patrick.net

SubOink says

What’s your point? You think that a $500k home in LA will sell for 200k..by when?? That is such a ridiculous prediction. About as ridiculous as a “buy now” statement. If a house in LA would sell for 200 that is right now 500 then EVERYBODY (a bagger at the grocery store even) could buy a house. That’s why it won’t happen.

You do recall how prices in LA (not to mention Beverly Hills, Malibu) dropped by 40% back in 1991 and stayed down for a long time.

How many people jump back into RE when priced dropped back than. Nada! People were burned once and stayed away.

Yes, prices will go back down to their long term fundemental prices adjusted for inflation. Its happened before and will happen again.

Yes, prices were irrational in 2003. They have been irrational since 1998.

thomas.wong1986 says

Yes, prices were irrational in 2003. They have been irrational since 1998.

Prices were irrational in 2003 and since 1998. In most of the BA, prices are still above the 2003 prices, and way above the 1998 prices. Therefore, prices are still irrational in most of the Bay Area (period).

They are already talking about an end to subsidized mortgages. What happens when 4 years of no new construction turns into 6 and 8 and 10? You think the 1% annual increase in population will simply move to tents?

I think if the subsidized mortage market ends prices will fall even more with the reduction in credit worthy buyers. Banks may still lend, but it will be at higher rates.

The whole idea behind subsidized mortgages is to stablize the market. We now know that is obviously a load of crap since Fannie and Freddie were really just good at politicking their way through the DC minefield. Now that they are wards of the state I they might find new life in wheelchairs with square wheels so to speak.

Despite all QE1 and QE2, credit is still tight. Naturally, the herd - you might find this to be a mistake - is reducing their debt burden. They're recapitizing banks through savings, but they way financial markets now work is very different from the way they worked in the 80s. There's no such things as investment banks anymore. They're all commercial banks whether they operate 10,000 deposit windows or just one in the hills of Utah.

StoutFiles says

Why does everyone here care what he thinks so much

Because we've spent a long time listening to him talk about how the housing market has bottomed. We knew it would continue its downward trajectory when the tax credit ended, and form a new bottom, but he enjoyed the temporary condition of "hasn't happened yet" as his platform to deny the impending reality. Like having bet on a team that's now losing 20-1 in the eight inning, while taunting those who bet on the team that's inevitably going to win, asking them to pay up.

Furthermore there’s all the cash in the world to start a new bull housing market if rents continue to climb and vacancies continue to drop.

Really?

Do you accept capital for investment? I'm basically astonished you wrote this, but you seem pretty confident that you're right.

I got my number wrong. Seasonally adjusted for San Francisco, Feb/Jan, is "-1.6%" Same question though.

klarek says

SubOink says

When the market is basically flat, your wait period is very expensive. If you buy a house for 500k now OR wait for a year, then buy it for 482k ( but spent 30k on rent in the meantime ) you are not doing well waiting. The wait cost you 10k!

LOL

What about that $30+k you just spent on interest, brainiac?

$30k on interest??? HUH?

Please breathe in, exhale slowly - now read my post again, SLOWLY...Get it now?

I don't see the three-month moving average numbers in the press release, so I'm still not sure what numbers you're using. The numbers in the press release don't suggest what you're writing.
Also, you must be looking at seasonally adjusted numbers which Case Shiller warned against last April. It looks like they found an error in the way they were adjusting for seasons.
http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-Type&blobcol=urldata&blobtable=MungoBlobs&blobheadervalue2=inline%3B+filename%3DCaseShiller_SeasonalAdjustment2%2C0.pdf&blobheadername2=Content-Disposition&blobheadervalue1=application%2Fpdf&blobkey=id&blobheadername1=content-type&blobwhere=1243679046081&blobheadervalue3=UTF-8

But wait! CoreLogic says prices went up last month. Here's the quote from Calculated Risk:
"CoreLogic: Home Price Index increased 0.7% between March and April

by CalculatedRisk on 6/01/2011 01:55:00 PM

Notes: Case-Shiller is the most followed house price index, but CoreLogic is used by the Federal Reserve and is followed by many analysts. The CoreLogic HPI is a three month weighted average of February, March, and April (April weighted the most) and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic® Home Price Index Shows First Month-over-Month Increase since mid-2010

CoreLogic ... today released its April Home Price Index (HPI) which shows that home prices in the U.S. increased on a month-to-month basis by 0.7 percent between March and April, 2011, the first such increase since the home-buyer tax credit expired in mid-2010. However, national home prices, including distressed sales, declined by 7.5 percent in April 2011 compared to April 2010 after declining by 6.8 per cent in March 2011 compared to March 2010. Excluding distressed sales, year-over-year prices declined by 0.5 percent in April 2011 compared to April 2010.
...
"While the economic recovery is still fragile and one data point is not a trend, the month-over-month increase based on April sales activity is a positive sign. ..." said Mark Fleming, chief economist for CoreLogic.

I was expecting the CoreLogic index to increase over the summer because it is not seasonally adjusted, however the seasonal increases usually start in June (when the Spring home purchases start to closes). This is just one data point, but it is possible this index will have small increases all summer..."

Schiller report doesn't reflect the truth of the housing market: analyst

BK Capital President and Fast Money contributor Brian Kelly says in a CNBC video above that Standard & Poor's Case-Shiller U.S. National Home Price Index does not really reflect what's going on in the housing market. Kelly cites what he calls more up-to-date CoreLogic statistics, used in a Toll Brothers report, showing regular (non-distressed) home prices in New York, New Jersey and Washington, D.C. up 10 percent. He attributes a fall in prices to the distressed sales market.

"I'm not talking about another housing boom where you can start flipping houses," he said. "I'm just talking about the bottom in the housing market and not only that, when you look at the distressed sales that are going on, that's actually become a shrinking percentage. That has kind of stabilized for the first time since 2009, so you're starting to see things turn."

http://therealdeal.com/newyork/articles/schiller-report-doesn%E2%80%99t-reflect-the-truth-of-the-housing-market-analyst-brian-kelly

HousingWatcher says

Schiller report doesn’t reflect the truth of the housing market: analyst

We're not talking about the truth, which would become quite philosophical. We're talking about specific ways to analyze sales data. I don't view any of them as the truth. Generally, though, I don't find Fast Money contributors or CNBC helpful toward meeting my goals since their main goal is TV ratings not helping me. TV ratings are based on appealing to the biggest number of people, usually with little concern for what causes the appeal.

CASH ON THE SIDELINES is a bunch of BS.
Are the unemployed paying cash for houses? Those lucky enough to still have jobs would take out loans. I have cash which I have been saving since roughly 2003, and guess what? I will be using the smallest possible downpayment amount, because should it all tank again is another cluster-fuck, guess who is walking away with his cash intact? That's right, me!

Tony FL says

CASH ON THE SIDELINES

Just like there is no sex in the champagne room, there is no such thing as "cash on the sidelines":

http://www.hussmanfunds.com/wmc/wmc060710.htm
http://seekingalpha.com/article/231710-putting-an-end-to-the-cash-on-the-sidelines-myth

When Jim Cashholder buys a house from Jim Homeseller, then Jim Cashholder gets the house, and Jim Homeseller now has "cash on the sidelines" -- the same cash that Jim Cashholder supposedly had "on the sidelines" prior to the transaction. No net change. Only used house salesmen and idiot stock market analysts use this phrase, and they always use it to be misleading.

Just for fun, let's also throw in this old quote:

http://www.ritholtz.com/blog/2009/09/1930-money-on-the-sidelines/

Love that quote, Corntrolio.

“There’s a large amount of money on sidelines waiting for investment opportunities; this should be felt in market when “cheerful sentiment is more firmly intrenched.” Economists point out that banks and insurance companies “never before had so much money lying idle.”

Wonder if that line was penned by Irving Fisher himself.

Tony FL says

CASH ON THE SIDELINES is a bunch of BS.

Are the unemployed paying cash for houses? Those lucky enough to still have jobs would take out loans. I have cash which I have been saving since roughly 2003, and guess what? I will be using the smallest possible downpayment amount, because should it all tank again is another cluster-fuck, guess who is walking away with his cash intact? That’s right, me!

Unemployment rate - 8.7% . So in 100 people 9 do not have a job, 91 DO have a job.

You sound like NOBODY has a job.

So if you buy a house that you can afford...then the house looses value on paper..you're gonna walk away just because of that? Pretty stupid. Where are you going to live?

Instead, if you used your saved cash to buy something nicer and have a lower monthly payment, then you can freeze in a 30 year mortgage (which you can always pay off earlier if you want/need to) - so your payment will NEVER change no matter what your house is worth. Why would you walk away from that?? With your precious but worthless cash in your hand. You cash now will be worth half in 10 years from now...don't forget that. Cash sucks!

Unemployment in California is 12% by the way.
There are a some of reasons people aren't buying real estate, maybe more than I mention.
1. They think prices are going down, so not buying.
2. they are unemployed
3. they think the whole thing is a scam or con by realtors and banks. (right or wrong)
4. they can't get loans
5. they are afraid to take the plunge.
Cash is always worthwhile to have, if you are making it and can add to your pile. I like to put it to work in some way.

SubOink says

Unemployment rate - 8.7% . So in 100 people 9 do not have a job, 91 DO have a job.

U-6 is 16%, so 1 out of 6 do not have a stable job.

http://research.stlouisfed.org/fred2/series/U6RATE

The situation is so dire that a recovery to 1991's worst would be seen as a miracle:

http://research.stlouisfed.org/fred2/series/UNRATE

The difference between now and 1991 is:

1) leading edge of baby boom is 65 and not 45. We've got a demographic wave coming that is going to turn active producers into retired consumers, of medical care and also their pension payouts, including an increasing drawdown of the $2.5T SSTF.

Each year from now until 2022 the annual class of retiring baby boomers will grow by 100,000, moving from 2.8M/yr now to 4.3M/yr in 2022. This is a cumulative $1B/yr growth rate.

2) Trade deficit with China & Mexico was $10.5B (Mexico was in surplus by $2.1B). In 2010 the trade deficit with just these two was $340B.

This is the earning power of 7M jobs at $50,000 that is being sucked out of our economy.

3) Same thing with oil in 1991 oil was $20 and it later fell to half that in the 1990s. Now oil is pushing $100 and will probably double again this decade instead of falling 50% like it did in the 1990s.

$10 gas is nothing but bad news for housing, outside Alaska, Bakersfield, and other oil-producing areas.

4) Government spending. Right now the government is deficit-spending $1.5T/yr. While this may possibly continue indefinitely, it also may not. Just a $100B/yr reduction is about 1M jobs that will be cut each year in response.

Tax rises or spending cuts are equally deflationary, though spending cuts more so since they obliterate local economies that are dependent on Uncle Sugar.

Year-over-year (generally) accounts for seasonality more than just looking at month-over-month.

Versus a year ago, the March numbers are down in the C-S 10 city and 20 city composites roughly -3.5% and -4%, respectively.

Versus March of 2006, C-S shows a rough drop of -32% for the 10 city and -28% for the 20 city.

ChrisLA says

Thats actually funny, because in the summer prices historically tick up a bit and go down in the winter.

The rationale he offered was that the winter doldrums came early in 2010. He didn't say how that could happen, rather he just expected everybody to believe he's serious and to accept it as an explanation. The needle on the bullshit-o-meter was buried.

Gimmicks I've seen supporting the "it's cheaper now to buy than rent" argument.

Gimmick #1) Assuming a lower interest payment with a 5/1 ARM or a 15yr mortgage.

Depending on your life situation, it might be appropriate to use one of these mortgages, but they each come with additional risks relative to a 30yr mortgage. With a 5/1, if rates are much higher in year six, you either have a big jump in your monthly payments or you need to find a buyer who can afford those much higher payments themselves. For a 15yr mortgage, you're buying a house priced below what you can afford OR you're stretched thin and exposed to any 'life event'. These two mortgage types expose the buyer to significant additional risks over a 30yr fixed mortgage, which itself has additional risks beyond renting. The most appropriate product to use when comparing rent vs buy is a 30yr fixed mortgage.

Gimmick #2) Including home price appreciation and rising rents in your model. Arbitrary and inconsistent forecasts about tax rates, opportunity costs, etc...

Maybe it happens, maybe it doesn't. But guess what, if home prices stabilize and start going up, you should be assuming a much higher 'opportunity cost'. If you rent today, you can 'safely' earn only ~3% on the downpayment which you didn't make. If home prices rally, you missed that pop but the implied upturn means you're probably earning more than 3% on the capital that isn't tied up in a house. As a decision tool, you should definitely consider future home price, rent and opportunity cost scenarios - so that your election includes your personal view on home prices. However, determining what's cheaper TODAY, you should keep the forecasts out of it.

Gimmick #3) Pretending you can live in a house for a decade, without spending 15%-20% of the home's value into repairs, replacements or improvements, yet still somehow sell the place 'on-market'. Can you live in a place without shelling out money? Yes. Can you sell it or rent it without shelling out money? Yes, but you move down to a lower relative price point. You buy a luxury home home and sell a fixer-upper, which price will reflect.

Gimmick #4) Just ignoring opportunity costs

Downpayment, principal paydowns and improvement costs go into your home equity. It is not available to invest in the market or other opportunities. If you rent, you can invest that money according to your risk tolerance.

Gimmick #5) Failing to discount cashflows

If you pay $100 for 5 years and receive $100 for the next 5 years, did you break even? No. You got ripped off, because you made a $500 investment and earned a 0% return. If you look at the year-by-year rent-vs-buy cashflows, the near years matter more than the far years, and should be weighted accordingly.

Long story made short: There are limited cases where places are selling at prices cheap to where they would rent. I'm finding that condos with high HOA fees and high dollar price homes (800k+) make no sense relative to available rentals for similar homes. For instance,

http://www.redfin.com/IL/Chicago/545-N-Dearborn-St-60654/unit-3204/home/12967625

2BR/2BA 1900SQFT - I think this place rents for $3,750
Home Price $784,000
Downpayment (%) 20%
Taxes (annual) 11,759
Assessement (monthly) 1889 (with 2 parking spaces)
Maintenance Rate 1.0%
Marginal Tax Rate 35%
After Tax Opportunity Cost (Rate) 3.00%
Mortgage Rate 5.10% (>417k, 30yr Jumbo)

Real Monthly Costs = $5,892
Sum of:
Mortgage Interest
Taxes
Assessment
Insurance
Maintenance
Opportunity Cost
Less
Mortgage Interest Deduction
Property Tax Deduction

pkowen says

let’s acknowledge that his investments are HIS and his alone and he does appear to have positive cash flow.

That's fine, I don't care. I don't think I've ever insinuated that he is screwed as a buyer/owner. I'm berating him for his dishonesty and his general lack of economic clarity.

pkowen says

My prediction on the BAY AREA market is continued downward sliding in most areas, especially the mid-market areas that remain out of line with incomes. Top end is a special case ($15 mil in Hillsborough or Atherton) and bottom end has already crashed 50% plus.

My own observations:
1) very bottom end = crashed 30%+ as pkowen said.
2) FHA/FNMA/FHLMC buoy range -- e.g. $417K to $900K or $950K has been stronger than it should be because of massive government subsidies. Ideally, we would go back to $417K (or lower) as a cap and stop subsidizing, but realistically we may go to $625K as a cap.
3) $1.5M+ in San Francisco has been doing okay, down at least 7-10%, although the crappy houses, of which there are many, are down over 10%, and the good houses are closer to flat.
4) $1.2M+ outside San Francisco and maybe Palo Alto is having strong moves downward from people's expectations (I've seen $1.7M to $1.1M, although $1.7M to $1.3M is more common and maybe $1.3M down to $1.0M), especially with financing being tighter.

I'm still thinking the overall market will be close to flat for a while in nominal prices for a few years, while real (i.e. inflation-adjusted) prices catch up with income a bit, but the high subsidies from the government are screwing up the natural process, and the stickiness and illiquidity of housing means this process takes time. I think we've already seen the big drops, but there may be a smaller noticeable drop if government support ever dries up (that includes subsidies, but also if government ends the policy of depressing interest rates).

Coogan99 says

Gimmicks I’ve seen supporting the “it’s cheaper now to buy than rent” argument.

You missed the biggest gimmick of all. The assumption that you are going to live in the same house for the entire 30 years of the mortgage. Good luck, In today's world that is a very shaky assumption. If you move in 15 years or less the front end loading of interest payments means that the closing costs (both from buying and selling) will more than eat any forced savings. Of course houses always go up in value much more than the inflation rate (ha ha) so you will have the appreciation to put in the bank.

I'm not against buying, but don't tell me it's a financial wonderland. There are times when buying makes more sense, there are times when renting makes more sense.

bob2356 says

I’m not against buying, but don’t tell me it’s a financial wonderland. There are times when buying makes more sense, there are times when renting makes more sense.

Right, homeownership often functions as forced savings, rather than a true investment. There are certainly good reasons to buy a house, and good reasons to rent. I mentioned several on another thread last week or the week before, e.g. you may need to move soon, you are new to an area, your job situation might change, your financial situation, whether your family could get bigger, etc.

Theoretically, buying a house should be cheaper than renting because the cost of renting should be a cost of buying + a reasonable profit for the landlord for taking on the risk and transaction costs. This makes sense -- when you rent, you would expect to pay a little more for the flexibility, the fact that you don't have to deal with maintenance, the fact that it's shorter term, the lack of financial commitments, etc.

What the recent housing bubble shows is that homeownership is not for everyone. Many people who were not good candidates for homeownership bought a house. We've put way too much virtue into Bush's "Ownership Society." Buying can certainly be a terrible financial decision, and it can prevent you from building wealth, just as it may be a valuable part of your portfolio in other cases.

SubOink says

So if I take 100 of my friends, according to Troy 16 people should be out of work. But like I said, none of my friends are out of a job. That’s my narrow minded reality that I go by not statistics online.

It depends on demographic too. People with more education have a lower unemployment rate. This should not be a surprise. I believe the rate for people with a college degree is considerably lower than the general California rate, and it might be more like 4-5%.

However, in an economy that is largely driven by consumption, as is ours, this could still be a huge problem. We need to spend more money on infrastructure, innovation, and educating our people, rather than stupid wars, bad foreign policy, bad subsidies (to banksters and agriculture), and several other things. But we don't.

Nobody says

On the note, the housing market in Silicon Valley
seems to show resilience. Then again, it is mostly
driven by foreigners capitalizing on the weak dollar.

You should be careful there, however. People spread all kinds of misinformation about the housing market that I have used raw data to refute:

http://patrick.net/?p=658578#comment-732486
http://patrick.net/?p=697896#comment-738454
http://patrick.net/?p=697896#comment-738458

Everyone says everything is going for all cash, with few DOM, and way above asking, but real statistics don't always agree with the claims.

Palo Alto is doing quite well, and anything in down payment + FHA/Fannie/Freddie range is doing better than expected due to government subsidies, but not everything is high flying.

"Foreigners will save us" doesn't usually work over the long-term, and isn't always true in the short-term.

corntrollio says

SubOink says

So if I take 100 of my friends, according to Troy 16 people should be out of work. But like I said, none of my friends are out of a job. That’s my narrow minded reality that I go by not statistics online.

It depends on demographic too. People with more education have a lower unemployment rate. This should not be a surprise. I believe the rate for people with a college degree is considerably lower than the general California rate, and it might be more like 4-5%.

Yes. That's why I think arguing with the unemployment rate as a reason for a house price crash is not a good point. A courtesy clerk at Vons that makes minimum wage is not in the market for a 500k home. He is a renter and will always be. So now he is unemployed. And that does not matter for house prices at all.

I think the unemployment rate must be along where you say in educated circles. 3,4, maybe 5 % ? People that make 100k all have their jobs and can buy a house if they decide to. Right now, there are decent places out for sale that one can afford. Finally. Only took 6 years...:

As a freelance person I have noticed that when I am personally doing bad, it feels like the wheels are coming of the economy...when I am doing great, everything seems to be picking up. I change my own view often depending on how well I am doing. I think a lot of people do that. Once you lost your job, you almost want others to lose theirs too so you feel like its not your fault. The economy is just bad. So you get into the negativ outlook. You stop eating out, doing things that cost money and you are stuck at home being completely miserable.

I think many posters here must be in that frame of mind. Klarek and co...sound a lot like that. But that does not mean they are right.

If things are so insanely terrible how come the expensive restaurants are all packed...during the week even? How come the Mall's are crowded? How come Apple beats their earnings expectations every Q around? Cisco is hiring like crazy. Tried to book a flight to a resort in Hawaii...all booked for June/July. Woot?

I am pretty confused by that. But it is what I see with my own eyes. Then I go to patrick.net and hear apocalypse predicting the world to end and others claiming a nightmare crash in house prices. There is a pretty big disconnect between what I am seeing in real life and what I read on the internet. I'll stick to real life for now.

SubOink says

So in 100 people 9 do not have a job, 91 DO have a job.
You sound like NOBODY has a job.

Behind The Money
By John Melloy, Executive Producer, Fast Money

Squeezed on both sides by stagnant wages and rising prices, consumers believe the chances of bringing home more money one year from now are at their lowest in 25 years, according to analysis of survey data by Goldman Sachs.

Goldman's economist Jan Hatzius looked at the University of Michigan and Thomson Reuters poll, which asks consumers whether they believe their family income will rise more than inflation in the next 12 months. Hatzius applied a six-month moving average to smooth out the data and found that wage pessimism is at its lowest in more than two decades.

"Households are already very pessimistic about future real income growth," wrote Goldman's economist to clients. "A slowdown in job growth would presumably translate into a further deterioration in (expected and actual) real income growth. This would heighten the downside risks to our current forecast that real consumer spending will grow 2.5 percent to 3 percent over the next year and might call for another downward revision to our forecast for US GDP growth in 2011 and 2012."

Real hourly wages have dropped 2.1 percent on an annualized basis over the past six months, a rate of decline not seen in 20 years, according to Goldman. This analysis is backed up by the other most-watched consumer survey from the Conference Board, which indicated earlier this week that the proportion of consumers expecting their incomes to increase was below 15 percent in May.

"I am much more concerned that the second half resurgence we all expect never arrives and by early 2012 we are in a recession," said Joe Terranova, chief market strategist for Virtus Investment Partners and a 'Fast Money' trader.

Stocks are sliding in June ahead of the monthly jobs report released on Friday. Economists have slashed the number of jobs they believe were added last month as a string of recent economic data have pointed to a slowdown. The 10-year Treasury yield broke below 3 percent Wednesday as investors bought bonds as a safehaven in case of the slowing economy.

The fact that income expectations are so low, makes the jobs outlook that much more important, argues Goldman and other investors. These same surveys show that consumers are not nearly as pessimistic about job growth. So once enthusiasm on the labor front is dented at all, then all aspects of consumer confidence are lost.

"The labor market is particularly important because household financies currently seem even more dependent on job growth than they are normally," said Hatzius.

A typical recovery pattern goes like this: stock market bottoms, economic growth bottoms and then hiring and wage increases return. What’s unique and scary about this recovery is that the last piece of the recovery is not there.

In the 2001 recession, the country lost 2 percent of jobs from peak employment and then made that back in a 48- month cycle, according to data from money management firm Trutina Financial. In 1990, the jobs lost during the recession were recovered in 30 months.

Right now, about 38 months from peak employment during the housing boom, there are still six percent fewer jobs out there. Making up that amount of jobs in 10 months or less would be unprecedented, if not impossible.

"The crawl out of this economic ditch is going to be long and slow," said Patty Edwards, chief investment officer at Trutina. "Even if they're employed, many consumers aren’t earnings what they were two years ago, either because they’re in lower-paying jobs or not getting as many hours."

SubOink says

I think the unemployment rate must be along where you say in educated circles. 3,4, maybe 5 % ? People that make 100k all have their jobs and can buy a house if they decide to. Right now, there are decent places out for sale that one can afford. Finally. Only took 6 years…:

There are plenty of executives, vp's, and staffers in Silicon Valley, very well educated and lots of experience, but few jobs.

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

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.

SubOink says

People that make 100k all have their jobs and can buy a house if they decide to. Right now, there are decent places out for sale that one can afford.

We can quibble over that perhaps, since "afford", "decent", and "can" are all arguable.

SubOink says

I am pretty confused by that. But it is what I see with my own eyes. Then I go to patrick.net and hear apocalypse predicting the world to end and others claiming a nightmare crash in house prices.

We can quibble over this too. For one thing, there is massive government intervention going on to keep housing prices up, and prices still dropped a ton. The de-leveraging would continue if the powers that be allowed it. Apocalypse is a strong word, but there's nothing wrong with being at least a little cautious about this. Residential investment also hasn't come back, and that's a forward-looking indicator for the economy, typically.

My own personal opinion I've mentioned before, but I don't see this housing bubble/bust as that different from other ones, except for the level of government intervention. Usually in a housing bust, there is a quick/sudden drop and then a prolonged time where nominal prices are largely flat and real prices catch up a bit. The government intervention has altered the normal scenario, and it's unclear whether we'd face another drop if the government subsidies for both homeowners and banksters went away. For example, it's possible that higher interest rates, as we should have would cause prices to have another drop, which could happen at certain price points if FHA/Fannie/Freddie support goes away.

This process also takes a lot of time. In some markets, we are nearing 5 years of bust, whereas in others, like the City of San Francisco, it may be more like 3 years in the nicer areas. The 90s bust ran from around 1990-91 to about 1996 at least, maybe 1997, and the runup was much smaller. Someone on SocketSite describes this as watching paint dry on a painting of grass growing. I don't disagree, although I may have butchered the quote.

What's interesting to note is that certain indices are back to 2000 with respect to San Francisco/Bay Area when adjusting for inflation. A good example is the Prestige Index, which First Republic reports: http://www.firstrepublic.com/lend/residential/prestigeindex/sanfrancisco.html. This index monitors the upper end of the housing market in the most expensive Bay Area locales. Of course, the dotcom boom caused its own local real estate bubble for the top end, and whether the tech boom permanently adjusted fundamentals here is still an open question.

SubOink says

Cisco is hiring like crazy.

Cisco is going through a restructuring these days.
Just like HP, Intel and many others more recently. The first to go is middle managers who are making 100K and over. And we saw this happen before. Mean and lean with flat reporting structures. But where do they go now ?

SubOink says

Cisco is hiring like crazy.

This can't be quibbled with by the way -- it's wrong. Or at least, Cisco's NET hiring is not looking good (headline: "Cisco braces for biggest layoffs in its history"):

http://www.reuters.com/article/2011/05/13/us-cisco-idUSTRE74A78K20110513

HP too ("The memo indicates that the company continues to come under pressure and suggests job cuts are in the offing."):

http://www.bloomberg.com/news/2011-05-16/hewlett-packard-girds-for-another-tough-quarter-memo-says-shares-fall.html

Many tech companies raised profits in recent years by cutting costs significantly, but they still need to raise revenues to continue the trend, or more cuts may be necessary.

corntrollio says

SubOink says

Cisco is hiring like crazy.

This can’t be quibbled with by the way — it’s wrong. Or at least, Cisco’s NET hiring is not looking good (headline: “Cisco braces for biggest layoffs in its history”):

http://www.reuters.com/article/2011/05/13/us-cisco-idUSTRE74A78K20110513

I care less about some article but the fact that one of my buddy's is one if the big wigs over at Cisco who is telling me "We need more people, we are hiring like crazy but are having a hard time finding qualified personnel." - I like to take it from the Lion's mouth rather than a journalist.

thomas.wong1986 says

There are plenty of executives, vp’s, and staffers in Silicon Valley, very well educated and lots of experience, but few jobs.

Maybe that's how it is in Silicon Valley. I don't know anything about SF as I live in LA. I don't know if SF represents anything, just like what I wrote about means nothing about the country as a whole.

My approach as I said is...that I do not "see" the apocalypse. My friends are all going on vacations, driving new cars...buying houses. I do not see that things are doom and gloom as much as the media likes to pretend. I think bad news are just more powerful than good news. Drama makes for a better headline than good news.

That's just my view. You can analyze it and send me articles and internet posts but in the end its what I experience in MY life and in MY surroundings that will convince me.

If 10 of my friends lose their job next month, I may come around and start believing the doom and gloom hype. If not, I will continue to believe that things are just not as bad as we are told by the media/internet blogs.

Opportunities are out there and always will be. Just a matter if you want to grab them or not.

My official prediction for 2011 - the world won't end. No Apocalypse. No drastic crash in housing, maybe down a little further but probably flat. The chinese won't show up on our doorsteps and take us hostage. Not even in 2012. I say it with full confidence :)

SubOink says

I care less about some article but the fact that one of my buddy’s is one if the big wigs over at Cisco who is telling me “We need more people, we are hiring like crazy but are having a hard time finding qualified personnel.” - I like to take it from the Lion’s mouth rather than a journalist.

But you have to consider what that actually means. Most of my friends who work at tech companies always tell me that they are having trouble hiring people, but that doesn't mean the net trajectory is upward. As I said above, we don't educate enough people here to take these jobs, and any tech manager will tell you that it's difficult to fill openings. Tech companies also tend to be very siloed, so what one manager tells you isn't necessarily consistent across the board.

SubOink says

My friends are all going on vacations, driving new cars…buying houses.

Consider this is self-selective. Presumably you don't rub that many elbows with working class folks, for example. Again, you're comparing "apocalypse" to reality, which isn't necessarily a valid comparison.

corntrollio says

SubOink says

My friends are all going on vacations, driving new cars…buying houses.

Consider this is self-selective. Presumably you don’t rub that many elbows with working class folks, for example. Again, you’re comparing “apocalypse” to reality, which isn’t necessarily a valid comparison.

That's the thing. My friends are from all sorts of jobs. Income range 60-125k.

But you are totally right, it is still selective. Sometimes I drive thru the 1mill+ houses area out here and its just miles and miles of amazing 5000sqft homes, kept up, just stunning and I ask myself...who are all these people and what do they do for a living. And my conclusion is...there is just too much money around. How many people are lucky and inherit a house or two...so they get a massive headstart in life. 2 homes free and clear that you can rent...if you have a job for health insurance + 40k/year , you are doing great. I think there are a lot more people in that position than you think. All this money that gets passed on, from gen to gen. Most boomers own their houses. Those houses were $50k when they bought them and now they are 800k. That gets passed on....there is so much money out there. That's how I explain that prices are holding in all these neighborhoods. Those people are NOT hurting at all. But they do complain. Complains like "Ah, things are terrible...we had to get rid of the Ferrari and one of the 5 nannies...I am telling you, this economy sucks, we even sold the house in france. Had to throw in the yacht to sell it - RIDICULOUS!! Things are bad"

So we spoiled bunches love to cry the blues because the greed that we're used is not being stimulated as much as in the great years. I have no sympathy for that as I am not one of those lucky bastards that inherited a shit load of money.

Big Business all complains to justify laying people off or reducing salary. But that does not mean they are doing it because the economy is about to collapse. They are doing it to get lean and mean and make even more profit...and when things are officially bad, they can do it. In some ways, I think the media is very manipulated in that way and far from reality.

E-man says

Inventory of SFH in Santa Clara has been running about 2 months for a while now.

Average DOM for single-family homes in the City of Santa Clara is 115 days during the month of May and 159 days for condos:

http://www.julianalee.com/reinfo/sold-SC.htm

E-man says

Most want to buy and live in Palo Alto, but want to pay Concord prices.

That sums up the frustration of $250K middle class families in SV perfectly. They consider themselves middle upper thinking that they are *entitled to* a nice neighborhood, only to realize that there's just too much money around.

robertoaribas says

He first claimed that his wife was a lawyer, then suddenly, he owned the entire law firm…

He claimed to have financed all of his purchased rental properties as “owner occupied” to save interest rate, when if true, far from being clever he was merely committing loan fraud.

Roberto,
I thought the real display of character on that one, was not the little white lie to get that mortgage, even though a mortgage is a contract.
Not even, the little white lie of contract fraud he attributed to be co-commited by the lawyer of the California State Bar link on his webpage, even that, I'd give him a pass.
But it was his spouse! I would not disclose such stuff about my spouse (or partner), in such a public way like that, on a forum like this.
That was the real display of character on that matter.

Lawyers are human and probably tell lies and commit contract fraud as much as the rest of us do.

Maybe more.

But partners and spouses don't out them in public about it. (Talk about the "lowest of the lows".)

It's just not right.