patrick.net

Claire,

I've held the opinion all along that, for this area at least, the foreclosure nightmare was way overplayed. A vast majority of people will either sell and leave the area -- perhaps even at a real loss (but a nominal break even or small gain) or will refinance. Anecdotally, I see ARM/IO/Option types refi'ing all over the place. Seems like half the people I know have done so in the past 3 weeks. It'll take quite a while for appraisals to catch up with sinking prices, especially given how corrupt appraisals are.

And I don't think most folks make sell & rent decisions based on financial market-like calculations. They make decisions based on school district, family situation, etc. Especially when salaries are showing across the board strength, as is true in the BA.

I'm not looking for HPQ or INTC job cuts to have too much impact here. Those cuts are scheduled over 3 years, mostly attrition, and across the entire company (not just local to BA). In fact, the BA has already had deep job cuts at most major corp techs in the past 5 years. Lots of cuts now are occurring in the field, not in the corporate HQs.

SFWoman

I'm not convinced of a Torschlusspanik. Many of the factors you cited are distinctly not how average, real people make day-to-day decisions. The past thread had a repost of "mental accounting".

People think nominal.
People think local.

And rates only affect people up to the point until they refi into a fixed. Then, they actually think the opposite: I'm not going to sell now, look at my great rate! They don't think net-present-value. They think monthly payment versus some mental benchmark, like what the ARM would have been.

SFWoman,

Five years ago the prices of SF houses etc were lower than present. And the currency exchange rate was probably in the range of 1.58-1.70, now it is 1.80-1.95 (more dollars to the pound), but houses are a lot more expensive, it's the price of the houses rather than the exchange rate that is the factor - I would think?

Randy,

Yes, many if not most people do not make housing decisions based on economic calculations other than, "how much will my monthly payment be?" However, I think SFWoman's point about psychological factors driving the bubble down is a good one. Let's even eliminate FB's and foreclosures from the discussion for now. In the situation of stagnant or falling prices, there are still going to be sellers selling for all the "usual" reasons - job relocation, divorce, need to downsize or upsize, etc. A seller's mentality that prices are going down for the foreseeable future puts psychological pressure to cut out earlier rather than later, driving prices down. It's the exact opposite of the "buy now or be priced out forever" mentality from buyers on the way up.

Randy H,

I think to a degree you are right - in the desirable areas that I am interested in, foreclosures are not really going to be a problem - it will be the less desirable fringe areas that will experience difficulties (and I'm not interested in them as I have specific criteria for where I want to live;-( )

People have been buying the up and coming areas as they have been priced out and stretching to do it, before it was too late (as touted by realtors) - these areas will be hit hardest.

Claire,

I think the whole good school thing got so far off the charts that it doesn't make any sense. If one spends an extra 1 or 2M for the house to be in that district just think what kind of annuity could be given to that child. Perhaps they want to start a business, 2M could go a long way in seed money. 2M at 6% is 120k, not bad for little Johnny needs a diaper change.

Paul

Claire Says:

I think to a degree you are right - in the desirable areas that I am interested in, foreclosures are not really going to be a problem - it will be the less desirable fringe areas that will experience difficulties (and I’m not interested in them as I have specific criteria for where I want to live;-( )

However, the desirable areas will be affected indirectly, as some of the "desirable area" market buyers are made up of those trading up from less desirable areas. Those folks are currently and will continue to have difficulty selling. This results in a stalling of the entire "property ladder" from the bottom rung up. Those who felt a need to buy anything, just anything, just to get a "foot in the door" are going to be hurt by the decline. My vague memory is taht this is exactly what happened in the 80's (although I was a wee one then).

Paul - if only I had the 1 or 2 extra million, but I don't. Admittedly the houses are borderline $1 mil, but I'm hoping with the downturn they will be more like 700,000 - 800,000, but in reality I would much prefer to pay only 400,000 or just rent if we have to stay here. However, we shall see, I may just be California Dreaming!

Paul,
Problem is, what bank will give someone making less than 1 HaHa per year a loan to buy an annuity? That's the problem here - banks are loaning out obscene amounts of money that they would never do so for any other purpose than to finance a home "purchase" to people without the means to pay it back if they were to default.

I think it is just the calm before the storm. You could also say this is one of the many false bottoms to bring out any on the wall buyers out there.

Also, if 2m is invested at 6%, inflation would take a chunk out of that and then the IRS would tax it at our rate so we would loose another 40% or so - right?

In Mountain View, Los Altos, I have also noticed that some of the houses that have been put on the market are long-term investment properties - i.e rental properties - I think the landlords are trying to cash in while they can. If prices drop a lot, then they might decide to just hold onto their properties again rather than sell.

Also, one listing noted that the seller reserved the right to withdraw the property from the market - almost like they were testing the waters, if they got the right offer, they'd sell, if not - they'd hold on. Maybe I was reading it wrong, but that's what it seemed like to me.

Claire,

Your post and the others are correct. However, I stand by my post that if someone is spending in excess of 1M (all things equal) just to be in a better school district they are not acting in the childs best interest.

Paul

Paul,

I think you're right, they could just send their kid to private school instead for less, but people with that type of money are also looking for the kudos of the zip codes (I think).

That’s the problem here - banks are loaning out obscene amounts of money that they would never do so for any other purpose than to finance a home “purchase” to people without the means to pay it back if they were to default.

Skibum,

That is an excellent point. I could probably qualify for a $1M mortgage, but there is no way the bank would give me a $1M loan to speculate on stocks, bonds, metals, currencies, or even a small business.

Just like the FBs, banks are willing to lend these sums based on the assumption that "real estate never goes down." But they think they are more sophisticated than FBs because they build into their models the possibility that some RE markets could "temporarily" decline by 15 or 20% or defaults could rise as high as they did in the '80s or '90s.

Most banks have not adequately reserved for the possibility that RE prices could decline by 25 or 30%. But if prices can go up 200-300% in the last ten years, why couldn't they go down 30% in the next ten? The liquidation of bank REOs could be long, slow and painful.

SFWoman - Is propertyshark free? You've got me curious, but I don't want to get into a contract with them or anything. That's why I don't use ziprealty. Or perhaps you could list the numbers for me for zip 94040?

Thanks

Glen,

Hence the "credit bubble". I wonder if we are going to see a scandal that surpasses the savings and loan or LTCM scandals - as a country, we're about due for one anyway.

skibum,

I agree--we are about due for something bad to happen. Or, in Greenspanese, perhaps a return to more normalized historical risk premiums or a sustained period of heightened volatility in asset markets.

I haven't posted in a while. It's nice to still see people actively discussing things real estate related. I thought this was really funny!

http://tinyurl.com/fk5he

SFWoman - Thanks for the info, I may just look into that.

SFWoman - I have signed up for an account, but am waiting for a link to be sent before I can access the site - no mention of beta testers needed on the layers I could read, so hopefully, I will see the link once I am allowed to log on.

SFWoman - didn't see your post before I posted - have now signed up with the help of your directions, although it is unclear whether I will be lucky enough to become a betatester for the BA or not.

Scott J,
I think what the Tom Stevens house not selling tells me more than anything is the underlying mentality of most sellers: "My house is special. We have so many great memories of living in it, we put X amount of dollars and blood, sweat and tears into renovations, and it's definitely better than the comps for sale. That's why the listing price should be Y amount more than everyone else's, and I'm not willing to budge."

1987- $307
1988-$294
1989-$293
1990-$333
1991-$335
1992-$310
1993-$311
1994-$244
1995-$326 etc.
2006-$1120

So if you bought something in 1987 you would be underwater in 1994.

OT

but "state of the landing" has a totally different meaning where I'm from..

as in "babe, what're we going to do about the state of the landing?"
"oh, i dunno, Hoover it and take the clothes off the bannisters before the Bailiffs come..."

On topic

I'm hearing so much 'soft landing' from friends and coworkers that i'm starting to wonder if L.A really is different...

From my trawls on Zip/Zillow it seems that, as predicted, the less 'nice' places in L.A (Inglewood, L.A proper, SFV above the 101) are seeing price declines, but nothing really catastrophic as of yet.

Pricier areas seem to be just...stuck.
A few places have come off the market, a few have had insignificant reductions (2-5%) but most of them are just sitting there day after day with the original asking price.
Maybe people in the more affluent areas really can ride this out. So far, it looks as if they will.
But then, you compare what they bought for in 98/99/00 and even 01 and all of them show about a 200% increase. It makes me wonder just who the hell can afford to buy?

If I listen to my friends then, by this time next year, I'll be priced out yet again, as they tell me prices will slowly go up.

If I listen to you guys and my own gut feeling, then I'm going to have to wait until at least this time next year to find anything affordable.

I just don't know any more.
Consequently, I've made a Plan A and Plan B.

Plan A - tanking prices - I get to buy a $1 million house for between 500K - 750K, and can afford to buy the kind of place I want, rather than having to worry about the cost.
Plan B - my friends are right - I get to buy a less amazing place, at a price I can afford.

I guess I really won't know which plan to use until Sept 2007...

SFWoman,

I meant no disrespect regarding "normal people". As a rule, I do not consider anyone here "normal" by the very fact that they're here. Normal people listen to Suze Orman once and proceed to make a decade's worth of decisions based upon that half hour of "knowledge".

speedingpullet Says:
Pricier areas seem to be just…stuck.

Inefficient markets are, with very few exceptions, always fast to rise and sticky to decline. I think what we're debating is how long the sticky phase will last.

skibum,

I guess the president of the NAR "drinks the koolaid" and forces himself to not see what's right in front of his face. Does this guy NOT read what his own group is publishing i.e. the rismedia link that SFWoman posted? Sheesh!

To say something that's barely on topic, the prices in the western part of the east bay seem to be pretty sticky until you get north of Richmond. Cities like Pinole, Hercules, Rodeo and Martinez seem to be falling a bit. I think the prices have been pretty sticky in the rest of the east bay because a lot of people just aren't moving. When I go to open houses I don't see immaculate homes with great staging. I see normal home that people lived in. They are selling because they got a new job or are retiring, not because the previous owners were speculating unlike Sacramento and San Diego.

Since there haven't been massive layoffs like the dot com bust, people are staying. Also prices were very high to begin with, so the margins didn't look as good for speculators. Mountain House and the central valley homes are looking pretty shakey now. I do think prices will come down slightly in the western part of the east bay, but I can't give a quantative answer why I think so. I'll just hazard a guess for a bottom in 2009-10. So what if I'm wrong, no one can predict the future. =)

Claire Says:

> If a Brit can afford a pied-a terre in SF then they
> are of the type that money is no object and won’t
> care about the dollar too much!

Then SFWoman Says:

> Not necessarily. I looked at Paris apartments a
> few years ago, and can afford one, but I won’t
> even consider one right now.

It’s easy to loose touch with reality living in the north part of San Francisco but for the most part anyone buying a pied-a-terre on another continent is really F’ing rich…

About $250K a year will put you in the top 1% of all “households” (most with more than one income) in the US and about the top .00001% of households in the world (I used to have the URL to a site that would show this).

Living in San Francisco many people really feel “middle class” (since half their friends will be doing better) when they make “only” $500K a year and have a new worth of under $20mm…

Scott J. Says:

I guess the president of the NAR “drinks the koolaid” and forces himself to not see what’s right in front of his face.

Drink the kool aid? Hey, this guy is Jim Jones himself!

Claire Says:

> Paul, I think you’re right, they could just send their
> kid to private school instead for less, but people
> with that type of money are also looking for the
> kudos of the zip codes (I think).

The problem for most people is that they can’t get their kids in to good private schools, but if they can afford to buy in an area with good public schools the schools have to let the kids in. A middle class white family that decides to save money buying a home in Daly City and paying the $50K a year they are saving in mortgage payments to send little Brittany to Burke and little Spencer to Town in San Francisco will be very disappointed that there kids have close to zero chance of ever getting in…

In the long run paying extra for a home in a good area with good schools is always a good investment since prime areas appreciate more than regular areas (as long as you can afford it with a fixed rate loan). Actually prime anything appreciates more that regular anything. Compare the current price of a ’68 flat roof apartment in Sausalito with a ’68 flat roof apartment in San Leandro or even a ’68 Camaro with a ’68 Ferrari or a ’68 Timex with a ’68 Rolex, or a ’68 Bottle of George de Latour Cab with a ’68 Jug of Gallo Hearty Burgundy…

I’ve got a lot of people that agree with me ready to invest in prime apartments in prime areas (taking lower than average cash on cash returns going in) hoping to get above average appreciation when we sell at the top of the next cycle…

"a ’68 flat roof apartment in San Leandro or even a ’68 Camaro with a ’68 Ferrari or a ’68 Timex with a ’68 Rolex, or a ’68 Bottle of George de Latour Cab with a ’68 Jug of Gallo Hearty Burgundy…"

That's a false dichotomy. The cheaper car, wine and watch were never engineered to be collector's items but practical items - that's why they were affordable in the first place. Their value didn't lie in the investment aspect but their functionality for their 1968 buyers. Furthermore, there are other sectors where expensive things greatly depreciated in value, like all consumer electronics. Lots of people owned Lucent and Enron in the belief that they are bluechip companies and lost it all.

As for real estate, what's prime and what's not prime is fluid. Harlem went from middle class housing (early 1900s) to ghetto (most of the 20th century) to yuppie colonies (today). Ditto the East Village. A lot of the prime BA properties of today were not especially prime 20 years ago. The fact that they appreciated so well is in part because they went from sub-prime to true-prime in the intervening years.

But more generally, our perceptions are molded on the American post-WWII experience AKA best of times. There's no guarantee that values of any property, prime or ghetto, will hold up if the macros weaken for good.

Mercury News Saturday Reality section

Mercury News Saturday Realty section

Can I buy a vowel?

Mercury News Saturday Reality section

About $250K a year will put you in the top 1% of all “households” (most with more than one income) in the US and about the top .00001% of households in the world (I used to have the URL to a site that would show this).

Living in San Francisco many people really feel “middle class” (since half their friends will be doing better) when they make “only” $500K a year and have a new worth of under $20mm…

FAB is dead on. It is all too easy to lose touch living in the Bay Area. It's almost tragic to hear a friend bemoan their measly $300K/year single income household as "middle class" and then travel home to the midwest where a family of four is getting by as "middle class" on dual incomes totalling $70k, most of which is eaten up by daycare and debt payments.

Muggy,

I didn't mean to ruin anyone's weekend, lol. Remember, all real estate is local and many areas will suffer very hard landings, even if the overall national market lands more softly. A lot of my comments are somewhat specific to the Bay Area, where I think there's a generally higher and more diversified income base to power a few more refis than the general 1-company town.

I’d say most of the families that live in my neighborhood here in Sac are living on $70k a year or less. I often feel as if BA people are either very rich compared to everyone else or just seriously out of touch.

I would say they are seriously out of touch.

On the other hand, the economy appears more and more to be a zero sum game.

Remember, it’s not all or nothing. The bottom can come up even as the top is coming down.

I'm sorry Randal H. Esq., but did you mention "top", "bottom" and "SF" in the same sentence?

’68 Camaro with a ’68 Ferrari

Dude, come on now. '68 Z/28 convertible, one made, priceless, '68 SS/RS 375HP convertible, also very high priced. It's all relative.