patrick.net

SF is not quite a star because prices are coming down already. I heard that Seattle is still strong. Vancouver, BC is still *VERY* strong.

The Bay Area has the best climate for those who can afford only one place to live. Other than that, it has little to offer. (True, it is like the Nirvana for us worker bees.)

For those who are willing to consider having a second home, there are many winning combinations. (e.g. British Columbia - Hawaii, Mediterranean - Florida, etc).

The Internet will make urban living obsolete over time. With e-commerce and telecommuting, who wants to live in an over-crowded city? If work is not an issue, I will absolutely move somewhere else.

SF may be a pretty city but cities are inherently ugly.

City means people. People means problems.

And it becomes a self-reinforcing myth. Till it isn’t.

I think you are falling into a very common logical error, which is to assume that your correct analysis on the causes of the housing bubble (a self-reinforcing monetary cycle), also apply to the value of a good education.

Good neighborhoods, near good jobs, with good schools are actually *increasing* in utility as the economy unwinds. As well all realized quite early on, the run-up in home prices from 2005-7 made no economic sense, because the utility value of homes did not increase. This was reinforced by looking at comparable rents.

But the value of a good education increases in an economic downturn, particularly if it is the start of a multi-decade trend, as so many here are expecting. Who is going to maintain their job in the midst of massive layoffs? Who has the chance to hold their ground, perhaps even prosper, as the automation of our economy continues? Those with the advantages of education, location and social networks, which is exactly what the Time's article was talking about.

I haven't followed San Jose housing at all, but I have followed Berkeley's, and those neighborhoods which are low crime and near BART have held up very well. The same is true even more so in San Francisco. In a recession, being in a safe neighborhood with low crime *increases* in utility value, because other neighborhoods become worse. I expect most of the outer suburbs to become slums in the next decade.

Don't neglect the economic effects either. If you think $4/gallon gasoline has had a powerful effect on people's preferences, you ain't seen nothing yet.

City means people. People means problems.

Yes, we all know that you are a misanthrope Peter, but most people aren't. In fact, studies have shown that the most important determinant to a person's self-reported level of happiness is the quality of their social networks. Not their wealth, not their job satisfaction, not even their health trumps social networks.

I know that the author of the NYT essay says she is moving to "the suburbs" but if the cost of a townhouse there is $600k, she is not going very far out. She must mean Bethesda or Alexandria at those prices. At some point, the difference between "urban" and "suburban" is kind of blurry. Is Oakland urban or suburban? How about Mt. View? Berkeley?

Anyplace with more jobs than residents is pretty urban in my viewpoint, but anyplace within a very short (20 min or less) commute to a job center, particularly one that can be achieved via transit, will probably do just fine, no matter what you want to call it.

Cities with a collapsing job base, like Detroit, probably have no hope.

especially for NVR

Since you're always so optimistic ;-), I thought you might enjoy this: a Harvard Law Prof speaking at a Berkeley lecture predicts/describes the end of the world as we know it (if you're middle class)

http://economistsview.typepad.com/economistsview/2008/04/the-coming-coll.html

be warned that it lasts 45+ min

Jimbo :

Good neighborhoods, near good jobs, with good schools are actually *increasing* in utility as the economy unwinds

I guess we are debating different pockets.

But first of all, you claimed Bay Area is special. I pointed out that except for a few pockets in South Bay, rest of the area is getting pretty hard. The cities of Santa Clara, San Jose, Milpitas and most of the 880/680 corridor is in trouble.

Secondly, what you are ignoring is the effect of these neighboring cities. Hence I take specific example. Sunnyvale and Cupertino. They border each other. Cupertino school district is where financial masochists go to get enslaved in debt chains and be whipped by bankers in black suites.

BOTH are comparable in terms of crime rate and blah blah. Are you saying that a comparable Sunnyvale home can keep dropping in value but a Cupertino home won't ? At what point people figure out, "Gee, if I buy in Sunnyvale, I save 200K right now, which would be good enough to send my kid to a private school, and in addition I save on mortgage/property tax etc" ?

Now if you compare Cupertino with San Jose, yes, the price differential can continue to increase. But as I said before, nothing really has changed to cause a bust in Cupertino. The madness still continues (on a slightly smaller scale) and when it stops due to a traditional reason (job recession, high rates) it won't be pretty.

Let me take other examples as well. On the 680 corridor, San Ramon and Pleasanton have great schools. The prices of SOLD homes are less than what they were SOLD for in 2005. I posted a few examples on the Zillow board.

Like you are trying here, even there bulls tried to explain that away. Who gives a f*ck about a home in Ruby Hills that got sold at 2M in 5 days ? Or about some Artherton house ? Seriously. I am not trying to argue EVERY house will drop in value. But these transactions are so small portion of the pie that it doesn't matter.

Why is to so hard to accept what is happening TODAY ? No one knows what will happen tomorrow. But so many houses in GOOD areas are getting sold below 2005 prices, that it is plainly delusional to claim the immunity of Bay Area. Or Bay Area being special.

I have no idea about Berkley and surroundings. I don't even like that area. Maybe it's a special area. To me the Bay Area that matters is on Peninsula. Where a code monkey like me plans to buy. Areas that are safe, with reasonable commute and good school districts. This includes Cupertino, Sunnyvale, Milpitas, Fremont, Evergreen, Pleasanton, San Ramon etc etc. Where people I know have bought and continue to look there. And no matter how you phrase it, the sales transaction indicate that MOST of these areas are declining.

I am sorry if I came off as pissed. Because I am. 2 years ago, your arguments had some merit. Because we were all trying to guess what WILL happen. That time is over. We know what IS happening -- yes yes yes, except that Berkley and San Franciso hoods.

Any area that has severely declined, doesn't matter. Don't look there. Look at that house on Cupertino Hills. See how it continues to appreciate ! Bay Area is special.

Jimbo :

And to beat the dead horse again, are you still sticking with your "Bay Area is special" or do you want to change that to "Bay Area has special pockets" ?

EBGuy :

Remember my prediction for Dublin ? That we will see a house getting sold for 300 per sqft by the end of this year ? Seems like it might happen even before that.

Look up MLS 40335984 on ZipRealty. a 2150 sqft house - asking price 628K.

Zillow hasn't updated it. Seems like it was on sale for 734K. Maybe it got foreclosed.

If it sells at exactly this price, it will be a 33% drop from the peak on Zillow's graph.

But since, foreclosures don't count and Dublin is probably not bay area and the Zillow graph was wrong to begin with and someone paid far too much than market price in 2005 and blah blah, we can keep chanting "Bay Area is special".

I think foreclosures do count, at least for Zillow.

Dublin is in the urban core? Dublin is 20 minutes from good jobs? You are (deliberately, I think) missing the point.

I don't see that Sunnyvale homes are declining in value. I just looked at the DQ numbers, and they look like they are doing fine to me. What is your source for your claim that home values in Sunnyvale are declining?

And no one disputes the fact that we are in a massive, nation-wide housing correction. But it perhaps hides another, just as significant, but even longer term phenomenon, which is the importance of being close to wealth generation centers.

How have South Bay homes held up compared to the rest of the country? The state? Will they continue to outperform?

My argument is not that they will not go down, nowhere is entirely immune to the forces of economics. I argue that they will not go down as much as elsewhere, so the gap in prices between prices here and elsewhere will continue to grow.

That so many of you who post here, who are well-educated, hard-working and successful, do desperately want to buy homes, is just proof of my point.

But first of all, you claimed Bay Area is special.

No, I did not claim that, actually. I asked that question.

Since you’re always so optimistic ;-), I thought you might enjoy this: a Harvard Law Prof speaking at a Berkeley lecture predicts/describes the end of the world as we know it (if you’re middle class)

BAI, do you read the Economist's View as well? I guess all the smart people read the same blogs :)

Do you ever post? Under what Nom de plume?

Stuck

Let's just cast aside the price decline argument for a moment (because I think it is already a done deal, just matter of velocity), and talk about the area.

I am not a big fan of zip codes, I care about the location, the area. Out of the cities that you mentioned, they should fall into two categories: those in the foothills and those not. Mountain View and Sunnyvale are completely in the middle, just as East Cupertino. Evergreen, although further away, is actually in the foothills. Most of Milpitas is on a dump right in the middle of the polluted bay. There is a very substantial price discrepancy between east Cupertino and foothill Cupertino, other Fremont and foothill Fremont (known as MSJ). Schools, city names come and go, location is forever (not diamond), and there is a reason why good location breed better schools.

It is hard for me to judge San Ramon because I've only been there once, but from very preliminary impression it extends too much into the east where there is no natural barrier which means there are plenty of supply. You always want to find places where there are natural barriers like mountain and river so that you have a chunk of green belt at the back, which also means constrained supply.

I think for the western foothills (the conventional prime area of the Bay Area), the best value is actually in Almaden, where the schools are good (API 850+) and facilities fairly new. It is a bit further from the major job center, but closer than Evergreen, and there are no bad spots along the western foothills all the way down from the peninsula. You know part of it will become another Saratoga south of 9 some day as the valley expansion goes southwards. In fact, there are already multi-acre mansions dotting the western Almaden foothills and it is a matter of time that it turns into another upscale neighborhood.

If you check the crimereport.com (which unfortunately does not cover San Mateo county), you actually see how crime rate drops off as one moves towards the foothills.

That's why I think even western Redwood City (emerald hills) is better than, say, Sunnyvale.

Jimbo :

I am not missing the point at all. The proximity to wealth generation is important - that's a trivially true statement. Bay Area prices have been higher than countrywide averages for years. For a good reason. I don't see that changing. That's NOT what I was arguing.

But this proximity definition keeps changing. A few years ago, Tracy - not to speak of Los Banos - was also considered "close" to job centers. Now you are not including even Dublin in there and want it to restrict to even smaller cities.

I cannot accuse you of being delusional because you are at least accepting the declines - may be it's too hard to deny it now. And you personally may not have changed your tune. But remember this. We were first told that Bay Area prices can never go down because of proximity to jobs. Now the definition of Bay Area is changing when reality is in front of us. Instead of seeing someone admitting that they were wrong in being so blatantly bullish, we just see this evasive redefining of Bay Area boundaries.

The bulls were never wrong. They were simply talking about "core" areas. Hence my frustration.

Stuck, you've gotta stop going to Zillow, man. ;o

Seriously, do you really expect a bunch of realtors and brokers to admit that they were wrong about Bay Area real estate? Their main reason for being on Zillow is to pick up new leads. If they admitted that their predictive powers were zero and that they were shoehorning migrant workers into 2/28 no doc neg am loans to make quota, who the heck would hire them? Far better to hint that they know where the best areas are. Want to hold your value in this frightening market? Just ask Joe/Jane/Tim/Martha/Ranjeep! They know the secrets of where to buy!

Now is a great time to generate a commission (tm)!

Er, I mean, now is a great time to buy or sell a house. In the core! Because only realtors know where that is! If you keep sitting on the sidelines, you're going to miss the greatest buying opportunity ever in the Bay Area (at least until next month)! :twisted:

BAI

Thanks for the harvard gal video, I've seen her somewhere before. I'll look forward to it.

Looks like the retailer Linens and Things is declaring due to slowness in housing. I don't know how many stores they will endeavor to keep afloat, but unquestionably they will use this to bail on their underperforming locations. That's a major tenant in many centers, reduction in traffic for all the remaining tenants.

Let the great shopping center exodus begin! :-)

Speaking of shopping center exodus, New Park Mall in Newark which draws from Fremont and Newark residents in the past month has lost two tenants, Wilson's Leather and D.E.M.O. And Mervyn's is moving out as well to their own building across the street. The demise of this mall is well under way.

Stuck,

Dublin is toast (or will soon be); I need to go to the archives and see where I became a Dublin defender (which, it seems, you associate with me). Maybe it is the East Bay thing. Keep posting data, though, as it is interesting to see the wave hit and crest the hills. We are left to man the barricades in Fortress East Bay (BAP: Berkeley, Albany, Piedmont); it's urban core (?), not a lot of new construction and decent schools as Jimbo says. :-) I do follow Jimbo's line of reasoning, and we are similar, in that, we both decided that the sun doesn't rise and set on the SFH. We wanted to live here (where ever in the BA that may be) for the reasons Jimbo enumerated, but didn't sacrifice our firstborn in order to do so. Quite liberating to buy unconventionally. Yet, I still break out in a sweat if someone utters pre-2000 pricing (I mean, things are going to get bad, but not that bad -- are they?!)
Is the Bay Area special? Yeah, but only in the way IO and option ARMs were the product of choice the past couple of years; we're all Alt-A now.
I still remember riding the train (at the dawn of the 21st century) and this women talking about buying another (rental) house in Fremont. I couldn't for the life of me figure out how to get something like that to cash flow. I'm sure she and her husband did okay back then, but the decline of exotic mortgages means there is now nowhere left to hide. We're all one REO away from a lower comp...

Brand :

I was just having fun at the Zillow board. I don't expect those Realtors to accept anything. All the bulls (like TOS here) simply run away when faced with hard data.

Surprisingly the Realtor on the Zillow board was quite honest. These days it is quite fashionable for the bulls to agree that bubble is bursting but severity is still open for debate. Sometimes it's the depth, sometimes it's duration and sometimes it's "special areas". Admitting that we are f*cked is not what I expect them to do, because they are the ones who were to some extent responsible for the mess.

EBGuy :

My apologies for not reminding you the context. You were not defending Dublin at all. We were discussing what the Case-Schiller futures were predicting. So I came up with a prediction - a very specific - just pulled from my ass ;-) Well, not quite, I simply based it on what was happening pre-bubble.

I have to admit that I was shocked to see that prediction coming true so fast. Even more because it was just a random guess. Hence I mentioned it.

Jimbo
I read all kinds of things. In my case however, it is certainly *not* a sign of intelligence. Hence my 'call sign'. :-)

http://tinyurl.com/5hp3th

Is this type of news just so familiar or the amount so small ($15 Bln.) that nobody even talks about new losses at SHITIBANK and ML?

Time to go back to the trough - http://tinyurl.com/56dg4k

Two links and its moderation hell for you!

NY Times piece identifying renters as another "victim" in the housing "crisis"

http://www.nytimes.com/2008/04/13/realestate/13cover.html?_r=1&oref=slogin

ON a cold evening in March, Desiree Dookhoo was at home in Ozone Park, Queens, studying for a nursing exam, when she heard someone trying to open her front door. She demanded to know who was there and threatened to call the police.

"This stimulus package is timely, targeted and temporary and represents an important first step toward stimulating the economy."

Translation: I want to placate my smug constituents with their tony Palo Alto digs. The outrage that Peninsula RE should ever fall!

Years back, I shared an office building with Eshoo, and ran into her entourage a few times. My impression was her staff was of lower than average intelligence--but that's probably politics as usual, lol.

The stupidity of entrenched entitlement isn't split along political lines. We're now paying for decades of self-indulgence from the consuming wage-earner to the smug, blissfully erroneous exec. G-d save us from all this stupidity!

G-d save us from all this stupidity!

No. God save the Queen. Let's move to Canada. :)

The Almighty will save your soul. He ain't gonna do much for your checkbook.

:)

The queen will surrender the crown and sceptre to God Almighty, from whence they came. The UK components will then enter as sovereign states into the Great United States.

The "conservatives" are calling for The Fed to just start printing money and opening up the nation to inflation, rather than risking that an Obama Administration would regulate the financial industry. I kid you not:

http://preview.tinyurl.com/3epmt3

I actually always thought that a period of inflation was the most likely alternative to the aftermath of the US government loading up on a bunch of loans from foreigners. Now we have the AEI arguing for this in the opinion section of the WSJ.

Inflation is still preferable to more taxes.

I agree with many of the arguments in that WSJ article. Policy or not, inflation is the end game. So the distinction is whether to announce it or do it in a stealth way as has been done till now. The risks in that approach seem lesser of the evils to my non-economist mind. And US is in a position today to inflate and get out of all types of debt. Tomorrow it may not be able to pull that off.

Nationalization of all the mortgages is perhaps a forgone conclusion. But that by itself is hardly going to help.

Higher taxes lead to inflation and deceptive growth since savings lose value. In another word stagflation.

Despite what people say, taxes cause inflation and hurt profits. People pay more, to make less. It sucks all the way around.

IMO some effort is warranted to keep the money supply flowing, but interest rates should be allowed to float, and savers should be the ones supplying banks with the money so that they aren't hurt by the phenomenon of below inflation rate interest rates. Banks should be competing with each other to get savers to put their money in, not just running to the reserve to perpetuate a ponzi scheme by exchanging bad loans when the market clearly wouldn't pay anything for them.

Policy or not, inflation is the end game.

No, deflation is the endgame.

Despite what people say, taxes cause inflation and hurt profits.

Absolutely. Our hero, Ronald Reagan, cured stagflation by cutting tax.

Flat tax!!!

Compare this with TurboTax. :)

http://www.cse.org/flattax/index.php

Of course I disagree with you: we need to raise more taxes to fix our collapsing infrastructure and to stop borrowing so much from foreign powers.

But inflation is preferable to nationalizing the banking industry, as I am sure you will agree.

Banks should be competing with each other to get savers to put their money in, not just running to the reserve to perpetuate a ponzi scheme by exchanging bad loans when the market clearly wouldn’t pay anything for them.

I posted this last week but didn't get any comment (it was near the end of a thread). At any rate, the bid-to-cover ratio at the last TSLF auction was less than 1. Are we turning a corner, or just taking a breather before the rest of the SHTF.
Primary dealers submitted only $33.95 billion of bids for the $50.0 billion of Treasury securities auctioned, the Federal Reserve said. The auction is part of a new $200 billion program aimed at helping Wall Street dealers, called the Term Securities Lending Facility.

Of the three TSLF auctions held so far, this auction was the only one where the amount on offer exceeded the amount that was bid.

Of course I disagree with you: we need to raise more taxes to fix our collapsing infrastructure and to stop borrowing so much from foreign powers.

We need to privatize our collapsing infrastructure.

As long as we have a strong military, it is fine to borrow from foreign powers. LOL :lol:

But inflation is preferable to nationalizing the banking industry, as I am sure you will agree.

Of course.

Actually Jimbo, I don't disagree with you. Those purposes, again IMO, are legitimate government expenditures. MORE funds are desperately needed in the areas of infrastructure at all levels.

My problem with taxes are when they are used for wasteful purposes, like 30 billion for 'counseling troubled borrowers.' Like I said, investing that money in solar with private partners would supply a pretty nice percentage of the total residential electric demand.

No, deflation is the endgame.

Depends on when your game ends ;-)

But to quote Bill Fleckenstein, "In a world of fiat currencies, all roads lead to inflation."