patrick.net

I just want to thank you for scaling the ordinate in an "honest" fashion, and labeling the major gridlines. Refreshing!

This single graph also tells everyone ALL that they need to know about BA RE.

wow SF listings in march 2011: 19k
March 2013: 6k

talk about set to run up. i didnt see this coming until rates hit the new super super low in early 12 or so.

there is some serious money being made now by the flippers who got in before the run up.

Can you show back to 2000?

yup1 says

Can you show back to 2000?

How about back to 1960. I hate short-term graphs. They mean nothing. Anything less than two decades of data should not be indicative of economic fundamentals.

SFace says

Which brings up a question, why is that?

Herd mentality certainly has something to do with it. But I also think HARP played a big role. There were 1 Million HARP refinances through the FHA in 2012 and about 500,000 were from underwater homeowners. About 250,000 were between 110% and 125% LTV. This wasn't available before 2012.

So, without HARP and FHA accepting such ridiculous loans, there probably would have been an additional 500,000 more homes on the market. Probably prices wouldn't have gone up as much. And probably more people would have sold instead of holding on for more money.

PockyClipsNow says

there is some serious money being made now by the flippers who got in before
the run up.

No Sh*t. (Respectfully)

SFace says

that's one home for sale for every 1,500 people. Good luck.

Granted, not the Bay Area, but today there was a short sale in Thousand Oaks and by the afternoon it was sold. Got an email in the morning, listing was visible, 'sold' by the afternoon.

donjumpsuit says

'cloud inventory'

Who knows. Certainly the banks will not tell us. Besides, that causes arguments, lol.

Bottom line, even with this site, I did not see Housing Bubble #2.

Dan8267 says

data should not be indicative of economic fundamentals

In a world of new normals and a rapidly changing ponzi money most graphs cant even begin to account for the relative value of the money, PPP, CPI, core inflation, etc.

David9 says

even with this site, I did not see Housing Bubble #2.

We were dumbly focused on other shit the last two years. Buying a house was so off our radar. If we had started in 2011 instead of 2012, we would have bought by now. The inventory in LA is tragic--1,100 sqft, 2bed/1bath '40s ugly bungalows going pending at $750k in 7 days or less. Now we are stuck with this Big Nothing 20% DP that is rotting away in cash, and I'm not looking forward to finding an investment vehicle for it.

donjumpsuit says

January 2011

Inventory 18,212

75th Percentile Asking 625k

March 2013

Inventory 6,224

75th Percentile Asking 1.025k

If any other good/trade/ or service increased by this amount, in this short of time, people would gather their torches and pitchforks.

Houses in SF that sold for $625k in 2011 are not being sold for $1.03M in 2013. Apples and oranges comparison.

Well, on the bright side this means that the RE industry will be seeing increased unemployment right? Cannibal anarchy among realtors?

This is a very interesting situation. With inventories what they are, only people with relatively serious money can buy, and they seem to be willing to do so at any price, so we'll continue to see "rising prices" on the anemic inventory we have. That means that everyone else that wants to live here either has to commute, or rent. I am wondering if we will see another year of merciless rent hikes simply because landlords can. There are piles and piles of people making six figures that are effectively priced out of buying, and since they have no mortgage to sink money into, rents could easily rise to soak all of that up. All discussions about how good or bad that is for the economy aside, it is looking pretty likely. I don't like it since my wife and I are one of those high-earning DINK renters, but it is what it is. We are actually in the process of working out the logistics of a move to the Seattle area.

It all looks like it is spiraling out of control, and most people's common sense tells them that it has to hit a breaking point. Mine sure does, but the pessimist in me has managed to come up with logical reasons why things will not only NOT get better for middle class folks, but will in fact get far worse for them here. Think back 40-50 years here in the SFBA. It was mostly an agricultural area with industrial, pre-tech jobs. It was basically blue collar. Put yourself in the mindset of a person then. "Damn all these tech geeks, moving in here and blowing up the cost of living. How's a man supposed to live a peaceful life minding his own business with all these overpaid assholes making it impossible for my kids to be able to live here when they grow up? I wish this bubble would hurry up and be over with so things can get back to normal!" Sounds sort of familiar now, eh? Replace tech geeks with "coder nerds" and "wealthy Asians". Maybe they are just the next wave that will take this place over and drive out anyone that is not interested in a life that revolves around work and money. It happened at least once already...shit, the native Americans got that treatment by the "farmers"/Spanish a long time ago.

In that scenario, we'll see the wealth disparity grow further. Any and all halfway decent areas will be insanely expensive, even by 2006 standards. These places will be inhabited by a weird mix of work-obsessed coders that are convinced that online advertising will save the world, and monied Mandarin expats that contribute nothing substantial to the area other than property taxes, sales taxes on department store luxuries and various under-the-table illegal business ventures. Everything else will be violent ghetto where all of the service-providing class resides, hoping for table scraps from the "Mandaringrammer" bourgeois. Anyone with common sense and a desire to actually live life will be driven out or murdered by the people from the growing slums who will be given additional EBT credits and a sincere apology from the state of CA for not giving them enough freebies to stop them from murdering others to subsist (and buy Air Jordans).

Well, that's the worst that can happen anyway.

On a more serious note though, here are reasons why I see inventories being so low, and likely staying there for some time. Some of this probably repeats SFace's post.

- A LOT of baby boomers probably look at their monthly expense and figure that they can live there a hell of a lot longer given the rates they just locked in if they refi'ed in the last couple of years. If rates go up, you can bet your ass that people that refinanced in the last few years are not going to sell because any sort of "move up" would involve a new mortgage at a higher rate. I doubt that very many have the equity in their houses to be able to "downsize" in this area and still have anything left to live on for retirement after paying off the remaining balance. And of course, many will just give the house to their kids since it's likely to be the only way that their kids can afford to be near them in their old age.

- Underwater people. Despite the price increases, they still exist in a lot of the SFBA.

- Rent-u-lators. Damn near 1 in 4 purchases is made by a specuvestor, and many of them plan to play landlord. These properties will either not hit the market again for a long time, or all hit it at once if comp's rise enough that they can't resist the quick money. Our resident ones have already said that they will unload when the teeming retail masses enter the game again, which is only likely once we see the return of NINJA ARM bombs. You can bet that the NAr and CAr will lobby hard for those loans to come back because they will all starve to death with today's sales volumes.

- Hedge finds and private equity firms. News is emerging about them packaging up future rent income as pristine AAA pension-grade investment fodder. They have the money to buy up a huge percentage of what is out there, and they already are buying properties in bulk that never even made it into the inventory figures that us peons look at.

- Formerly underwater people. People that bought at the last peak and are now above-water again are probably just happy to be where they are and able to refi to 3.5%. They got burned, and I bet that many of them are going to play things cautiously for a while and just stay put with their "lowest interest rate in US history" payment.

- Would-be sellers. They want to sell, but are watching things unfold and salivating at the prospect of even more free money if they wait until next year, or the one after. This seems to me like another one of those groups that will do nothing, until they all start to move in a mad rush to capture as much free money as they can. I am not sure how much of these folks there are though, and even if they were to dump properties onto the market, it might not be enough to counter the other groups.

- Shadow inventory. Great debates have been launched on here about this topic. There is surely some amount of shadow inventory lying out there. The HOBOR that passed last year likely increased its ranks, but I think that it has been well established that even if it does exist, the TBTF can sit on it indefinitely.

There is a new bubble forming which is real estate. Chinese money and hedge funds...both will try to bail when the musical chairs stop.

Chinese money is coming into this market because the Chinese real estate market is in a huge bubble about to pop and investors there are trying to get out of that market, so the money comes here.

When this bubble pops it's going to be deja vu all over again... some people will get filthy rich again in this bubble and the fallout will be on all of us.

Greg,

Thanks for the chart. A picture is worth a thousand words. Here is a recap of what I saw in the Bay Area, especially San Jose. As shown on your graph, inventory peaked at around 30,000 homes and started to decline since spring of 2008. The savvy investors started buying the low-end SFHs in the 4th quarter of 2008 to the 3rd quarter of 2009. They exited the SFH market in the 4th quarter of 2009.

Flippers made a boatload of money since the 3rd quarter of 2009 when the housing market made a U turn. Things hit the wall after the tax credit expired in the 2nd quarter of 2010. The 3rd quarter and 4th quarter of 2010 gave buyers a great second chance to buy because things were hell of slow. The tax credit pulled a lot of future demand forward.

No doubt 2011 was a buyer's market, but things were already getting a little competitive. Things started to get more competitive at the courthouse steps in the 4th quarter of 2011, but I didn't care because I could outbid all the flippers. I'm a buy-and-hold guy. By the 3rd week of January in 2012 things started to look more dire at the steps due to the lack of inventory. It gave an indication that the housing market will be hot spring and summer of 2012 due to the lack of inventory from both the flippers and the banks. No sales = no REOs and no flips.

The rest is history. Right now, there's an average of 3 houses per day being auctioned at the steps for the entire Santa Clara County. Most of those homes are in San Jose, Morgan Hill or Gilroy. You hardly see anything from the Peninsula like Palo Alto, Mountain View, Sunnyvale, etc.

The REO market is pretty much dead. REO agents are starving. The inventory WILL HAVE TO come from regular sellers from now on. You know how the regular sellers feel about their house especially the FSBO ones.

bmwman91 says

In that scenario, we'll see [. . .] Well, that's the worst that can happen anyway

You are one fem-bot and a programmed memory away from 'Blade Runner'. When science fiction is no longer fiction, it is just science, eh? Where's my Cherry 2000 and Burning Man all-terrain vehicle???

from about 1999 to year 2006 REO and Short Sales were almost non existent due to prices increases yearly which would allow anyone to sell with profit if they couldnt pay.

I guess those days are coming back in as few as 2 years.

Most People were like 'whats a short sale?' in 2007 when they all came at once.

Philistine says

bmwman91 says

In that scenario, we'll see [. . .] Well, that's the worst that can happen anyway

You are one fem-bot and a programmed memory away from 'Blade Runner'. When science fiction is no longer fiction, it is just science, eh? Where's my Cherry 2000 and Burning Man all-terrain vehicle???

lol

Well, I figure if one considers the grandiose worst-case outcome, one can then feel better about whatever actually happens since it isn't that.

OK, ladies can we take it outside? There's an ignore feature that seems to be grossly underutilized.

bmwman91 says

OK, ladies can we take it outside? There's an ignore feature that seems to be grossly underutilized.

you're not the mod of me!

let the ladies go at it. we like drama here.

E-man says

The inventory WILL HAVE TO come from regular sellers from now on.

Agreed. Unless prices collapse again, the reo and short sale inventory will continue to quickly shrink to zero.

yup1 says

Can you show back to 2000?

Wish I could. I don't have the data.

I'm looking at an ancient Credit Suisse ARM reset chart I recently unearthed. Perhaps we're looking at the final bit of indigestion from the last bubble as resets really tail off from Summer to Winter of 2012. Not to mention, in this interest rate environment, payments may go lower for may individuals.

gregpfielding says

E-man says

The inventory WILL HAVE TO come from regular sellers from now on.

Agreed. Unless prices collapse again, the reo and short sale inventory will continue to quickly shrink to zero.

Really? Are we heading toward golden ages or what?

I really attribute it to the "underwater" owners. They can't sell so they are stuck. In LA it seems like there are a lot of foreclosure or short sales because of all the folks who were too dumb with equity during the bubble years.

bubblesitter says

Really? Are we heading toward golden ages or what?

History is made every day, and it never repeats itself exactly. It looks like we are at the foot of another big run-up. As of now, the pipelines of cheaper properties are basically empty in the SFBA. It is what it is. None of our resident investors are claiming that prices will go up forever, but they are saying that we are in the beginning of the next boom cycle that will last a good few years.

I know a guy whose job is transfering from LA to SFBA. He is totally effed on the housing situation. He went up there a few weeks ago to look at homes for sale. Its all 20 offers+ and bidding wars. So he makes 120k and is gonna rent a small crapshack. Its almost like'whats the point in working so hard'. You could move to TX or AZ and drive a delivery van all day - and still rent a crappy old home.

PockyClipsNow says

I know a guy whose job is transfering from LA to SFBA. He is totally effed on the housing situation. He went up there a few weeks ago to look at homes for sale. Its all 20 offers+ and bidding wars. So he makes 120k and is gonna rent a small crapshack. Its almost like'whats the point in working so hard'. You could move to TX or AZ and drive a delivery van all day - and still rent a crappy old home.

That boy could learn an old lesson from Rockefeller "Its not what you make, it's what you keep."

My sister has a home in the East Bay that is above water now on the mortgage, but she can't refinance because she owes 100k on a HELOC.

I think there's a lot of people in the SF Bay Area like her, who would like to refinance or sell, but can't because of a huge HELOC.
Banks won't foreclose on these people unless they absolutely have to because doing so would cause a loss.

It would be interesting to see if there's any data available that lists how much HELOC money is taken out per home and how many of those homes are in default.

My friend finally got 100K principal reduction. Don’t want to short sale now. Well…begin to love Obama.

REpro says

My friend finally got 100K principal reduction. Don’t want to short sale now. Well…begin to love Obama.

Those principal reductions come with a 5 year commitment or something right? If so, sounds like another source of declining inventory.

Yes, some strings are attached. People got excited by 20% appreciation increase in CA, but this 20% can be less than 10% in non-income tax states. "Its not what you make, it's what you keep." And yes, this is a bottom line. Why mafia cash was invested in Las Vegas???

Neg am, HAMP and 0% real interest rates. There is not bubble. Cost of food up like 100% since 2007. No bubble. Fundamentals in play. Oh yeah, my salary is up 10000000% too, right on!

REpro says

My friend finally got 100K principal reduction. Don’t want to short sale now. Well…begin to love Obama.

Criminal.

Mick Russom says

Oh yeah, my salary is up 10000000% too, right on!

With that kind of salary increase, you should be able to buy almost anything you want. Why are you still complaining about real estate prices in the Bay Area?

E-man says

The REO market is pretty much dead. REO agents are starving. The inventory WILL HAVE TO come from regular sellers from now on.

Your comment was a great reflection of the Real Estate market. It's perfect in every way. The REO markets are what have driven this last bit of rally, and I also hear that it is over.

What I think is that Bernanke promised low interest rates until 2014, and that will be the end of it.

As interest rates increase prices will decline, and sellers who missed the "top" will get busy selling, and buy again on the way down in price, or maybe move out of the area.

robertoaribas says

we'd have roughly 4.5 million more people employed.

Increased employment doesn't mean increased wages. The Fed is only interested in employment.

Wages are a matter of return to the employer.

Housing prices rising isn't a good thing for the economy. It sounds good in that wealth effect, but phantom equity has to be financed out of the property or the property needs to be sold.

So, a few million people paying higher, and higher prices looks good on a chart, it creates that wealth effect, consumer confidence goes up, but that is where the disappointment lies.

You haven't seen it, but it happened in the 1970s, and 1980s.

robertoaribas says

As employment rises, there is less supply of workers, and the equilibrium wage rises.

Why would any employer pay more? We have RomneyCare, increased taxes, and threats of a spike in the minimum wage.

robertoaribas says

Obviously, I have studied US economic history in depth.

When have we seen this before?

We are in a global market place the likes of which we have never seen. We are competing with the wages in China for God sakes.

Kind of like how the government is now propping up banking, and the Real Estate market, employers will need greater government incentives to start hiring the way you want, and paying higher wages.

Right now a corporation, or individual, can do business anywhere in the world. Why will any one rush back into the United States, and start hiring for more money?

Employers will hire, but wages are based on a profitable return, and profits are at an all time high.

The bigger question is how the consumer is going to pay more for these wage increases on top of the high prices that we have today?

I think employers will simply move money to another market place where they can maintain higher profits.

Where is the incentive to pay more?

robertoaribas says

actually have real facts as your basis.

You're quoting a calculation chart for Social Security that shows a $10K wage increase in a ten year period. That would be less than $100 per month.

Here in Seattle we have had much higher wage increases at Amazon, Microsoft, and Boeing, but not so much in other areas. So this is another one size fits all situation.

As a matter of fact in that ten year period we had massive job losses. I don't see the reconciling for that. So, could that mean we had massive wage increases in technology, but the working guy didn't get counted in the mix?

What kind of reality is that?

I always find it funy when some one tries to dazzle me with data. There's a book called Lying with Statistics that outlines most arguments people try to make with charts, and graphs.

I Google, and can win all arguments with Google, but I prefer to read for an hour or so a day about what's going on in the world of business.

You make stuff up about what I say.

Look at the job loss of 2008, to 2010. I asked where that was in the calculation of wage increases. Rather than address that you pull out another graph to show me the job losses, and that employment is at about evens.

Well if employment is at about evens then the Fed has nothing more to do about employment, it's a job well done, the Fed can move on with more important stuff.

This chart however doesn't show me wage increases. It doesn't show me anything about wages.

You used the Social Security calculation chart which show one picture, but the Census data shows the stagflation of wages: http://www.census.gov/hhes/www/income/data/historical/people/

You used the first reference you found in your Google search to dig yourself a hole. Now you really have nowhere to go with this.

robertoaribas says

And to repeat: you predicted prices would drop 2 years ago, and you sold.... 2 years of being wrong, and you haven't learned a thing yet

I'm still predicting prices will fall, and I am continueing to sell.

donjumpsuit says

FEENIX.

http://www.youtube.com/embed/Y2kIPN1SQe4

robertoaribas says

yeah, well, you might as well be consistently wrong

This is by far your most childish comment.

You have nothing to say, but pull out charts, and graphs to prove my points that wages aren't increasing. The Census data shows that, but hey let's live your reality.

Job losses are significant in that the chart you provided doesn't account for those job losses, it's like it never happened, but it did.

I might as well include my favorite graph, the one I've used, and shown you a few times now, because it shows the consumer debt:

but you still come back at me with some childish game about what I have said.

I've said prices will decline, I sold accordingly, and chose not to buy back in. I will sell again while prices are high.

BTW my personal residence never lost value, but I will sell in a heart beat as soon as the kids finish high school.

Hey, why don't we let wikipedia settle it: http://en.wikipedia.org/wiki/Household_income_in_the_United_States