patrick.net

ColoradoBear,
Yeah, I've taken a gander at those pages from the DOJ before. What I find most interesting is that the DOJ has a LOT of information about shady collusive Realtor practices, but they are unable or unwilling to pursue the issue further than to provide generalized "recommendations" like suggesting states repeal laws on their books requiring minimum broker services or banning RE commission rebates. It just seems like the DOJ has no teeth when it comes to this issue.

I would love to see this happen. These are the obstacles that I see personally and possible solutions. In short I think people need to feel confident in doing the process on their own.

1 - As someone who hasn't purchased a home before, I feel uncomfortable with all the details and steps simply because I do not know what they are or how to bring them to pass.
The solution to this I believe could be a free online resource that provides a detailed step-by-step guide on what you need to do to buy or sell a home.

2 - Documents. Man it seems like there is so much paperwork involved. How do I know what documents I need and what information is pertinent to my situation in those documents?
Again, it would be nice to see a free resource for these documents as well as instructions on how to use them properly. I've seen websites out there that sell the documents but I don't feel like throwing down $20.00 per document when I don't even know that I'll need them.

3 - Getting around the Realtor. This is a tuffy. A few things. First we need to have a good searchable database for people to post homes for sale and to look for homes to buy. The MLS is really great but we really need something that costs less and circumvents the realtors. Now we have things like craigslist or perhaps local classifieds both of which are quite good but the search capabilities are mediocre. My favorite property search engine is PropertyPoint 3 from Windermere.
For those properties that are listed with a realtor already, I think the best thing to do is approach the seller directly. You can sometimes get this information from tax records or heck just knock on the door (assuming it's not investor unoccupied). Tell them you're interested in the home but won't work with a realtor. Many people would be tickled to knock 5% off the price and drop the realtor.

OT, but it looks as though slowly, but surely, the "other shoe" is starting to drop on the subprime MBS mess:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aFS746x.HOnc&refer=home

Now that the Bear Stearns disaster has put the spotlight on the ratings agencies, S+P is finally responding. It looks to me like, as expected, they are going to retool the credit ratings of these bonds in dribs and drabs, probably to avert mass panic.

I like this analyst's comments:

``S&P's actions are going to force a lot more people to come to Jesus,'' said Christopher Whalen, an analyst at Institutional Risk Analytics in Hawthorne, California. ``

Overall, it appears to be a pretty interesting day in the markets - we have the S+P subprime bond "opening shot," Bernanke continuing to try and walk that fine line between keeping the economy afloat and giving lip service to "fighting" inflation, and we have crappy earnings reports from the REIC: DR Horton, Sears, Home Depot.

A straw poll - does anyone think the national housing mess will ever substantially affect the "Fortress" in the Bay Area? To me, nationally, things are only getting worse. But anecdotally, the Fortress areas continue to hold up. The gap is widening more and more.

Skibum,

Yes, it'll hit the fortress. Just like the price jumps started in the 'fortress' and rolled out, now the price declines are rolling back in. Remember, two years ago Gilroy was part of the Bay Area according to realtors. Now Palo Alto, Atherton, and maybe Cupertino are the Bay Area and everything else is not.

Skibum,
OT, but it looks as though slowly, but surely, the “other shoe” is starting to drop on the subprime MBS mess
I was thinking the same thing -- enough to motivate me to finally look at the 401k accounts and attempt to "sanitize" them last night (yes, something I should have done 6 months ago). The only thing that really seemed to jump out at me was the Pimco Total Return Bond Fund (already down 1% this year). But that is probably because I am overinvested in equities (whenever I see "financials" as a large percentage in some of my funds I start to get queasy). Ah well.... long term right?
From the Pimco Investment Update:
Overweight mortgage-backed bonds—Mortgage-backed bonds remain an attractive source of high-quality incremental income compared to credit-sensitive corporate bonds.

Anybody got strong feelings about Fidelity Balanced Fund (FBALX)?

East Bay Anecdote:
Walking past a church that was having a wedding, there was a guy outside yammering away on his cell phone. The only part of the conversation I caught was: "Nobody is buying homes right now".

it may hit fortress only slightly considering there are people in this blog who are interested in fortress. more interest --> more demand.

EBGuy,

I'll admit that unlike a lot of the other posters, most of my mutual fund dollars are in Fidelity not Vanguard. I'm concentrated in FSEMX, which is a low-cost index fund. There's always the temptation to let the "inner bear" take over and start worrying about having any money at all in the stock market, considering the continued onslaught of bad economic news, but then again, somehow, the market up to now has continued to shrug off each piece of bad news and continue it's onward and upward slog.

Remember, two years ago Gilroy was part of the Bay Area according to realtors. Now Palo Alto, Atherton, and maybe Cupertino are the Bay Area and everything else is not.

Sounds like this post I wrote the other day:

http://www.burbed.com/2007/06/30/nick-testa-redefines-the-bay-area/

That said, if you're expecting a 20-40% haircut in the Fortress, I don't think you should hold your breath.

it may hit fortress only slightly considering there are people in this blog who are interested in fortress. more interest –> more demand.

sa,
You may be right about the "Fortress," but your reasoning is nonsensical. Just because this particular blog has a lot of interest in the area, that doesn't signify anything about overall demand other than for those on this blog.

Your comment is akin to saying the posters on the "Vida Blue Baseball Card Blog" all are interested in Vida Blue's rookie card, and therefore the demand must be great. But maybe the general population doesn't give a rat's a$$ about Vida Blue.

Sorry if a little OT, but I'm moving back to the Palo Alto/Menlo Park area in the near future and could use a point in the right direction. Thanks in part to this blog, my wife and I won't be looking to buy in the near future, but we're having a hard time locating a 2BR house with a yard to rent. Outside of craigslist, where should we be looking?

jrjonsie Says:

1 - I feel uncomfortable with all the details and steps simply because I do not know what they are or how to bring them to pass.

2 - Documents. Man it seems like there is so much paperwork involved.

3 - Getting around the Realtor.

i bought a house from owner (FSBO). i hired a closing/contract agent for around $600 and there aren't many documents. it's just the realtor's way of scaring people ("oh all the paperwork"). there are a ton of online resources. just start through the process by looking for banks (good ones) that can loan you the money, they will guide you through the paper work and people needed.

for getting around realtor, buy FSBO houses. not sure what can be done if you like a house listed by realtor.

skibum

i was only referring to the blog for obvious reasons. i do know quite a few folks who would like to be there. just a general observation.

on the other hand i would like to know if houses in bay area is really expensive compared to areas like NY. sure NY has financials, silicon valley actually got to be big?

skibum,

i was just talking to my friend last sunday and he was saying some chinese had bought houses cash down in/around cupertino area.

Who's going to make the first troll call?

And eburbed, I hadn't read that yet (I usually hit your site every few days) and it made me laugh when I did?

on the other hand i would like to know if houses in bay area is really expensive compared to areas like NY.

Yes. Houses here are more expensive than they are in the NY Metro Area. But not more expensive than in Manhattan.

It's also hard to compare because the property tax there can be double what it is here sometimes.

SFBB said:
Remember, two years ago Gilroy was part of the Bay Area according to realtors. Now Palo Alto, Atherton, and maybe Cupertino are the Bay Area and everything else is not.
I do get the feeling that at some point it is all about crunching the numbers. By my (admittedly crude, back of the envelope) reckoning, a year in private (Montessori) school is about equvalent to ~$250,000 in home value (and this number falls as interest rates rise). And that expense is only over 13 years. Do you really want to be draining the coffers to be in a good district while the kid is in college (admittedly, you can move out of the district at that point -- but then again, Prop 13, transfer taxes and Realtor fees say stay put {well, there is the one time roll exemption for Prop 13, though}). Like the home price-to-rent ratio, gravity (and overvalued school districts) can only be defied for so long...

"Who's going to make the first troll call?"

Oh... I'm sorry, I thought it was obvious.

I spoke with a gal at my custodial bank and she said that there were a few houses that were starting to slide off their foundations in Tiburon? I thought all the big rain came last spring?

I expect as things continue to deteriorate "metro areas" will get smaller and smaller as the REIC attempts to distance themselves from former "hot areas" they'd previously been touting as "core".

Who’s going to make the first troll call?

I'll give "sa" the benefit of the doubt. By his/her posts, it appears he/she just recently bought in the "Fortress" (FSBO), and is here to assuage any buyer's remorse by touting the high demand in the "Fortress." The choppy grammar in fact leads me to believe he/she in fact is of the "Fortress" demographic - Asian, probably an engineer.

i was just talking to my friend last sunday and he was saying some chinese had bought houses cash down in/around cupertino area.

You mean, they paid for their down payment in CASH!?

Or should I say, they paid any down payment at all??

Hey, I want to take the credit for pointing out the "Redefining the BA" ! Our favorite FaceReality tried that shifting argument tactic.

The truth of the matter is, the downturn has already started hitting the BA. Situation in Gilroy area is bad, and the building new houses hasn't stopped there. Evergreen has been showing stress as well, with short sells visible on ZipRealty. In Tracy, the "median" is down by over 10%.

All this is happening when
1. Rates are still low.
2. Technology job market is doing more than just fine.

Hence the Fortress remain strong. I do not see the job market taking a sharp turn to south. So unless 30yr FRM rates go over 7%, you will not see any cracks in the Fortress. In fact they will keep becoming more desirable, postponing their day of reckoning.

I am not touching the USD denominated bonds - in any shape or form - even with fears of recession. Many other currencies give much better interest rate and can potentially appreciate at the same time.

I am mostly in stocks. For bonds, I advocate global bonds, in particular I have mentioned MERKX many times. I hold it, and my cost basis is much lower than the all time high it is currently hitting. It's a short term Euro bond fund, with a lot of Gold in its portfolio. Do your due diligence.

Jim Jubak on MSN investor wrote a nice article on how bonds are more risky right now that stocks. It should be available in their commentary archives.

Hence the Fortress remain strong. I do not see the job market taking a sharp turn to south. So unless 30yr FRM rates go over 7%, you will not see any cracks in the Fortress. In fact they will keep becoming more desirable, postponing their day of reckoning.

Stuck,
That brings up an interesting point. The bearish-est (sorry) scenario would be that the CDO/CLO mess leads to severe credit tightening (much more than right now), drying up the money flow. This would have a significant impact on HF money and probably in a "chain reaction" effect VC money. This would also have indirect effects on the established tech companies in the form of belt-tightening from their customers. IE, economic slowdown and possible recession.

I'm not predicting recession, and I'm not trying to "out-bear" anyone, but I see this scenario as a distinct possibility.

Skibum,

It is definitely a possibility. Although I am not sure how co-related the credit crunch is with the startup funding. Have people been investing borrowed money into startups ? Randy and SP might offer better insight. If I were to venture a guess, I would say not much of the money in high tech VC funds comes from borrowing. Investing in start ups is considered very risky, all or nothing bet. No one is promoting them as AAA rated ;-) So most likely people are just putting hard cash into these funds.

On the other hand (!!), there are competing factors. One of the main reasons for the job loss in the BA was outsourcing. There was job growth in big tech companies. It was just in India, not here. Outsourcing is becoming less and less attractive. Thank the falling USD. Exporters will have "more" earnings. So job market - at least in high tech - would remain strong, IMHO.

skibum Says:

Who’s going to make the first troll call?

I’ll give “sa” the benefit of the doubt. By his/her posts, it appears he/she just recently bought in the “Fortress” (FSBO), and is here to assuage any buyer’s remorse by touting the high demand in the “Fortress.” The choppy grammar in fact leads me to believe he/she in fact is of the “Fortress” demographic - Asian, probably an engineer.

i would never buy a house in BA even if the houses were to drop another 30%. i did tell in one of the posts other day that i thought the houses were were overpriced in 2000-2001 time.

I have lived in bay area in the past. I have been wrong in the past twice about fortress leads me to believe what i stated and it has nothing to do with grammer/asian/engineer.

oh wait! somebody is bitter that they missed the opportunity and its probably got something to do with asian/engineers.

Hence the Fortress remain strong. I do not see the job market taking a sharp turn to south. So unless 30yr FRM rates go over 7%, you will not see any cracks in the Fortress. In fact they will keep becoming more desirable, postponing their day of reckoning.

From my conversations with friends, the job market is heading anywhere but south. Job hopping is going on like crazy in the tech sector. It's pretty hot and only going to get hotter.

Crud.

-JBR

"From my conversations with friends, the job market is heading anywhere but south. Job hopping is going on like crazy in the tech sector. It’s pretty hot and only going to get hotter."

True, but that is not uni

“From my conversations with friends, the job market is heading anywhere but south. Job hopping is going on like crazy in the tech sector. It’s pretty hot and only going to get hotter.”

True, but that is not unique to Silicon Valley, Bay Area, California or even the US where total unemployment is 4.4%.

I'd be very careful in assuming that things will continue the way they are indefinitely. Your comment sounds so Summer of 1999.

StuckInBA Says:
I am not sure how co-related the credit crunch is with the startup funding. Have people been investing borrowed money into startups ?

Short answer is: No, the money being poured into startups isn't 'borrowed' money in the direct sense.

Longer answer (but still brief :-) ) is:
However, if you look at the entire risk-reward continuum, excess liquidity depresses yield across the spectrum, which forces investors to accept higher risk to get a certain yield - i.e. give money to less promising start-ups.

A credit-crunch does not happen in isolation in one sector. It means that investors in all sectors demand higher yield for a given level of risk. You have to 'give' higher yield to attract the same money, and startups which are structurally incapable of offering this yield will choke.

That is a little oversimplified, but you get the idea.

Also, if there is a real credit-crunch, it impacts business expansion and consumer spending as well. The secondary (and higher order derivative) effects of that will also make it difficult for risky prospects on the edge.

SP

Here's an intersting tidbit:

In spite of all this talk of the Silicon Valley fortress and its present white hot economy, current inventory for June 2007 for Santa Clara County is now only just a tad lower than it was 6 years ago in June 2001 (dot-com implosion in full swing) and is actually at its highest for any June since then:

http://www.creeksiderealty.com/bay_area_real_estate/2007/santa_clara_county/7jul.htm

Somebody please explain this....

Apart from the 10yr yield I also closely watch the USD. A few days ago I thought the USD has hit a bottom. I was wrong. The yen, euro and pound are all strengthening.

Every other nation that has a strengthening currency is trying to fight inflation, and making their currency even stronger. We have a weakening currency and still pretend that inflation doesn't exist, thereby weakening the USD even further.

Fed has no intention of increasing the rates. The future of USD really doesn't look that bright. If they actually do the unthinkable and raise rates, housing will tank - even in the Fortress.

So how to profit from this ? IMO, hedge against the USD. If the Fed reduces the rates, you will benefit. If they raise the rates, you will find houses cheaper.

eburbed said:
From my conversations with friends, the job market is heading anywhere but south. Job hopping is going on like crazy in the tech sector. It’s pretty hot and only going to get hotter.

Job-hopping isn't a reliable indicator. There is a mind-boggling number of startups right now that are offering extremely attractive salaries for tech workers to jump ship. From past experience, I can tell you (a) this won't last and (b) it won't end well. Most of these startups are on a short funding leash, and destined to go into a tailspin when the next funding round comes up.

SP

tannebaum :

Every single indicator is showing BA real estate market under stress. There are reduced price listings, short sales, increased YOY inventory, increased foreclosures, decreased YOY sales, decreased YOY asking prices. Even before registration became necessary, our troll-o-meter was also trending downwards.

Certain areas remain prime. So by continuously rezoning the Fortress and using the flawed statistical measure called "median price", we can maintain the illusion that the Fortress is really strong.

You know, Monta Vista houses are still fetching a bidding war. Don't look at San Jose. Everyone wants to live only in Cupertino, right ?

How about a new thread-

Will Bear Stearns transition itself to become the Carmax of used houses?

A credit-crunch does not happen in isolation in one sector. It means that investors in all sectors demand higher yield for a given level of risk. You have to ‘give’ higher yield to attract the same money, and startups which are structurally incapable of offering this yield will choke.

I am trying to wrap my mind around the credit crunch. How will that play out ? Wouldn't the Fed try to fight it by lowering rates and encouraging investment ? If the risk-free rate goes down to say 3%, wouldn't it make it less risky to invest in a start-up ? Wouldn't that stroke the buyout flames stronger ?

I agree with your second part. The credit crunch will definitely affect the customer and eventually rest of the economy.

skibum Says:
does anyone think the national housing mess will ever substantially affect the “Fortress” in the Bay Area?

Not the national housing mess.

The Bay Area housing mess will affect the fortress. Fortress prices now reflect the lagging effects of extremely loose lending, low interest rates, speculation, extreme school-fetish, a tight job market and two-income professional families. They also now reflect "spring selling season" stickiness to the point where we are close to overdue for an 'unsticky' leg.

Keep an eye on the cliff. Don't just watch the lemmings.

SP

Well I don't know about other areas in the "Fortress" but I started paying a little attention after seeing the houses on Sydney Dr in Sunnyvale (from a previous post).

A quick recap: 3 new houses, one on the corner of Fremont (a very busy street), across the street from an apartment complex. All about 2500 sq ft. All selling for 1.35-1.375m. I didn't like the floor plans at all.

2 months later, 2 are sold (1301 Sydney Dr, the crappy corner house, and 1305 the middle house), the last one 1309 Sydney Dr is pending.

There was another new construction house at 1461 Flicker Way at 2460 sq ft. 20 days on market and its marked as pending. Asking price was 1.369m.

And it's not just new construction. Here's another one:

761 Inverness Way: Asking 1.248m at 2573 sq feet. Pending after being on the market 13 days.

575 Torland Ct: Asking 1.428m at 2584 sq feet. Pending after being on the market 11 days.

Of course not every house is that hot. Here's another one that is now pending, and it took 63 days to get there: 1003 Persimmon Avenue. Of course it's only $1.25m at 1,927 sq ft, which translates to $642 per sq ft for a 45 year old house. I would assume they didn't get their asking price but who knows.

And then there are of course a bunch of houses that won't sell. There are 136 houses selling in Sunnyvale after all.

But there are "only" 37 houses that are active/pending in the 94087 zip code. Of those 37, 13 are sale pending.

We'll see what the final price is when they post in the newspaper. Days on market info from Redfin. Number of houses from the MLS site.

Feel free to spin this any way you want. Personally, I decided I wasn't going to look to buy a house anytime soon, and I'd be interested to see what other people make of this data.

SP,

RE: The liquidity crunch, I couldn't have said it better. My understanding is that yes, VC money isn't directly "borrowed" money, but if/when the private equity guys and the corporate entities that fund a lot of startups get hit by the double whammy of less free-flowing cash and higher levels of risk aversion, the highly risky enterprise of startup funding will take a hit.

oh wait! somebody is bitter that they missed the opportunity and its probably got something to do with asian/engineers.

I'm not bitter at all. RE: the reference to Asian engineers, I am only making an obtuse, albeit possibly incorrect inference that your poor grammar suggests you are not a native English speaker.

we can maintain the illusion that the Fortress is really strong.
You have to admit that the Case/Shiller Index numbers for the BA are an amazing thing. Despite crumbling at the periphery (CC and Alameda Counties beyond the hills), "prime areas" are having to do some heavy lifting to keep the index slightly up. No median tricks, just shear brute force (witness DQ Mill Valley numbers).

Another East Bay Anecdote from a BBQ
Couple not living in BAP (and probably cannot afford to live there) is concerned as their kids are approaching school age. Probably cannot afford private schools either. They don't like it, but have started looking east through the Caldecott Tunnel... pssssssss.... town-by-town, this is how the ship will eventually sink.