patrick.net

yeah in a span of one hours , numerous people called who had pans to short sell their present one before they move onto their new house. It is amazing how people are gaming the system at expense of tax payers.

it's interesting but these people need to live somewhere unless they're going back to india.

I think major price drops in places like Central Valley were a result of too many out of area buyers with no intention to actually live there. so the housing demand was artificial and builders overbuilt.

I am an Indian.
I know lot of my friends who bought in to the frenzy. See, we were 'schooled' that buying home/property is always a good idea.
There are lot of Indians who bought at peak in East-Bay / South Bay. Expect more.

Indians are savers, usually. But I know a lot, who got 'interest only' loans to get into a starter home in Santa-Clara for 700k :-)

I am an Asian and have many Asian friends. All the people I know who bought their homes between 2005-2008 are "stuck" in different ways in different levels - depending on where (city/neighborhood) they bought. And yes, some of them have variable rate mortgages. Some of them have second mortgages too. The wife in one of the families can't leave her job (she has a child now and she wants to quit) because they can neither sell their home nor afford current mortgage without both of them working.

Some of people made lots of money in last housing bubble. Some made some bad decisions too.

PPete says

The double dip started in June. Buckle up!

Just an ongoing correction in the works.

P2D2,

What you write does not jive with what I see.

So many recent immigrants with PhD's from elite US schools, driving late model cars, nice import models, sending their tots to Challenger and then later on Harker or some other elite school like that, or else paying an enormous premium for public schools with high standardized test scores, their college age kids going back east to private schools or the top tier UC's which are not cheap unless you're low-income enough for all the gov't help; private lessons, tutoring, sports camps, "Harker-school junkets" for panel discussion, Gunn High School trip to Provence for the summer, etc. for the kids; annual-ish trips "back home", often during holiday shutdowns when the fares are highest, trips to Tahoe for skiing, and often boasting about their savvy investments in stocks, or sharing about the losses they had no problem stomaching on other stock speculations.

These folks are my peers in the job market; I know +/- or so what those jobs pay and what one can afford: the only rational conclusion is that they are all very wealthy from family money "back home". The fewer number of such persons whom I know fairly well I also know for a fact are indeed from very wealthy family money "back home".

Roberto,

I am sure you know about the miracle of compounding.

At a relatively benign 5% year over year increase the market value of that 250K home would be about 750K to 800 K nowadays; that Solano home would be about 250K.

However, prices in late 80s went down by 30-40% in subsequent 5-6 years.
They were not sustainable! Its too easy to come up with 5% return, and call
it a safe estimate, yet like back than, there were many factors which played in.
The Japanese did wonders in the Bay Area killing off our growth and taking our
global market share. So much for the 5% solution!

Those were the days before the recent rise of the new wealthy elites in China and India. The typical Fortress buyer was a middle manager from Lockheed, not the rich kid of a rich family "back home" in Mumbai or Shanghai.

It's different this time.

sybrib says

Those were the days before the recent rise of the new wealthy elites in China and India. The typical Fortress buyer was a middle manager from Lockheed, not the rich kid of a rich family “back home” in Mumbai or Shanghai.
It’s different this time.

Is that what you think we had here in the 80s ? Just middle managers from Lockheed ?

I've been personally monitoring 95132 and milpitas area from last 2.5 years and from my experience one can get better homes for the same amount of money. This weekend i decided to see all the open houses in the area and most of them had no offers.
The thing is the sellers are slowly realizing the new reality and only their personal experience would help them shun the bubble mentality , by personal experience means holding open houses every weekend and receiving no offer. So I only expect price stabalization going further.

And oh Let me clarify about "rich kids from india", I'm not sure because the really rich ones don't even bother study engineering or programming computers or coming to live in united states. They might visit , but they don't want to live here. I'm not so sure about people from china.

FWIW: Two neighbors on my street are originally from India and they both mentioned to me at different times that they have stopped paying their mortgage because they are so far under water. One of them wanted to buy my house for all cash to keep his kids in the same school. I don't know what the other guys plan is but he stopped mowing his front yard about a month ago.

sybrib says

P2D2,

What you write does not jive with what I see.

So many recent immigrants with PhD’s from elite US schools, driving late model cars, nice import models, sending their tots to Challenger and then later on Harker or some other elite school like that,

sybrib,
Please re-read my earlier post. How exactly does it contradict my point? Of course there are such Asian people here - driving Mercedes, have palatial homes. I know enough Asians who made enough money stock options (despite dot-com bust). I also know enough Asians who made lots of money in real estate (please read the last line of my earlier post). These are not the people who bought their homes in 2005-2008. Most likely they sold in that timeframe and made lot of money.

sybrib says

These folks are my peers in the job market; I know +/- or so what those jobs pay and what one can afford: the only rational conclusion is that they are all very wealthy from family money “back home”.

sybrib,
If you are wealthy and successful in this country, would you bother to migrate to another foreign country and live there? Just ask yourself. 400 years back those pilgrims in Mayflower ship wasn't exactly the wealthiest people of Europe. They came here for new opportunities. Things did not change in 400 years. Those Irish immigrants in New England or Italian immigrants New York were not wealthiest people in Ireland and Italy either. Same way, the Indian software geeks or Chinese hardware geeks in Silicon Valley are not from wealthiest families either. They (including me) came here for opportunities.

There are indeed very wealthy people in Asia. They are successful in their own countries. They don't need to come here to become wealthy or successful. I do know couple of cases of wealthy sons of businessmen coming to America to get MBA degree from Harvard/MIT/Stanford (with dad's money of course). But normally they tend to go back and enter into their dad's successful, and most importantly already established worlds.

Those mythical Asians buying up real estate in Silicon Valley - well, that's indeed myth.

P2D2 is exactly right, I myself am an Indian and obviously all my friend circle in Bay Area and (then there friend circle further on) are from normal so called "Indian middle class", there might be some exceptions though.

Zlxr,
Wealthy enough to pay Fortress Prices.

For those who wants to get out of their underwater property either through short sale or foreclosure, be prepared to go through foreclosure even if you have a perfect short sale package sitting on your lender's desk for approval. We tried to do a short sale on our home so that we can relocate closer to work, but the lender these days will not even consider a short sale unless you are completely broke, in lender's words: "no surplus money at all". So be prepared to ruin your credit and go through foreclosure if you really do want out of your home. Banks are blood suckers who takes tax payer money but will not try to help you in any way. So don't expect them to be nice.

I’m normally just a lurker who felt like posting a comment tonight.

As someone who has personally experienced in the early 1990's the Japanese equity bubble and its effect on the housing market boom / bust cycle in Hawaii, it's my position that there's considerably more downside risk to this housing cycle.

Though others might disagree, I've lived long enough to learn (the hard way) that the 4 words most detrimental to your wealth that those in power (your banker, your real estate agent, your government, the federal reserve, your newspaper, etc.) want you to believe are these...

"This Time it's Different"

It's NEVER different!!! The bigger the boom...the bigger the bust!!!

Statistics show that under a "normal" housing cycle, it takes 15 to 25 years to go from peak to peak. The peak to bottom of a "normal" housing cycle is 7 to 12 years.

Without a doubt, the United States (and especially California) just had the BIGGEST housing boom cycle in it's history. To believe that what happens on the Mainland won’t effect the Hawaii housing market is a recipe for disaster.

Therefore, if history is to be our guide, it’s very premature to say that after JUST FOUR YEARS (summer of 2006 being the peak of this cycle), that the housing market is near the bottom and the good times are here again. To believe such nonsense is going against all that history has taught us. Over…and over…and over again.

Think I’m wrong, then just compare / look at the US stock market. The Nasdaq made a high of +/-5200 in 2000. Here we are ten years later and we are still nearly 60% off those highs. You won’t see Nasdaq 5000 again until the year 2025.

Of course, those in power and this newspaper article would have you believe that “This Time it’s Different”.

Please no flaming. Have a nice day!!!

Spidey,

In the late 1980's that thomas.wong cited, Tianamen Square massacre was about to happen or had just happened. India was mired in its Soviet leaning aspirations. We did not have a very large H-1 visa program, and foreign students in PhD programs in the USA was a novelty.

Compare to thomas.wong's late 1980's, this time is different.

Sybrib:

I totally disagree.

As with all markets that go through a boom / bust cycle the events, people, and circumstances might be different. This is what you're addressing.

But the biggest human factor that effects all markets NEVER changes. That's greed and fear.

Again, I repeat the the 4 words most detrimental to your wealth is..."This Time it's Different"

Unless the real estate market is can eliminate this "human factor", this time will NOT be different.

sybrib says

Zlxr,
Wealthy enough to pay Fortress Prices.

And why would a wealthy foreigner pay "fortress price" for a 50 year old 3BR ranch style exceptionally boring crapbox? School district? If they are so wealthy, they would buy something in Carmel-By-The-Sea. Or may be a penthouse in Manhattan. But Cupertino? Sunnyvale? Give me a break!

sybrib says

Those were the days before the recent rise of the new wealthy elites in China and India. The typical Fortress buyer was a middle manager from Lockheed, not the rich kid of a rich family “back home” in Mumbai or Shanghai.

It’s different this time.

Just saying "it's different this time" does not make it so. I would like to see some factual information with some reasonable trend. The reasonable trend I mean NOT anecdotal. Some oil-rich sheikh's son buying a penthouse in San Francisco or Manhattan downtown - that's anecdotal. I would like to see some factual information that Asian wealthy people are buying (or helping their children to buy) properties in Silicon Valley.
If so, why are they buying here? Do they think that their established successful worlds are in the verge of collapse that they need to move their wealthy/assets in America? And buying real estate in overpriced area is a way to do so? I doubt.

The wealthy elite in asia/india ect. arent going to leave their comfortable cocoon... The poor do most of the migrating... Look at mexico for evidence of this... The rich mexicans stay in mexico where they can stay rich and happy.

And don't forget all the "wealthy Latin Americans" who were supposedly going to be buying up all of those Miami condos.

Eyes roll at the rubes.

thomas.wong1986 says

PPete says

The double dip started in June. Buckle up!

Just an ongoing correction in the works.

Economy is self correcting and those natural forces are much more powerful than Fed.

sybrib says

Spidey,
In the late 1980’s that thomas.wong cited, Tianamen Square massacre was about to happen or had just happened. India was mired in its Soviet leaning aspirations. We did not have a very large H-1 visa program, and foreign students in PhD programs in the USA was a novelty.
Compare to thomas.wong’s late 1980’s, this time is different.

You hit on a not much mentioned item. Foreigners getting a semi-free education starting back in the early 90s from US tax payers, and found themself working in SV. They didnt come from wealthy families. Not to mention earlier folks from HK to escape mainland handover, but that didnt have any impact on prices in places like Cupertino. Prices still fell for years after they came here.

P2D2 says

sybrib says

Those were the days before the recent rise of the new wealthy elites in China and India. The typical Fortress buyer was a middle manager from Lockheed, not the rich kid of a rich family “back home” in Mumbai or Shanghai.
It’s different this time.

Just saying “it’s different this time” does not make it so. I would like to see some factual information with some reasonable trend. The reasonable trend I mean NOT anecdotal. Some oil-rich sheikh’s son buying a penthouse in San Francisco or Manhattan downtown - that’s anecdotal. I would like to see some factual information that Asian wealthy people are buying (or helping their children to buy) properties in Silicon Valley.
If so, why are they buying here? Do they think that their established successful worlds are in the verge of collapse that they need to move their wealthy/assets in America? And buying real estate in overpriced area is a way to do so? I doubt.

Here's the hard evidence, I use Cupertino, CA but can be easily applied to (Fremont Union for Indians)as an obvious location where well off asian are buying. http://www.bayareacensus.ca.gov/cities/Cupertino.htm

..................................1980 census.....1990 census......2000 census......2008 ACS
Total Population .............34,015...........40,263............50,546.............. 55,623
Asian..............................2,393........... 9,242 .............22,462..............31,763
% of total........................ 7%..............23%...............44.4%..............57.1%
Household income.............30,312............64,587.............100,411............125,106

There is tremendous demands from high income/high net worth asians buying in Cupertino.

What does it mean? It means well off asians raised the game for everyone else, creating a level of exclusitivity. Things usually go from bad to worse and vice versa, good to great. Cupertino is one of those places that went from good to great and attracts a lot well off asians in the bay area.

My father in law qualfiy as well-off so I'll give a little color into their thinking as per request. My father in-law was once a member of an exclusive golf club. As soon as they lowered the requirments as so to include more members, he and others advertised it for $1 on the newspaper to piss off the the organization, which subsequently did not lower member requirement. In other words, Cupertino is great in that it does a great job of keeping a lot of people out. It's a viable business model.

And hence my thesis that prices does not necessary need to revert back to whatever mean. The properties are already bought, the bar has already been set, higher and higher. NFL football players are now, heavier, stronger and faster, do you tell me that a 270 pound lineman would succeed in today's NFL just because they generally succeeded 20 years ago? The 270 then is now the 310. Things change and does not have to go back.

Wealthy people likes to buy things that are limited and in demand. To my father in law, they are places like Hawaii, Cupertino, and San Marino as they are places in the US that are familiar and comfortable to them yet is considered exclusive. He does own a property in Oahu golf community and rents to his brother (my wifes uncle) and another property in San Marino to his nephew in LA. I lot of my wife's friends have parents who helped purchased properties in the bay area to stabablize their living situation. From my understanding, he wants to file income tax returns in the US and keep his options open.

http://blog.redfin.com/sfbay/2010/08/nobody_move_bay_area_home_sales_seize_up_july_insider_report.html

Interesting article from Redfin.

Is that a thud I hear? Yep, sure enough.

Further decline on its way.

SF ace says

Here’s the hard evidence, I use Cupertino, CA but can be easily applied to (Fremont Union for Indians)as an obvious location where rich asian are buying. I picked out three parameters

…………………………….1980 census 1990 census 2000 census 2008 ACS
Total Population ………….34,015 40,263 50,546 55,623
Asian…………………………2,393 9,242 22,462 31,763
% of total…………………… 7% 23% 44.4% 57.1%
Household income………….0,312 64,587 100,411 125,106

There is tremendous demands from wither high income, or high net worth asians buying in Cupertino.

Hard evidence? Really? In Silicon Valley household income $125K is not really a sign of wealth. A engineer works in cubicle earns that much. I know, I know, that's just median income. Bill Gates living in Medina, WA does not change the median income of his city, right? But per capita does. According to 1999 census Cupertino per capita income is $44K. It just tells me that more Asian engineers/executives/whatever are buying homes in Cupertino.

So, where is the wealthy Asians from China or wealthy Indian from India?

SF ace says

What does it mean? It means well off asians raised the game for everyone else, creating a level of exclusitivity. Things usually go from bad to worse and vice versa, good to great. Cupertino is one of those places that went from good to great and attracts a lot well off asians in the bay area.

That's more reasonable argument - calling it "well off Asian" (instead of wealthy from China mainland). The median income of whole Silicon Valley has gone up in last two decades. Cupertino is not any different. Some places went up more, some places less. In some places more Asian, some places more Indians. Cupertino attracts more Asians because of this API scores (some of the schools have perfect score).

Repealing the Bush Tax cuts will help in lowering home prices a bit... Give those making over $250K a year a little less money to bid up home prices.

The mortgage interest rate deduction is unfairly tilted in favor of the rich too. There should be a cap on mortgage interest deductions. Say at 750K.... You shouldn't be able to write off any interest your paying on a home purchase over 750K.. even in your primary home. This would go a long way in making homes affordable again. The government has been making it far too easy for the Rich to get richer.. and the poor to survive on welfare.. But stay paycheck to paycheck like an indentured slave.

spidey says

“This Time it’s Different”
It’s NEVER different!!! The bigger the boom…the bigger the bust!!!
Statistics show that under a “normal” housing cycle, it takes 15 to 25 years to go from peak to peak. The peak to bottom of a “normal” housing cycle is 7 to 12 years.

thank you spidey.

someone who has actually read about past markets and their boom bust cycle.
someone who knows something.
too many ignorant people talking as if they know something when they know nothing.

i really enjoyed reading your post. it's quite excellent - unlike the other garbage that passed as "information".

robertoaribas says

I make more than 125K a year in Tempe AZ, and I’m not well off… Given California’s higher cost of everything, forget it!

AZrob, who says 125K is well off. If you look at the median household income which went from 30K in 1980 to about 125K in 2008, that means higher income people are moving in, that's how you move the average up beyond normal.

As comparasion, over the same period of time, San Jose went from 22,826 household income in 1980 vs. 79,796. A 7K delta is now a 45K delta.

SF ace says

AZrob, who says 125K is well off. If you look at the median household income which went from 30K in 1980 to about 125K in 2008, that means higher income people are moving in, that’s how you move the average up beyond normal.
As comparasion, over the same period of time, San Jose went from 22,826 household income in 1980 vs. 79,796. A 7K delta is now a 45K delta.

Hum! in the 80s we saw a pretty large boom which ended by 1989. Prices did go up as did incomes, but quickly went bust. Prices back then didnt go up 200-300% in a short period of time, it was more balanced compared to the boom from 2000 to today. As my prior post showed, today we have much fewer companies and smaller workforce compared to 1980s and 90s. Overall the 20 year boom (1980-2000) in tech is pretty much over.

What you see today is peanuts compared to the 80s.

P2D2 says

Cupertino attracts more Asians because of this API scores (some of the schools have perfect score).

Only one in four household have children. If some want to flock to Cupertino, fine let them.
Cupertino is not representive of the who Santa Clara County or the Bay Area. As history has time and time again shown, the higher you go the harder the fall.

Dell to buy storage provider 3Par for $1.13B

And some not very happy folks going home today....

"Therefore, if history is to be our guide, it’s very premature to say that after JUST FOUR YEARS (summer of 2006 being the peak of this cycle), that the housing market is near the bottom and the good times are here again. To believe such nonsense is going against all that history has taught us. Over…and over…and over again.

Think I’m wrong, then just compare / look at the US stock market. The Nasdaq made a high of +/-5200 in 2000. Here we are ten years later and we are still nearly 60% off those highs. You won’t see Nasdaq 5000 again until the year 2025."

No flaming, just healthy discussion and analysis as always:

You’re not wrong, that’s just playing with numbers again. As an M&A specialist in my early career, you can make any acquisition fit by playing around with #’s.

Nasdaq 5200 in 2000, let’s go back further and we see nasdaq 450 on January 1, 1990. Today, we have nasdaq 2,200 which does not even reflect the effect of cash and stock dividends.

You didn’t explain anything in this housing cycle other than the longer it went up, the longer it will fall. That is what history says, you are doing the same thing. I see no substance as well.

SF ace says

No flaming, just healthy discussion and analysis as always:
You’re not wrong, that’s just playing with numbers again. As an M&A specialist in my early career, you can make any acquisition fit by playing around with #’s.

stock market bubbles last a while - when the dot com bubble was bursting the s&p 500 was down for 3 straight years.
stock markets deflate a lot faster than real estate markets.

to think the biggest housing bubble in history is over after only 3 to 4 years is overly optimistic.

not just because of the duration but every other metric says so. price/income, price/rent. unemployment, bad economy, foreclosures, etc indicate the bay area housing market is over priced.

and it's not just metrics, i walk into most of these neighborhoods of half million dollar homes and we have unkempt houses with multiple families per house, 4 beater cars, brown lawn and just by looking at them they are certainly not making a white collar salary. probably closer to minimum wage, then a professional salary. half million dollars to live in a ghetto?

now let's take a look at $800k-$1M houses. who lives here? much better stock. from the people i know, usually dual income, educated, both white collar, but not necessary professionals. decent low to mid hundred thousand dollar salaries, by no means rich. they drive bmws, mercedes, brand name designer clothes, all the looks of being successful, except they have little net worth. it's mostly tied up in their houses. most made a pretty decent down payment on their house. all expected to sell at a profit ("a house is a good investment" they told me). most are underwater. should they be living in a $1M house? no way. so i ask a guy at work who bought a $1M house if he would buy now if he knew house prices would stay flat for a while and he said no - he and his wife bought it for the appreciation. he has two properties one an investment and one to live in; he's expecting both to go up in price. he makes less than i do.

and recently these folks that were so gung-ho about real estate are complaining about their payments. they have doubts. and so they should because prices will crater. but i never tell them that.

thomas.wong1986 says

Dell to buy storage provider 3Par for $1.13B
And some not very happy folks going home today….

Why not happy? The premium was 87% over the closing price yesterday.

"and it’s not just metrics, i walk into most of these neighborhoods of half million dollar homes and we have unkempt houses with multiple families per house, 4 beater cars, brown lawn and just by looking at them they are certainly not making a white collar salary. probably closer to minimum wage, then a professional salary. half million dollars to live in a ghetto?"

------------>>This is exactly what i see when driving around these 600K home neighborhoods, some of the homes are real dumps and won't even have my dead body buried there. You would really wonder how are these people living there when you take a tour inside.