the way down I think that most people with a lot of cash will stick with CDs and/or Money Markets where $1.5mm will pay them more per “month” than they will make in the next “decade” owning an overpriced Bay Area rental property…

I think that picture of the frazzled-looking bird just might be emblematic of the average hapless, helpless Silicon Valley ARM buyer of the last couple of years: a bunch of Ostriches & Turkeys ready for the roast, and, for the most part, oblivious to the sad fact...

allah,

Thanks for linking that article. You bring up some good points where median price is concerned. I too, have long challenged the value and validity of median price, it's a tool, not the holy grail.

Even in OR we've seen isolated pockets such as FAB described occuring in Burlingame. I'm not sure an 1,100 sq. ft home on a 10k sq. ft. lot is the best use of our resources either? I also don't have a thing in the world against a guy going in there and putting TWO homes and making an honest buck at it! If someone is willing to pay for it, wth!

But PLEASE don't tell me the median is rising! When particular areas (or in our case, whole towns!) get a complete make-over it really is apples and oranges! Our rinky-dinky far flung Portland bedroom community was once home to the world's largest lumber mill and one of the oldest town west of the Mississippi. Since people that make "toothpicks out of logs" don't make a lot of money most homes were 2bd/1ba or 3/1 and maybe 1,000 sq. ft.

Now that we've become the "Carmel of Oregon" nothing under 2,500 s/f is being built. Since we're not running out of land (yet) the older stock is being converted to rentals (much of it built in the 20's and 30's). We've become basically a "new" town in that regard (but it doesn't stop people from asking outrageous money for their old 2/1 when they upgrade). Citing the rise in median price of course.

palo alto renter,

Don't take this the wrong way but better men than I have wasted many precious minutes trying to "reason" w/theotherside. If only he could bring something (anything!) of value to the table! All I've ever gotten was realtorspeak etc.

FAB,

You need to plug realistic numbers in there. No 3/2 house rents for $2k on the peninsula, deifinitely not a $1.5M house.

Here is a house that would probably go for about $1.5M:

http://sfbay.craigslist.org/pen/apa/279561382.html

As you can see, it rents for $3,750. But even upping it to that, only gives 2% ROI. So I don't know anyone with any financial sense that would do that.

It will be great to see if anybody has any data from what happened in 91-97…Did CA experience a slow or fast recovery after hitting bottom?

A slow one. The data has been available on my blog for over a year and a half now.

And all your no-arbitrage investment class stuff is not well directed. I have forever maintained that housing is neither consumption nor investment, by technical definition, it is a form of consumer savings. Consumption only occurs when the asset is sold or leveraged for credit. But the asset class itself represents a savings profile to non-business individuals.

palo alto renter,

It's no accident that AMT is so "murky". What CH needs to calculate is the American Taxpayer Threshold of Pain. Until there's a national outcry, don't look for change. Again what absolutely befuddles me is that we're hardly the only ones complaining about AMT and yet FB's are having their day in court before US? With AMT impacting more filers each year you'd think that a more unified voice would arise?

Is it simply that FB's bitch louder? Better? More often?

"just another "no" on TurboTax" LOL!

And we can't wait to click through 'em!

Tax Loss Re-Capture for Alt. Fuels Expolration (IRS Form ____)

Uh...... NOPE! Next!

You're right Person, the whole FB "fast track" has all the ear markings of Ma and Pa and homesteading and the like whereas AMT is just us gettin' whats we's deserves.

Person,

Oh and I was sorry to hear she passed away recently. A fighter to the end! We will miss her. :(

palo alto renter :

I have a secret admiration for AMT. I hope it is NEVER indexed to inflation and every walking soul in this country is subject to it. It is as close to flat taxation as we can get.

It's very hard for a 2-income family in CA to not get hit by AMT. Just the income by itself does not determine if you fall under AMT. It's the deductions. Since the state income tax is so high, deductions can get high and .... BANG ... you are forced to move over to AMT.

In that case, buying a house loses one incentive - deduction of property tax. And the interest earned on the down payment is taxed at a lower marginal rate. From my anecdotal evidence, very few buyers are even aware of this.

AMT need to be either removed or severely readjusted. It is serving none of its original purpose and is currently acting a blue-stater/high achiever tax.

"AMT need to be either removed or severely readjusted. It is serving none of its original purpose and is currently acting a blue-stater/high achiever tax."

Why do "blue states" matter? Do they have higher local taxes or the opportunity for more deductions?