patrick.net

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.

justme says

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.

That's a fantastic price for the shareholders, which is likely employee and executive heavy for a small cap such as this one.

3PAR is not going to be a standalone company anyway, the fact that it was purchased at a 87% premium vs. liquidations makes a big difference. At least, every employee will benefit financially in some ways.

In companies such as 3PAR, most exexs have expensive buyouts upon acquisitions, most of these will be in the 6 digits for the execs and 7 digits for top management. Most likely, the board of directors will negotiate on behalf of their employees for an enhanced severance as part of the package. It's why employees work for 3PAR, no one expects them to be a standalone anyway and await the payday.

In the end, most of the operations will be merged with Dell, 3PAR will be marketed and leveraged with Dell and gain leverage over EMC. Former employees will either stay if offered by Dell or do something else, it will be a good 6-12 months before layoffs happen. Good news, bad news scenerio.

justme says

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.

One less employer in the valley, is always bad news.
LOL! If you held it its great, but when marketing folks run these deals open a
to lots of pain. You may recall how Ebay bought Skype or Sun bought MySQL.
As such a premium was paid, we call it goodwill which is tested annually. In the case
of Sun they overpaid by 100%. Within 2 years Sun tested the goodwill and impaired
it by Half a Billion taking it straight into current earnings. Same was true with Ebay.
In the past we would just amortize it over 30 years. 10-15% is a better premium with
little risk to future earnings. But 75-100% runs a major risk of future earning drops
by acquiring company.

SF ace says

In companies such as 3PAR, most exexs have expensive buyouts upon acquisitions, most of these will be in the 6 digits for the execs and 7 digits for top management

LOL! and they will need it. No one is hiring around here. Unemployment is 10%. 6 digits will eventually vanish over the next 2-3 years. I know two VPs of Finance and one CFO who have been out for the past 2 years. No one is looking to hire exec these days, why would they?

sybrib says

Compared to the whole population of China and India, The Fortress is tiny, and so it only takes a relatively insignificant proportion to skew the market.

LOL! I never thought that the whole 2.5 billion Chinese and Indian are planning to buy home in Silicon Valley. Then the overpriced real estate in Silicon Valley definitely makes sense. ;)
Wait a minute, half of the population in those countries are poor.

Some time back Patrick posted a property from one of those Fortress Area: 1227 Fulton St, Palo Alto.

2007 purchase price: $1.7M
Now listed (sale pending): $1.35M

Doesn't look like much of a Fortress. There are plenty examples like that.
The concept of "Fortress Area" is nothing new. In 2006 the whole Silicon Valley was considered Fortress. Then 2 years back only handful of cities. Now we are talking about a few blocks of a few cities. You are right - it's getting "tiny" indeed.

sybrib says

I work in the trenches, the individual contributors in the trenches. Without thinking hard about it I know five of my colleagues, all of them recent immigrants, new Fortress buyers since 2004. There’s probably more if I really thought about it. Doesn’t stop with the house: the cars, the travel to “back home”, the private lessons, etc. Some of these I know personally well enough to know it is their personal situation: their families “back home” are loaded.

Please define "loaded". Did you meet their parents and know what kind of business they own? And how much (or how tiny little) their so-called wealth/assets become when you convert into US dollar? Or adjust their net worth according to US living cost? Let me give you some example.
My dad is a retired professor. My parents have a fulltime maid who does cooking, housekeeping and if required does daily grocery too. Then of course, my parents can't drive car. So they have a fulltime chauffeur to drive around. Sounds very "loaded", isn't it? But, believe me, my parents are just middle class people. The labor cost is just cheap there. They can afford lots of things there which you couldn't afford with $200K salary here. Different place, different living costs. Can my "loaded" parents help me to buy a $1M home in Los Altos. No, they can't...unfortunately.

And about private lessons. Being Asian I know something about Asians. It's all about priorities in life. Those priorities dictates lifestyle. Probably you won't find that many Asians shelling out $200 for super-expensive dinner every evening. Instead they will save it and use for their child private piano lesson.
Even I visit my parents every year. But then unlike one of my colleagues, I don't spend $1000 for flying lesson either. I can't ski, so I don't spend $500 for ski trip to Sierra either. See, saving $1500 air-fare is not all that difficult. :)

It is not just Bay area. Entire OC homeowners thinks this is the best place in the world to live and prices will never go down in OC.

I don't understand how high prices help the economy, that means the buyer needs more money to allocate per month for mortgage and lesser for everything else (eatouts, concerts, travel, charity, anything else at all).
Bay Are would be full of stingy people soon :-) , who would barely afford to pay their high mortgages in 2 families/per house ghetto neighborhoods.

dadab says

It is not just Bay area. Entire OC homeowners thinks this is the best place in the world to live and prices will never go down in OC.

I lived in Irvine for a few years. People in Irvine, Mission Viejo think that they are the center of Universe. And what do they think about Bay Area? A place full of code-monkeys who work 24 hours 7 days and lazy hippies who does nothing for the whole day.

When some people in Bay Area says "we are special", that reminds me the very same breed. They just live in different places - some in Bay Area and some in OC.

P2D2 says

dadab says

It is not just Bay area. Entire OC homeowners thinks this is the best place in the world to live and prices will never go down in OC.

I lived in Irvine for a few years. People in Irvine, Mission Viejo think that they are the center of Universe. And what do they think about Bay Area? A place full of code-monkeys who work 24 hours 7 days and lazy hippies who does nothing for the whole day.
When some people in Bay Area says “we are special”, that reminds me the very same breed. They just live in different places - some in Bay Area and some in OC.

...and the bulls argument here in OC is "there are enough Asians(Koreans,Chinese and Indians - with lots of cash) than houses available for sale"

sybrib says

The whole world wants to live here, and it is different this time.

What a bunch of rubbish.

sybrib says

the whole world wants to live here.

Yeah, All the Hatians(no offense) wants to live in Bay area too. Just that wishful thinking is jacking up the prices of Bay area.

I just bought some properties in Roswell, New Mexico. I heard the multimillionaire aliens are buying up properties there. The whole galaxy wants to live there.

sybrib & I have gone back and forth on this regarding this mythical foreigner propping up real estate prices and he has yet to provide any concrete proof of such phenomenon.

I say again, Bay area is not a place where the rich international want to live. Say a wealthy family in India is worth say 20million: that basically makes you royalty in India, living in palaces, having an army of servants, etc etc. Would someone who grew up in that environment want to live in your typical Cupertino McMansion and toil away in a cubical working 10+hrs a day in the Silicon Valley? Why would you want your kids to compete with the commoners in Cupertino? Why do that when you can work the family business, send your kids to the most exclusive private schools taught by Oxford educated teachers, etc etc.

Ok, how about a family who is modestly rich, say 2million net worth. That is still top .01% of India, and you can live there lavishly and get excellent education with your kids having an excellent chance of getting a tech job in your home country with your family. Why would you want to devote a significant portion of your family fortune for something you can buy in India for a fraction of the price?

Just because you know of one person who came from a rich family doesn't make it a trend. Its easy to make an assumption and believe it to be true if you don't have any way to verify that assumption.

I know all about the Asian culture. Yes, they tend to value saving, spending money on education and family, and recent immigrants also value image (ie flashy cars, cloths etc). It does not mean they have unlimited resources. As huge as China is, a huge majority of the population lives in poverty and wealth is highly concentrated in the extreme wealthy families. They fall prey to the same economic realities as home grown Americans. They don't have magical investment skills, they still get laid off, they still lost money in the dot com bust, they still own underwater homes, they still buy retarded investment homes in Fresno. In some ways they are even more naive when it comes to investing then most sophisticated Americans, All they know are either poverty under communist rule or explosive economic expansion of recent years and have no concept of valuing assets by fundamentals.

It sounds like Sybrib is not a Foreigner and is only speculating on things he doesn't quite understand.
Why don't you listen to other posters here who ARE immigrants and live within the immigrant community before proclaiming such speculations as facts.

FACT, most Asians living in the Bay Area came here first on student Visas, came from modest back grounds, fared relatively successfully due to past booms and the growth of the Silicon Valley. They do not have unlimited resources from home, or else they would not be here.

Think about this, and tell me what you all think of my thinking, Lets say by 2016 we have healed to the point that a barrel of Oil is say $250 (I mean it is $80 in a GLOBAL recession for gods sake) Say we have enough healing to have interest rates at say (Fed Funds) 6.25% so that means if we have a private mortgage market it should have a larger spread then the current 2.75 so lets say that 30 Mortgages are 8.50 - 9.50 so now all the suburbs that were Created by "cheap"fuel to travel to your job, that "advantage" is gone, due to expensive FUEL, FOOD, TAXES, Interest rates, I can't expect anything but lower MUCH LOWER housing prices by then, say 50%-70% lower then now, and the overall home budget will still be max due to the redistribution of monthly monies needed for FOOD (China, Brazil, all the populations that coming to eat meat) will push food to maybe the largest part of our monthly budget thus making housing by force a much smaller part as it will have to be.,.. at least I can see and understand that. what do you think? What is wrong in this line of thinking ??? in your opinion?

cvoc13 says

Say we have enough healing to have interest rates at say (Fed Funds) 6.25%

Healing to me means getting rid of debt burdens somehow. Repayment, default, forgiveness, or inflation. With the amount of private debt we have now (mortgages, student loans, credit cards, ...) , now more ever before in history as compared to the economy, that is going to take a long time. Longer that 2016. The stimulus minded Democrats are about to be swept out of power, so deflation is very much in the cards.

I think you're right to look at oil costs and wonder what that means. I never hear the media talk about it ever. Some people think that's due to monetary policy and "inflation", but they are idiots. It's diminishing supply, and growing demand. It's econ 101.

Cost of energy and food growing, while crowding out and causing deflation everywhere else? Very possible, and that's my long term outlook. Commodities have been in a 50 year bear market due to cheap energy, and that that trend has clearly reversed in the last decade. It's uncharted territory, though, and something unseen will likely intervene before the inflation/deflation scenario fully plays out.

Serpentor says

I know all about the Asian culture.

People come here over the past 10 years and see Asians yaking away in native language, unaware these same people have been here for decades.

PS. Dont let my logon fool you, im a white guy...LOL!

MarkInSF says

I think you’re right to look at oil costs and wonder what that means.

For many, it means they load up car with gas on weekend, do some grocery shopping and head back home. They are done spending.

Lol@ the screen name if you really a white guy.
Yes the ones that have been here for decades are probably faring the best demographically. They're the ones who can afford their kids driving expensive cars, go on vacations, and designer cloths because they've worked hard and saved. they lived through the growth of tech and saw their homes values explode while their tax base remains low thanks to prop 13 It's not rich foreigners with unlimited wealth back home.

sybrib, the market is determined by the people that buy and sell, not by the people who are "set" in their homes. Those long established immigrants do not set the price of the market. By the large explosion of prices in the fortress areas during the bubble days and the frenzy of sales activity during that time, there are plenty of "NEW" people in the "fortress" areas who are hanging on for dear life. Even if a young couple each make $120k, $1.2M mortgage payment is pretty tough to make with the traditional 20% down 30yr financing. It has been said time and time again that the Alt-A type resets typically recast in 5 yrs vs 1-3 years for the sub-primes explain why the higher prices haven't gone down yet. What happens when that dual income couple decided to have kids? What happens when one of them gets laid off? Have you priced child care in the Bay Area? There are a lot of young families who appear "well off" but in actuality hanging on by a thread. True, many of them have some family support, but the ones that are going to determine the market are the ones that are house poor with no savings and live paycheck to paycheck while making 6 figure salaries.

Serpentor says

sybrib, the market is determined by the people that buy and sell, not by the people who are “set” in their homes. Those long established immigrants do not set the price of the market.

Agreed, that is what I am saying. The recent buyers on the other hand must be loaded, it is the only rational way to sustain all that spending. And as I said, I personally know some such examples for whom that is indeed the case.

My partner and I paid 20-child years of high quality childcare. The overall cost was on a par with a private university tuition. It ain't cheap, you pile that on a Fortress Property Tax bill, and well, you get the picture.
Loaded.

1. One anecdotal case does not make it a trend.
2. the one rational explanation is Alt-A interest only loans, cheap credit, Helocs, no retirement savings and living to paycheck to paycheck.

btw, regards to people thinking you are rock star because you are from California. They are most likely thinking of Hollywood, Beverly hills, Malibu etc. I know when I first moved from the East Coast to CA, thats what most people thought I was going to, I had to explain that not all California is movie stars and Bay watch.

Bay Area Prices in 2012 will be 30-40% LOWER with ease, then likey 1-4% declines a year for next ?? X Years likey till 2018 then the Avg will be under 200 as it should be.

I have a colleague who bought a 1.3 million home, in my 4 years of working with him i have never seen eat out.
what kind of richness is this ?
I don't think that most chineese and Indians are so called "loaded" , they sacrifice their life for living in Cupertino/Saratoga/Los-Altos

But is this kind of life sustainable ?
If more and more people start to live their lives like this then how the heck the restaurants etc are going to be in business any more ?

cloud13,
some of them probably are in hock up to their eyeballs,
But many of them are not. Remember, that area you mentioned is very small compared to the massive urban cities of Asia. And remember, a very small portion of the homes in the small area you mentioned change hands each year. For them it is not a sacrifice.
Back to those poor fools hocked to their eyeballs: many of them are suffering under the assumption that they can buy their kids a better life by living in the enrollment area of public schools with High Standardized Test Scores. They may think they are helping their kids but they're not: those kids would be high performers anywhere they go, and by sending their kids into "ghettoes of like minded kids from like-minded families" they are actually denying their kids an opportunity to learn to live and achieve and perform with exposure to broader cross section of our society. It is not a choice between going to a school with nothing but like minded 4.2 GPA academic superstars versus going to one where gangsta thugs that will beat / drug / impregnate their youths. There's a lot of other possibilities between those two extremes.
What is important is that the kids have the opportunities to excel in high school, meaning that there's enough other high performer kids in the school to set the demand for a broad offering of challenging courses. This is routinely achieved in high schools and middle schools all over California, not just in the schools that have High Median Test Scores / "API".
Throwing money after chasing after enrollment in schools with extreme API's is kinda like lazy parenting, kinda like worshipping the "median house prices" is intellectual laziness about the individual valuation of an individual property.
Their kids would do just as well academically in schools with API's a notch below; the API score is about other people's kids, not your own. And then living in a school enrollment area like that, there would be cash left over for college or fun or savings or whatever.

sybrib says

That very small number of homes changing hands, at Fortress prices, is a huge bargain (as SF Ace pointed out) for the (as Serpent pointed out) small percentage (but huge in numbers compared to the size of The Fortress ) elite from “back home”. A small minority of homeowners being recent buyers, yes, but a small number of homes changing hands in recent years, which sets the property values for everyone else in The Fortress. It’s not about the “typical resident”, it’s about the “typical buyer in recent years”. That is why The Fortress is a Fortress and that is why it is propping up home prices in it and in the areas nearby.

A very vague commentary. Very little substance.
It does not sound like you did some basic research or analysis before making such a claim.
Define Fortress Area. You say "very small number of homes changing hands". Please quantify. Is Palo Alto considered Fortress Area? Atleast one year back it did. I already gave an example to demonstrate how price is sliding.
So, before making such a vague commentary like "home price won't drop because so many buyers and such little inventory", please define neighborhood/city which you consider Fortress Area. Let's see how it is doing. I also would like to checkout how many Chinese, Indians, aliens, extra-terrestrials are buying in those neighborhoods.

cloud13 says

I have a colleague who bought a 1.3 million home, in my 4 years of working with him i have never seen eat out.
what kind of richness is this ?
I don’t think that most chineese and Indians are so called “loaded” , they sacrifice their life for living in Cupertino/Saratoga/Los-Altos
But is this kind of life sustainable ?
If more and more people start to live their lives like this then how the heck the restaurants etc are going to be in business any more ?

All they did was over pay the seller so the seller will be well off and retired years earlier.
There will be plenty of soul searching for years to come.

robertoaribas says

with all of the ‘bay area is different’ clung too like a mantra, you’d think data showing bay area home sales slump just like everybody else after the tax credit ended would draw some responses…

Well, it was different, for good reason, but that was some 20-30 years ago.
Not many people paid much attention back than. Now they pay attention,
but its too late.. there isnt any good reason to justify prices today.

Seems most people are late, really late, to the party!