patrick.net

I will just touch on this, as another already has …super-conforming limit and I will leave it there. These limits were great to sucker people into overpriced property, worked once, let’s see how long before they lower it to a reasonable and realistic with a capital R level.

Side note: What a lot of people don’t seem to understand is until that mortgage is paid in full you don’t fully own a damn thing. Value I do not agree is defined solely by society and individuals. Value is defined against the monetary unit used to purchase the item and the purchasing power of that unit as well as relevant issues that may fall into society and individuals standards, but the bottom line is that junk is never valuable to people who know honest value.

tw said: Seems prices are still dropping…
Prices rose from April to May (they are down year to year due to the brutal fall/winter). Also note the Fortress Bay Area phenomena:
Sales in zip codes representing the top one-third of the market, based on historical prices, accounted for 37.5 percent of all sales in May. That was up from 36.3 percent in April and down from 38.3 percent a year ago, but basically in line with the 10-year monthly average of about 36 percent.
My long term forecast (SF Bay Area C/S Index) is an upturn in April (which, at this point, is a foregone conclusion) but new relative lows (year to year) in Jan. 2012. I'm guessing a more than 50% chance of an 'early fall' again this year.

I was just up in San Jose, and was talking to a friend (rich friend) who recently put down close to 1.2 M for a place in San Ramon. Apparently it was the last house available in a new development, and it was the model home which came with all the upgrades and even furniture.

He suggests that that house today would sell for 1.3 M, since neighboring places which are smaller than his are selling for that.

Since then, he decided that that was too long of a commute and moved back into his first house, and is not renting this new place for less than even his mortgage payments (forget about property taxes !!!).

Apparently, the Bay is booming - here is what he showed me:

http://www.bloomberg.com/news/2011-06-15/tech-ipos-boost-demand-for-silicon-valley-million-dollar-homes.html

In other news, (not that I did any research) the bay area prices did not seem to have a run up as manic as say riverside in SoCal. Hence they have maintained a 8-10 % appreciation since around 2007 - Am told.

As a bit of an aside, if I had $1.2M [of extra $$], I'd prefer this classic:
http://www.redfin.com/CA/Piedmont/143-Calvert-Ct-94611/home/609685/ebrd-40527549
Just sayin...

Arnold Layne says

By all means, we should only be subsidizing whatever ‘you’ can afford/not afford/deign appropriate.

You can smartass it all you want, but you have to think about the purpose of mortgage subsidies. If the idea is to help lower income people buy houses, then you should target that demographic.

As they exist now, mortgage subsidies are stupid, because it just means that everyone buying a house within limits gets to buy a slightly bigger house, so everyone stays in the same spot relative to everyone else, only banksters get more money from interest on higher principal amounts. That's exceedingly stupid.

To put it another way, a $729K loan at 5% means that under a traditional 30-year fixed with 20% down and a 28% DTI requirement, you must make an income of at least $168K. That's right around the top 5% of US household income. Why the hell are we subsidizing people in the top 5% of income? Again, exceedingly stupid.

If we lowered conforming limits, housing prices would drop for everyone, and we would all be better off so that we all pay lower fees to realtorsused house salesmen, banksters, and other rent-seekers who don't provide value.

kunal says

In other news, (not that I did any research) the bay area prices did not seem to have a run up as manic as say riverside in SoCal. Hence they have maintained a 8-10 % appreciation since around 2007 - Am told.

You clearly did not do any research. Only someone who has completely ignored any and all data would think that Bay Area prices have appreciated 8-10% since 2007.

cornster, stupid is as stupid does. Each part of your response ASSumes a POV, not necessarily a truth.
I've never assumed that the MID to be a class- warfare tool, as you do.
Marginally, it supports higher prices, but looking at a 100yr graph, I just don't see a distortion based on that.
The recent run-up and crash, though seem to be correlated to government efforts toward increasing home-ownership through lowered loan qualification standards. I guess that didn't work out so well.
I guess if you assume that every fruit of one's labor is to be taxed, then any 'give back' is a subsidy. But why shouldn't those that pay 80+% of income taxes get any goodies? They didn't get to set their tax rates.
Your final paragraph is a lovely sentiment, as if housing prices aren't dropping fast enough. Besides, you'll never buy until prices starting trending UP , right? Or do you have a price in mind where you'll buy regardless of the overall direction?
And BTW, have you provided any value to the economy today?

Arnold Layne says

Marginally, it supports higher prices, but looking at a 100yr graph, I just don’t see a distortion based on that.

That's because you don't understand the history of the mortgage interest deduction. Back in the day (about 100 years ago), ALL interest was deductible. This was true until 1986 when it was done as a measure of housing policy to help people with lower incomes generally. Since then, however, it has been used to buoy the housing market and now applies to people with much higher incomes.

The historical reason for interest deductions is that most interest back then was for business purposes, because there was no debt culture like now for consumption instead. The fact of the matter is that we shouldn't be subsidizing ANY consumer debt because it doesn't produce anything -- it merely consumes. Business debt does involve production.

If you think the mortgage interest deduction provides no distortion now (and you are wrong, because it is a regressive tax deduction), surely removing it will not create any distortion, since it will lower everyone's housing prices across the board. Lower prices are better for everyone. I'm not sure where you get off calling people stupid, when you have no knowledge of tax policy and very little knowledge of economics.

The recent run-up and crash, though seem to be correlated to government efforts toward increasing home-ownership through lowered loan qualification standards. I guess that didn’t work out so well.

Current sales are being run up through government efforts by guaranteeing these loans. It's a bad idea all around to prop up the housing market artificially.

However, you are mostly wrong about the government making significant efforts to increase home ownership during the boom. There was some done through government that was largely sustainable with predictable default rates, but almost all the fast and loose stuff was through private loans made by private banks. Statistics and data bear this out -- government loans DROPPED during the prime boom years of 2004-2006, and private non-agency loans went way up. You're making an ideological argument, not one based in fact. Again, I'm not sure where you get off calling people stupid when you are making arguments completely unsupported by data or fact.

Besides, you’ll never buy until prices starting trending UP , right?

Nice ASSumption. I'll buy or sell or rent when I think it makes sense for me based on a variety of factors. I have both owned and rented at various points when it made sense.

And yes, I've provided plenty of value to our economy today. Have you?

Bay area is special! The critical factor to house prices is JOB, and high tech dominated job market held up pretty good in past few years. Even though house prices was insanely high in the bubble time, after retreating 30 ~ 40 %, it is approaching to a level starts to make sense now. You can quite easily find a house with rental income /house price ratio exceeds 8% in many areas.

Plus these recent blockbuster IPOs created some new and young riches, and to some extent revives the house market.

kunal says

Apparently, the Bay is booming - here is what he showed me:
http://www.bloomberg.com/news/2011-06-15/tech-ipos-boost-demand-for-silicon-valley-million-dollar-homes.html

Actually they are non tech IPOs. Yes linked in and Pandora went IPO over the past month. The offering prices were infact over-inflated by a huge premium. Linkedin traded somewhere over 1500 PE ratio. Currently both are falling. Linked in dropped by 30% so far down to 900x future earnings. Go figure !
And I expect it fall even more...

Exactly who got rich off this ?

As for employees like LinkedIn, they are locked out selling for another 6 months due to SEC regulations. You can pretty much guess where prices will be down the road. And those who were hired/or granted options at near IPO date, their strike price was set around $100plus with little chance of exercising and hitting it rich.

It looks more like post Jan-2000 tech declines and not the 6 month long tech boom of late 1999.

AndrewZ says

Bay area is special! The critical factor to house prices is JOB, and high tech dominated job market held up pretty good in past few years.

Must be some great weed!

Vanishing Public Companies Lead To The Incredible Shrinking Silicon Valley

http://www.siliconbeat.com/2010/02/17/vanishing-public-companies-lead-to-the-incredible-shrinking-silicon-valley/

One of the most significant trends I’ve been watching over the past decade is the dramatic drop in public companies in Silicon Valley. Naturally, that number was artificially inflated during the dot-com bubble when it reached 417 in 2000. For our purposes, Silicon Valley includes San Mateo and Santa Clara counties, and the southern half of Alameda County.

But the number of public companies has dropped for nine straight years now. Even when IPOs briefly reappeared in 2006 and 2007, they weren’t enough to overcome the net loss of public companies through acquisitions or bankruptcy.

In 2008, the number had fallen to 261. We just updated our records and the latest figure is 241.

That’s not just less than the dot-com era, that’s well below the 315 public companies the valley had in 1994 when the Mercury News started keeping track.

thomas.wong1986 says

In 2008, the number had fallen to 261. We just updated our records and the latest figure is 241.

plus/minus 5 today... LOL!

No, folks are still drinking the NAR kool-aid and overpaying for homes. I know a few willing to pay 1.5 million for a crappy SFH in Palo "Shallow" Alto and Cupertino "Crappatino" just for the schools.

To answer the OP's question, it seems that the attitude to the housing prices has not changed much in the south bay. But, the buyer has become more picky than in the bubble times. So, the "nicer houses" in the school districts with the "best APIs" get snapped up in just days. There seem to be still a lot of people with money left in the bay area.
I have walked through several open houses in the past several months in the price range of $1-3Mil and have observed that they go into "sale pending" in a few weeks in Los Altos Hills, Saratoga and Palo Alto areas. I am hearing about "all cash purchases" from foreign investors (especially mainland China) in these areas. So, it seems that it will take a few more years for this market to normalize to the levels seen in other parts of the US.

"So, it seems that it will take a few more years for this market to normalize to the levels seen in other parts of the US."

Not sure what that means, it has already 'normalized' more than more than the overall US market.

I don't think you'll be finding acceptable SFHs in the Bay Area for $190K ever. But there are plenty of areas in the USA where you can do much better,,,,

@thomas - "And those who were hired/or granted options at near IPO date, their strike price was set around $100plus with little chance of exercising and hitting it rich"

Sorry, but their IPO priced @ $45. Anyone hired weeks/months prior had options priced at their declared market value at that time, which most assuredly was much less than 45, a number inflated my subscriber demand.

@thomas - "Linkedin traded somewhere over 1500 PE ratio. Currently both are falling. Linked in dropped by 30% so far down to 900x future earnings. Go figure !
And I expect it fall even more… "

Yes, you need to 'go figure'. A young company without a history of positive earnings per share is not valued on its p/e ratio. It is valued on revenue growth and projected profit, so your numbers are "in fact" useless.

Arnold Layne says

It is valued on revenue growth and projected profit, so your numbers are “in fact” useless.

I suggest you look up Cisco when they went IPO.
Like many other IPOs before the bubble era never was valued to such an extreme. And we have already seen how inflated valuations ultimately fall as much as 90%.

I wouldn't need to look up Cisco's IPO. Many private companies with a history of being profitable have gone public, including Google. My point is that p/e ratio is not the only valid way to value a business, so your comment about 1500 p/e was pointless. Amazon was worse, having a negative p/e for many years, should their valuation have been zero during that time?
But your point about extreme valuations and nuttiness in market *is* certainly valid!
cheers...

the answer to the question: "have attitudes changed?" is almost always yes. attitudes change daily, probably hourly, maybe it's only a 0.001% change but it's still a change.

you probably want to know "how much have attitudes changed?"
this answer is more complex.

let's use an example to illustrate:
RE is a great investment
RE is decent investment
RE is a terrible investment
RE is not an investment (it's a consumable)
i don't know

you'd ask these questions in a survey in 2005, then again in 2011 and report the differences in percentages. this would report the actual change.

if you want a ballpark opinion.

1) more buyers are getting realistic. they want to spend less money on housing, and to have an affordable mortgage, as it's no longer a guaranteed 10% appreciation year and it's difficult to HELOC the money out of the house these days.

2) on the sellers side, more sellers are getting realistic. they are less optimistic than in 2005. demonstrated by the lower sale prices.

3) there are still buyers willing to pay stupid prices. there are still sellers asking stupid prices. but in both cases , the numbers are fewer than in 2005.

Thanks Arnold Layne: I was worried that the number of know-it-alls was dropping off on this site.

^ says the angry home owner

Dear Patrick,

I find Two Attitudes. (my experience = 10 yrs bare land sales)

#1. "OWNERS of Real Property " vow their property value hit bottom and is recovering. RECOVERING FROM WHAT ?

There will be NO recovery until we invent some devise that every family in the free world spends $6k per year on, AS we did when the PC was introduced.
Imagine where Ford would be if we had ALL purchased THREE brand new 1965 Mustangs per year for thirty consecutive years ! THEN STOPPED BUYING !

ENJOY !

#2. "BUYERS of Real Property " slowly begin to associate that statement " REAL ESTATE PRICES NEVER GO DOWN " with smoke blowing up their assets.

Short story = real property prices will return to two and one half times buyers annual income.

The time to Buy is when the pendulum has swung too far.
How long will it take for the shadow inventory to leach the last of the necessary operating costs from the toxic note hoarders ?
Do millions of homes THEN go into receivership and sold at six cents on the dollar ?

MyPunanyIsBiggerThanYourPunany says

if you want a ballpark opinion.

1) more buyers are getting realistic. they want to spend less money on housing, and to have an affordable mortgage, as it’s no longer a guaranteed 10% appreciation year and it’s difficult to HELOC the money out of the house these days.

2) on the sellers side, more sellers are getting realistic. they are less optimistic than in 2005. demonstrated by the lower sale prices.

3) there are still buyers willing to pay stupid prices. there are still sellers asking stupid prices. but in both cases , the numbers are fewer than in 2005.

very well said. The real world is never black and white, but I definitely see attitudes changing from the housing boom days.

bayhousehunter says

I have walked through several open houses in the past several months in the price range of $1-3Mil and have observed that they go into “sale pending” in a few weeks in Los Altos Hills, Saratoga and Palo Alto areas. I am hearing about “all cash purchases” from foreign investors (especially mainland China) in these areas.

Oh really? You're hearing about cash purchases from foreigners? From whom? A cash purchase should close very quickly. How many houses in Los Altos Hills and Palo Alto closed in 20 days or less in May?

Los Altos Hills: http://www.julianalee.com/reinfo/sold-LAH.htm
0 out of 11
Palo Alto: http://www.julianalee.com/reinfo/sold-PA.htm
5 out of 52 of which 1 is not in the $1-3M range

But as long as the realtors are telling you these things at open houses, godspeed, sir.

corntrollio says

realtors are telling you these things at open houses

This!

corntrollio says

Oh really? You’re hearing about cash purchases from foreigners? From whom? A cash purchase should close very quickly. How many houses in Los Altos Hills and Palo Alto closed in 20 days or less in May?

Los Altos Hills: http://www.julianalee.com/reinfo/sold-LAH.htm
0 out of 11
Palo Alto: http://www.julianalee.com/reinfo/sold-PA.htm
5 out of 52 of which 1 is not in the $1-3M range

Maybe I missed something, but looking at that data, how can you tell how quickly they closed?

ch_tah says

Maybe I missed something, but looking at that data, how can you tell how quickly they closed?

DOM. If it is truly cash, it should be able to close very very quickly.

corntrollio says

ch_tah says

Maybe I missed something, but looking at that data, how can you tell how quickly they closed?

DOM. If it is truly cash, it should be able to close very very quickly.

DOM (days on market) doesn't tell you how quickly it closes. A house could sit there for 365 days with no takers, and then Mr. Chu comes along on day 366 and pays all cash. Let's assume the cash purchase takes 5 days to close - your DOM would be 371 even though it was all cash.

ch_tah says

A house could sit there for 365 days with no takers, and then Mr. Chu comes along on day 366 and pays all cash.

Let's even set aside the extremely low probability of your statement being true. :)

Look at the original quote:

I have walked through several open houses in the past several months in the price range of $1-3Mil and have observed that they go into “sale pending” in a few weeks in Los Altos Hills, Saratoga and Palo Alto areas. I am hearing about “all cash purchases” from foreign investors (especially mainland China) in these areas.

The assertion is that the places are selling quickly and for cash. If they are really selling quickly, they are selling near, at, or above asking. if they are selling for cash, they have extremely short escrows, no contingencies, etc. People are asserting both things.

Even if we go back to your flawed premise, who are these idiots you're citing who are buying properties for cash when they've been sitting for a year and not negotiating them downward? Please find these clueless folks for me.

Apparently you missed the point.

Let's take #2 house in LAH for example. It has a DOM of 40 days. You have no idea if someone came along on day 1 and took 40 days to close because of a mortgage or if someone found it on day 30 and took 10 days to close with all cash.

#3 of LAH has a DOM of 195, yet according to redfin it didn't go pending until 4/20/11 and finally closed on 5/11/11; roughly 21 days - cash maybe or a pretty quick close for a mortgage. Either way, not even close to 195 days.

ch_tah says

#3 of LAH has a DOM of 195, yet according to redfin it didn’t go pending until 4/20/11 and finally closed on 5/11/11; roughly 21 days - cash maybe or a pretty quick close for a mortgage. Either way, not even close to 195 days.

Based on original list price. Redfin only lists the last list price. It did not sell quickly because it required price cuts. It was originally $1.95M, and then sold at $1.45M. Do you really want to rely on an example with a $500K price cut as something that sold quickly and for cash? Because it clearly didn't do both.

ch_tah says

It has a DOM of 40 days. You have no idea if someone came along on day 1 and took 40 days to close because of a mortgage or if someone found it on day 30 and took 10 days to close with all cash.

30 days is not fast. Bayhousehunter did not name a number of days to go pending, but most commenters on Patnet have said "go pending under a week, all cash." That did not happen for this house.

corntrollio says

The assertion is that the places are selling quickly and for cash. If they are really selling quickly, they are selling near, at, or above asking. if they are selling for cash, they have extremely short escrows, no contingencies, etc. People are asserting both things.

Your DOM data can be used to disprove that they are selling quickly - although roughly half sold within ~50 days (in LAH). I don't know what is considered quickly. If a $2M house sits on the market a whopping month and then sells to an all cash offer, that's not that slow.

Ok, corntrollio, your issue with others saying selling fast and for cash may be a valid one.

I don't think your analysis of relying on DOM to determine if places are selling with cash is correct.

ch_tah says

If a $2M house sits on the market a whopping month and then sells to an all cash offer, that’s not that slow.

It doesn't fit the typical claim, and the timeline you're describing is extremely slow for a Bay Area sale at asking for all cash in that price range.

I blew one of these claims out of the water using the April data (unfortunately Juliana doesn't archive the data month to month on her site):

I can attest to this “all-cash”, 110%(100K over price) phenomenon in area straddling 85(zipcodes 95014, 95129…) Some of the homes have serious Section-1 issues, still got swooped up in 2-3 days(all cash)

BS per the data:

http://patrick.net/?p=697896#comment-738454
http://patrick.net/?p=697896#comment-738458

People hear all kinds of bogus claims for used house salesmen, but raw data speaks the truth.

ch_tah says

I don’t think your analysis of relying on DOM to determine if places are selling with cash is correct.

If it sells for $500K below asking and lingers on the market for 195 days, who gives a[n expletive] if it sells for cash. It doesn't fit any of the claims (at/above asking, all cash, sold fast).

I'm certainly not saying that DOM is the end-all for cash. I'm saying DOM + other factors are the end-all for the ridiculous claims people make.

corntrollio says

I’m certainly not saying that DOM is the end-all for cash.

Ok, it seemed like it from some of your statements above. I guess I misunderstood.
corntrollio says

I’m saying DOM + other factors are the end-all for the ridiculous claims people make.

I agree.