patrick.net

I am not saying that affordability is not an issue; it is, albeit a secondary one. However, the price/rent ratio is, and has always been, the main problem throughout the bubble period. If rent goes up, prices will not have to "crash" as much.

Los Gatos Renter,

I can empathize with you. Watching this whole real estate/credit cycle unfold can be like watching paint dry. But on the other hand, the rate of change seems to be in-line, if not faster than historical data for previous boom/bust cycles. The big difference is obviously the rapid unwinding of the loose lending standards. You and many others have observational data of people financially maxed out to the hilt in order to get into a home in the Bay Area. Even if they are not serial equity extractors, ARM resets are going to hurt many of them. And this we do know - the data shows that the Bay Area has an extrodinarily high percentage of recent loans as ARMs and/or neg-am and/or no-down and/or no/low doc.

I know you guys hate to hear things like this, but home prices in the neighborhoods I closely track, which is Noe Valley and Forest Hill in San Francisco, are staying firm.

Troll! :) Just kidding.

I do expect SF proper to stay firm. The recent gains in SF property value are arguably more permanent than those in Santa Clara county.

With rising flood waters, people in the lower elevations drown first, while those in the higher elevations are safe at first. In fact, people may run for higher ground, if they can.

The extent of the crash's effect on the "fortress" comes down to just how high the flood waters will rise. The subprime crash was one huge levy break. Alt-A resets will be another. The "rocking and rolling" economy is a big-a$$ sump pump.

I can empathize with you. Watching this whole real estate/credit cycle unfold can be like watching paint dry.

Los Gatos Renter, detachment will help you through this.

Although I’ve recently been forced to buy I want to go on record as saying I would never willingly jump out of a perfectly good airplane! (I was pushed!)

Wait, am I reading this right??? Did DinOR just buy a home? Where did you buy and how much did you pay for it?

I actually expected San Francisco homes to come down 10-20% from the peak. Which they still might do, but I thought it would have happened by now.

The top end obviously has its own laws of Economics, which us mere mortals cannot understand.

Skibum, excellent analogy! :)

With rising flood waters, people in the lower elevations drown first, while those in the higher elevations are safe at first. In fact, people may run for higher ground, if they can.

The unfolding of the housing bubble is much slower than rising flood waters, of course. It is more like global warming. Pirates will save us all.

Which they still might do, but I thought it would have happened by now.

It will happen only after East San Jose has dropped by 50%.

The top end obviously has its own laws of Economics, which us mere mortals cannot understand.

Top-end means 8-digit-homes though.

"big-@ss sump pump"

O.K... now that's more like a FRIDAY at patrick.net! :)

Skibum, you beat me to the punch. Collectively we as a group were so spot on about Sub/Alt I don't feel any burning need to buttress our credibility. From Dec. '06 to present over 66 subprime lenders have gone belly up and yet prices still haven't come down!

I mean isn't that why accident investigators measure the skid marks? (You know the event that u_s_u_a_l_l_y precedes a crash?)

The unfolding of the housing bubble is much slower than rising flood waters, of course. It is more like global warming. Pirates will save us all.

All that means is that many people will be caught off guard and will not know what hit them. We here are all chicken littles to them.

I mean isn’t that why accident investigators measure the skid marks? (You know the event that u_s_u_a_l_l_y precedes a crash?)

The car that rear-ended us produced 8 inches of skid marks.

Los Gatos Renter,

Ok, I can sympathize with your situation as I've seen good friends here crack under spousal "nesting instinct" pressure to buy a bit prematurely, Mrs. DinOR and Mrs. X being prime examples (sorry, guys! ;-) ). However, if you've really been following this blog closely for its entire existence (2 years), then you ought to be able to answer your own questions, buddy.

If this bust more-or-less follows previous busts, then we're looking at an approximately 5-6-year bear market in RE. The historical ratio seems to be approximately 3/5, that is 3 'bust' years for every 5 'boom' years. This boom went from roughly 1997-2006, so there you go. The Credit-Suisse ARM-reset chart also lends strong support this rough timeline. Of course, the Fed/MBS credit bubble really took this one to previously never-before-seen heights (see Shiller chart), so the downside could be longer this time.

We're in Bubble correction year #1. So, at least 5 more to go. As far as renting goes, what's wrong with just renting a detached SFR house, like Randy H or myself? You don't need to be "forced' to live in a crummy apartment next to the 'Projects', y'know. Pick a nice house in a decent neighborhood with good schools, and that ought to satisfy the wife's nesting instinct for a while. Good luck to ya'.

I have started looking at East Bay again, only in Claremont and Elmwood (in Berkeley), since “good schools” is now a requirement so my wife is uninterested in Oakland.

Jimbo,
I guess you must want to be close to College Ave and Rockridge amenities? I am assuming that you know about Berkeley's "choice" lottery for elementary schools. You rank your school choices in your zone, but just because you live in a "good" part of town doesn't mean your kids will go to school there.
Will you be cashing in all your chips from the SF duplex?

Jimbo,

Yeah, I need it right now like a need a "matching" hole in the head but we were set up on a "first right of refusal". I know, bummer huh? We have a wedding in less than 6 weeks and with a mother-in-law visiting all the way from overseas. I couldn't see putting my wife through that.

Now for the math:

We originally offered 180K for the condo here in OR back in APR 2005. Flatly declined but this is a small town so we asked the guy if he would give us FROR if he ever DID want to sell it (feigning interest) to deflect humiliation inflicted by lowball offer. 2 years later (and after about 25K in landscaping) he decided he doesn't want to be a LL anymore so w/o realtors we worked it for 206K.

I'll leave the calc's to those that would even bother with these petty amounts but for me... it was all about principles! So now I'll be paying TWICE the amt. I'd been paying in rent (I know, I know.. ) nothing times nothing still equals nothing but our objective was to bottom feed in '08-'09. We'll still probably do exactly that b/c 3 years ago when these units were being built they couldn't give them away. Afterall, a man moves to Oregon to be a man! Now all of a sudden there's tremendous interest and multiple offers?

Can you say my McMansion is no longer appreciating and I want to take my money off the table!?

"8 inches of skid marks" :(

That is TOTALLY oblivious! At that point I guess you have to glad the schmuck didn't hit the gas? You know, just to see what's on the other side?

Mostly I want to be close to Rockridge BART. I know that Rockridge has a good elementary school (Chabot) but wife refuses to consider it, since our daughter probably could not go to public schools after 5th grade.

I know Berkeley has a lottery, similar to San Francisco, but as far as I can tell all the grade schools in Berkeley are good, so it really doesn't matter. I guess there is the potential hassle of having to schlep your kid across town, but that is going to be true no matter where you live, unless you move right next to a grade school. And then what do you do, move again when your children enter Jr. High?

That is TOTALLY oblivious!

He was driving with a suspended license, his kids were not in child-seats, and he did not even have insurance!

@HARM,

No offense taken. In areas like "Fortress BA" and NYC what we wound up paying would just about cover the realtor's commission and closing costs.

So why get all bent out of shape about this housing bubble thing to begin with, right?

BECAUSE I'M AN @SSHOLE, (alright?) :)

@Peter P,

That's cool. Wasn't his CAR!

Actually, it wasn't cool. But altogether too common. :(

DinOR,

Very true - most of us Clownifornians would leap at the chance to get a decent place for $206K. Hell, I'd take 2. Even the farm-country foreclosures are going for more than that here. I think you can still be well positioned for some bottom-feeding when the time comes, around 2011-2013, so keep the powder dry. Who knows? Maybe we'll all end up going from "rich renters" to "rich landlords", with positive cash-flow properties from day#1.

Well, it sounds like you got a place you wanted at a price you can afford, so that is the important thing.

EBGuy, I forgot to answer your second question: no we want to keep the Noe Valley duplex. This obviously lowers the price range we are looking at, but we might be able to go higher if that is what it takes to get what we want.

We are in no hurry whatsover to move though, since we like where we are and Ava is only 15 months old. I am still hoping prices come down so we can get what we want at the price we want, but I know the real world doesn't always work out like that.

If prices don't move, we plan to say put and enter the SF school lottery and see how that goes. If worse comes to worse, there is always private schools, but we would rather not do that.

@Peter P,

Let me take a wild guess: you got rear-ended by one of those fine, law-abiding "guest workers" that are about to get amnesty?

@HARM,

As always you're more than welcome to move here! (I'm told there's another unit available!) My neighbor HAS HAD IT with specuvestors and stopped by on Thursday to see if I can water for him while in Mexico (Oh!) and could he count on my vote to "grandfather" only existing renters at the next HOA meeting! (Meaning no more flippers/LL's)

No problem dude. :)

@Jimbo,

Thanks! It wasn't really so much a matter of "affordability" as they difference in payment on 180K vice 206K would be about $49 a month but it really was about not feeding the bubble. In ways it worked.

The owner swore on a stack of bibles he would NEVER sell and yet after 2+ years of massive neg. cash flow... he buckled. They had the notion these units would sell for 227K in early 2005! So by now they should sell for, what? 275K? Ahem, (try 206k). 2 years of PITI+HOA's along with countless "special assessments" for improvements will smack the silly right out of a guy, eh?

Let me take a wild guess: you got rear-ended by one of those fine, law-abiding “guest workers” that are about to get amnesty?

Probably not. A "guest worker" could not have a suspended license.

I was glad that no one was significantly injured. My spine was slightly misaligned though.

Peter P,

Sorry to hear, was that recently?

Sorry to hear, was that recently?

About 10 years ago.

I know Berkeley has a lottery, similar to San Francisco, but as far as I can tell all the grade schools in Berkeley are good, so it really doesn’t matter.
I think it may depend on how snotty you are. I live near the "bad" school in my zone and it will probably be our first choice, so I tend to agree with your assessment. I believe busing is also available if your child does not go to the "local" school. Just wanted to make sure you understood all the social engineering going on over here :-) In fact, there is probably a way to game the system and "ensure" your first choice. Unfortunately it involves living in a census track where..... at least the housing is relatively inexpensive.
we want to keep the Noe Valley duplex. This obviously lowers the price range we are looking at, but we might be able to go higher if that is what it takes to get what we want.
Well, you obviously have things well in hand. Good luck on the house hunting and keeps us updated on the state of the market. As you move up towards the hills I think you have less a chance of being assaulted by a bicyclist from Critical Mass.
Well, it sounds like you got a place you wanted at a price you can afford, so that is the important thing.
Ocassionally I get jealous of people with garages.

Anyone paying attention to 10yr ? The yield is up from under 4.68 five days ago to over 4.8 today. Is it really possible that treasury bond investors might actually start paying attention to that little something called "yield" ? Now I am not expecting them to demand higher yield than a shorter term note - I mean who in their right mind would ask that - but this move is quite nice.

StuckInBA - I've been watching the 10yr as well. It's quietly sneaking up.

"most of us Clownifornians would leap at the chance to get a decent place for $206K. "

Hey, I sold my rat-shack in Cambrian Park in May 2006 for $650K+ and bought a much much nicer place in Boise for $272K. Across the street from a nice golf course and riding stables - think Woodside on the cheap. Yes it's true that I could have rented cheaper here in Boise for a while but at least I bailed out of the sinking ship. My downside is much less here.

Going down 25% on $650K+ is a whole lot more loss than going down 10% on $272K. Those are my guestimates on price drops in Cambrian Park vs. Boise.

DairyQueen, I don't know what planet you're on but my house has easily lost 10% of its value over more than the last 12 months. At its peak it was worth $450K, it is barely worth $400K now. I own it outright so I'm not exactly losing sleep over it, but your ridicule is very very misplaced.

San Marcos, CA definitely not the boonies.

1986 construction single level, 3 bed, 2 ba 2 car garage. Pretty small back yard, nice open front yard. For privacy reasons I won't give the exact address out.

Well, it more than doubled in 5 years and wasn't even my best performing one just my favorite for living in.

San Marcos???? Donde esta San Marcos? How long a drive is that from SF???

Greenwich, CT??? How long a drive is that from SF???

DAiryQUeen Says:
will you guys admit you’re wrong?

Only if you admit that you don't understand statistics.

SP

I'm in San Diego. While San Francisco is fun to visit, I'll stay here.

So what tier 1 area do you live in to have such an atitude?