patrick.net

A "normal" market is one where if price fall for whatever reason, supply decreases, and demand increases to get back to equilibrium.

With leveraged assets, and specifically in this housing cycle, this dynamic can be an unstable one. Once assets fell to a point where a certain number of owners were "underwater", the psychology of it all turned "normal" supply/demand economics on its head. Price drops caused more people to hand the keys to the bank, and frightened more people away from buying (supply INCREASED with lower prices, demand DECREASED at the same time).

Nasty spiral down that is tough to break.

However, once the supply of distressed sellers goes away in a particular market (the number of homes is finite, after all), you would expect to find very few willing sellers at the bottomed market prices, a firming of prices, and then a flood of people coming back to the market as they feel better about buying, with evidence of pricing having hit bottom.

The snap back of prices could be vicious in the markets where distress has been sufficiently reduced. Seems like we are seeing it real time in SF and Phoenix so far. I fear judicial states haven't cleared their distress enough for a snap back to be sustained (so I'm not convinced that places like Miami have turned a corner). Which market is next?

Rental Watch says

The snap back of prices could be vicious in the markets where distress has been sufficiently reduced. Seems like we are seeing it real time in SF and Phoenix so far.

Are you suggesting that prices will "snap back" to 2006 or 2007?

san diego is hot as well

rowemoore says

Are you suggesting that prices will "snap back" to 2006 or 2007?

I am not suggesting that prices go back to 2006/2007 (or anywhere close, especially in areas with lots of land available), but they need to go back to prices that support the development of new homes, and they are not there right now.

It costs a lot of money to put in the infrastructure for a subdivision (it's $4 gas driving those earthmovers), pay building permit costs, build a condo building, etc. Until you see prices support the development of additional land for the construction of new homes, supply will be limited, and prices will rise.

Also perversely driving this is the fact that non-judicial states will lead the way (also in new construction jobs, etc.). Judicial states I fear will be a mess for a while longer. So, as long as judicial states are a mess, the Fed will keep rates low, which COULD cause any price increases to go on for longer in non-judicial states than they would if there was such a thing as a Federal Reserve Bank of Arizona setting rates for that particular state.

So what is traffic like at the few new developments that are going up these days? Are buyers camped out the night before a new release like they were back in 2004? If demand is so great all of the sudden, is construction going to go through the roof? Or are new homes still priced too high relative to existing?

Rental Watch says

It costs a lot of money to put in the infrastructure for a subdivision (it's $4 gas driving those earthmovers), pay building permit costs, build a condo building, etc. Until you see prices support the development of additional land for the construction of new homes, supply will be limited, and prices will rise.

May I introduce you to the future of home construction?

http://news.cnet.com/8301-17938_105-57389515-1/ikea-designs-$86500-prefab-house-instructions-included/

Seriously, pre fab housing was gaining lots of steam until the crash. The advantages of building a home in a factory are huge - both in cost saving and quality of homes. They can be super energy efficient.

This may not be right around the corner, but the day when robots build homes in factories is closer than most realize.

Glad the buying window is over, no can afford, but obviously investors can, and that's what housing has become in many ways, something for investors to make or lose money on.

tannenbaum says

So what is traffic like at the few new developments that are going up these days? Are buyers camped out the night before a new release like they were back in 2004? If demand is so great all of the sudden, is construction going to go through the roof? Or are new homes still priced too high relative to existing?

I spoke to a guy yesterday who said one subdivision in Phoenix was seeing more than one sale per day...this is raging, "good" sales at a subdivision is 1 per week. Traffic is up to some subdivisions in CA from what I hear as well, surprisingly strong demand in subdivisions in places like Manteca. I hear of wait lists at some subdivisions in Reno, not yet camping out.

These developments are moving forward because the builders either wrote their land down to low values, or bought it distressed at prices less than replacement cost. This allows them to compete with resales when building a new home.

Once this inventory of cheap finished lots (ie. infrastructure, roads, curbs have been constructed already) has been built on, there will not be significant numbers of new lots developed until prices rise to a level that supports the cost of development.

In sum, I actually think that new construction will go DOWN for the near term (dwindling with the supply of finished lots) until there is an uptick in home prices sufficient to justify the development of new land. Once you see new lots being developed in your market, I would assume that the trajectory of home price recovery will flatten out from there.

Rental Watch says

I spoke to a guy yesterday who said one subdivision in Phoenix was seeing more than one sale per day...this is raging, "good" sales at a subdivision is 1 per week.

I would like to know where this is. Could you share this info?

rowemoore says

I would like to know where this is. Could you share this info?

My understanding was that it was West of Phoenix in (or near) Buckeye, selling very inexpensive homes.

Rental Watch says

rowemoore says

I would like to know where this is. Could you share this info?

My understanding was that it was West of Phoenix in (or near) Buckeye, selling very inexpensive homes.

So you have no idea if this is true? Could you research this a bit more and post exactly where this is. You understand, we see a lot of bs on this site.

rowemoore says

So you have no idea if this is true? Could you research this a bit more and post exactly where this is. You understand, we see a lot of bs on this site.

I certainly understand the BS meter flashing. The best I can tell you is that I don't know firsthand that this information is true--I couldn't unless I was actually the sales agent at the property. The Buckeye information came from someone who was formerly in the homebuilding industry and was recounting a conversation from a friend who works for a homebuilder. Could be total BS--but consistent with Phoenix rising as I think we're all reading in various places.

I know a fair number of folks related to the homebuilding industry. What I will say is that I heard the information about sales in Reno, Manteca, and Buckeye from three different (credible) sources. When I hear similar stories in three markets from three different people, it lends credence to what seems to be a trend of stronger homebuilder sales.

I'm totally OK if you don't want to believe it, and won't try to convince you that it's Gospel--because I can't say that it is. This is just information that I've heard.

Rental Watch says

I am not suggesting that prices go back to 2006/2007 (or anywhere close, especially in areas with lots of land available), but they need to go back to prices that support the development of new homes, and they are not there right now.

In my observation, on South Bay, new development never stopped completely. It wasn’t robust like before 2006, but new houses are offered all the time. That means developers still able to make profit with current prices what is not possible with far away areas.

rowemoore says

May I introduce you to the future of home construction?

http://news.cnet.com/8301-17938_105-57389515-1/ikea-designs-$86500-prefab-house-instructions-included/

Seriously, pre fab housing was gaining lots of steam until the crash. The advantages of building a home in a factory are huge - both in cost saving and quality of homes. They can be super energy efficient.

The landed gentry scum in the fortress areas with good schools will never allow a new crop of middle class to put these types of homes anywhere near their NIMBY castles, their I GOT MINE castles, where they and they alone get to live on the hill watching over the rest of us commute and struggle like mad.

High rent? Where do you live? If the BA then your rent should be much less than the cost to own. Not the same elsewhere though.

BoomAndBustCycle says

I would say that anyone with "crappy credit" or not enough income to afford their home already foreclosed long ago. I do know a bunch of highly paid upper middle class dual income professionals who bought in 2004-2006. I'd imagine another HUGE leg down in housing would make this round of buyers seriously consider strategic default.

Here's the thing though: We have been looking for about 6 weeks and believe it or not, you'd be amazed at just how many foreclosures there are that seemingly came from those making high incomes. We're talking about nice houses in places like Piedmont Oakland, Rockridge, and other somewhat semi-affluent upper middle income type areas. Its not just poor and middle class people who are losing their homes. Its also those who "could" afford a home but probably only with two incomes at all times. All it would take is a job loss and they lose the home, and that's probably what's happened in a lot of these cases.

The deal with the BA is that a lot of buyers get a home and pay for it by the skin of their teeth. This is regardless of income. There's very little room for error and thus why a surprisingly large amount of upper income earners sit tediously on the edge of getting foreclosed come any sort of shift in their financial fortunes.

Its not just the bottom feeder investor fodder that's getting foreclosed. Its also the nice Craftsman houses with the 2 bimmers parked out front as well.

RentingForHalfTheCost says

High rent? Where do you live? If the BA then your rent should be much less than the cost to own. Not the same elsewhere though.

San Francisco proper. My once working-class neighborhood has turned shi-shi (I've been in the same nabe for 15 years, same SFH rental for 12).

Single family homes in SF are not rent controlled.

As someone posted previously, if you need anything bigger than 2 bedrooms (we have kids) and want a garage and a yard (kids=car) and pets, then apartments can be hard to find.

Our landlord raising the rent by $200 month is what made us start thinking that now is the time to buy.

Apparently everyone else, including the infestors, decided the same thing.

1sfrenter,
We too are looking for houses. I am going to gently suggest that you need to maybe take a look at the situation differently. It sounds like you've been saving for years and have your ducks in a row. If that be the case, then don't worry about it. We too have been renting and saving for a long time. If you waited 15 years, then you can wait a bit longer. We fully expect it to take us a good year to find something. We're not going to get into any bidding wars and we will find the house for us, in our price range.

What I think is going on now is probably temporary. But even if it isn't, there will always be the "right" house out there, even if it takes awhile longer. So don't worry if people are freaking out and buying houses at random. Just take it easy and take your time.

Worst time to buy is spring/summer. Very best time to buy is to put your offer in between December 23 to January 5. Much less competition and better acceptance of your offer. People are too broke and recovering to get out there. Their moods are all off.

rowemoore says

This may not be right around the corner, but the day when robots build homes in factories is closer than most realize.

I hope so!

1sfrenter says

infestors

I like your term for "investors." Classic!

KILLERJANE says

Worst time to buy is spring/summer. Very best time to buy is to put your offer in between December 23 to January 5

If inventory is low right now (height of selling season), it might be nonexistent by fall/winter.

Unless all the underwater owners see the multiple bids and higher prices and start flooding the market.

One can only hope.

Mick Russom says

The landed gentry scum in the fortress areas with good schools will never allow a new crop of middle class to put these types of homes anywhere near their NIMBY castles, their I GOT MINE castles, where they and they alone get to live on the hill watching over the rest of us commute and struggle like mad

No, but they may allow these pre-fabs:

edvard2 says

Just take it easy and take your time.

Thanks for the reassurance. This is about where we are, too. Resigned to be patient and kissing a$$ to our landlord so we don't find ourselves in a desperate situation.

It's also given us some time to re-evaluate our priorities. Although we know we want to buy, we have decided to get something a lot smaller and cheaper than originally planned.

It's easy to get caught up in the realtor's and mortgage broker's way of doing things (borrow and buy as much as you can).

It may be a blessing in disguise that we have not gotten any of our offers accepted. A smaller, cheaper house means the difference between possibly paying off the mortgage in 15 years vs. debt slavery until the day I day.

1sfrenter says

RentingForHalfTheCost says

High rent? Where do you live? If the BA then your rent should be much less than the cost to own. Not the same elsewhere though.

San Francisco proper. My once working-class neighborhood has turned shi-shi (I've been in the same nabe for 15 years, same SFH rental for 12).

Single family homes in SF are not rent controlled.

As someone posted previously, if you need anything bigger than 2 bedrooms (we have kids) and want a garage and a yard (kids=car) and pets, then apartments can be hard to find.

Our landlord raising the rent by $200 month is what made us start thinking that now is the time to buy.

Apparently everyone else, including the infestors, decided the same thing.

Run the full numbers and expenses and compare you rent verses a comparable house to buy in you hood. I think you will be surprised how much better of you are right now to rent.

APOCALYPSEFUCK is Tony Manero says

A friend who did two of these in different states said the catalogs these days for factory built homes are incredible.

But do they come with pre-fab arsenals and gun-ports?

edvard2 says

Perhaps another question would be what about renting until you retire?

But let's say you rented for another 10-15 years, then retired, then moved either out of the Bay Area or out of state?

Been renting for 30 years. Don't want to anymore. Too old (and have kids and pets) to have to move whenever house gets sold (owner-occupied eviction has happened to us twice!) and single family homes are not rent controlled here.

I've said it before: when you are young it's no big deal to chase cheaper rentals and get boxes off craigslist and borrow a truck and get your pals to help you move with a case of beer and some pizza. Throw in some kids, a few pets, a piano, a bad back, etc., not so much.

And JOBS. We have stable jobs with seniority. Moving to work in another school district given the cuts in education just doesn't make sense.

And this is our home. Yes there has been a mass exodus of middle class folks out of San Francisco, but the idea that hundreds of thousands of people (ie., anyone who makes less than 250K a year) should leave their home and the place they love is ridiculous. That's what happens during a war.

I guess this is a war. Class War. And we are losing.

APOCALYPSEFUCK is Tony Manero says

Given the advancement in the art, sure, very likely.

Get off the grid and the only weapons you'll need are fishing poles and a knife

1sfrenter says

I guess this is a war. Class War. And we are losing.

I think Buffett would agree.

I hear what you're saying. Moving sucks... for everyone. Young, old, and those inbetween. Trust me. We have a TON of crap, and yes- we too are attached to where we live. But where we live is semi-desirable and thus we've made some exceptions to where we will buy simply because to us the additional costs of living where we live aren't really worth it.

True, we don't have kids and that alone makes a huge difference. But I still think you have options. Plenty of people buy or rent homes in the East Bay and commute to SF. I did it for 2 years and it wasn't that big a deal. Its easy to forget that SF is about 15-20 minutes from the east bay. So its not like we're talking some huge chasm.

But everyone has their own idea of what they place value on and how much they're willing to pay for the privilege.

wthrfrk80 says

1sfrenter says

I guess this is a war. Class War. And we are losing.

I think Buffett would agree.

LOL. Then why are we arguing about home prices here?

edvard2 says

But everyone has their own idea of what they place value on and how much they're willing to pay for the privilege.

You are so very right. As a gay surfer, I am willing to pay to live in a place where people don't throw eggs and empty beer cans at me out their car windows (been there, done that) and will pay extra to be able to catch a few waves before I have to be at work.

AND, I can still complain about class warfare.

I don't think decimating the middle class and passively watching as we all become beholden to the landlord class is a good idea.

That's why I appreciate these online forums and the Occupy movement and anything else that brings these issues to light.

I also believe that the suburbs will be the new ghettos. I prefer the city.

BoomAndBustCycle says

edvard2 says

TONS bought in 2003-2006 with crappy credit and little wiggle room and now TONS can't sell

I would say that anyone with "crappy credit" or not enough income to afford their home already foreclosed long ago. I do know a bunch of highly paid upper middle class dual income professionals who bought in 2004-2006. I'd imagine another HUGE leg down in housing would make this round of buyers seriously consider strategic default. They already feel manipulated and cheated.... so while the sub-prime mortgage crisis is over. If home prices are allowed to fall another 40% like some are calling for.. We'll have an entirely new crisis on our hands... the strategic default crisis.

I know many dual income (Tech Industry) couples with kids who bought in 2005-08 with 20-30% down payment. Even though their houses have dropped 10-30% They can still afford the mortgage and recent price bump is helping with lower rate refinancing. Some have even paid more money to makeup for the gap in appraised value and remaining loan amount to get lower rate financing. Many of them are in decent to excellent (as measured by API) school districts i.e. Cupertino, Fremont(Mission/WarmSprings/Ardenwood), Palo Alto, San Ramon, Dublin and Pleasanton. Million dollar home buyers refinanced to 2.5% 5/1 ARM. They are betting on low interest rate for a while (10+ years). Some of them are counting on stock grants to pay off the mortgage after 5 years if interest rates rise.

1sfrenter says

I also believe that the suburbs will be the new ghettos. I prefer the city.

Guess we all have our own preferences. I personally don't find the Bay Area suburbs- at least the immediate bay area burbs like Oakland, Berkely and so on as being that different in regards to attitudes and open-mindedness. I'm also not sure how the suburbs could become ghettos if they're getting filled up by priced-out city dwellers. But then again, the cities have undergone a transformation from being mostly ghettos to newly-minted gentrified playgrounds.

Its also sad that no matter where you live, there are ugly people everywhere. I grew up in the very rural, very conservative South. There were good aspects and bad. Open minded people and those who weren't so much. I've now lived on both coasts and many different places. People are people just about everywhere.

That said, I fully admit that I too am paying a rather huge premium to buy a house here. I suppose I could make an effort to relocate to somewhere else that has the jobs I am in- like Austin or something. But I've been here long enough and getting the an age where change is increasingly difficult. I complain about the BA but in the end its been good to me so far. Its also been good to a lot of other people and they too are willing to shell out the dough to stay.

sera says

know many dual income (Tech Industry) couples with kids who bought in 2005-08 with 20-30% down payment. Even though their houses have dropped 10-30% They can still afford the mortgage and recent price bump is helping with lower rate refinancing.

Oh no doubt, The bulk of these such couples are probably fine. But as mentioned above, some of them would be in pretty deep doo-doo if one or both of them lost a job because they bought at the absolute peak at the absolute top of their price levels counting on those 2 jobs to pay for the mortgage.

We too are one of those fairly high, dual wage earning couples. Even so, there is no way I would pay anything close to the 650-900k some of these folks are paying even though we would qualify. 450-500k is more like it and that's sadly still more or less a starter home here. Insane given what we make and what it costs to buy here.

1sfrenter says

I don't think decimating the middle class and passively watching as we all become beholden to the landlord class is a good idea.

Absolutely. It is shrinking across the US as a whole. CA is seeing it even more, and to top it off, lots of middle class people are leaving. Since my job isn't tied to any particular locality, I am working out the logistics of a move to Seattle. This area is an odd mix: many aspects of it feel like a sinking ship for middle class folks, while at the same time there is this boom in web services companies and a lot of people thinking that the sky is the limit here.

bmwman91 says

I am working out the logistics of a move to Seattle.

Stock up on anti-depressants. It's even cloudier there than where I live.

Rental Watch says

It costs a lot of money to put in the infrastructure for a subdivision (it's $4 gas driving those earthmovers), pay building permit costs, build a condo building, etc. Until you see prices support the development of additional land for the construction of new homes, supply will be limited, and prices will rise.

The most logical reason for low inventory.

hanera says

The most logical reason for low inventory

Really? Sounds like tautological used house salesman mumbo jumbo to me.

wthrfrk80 says

Stock up on anti-depressants. It's even cloudier there than where I live.

I am up there for work weekly. I have been going there for work for the last 4 years. It really isn't as bad as people say. You just gotta sack-up & get out and live regardless of rain, shine or otherwise.