Is this a housing bubble?

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itstoomuch
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Re: Is this a housing bubble?

Post by itstoomuch »

sunspotzsz wrote: Tue Mar 06, 2018 12:17 pm pointless to discuss one area on a general forum.

a lot of engineers easily make 300-400k a year and that's not typical anywhere else.
That may be on the very high end.
If our DS got that salary, I'd recommend that he change jobs for a position with stock options as compensation.
YMMV
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AlD
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Re: Is this a housing bubble?

Post by AlD »

The price per sq ft record may not stand for long, if this place sells for asking:

https://www.redfin.com/CA/Palo-Alto/351 ... me/1732003

Check out the "Beautiful" in-ground pool.

Edit: I misread the article- (it's the highest per sq ft in the city of Sunnyvale). Looks like there are quite a few places that sold for more per sq ft in the neighboring town of Palo Alto. Wild.
Last edited by AlD on Tue Mar 06, 2018 1:58 pm, edited 1 time in total.
mervinj7
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Re: Is this a housing bubble?

Post by mervinj7 »

AlD wrote: Tue Mar 06, 2018 1:42 pm The price per sq ft record may not stand for long, if this place sells for asking:

https://www.redfin.com/CA/Palo-Alto/351 ... me/1732003

Check out the "Beautiful" in-ground pool.
That listing is for Palo Alto which has been traditionally expensive for decades. The article was discussing a house in Sunnyvale, which until relatively recently has been a sleepy town (in terms of real estate). I would much rather own a home in Palo Alto over Sunnyvale. They are practically recession-proof.

I've been on this forum for years, and I've always been amazed by the number of folks who like to comment on Bay Area Housing. Whether you live here or not, the lesson learned is don't try to rationalize it. Lots of people said the prices were far too expensive 5 years ago, 3 years ago, and even more so now. And yet, even if there's a correction of 10%, it still won't bring prices back to what they were a year ago.
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Hyperborea
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Re: Is this a housing bubble?

Post by Hyperborea »

mervinj7 wrote: Tue Mar 06, 2018 1:56 pm That listing is for Palo Alto which has been traditionally expensive for decades. The article was discussing a house in Sunnyvale, which until relatively recently has been a sleepy town (in terms of real estate). I would much rather own a home in Palo Alto over Sunnyvale. They are practically recession-proof.
Mountain View and Sunnyvale have been creeping up in price steadily over the last 2 decades. First, Mountain View was for those wanted to live in Palo Alto and couldn't afford it and then Sunnyvale was for those who couldn't afford Mountain View. It's now at the point that Santa Clara is for those who can't afford Sunnyvale. A preference for Palo Alto over Sunnyvale could add $1-2M extra or more for the same or similar house. Your average working couple (engineers, marketing managers, etc.) are not able to buy into Palo Alto even with options/RSUs. Those buying there now are those who've made a bundle on a startup or are senior management.

Even during the last two downturns the housing prices in the core of the south bay area and the peninsula didn't drop that much at all. There was a small drop in price but the biggest effect was that buyers were making offers with contingencies. In the current market sellers are demanding and getting offers with zero contingencies.

As the new Google campus by Diridon station is developed out that will seriously impact the prices of housing in San Jose and Santa Clara.

As to the question of this being a bubble, I don't see it. The run up in housing prices are being driven by the run up in total compensation of the employees of the tech companies. There's a lot of money out there and it's not just salary but options/RSUs plus bonuses can add hundreds of thousands a year. I've been here 20+ years and the compensation amounts have really increased a lot and they weren't low to begin with. What is happening is the continuation of the driving out of anybody not directly connected to this industry.
It’s not just that facts don’t seem to matter anymore. It’s that it doesn’t seem to matter that facts don’t matter.
smitcat
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Re: Is this a housing bubble?

Post by smitcat »

Interesting article just yesterday...
www.businessinsider.com/san-francisco-b ... ces-2018-3
anoop
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Re: Is this a housing bubble?

Post by anoop »

smitcat wrote: Tue Mar 06, 2018 7:10 pm Interesting article just yesterday...
www.businessinsider.com/san-francisco-b ... ces-2018-3
These articles have been appearing for a while now.
https://www.mercurynews.com/2017/09/18/ ... ly-region/
http://www.breitbart.com/california/201 ... of-living/
https://www.citylab.com/equity/2013/10/ ... odus/7205/

Maybe when people move out, they use U-Haul, but when they move in they use a fully employer-paid moving service. :)

People moving out are the ones that are priced out or are cashing in on their house equity. There are plenty of people moving in to take their place.
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pondering
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Re: Is this a housing bubble?

Post by pondering »

The most intelligent comment about real estate values was that the market is composed of people who work within 30 minutes of neighborhood.

When the steel mills imploded in the Mon Valley south of Pittsburgh the housing prices also crashed.
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smitcat
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Re: Is this a housing bubble?

Post by smitcat »

anoop wrote: Tue Mar 06, 2018 8:18 pm
smitcat wrote: Tue Mar 06, 2018 7:10 pm Interesting article just yesterday...
www.businessinsider.com/san-francisco-b ... ces-2018-3
These articles have been appearing for a while now.
https://www.mercurynews.com/2017/09/18/ ... ly-region/
http://www.breitbart.com/california/201 ... of-living/
https://www.citylab.com/equity/2013/10/ ... odus/7205/

Maybe when people move out, they use U-Haul, but when they move in they use a fully employer-paid moving service. :)

People moving out are the ones that are priced out or are cashing in on their house equity. There are plenty of people moving in to take their place.
Then it is likely that the housing prices will continue to rise and that the salaries will also continue to rise in those areas.
At least that is one possibility.
mervinj7
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Re: Is this a housing bubble?

Post by mervinj7 »

Hyperborea wrote: Tue Mar 06, 2018 6:19 pm Mountain View and Sunnyvale have been creeping up in price steadily over the last 2 decades. First, Mountain View was for those wanted to live in Palo Alto and couldn't afford it and then Sunnyvale was for those who couldn't afford Mountain View. It's now at the point that Santa Clara is for those who can't afford Sunnyvale. A preference for Palo Alto over Sunnyvale could add $1-2M extra or more for the same or similar house. Your average working couple (engineers, marketing managers, etc.) are not able to buy into Palo Alto even with options/RSUs. Those buying there now are those who've made a bundle on a startup or are senior management.
I totally agree. We used in rent in Menlo Park and had "decided" to buy in Sunnyvale back in 2015. By the time we got enough down payment saved up to make a comfortable purchase in 2017, we were already priced out of Sunnyvale as well. We ended up in Campbell, which is a wonderful little town but our commutes to the rest of the peninsula is killer.
2015
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Re: Is this a housing bubble?

Post by 2015 »

denovo wrote: Sun Mar 04, 2018 1:14 am Ya, since the 1980's.
Long before that even. My parents bought a house in a new development in the BA for $28K in 1968. 10 years later it sold for over $100K. 10 years ago it listed in the mid to upper hundred thousands. Now it would sell for over $1M. Stepmother bought a house in Saratoga for about the same price around the same time which is now worth around $1.5-$2M based on land values, school district, demographics, etc. Were she to sell, it would almost definitely be torn down and replaced by a lot-filling McMansion, as nearby homes have.
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market timer
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Re: Is this a housing bubble?

Post by market timer »

unclescrooge wrote: Mon Mar 05, 2018 10:53 pmWhy would interest rates cause a decline in these markets? Buyers are making all cash offers. I would think their ability to afford the house has no relationship on interest rates.
Interest rates are the opportunity cost of capital. Higher rates means higher cap rates and rental yields. There's also a sizable contingent of home buyers who take out mortgages and would be constrained on a cash flow basis with higher rates.
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unclescrooge
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Re: Is this a housing bubble?

Post by unclescrooge »

market timer wrote: Thu Mar 08, 2018 9:30 am
unclescrooge wrote: Mon Mar 05, 2018 10:53 pmWhy would interest rates cause a decline in these markets? Buyers are making all cash offers. I would think their ability to afford the house has no relationship on interest rates.
Interest rates are the opportunity cost of capital. Higher rates means higher cap rates and rental yields. There's also a sizable contingent of home buyers who take out mortgages and would be constrained on a cash flow basis with higher rates.
I understand what you're saying, but I'm skeptical this logic applies to places like the Bay Area.

You can rent for less than you pay to buy a home in the Bay Area. People buying rentals in this market are probably looking for a place to park cash. They don't seem to be interested in making any actual returns. As evidenced in another post, a San Jose house just sold for $2.5M. I doubt it would rent for more than $3k/month. That only makes it profitable if you can redevelop it into apartments or a mcMansion...redevelopment isn't as dependent on interest rates as a first time home buyers are in the midwest.
jminv
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Re: Is this a housing bubble?

Post by jminv »

unclescrooge wrote: Thu Mar 08, 2018 6:24 pm
market timer wrote: Thu Mar 08, 2018 9:30 am
unclescrooge wrote: Mon Mar 05, 2018 10:53 pmWhy would interest rates cause a decline in these markets? Buyers are making all cash offers. I would think their ability to afford the house has no relationship on interest rates.
Interest rates are the opportunity cost of capital. Higher rates means higher cap rates and rental yields. There's also a sizable contingent of home buyers who take out mortgages and would be constrained on a cash flow basis with higher rates.
I understand what you're saying, but I'm skeptical this logic applies to places like the Bay Area.

You can rent for less than you pay to buy a home in the Bay Area. People buying rentals in this market are probably looking for a place to park cash. They don't seem to be interested in making any actual returns. As evidenced in another post, a San Jose house just sold for $2.5M. I doubt it would rent for more than $3k/month. That only makes it profitable if you can redevelop it into apartments or a mcMansion...redevelopment isn't as dependent on interest rates as a first time home buyers are in the midwest.
Rental yields are low in markets with high expected capital appreciation. This is true around the world. Investors expect to receive more of their compensation for their investment in capital gains and less in rental income but they still expect overall returns. This is why renters can view renting in these markets as 'bargains'. I live in one of these areas outside the US, rent, and have no complaints. In stagnant markets, investors receive their investment gains through rental income alone which is why the rental yields are higher in those markets.

If they really wanted a safe place to park cash, they would buy treasuries. Instead, they are speculating on property. They are betting on the thesis that property has always been a great investment in this area and will continue to do so, particularly because of property planning laws (ie lack of 'space') and the economy (tech clusters). Under this thesis, even though rental income barely (or doesn't) cover expenses, their expected capital appreciation will more than make up for this shortfall. There's lots of stories, including here, about people that bought cheap and retired millionaires (or became millionaires in a few years) from their property portfolio there which fuels this trade. I'm not saying it's a bad thesis and there is real demand from very highly paid workers in the area. The property and general cost of living inflation fuels wage inflation which has the tendency to make companies look at expanding elsewhere in the long run.

If you're buying a house in cash (or anything else), you have to consider the other uses of your cash in terms of investments. Real interest rates do matter. Market timer got to that before me. Also, even if they're bought in cash, people often mortgage the house afterward to free up the cash because they want to use it elsewhere, diversify away from an area that both their property and jobs are in, or used short term/bridge loans (ie didn't really have all of the cash) to win the bid.
CMD1
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Re: Is this a housing bubble?

Post by CMD1 »

itstoomuch wrote: Tue Mar 06, 2018 10:41 am Seattle area (we closed Mar2, buy) :
Our RE says no. Huge down payments and way above 20%. Still a lot of cash purchases. Very good Loan-to-Income ratio.
YMMV
I am not finding many RE agents here in Seattle that say yes, BUT I would not rely on a sales person to give it to be honestly. I didn't feel this way a year and a half ago but its becoming more clear all the time that there is some sort of over heated market. Everyone here says it's just Seattle because Seattle's economy is so hot BUT then you look at the numbers and see its happening in many places. Seattle doesnt even rate in the top 20 cities for price appreciation since 2012 - that goes to Dallas. https://wolfstreet.com/2018/03/04/home- ... -bubble-1/

Cap rates are amazingly low here but investors keep wanting to buy, perhaps many haven't caught on to the softening rents yet. It sounds so good when rents are going up quickly AND appreciation is too, but how about when there is not rapid appreciation and your cash flow negative by a wide margin
TravelforFun
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Re: Is this a housing bubble?

Post by TravelforFun »

Let's just hope the Chinese don't start selling their investment properties in CA particularly the Bay Area.

TravelforFun
itstoomuch
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Re: Is this a housing bubble?

Post by itstoomuch »

+1 @jminv. Very good analysis.

@CMD1; YMMV. We (son and ourselves) have bought 4 places with this REagent. Seattle is where our experience has been. Our son has been acquainted with this REagent for 5 years, 2 years before we engaged her. Our son has been in Seattle for 10 years. We are aware of DallasTX and but found something in Seattle where son is located and where we will relocate to from Oregon in a downsize and urbanizing move. We are aware of rents and cap rates and careful in our purchases. Your caution is well warranted. :beer
YMMV
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smitcat
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Re: Is this a housing bubble?

Post by smitcat »

itstoomuch wrote: Thu Mar 08, 2018 8:19 pm +1 @jminv. Very good analysis.

@CMD1; YMMV. We (son and ourselves) have bought 4 places with this REagent. Seattle is where our experience has been. Our son has been acquainted with this REagent for 5 years, 2 years before we engaged her. Our son has been in Seattle for 10 years. We are aware of DallasTX and but found something in Seattle where son is located and where we will relocate to from Oregon in a downsize and urbanizing move. We are aware of rents and cap rates and careful in our purchases. Your caution is well warranted. :beer
YMMV
I am curious to know what happens if/when your son gets tranferred or want to move toi another section of the US?
itstoomuch
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Re: Is this a housing bubble?

Post by itstoomuch »

@smitcat
if he should get an offer to transfer, he'd probably quit and go to work at place(s) in South Lake Union or Redmond. He has a very big network and standing offers.

If he takes the transfer, we'd be fine. We are PNWers and moving for a chance to urbanize.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
smitcat
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Re: Is this a housing bubble?

Post by smitcat »

itstoomuch wrote: Fri Mar 09, 2018 9:58 am @smitcat
if he should get an offer to transfer, he'd probably quit and go to work at place(s) in South Lake Union or Redmond. He has a very big network and standing offers.

If he takes the transfer, we'd be fine. We are PNWers and moving for a chance to urbanize.
That makes a huge amount of sense -- our daughters aged group is very mobile and very willing to change jobs as well as move.
aristotelian
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Re: Is this a housing bubble?

Post by aristotelian »

AlD wrote: Tue Mar 06, 2018 1:42 pm The price per sq ft record may not stand for long, if this place sells for asking:

https://www.redfin.com/CA/Palo-Alto/351 ... me/1732003

Check out the "Beautiful" in-ground pool.

Edit: I misread the article- (it's the highest per sq ft in the city of Sunnyvale). Looks like there are quite a few places that sold for more per sq ft in the neighboring town of Palo Alto. Wild.
Just needs a little TLC!

This is the problem with Redfin, no agent to tell you how much you can increase your sale price by simply cleaning your pool and doing a little staging.
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Hyperborea
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Re: Is this a housing bubble?

Post by Hyperborea »

aristotelian wrote: Fri Mar 09, 2018 11:07 am
AlD wrote: Tue Mar 06, 2018 1:42 pm The price per sq ft record may not stand for long, if this place sells for asking:

https://www.redfin.com/CA/Palo-Alto/351 ... me/1732003

Check out the "Beautiful" in-ground pool.

Edit: I misread the article- (it's the highest per sq ft in the city of Sunnyvale). Looks like there are quite a few places that sold for more per sq ft in the neighboring town of Palo Alto. Wild.
Just needs a little TLC!

This is the problem with Redfin, no agent to tell you how much you can increase your sale price by simply cleaning your pool and doing a little staging.
In looking at the listing it doesn't appear that it's being sold by a Redfin agent. They put everything on MLS onto their site with their own extra data items. Given the neighbourhood and the condition, that house was likely owned by older folks who have either passed or moved to retirement housing. They or their kids figured that the costs of doing the work weren't worth it given the expected price and that it's likely destined to be either a teardown or a "foundation and one wall" remodel.
It’s not just that facts don’t seem to matter anymore. It’s that it doesn’t seem to matter that facts don’t matter.
HRPennypacker
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Re: Is this a housing bubble?

Post by HRPennypacker »

Hyperborea wrote: Fri Mar 09, 2018 11:18 am
aristotelian wrote: Fri Mar 09, 2018 11:07 am
AlD wrote: Tue Mar 06, 2018 1:42 pm The price per sq ft record may not stand for long, if this place sells for asking:

https://www.redfin.com/CA/Palo-Alto/351 ... me/1732003

Check out the "Beautiful" in-ground pool.

Edit: I misread the article- (it's the highest per sq ft in the city of Sunnyvale). Looks like there are quite a few places that sold for more per sq ft in the neighboring town of Palo Alto. Wild.
Just needs a little TLC!

This is the problem with Redfin, no agent to tell you how much you can increase your sale price by simply cleaning your pool and doing a little staging.
In looking at the listing it doesn't appear that it's being sold by a Redfin agent. They put everything on MLS onto their site with their own extra data items. Given the neighbourhood and the condition, that house was likely owned by older folks who have either passed or moved to retirement housing. They or their kids figured that the costs of doing the work weren't worth it given the expected price and that it's likely destined to be either a teardown or a "foundation and one wall" remodel.

It's only funny because it's true: I'm looking to buy a starter home in South Bay and I'd totally live there. I just can't really afford that place.
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