My guess is that they can easily hold for few years, maybe up to next election. Long term - you're absolutely right, government can't control prices for long term.

Of course, the communists have controlled the prices for houses and food and everything else for about 60 years, but they had tools for price control that are not easily applicable in US.  

As an active would-be buyer over the past 6 mos, I agree with Bob.  There is very little inventory and a few of us chasing every decent house.  Reminds me of the boom days of 2005, except that prices are not getting bid up $100k (more like 20k)

The peninsula, like 680 corridor, is in high demand - great schools, limited # of houses, and plenty of money from the tech community and others who can afford current prices.  So I would not expect to see prices fall 33-50% anytime soon, and I don't know why you think it is overvalued at current levels.  Supply and demand at work.

Yes, eventually the fed will need to reduce support to the mortgage market, rates will rise, and the markets could cool further.  But remember plenty of people own their homes outright and most have plenty of equity to rid out a bad market for years.

Bay-Realist,

  I like your citydata.com website. However your price inflation numbers need fine tuning( compounding?). The affordablity of housing isn't just related to demand it is also related to supply.

  Housing costs go up higher than inflation just like education and health costs go up faster than core inflation. Housing construction costs are 2.5 times the 1990's costs. Supply has never able to keep up with demand in the Bay area, thus prices increase even when affordabilty goes down. You may wish prices to go down. But try wishing healthcare and tuition costs to go down--- demand is always outstripping supply.

  The other point about housing costs is that we live in an internationally desirable area. People from Europe with their Euros find our prices 50% lower than 2000 when the Dollar bought $1.25 Euros(now it .67 Euros). Similar with the yen and other currencies. People want to come here from all over the US( not just for jobs, Hawaii prices are higher than here but wages are lower than here)-- demand drives price, not just affordability. People would rather live in Hawaii than here and they would rather live here than Fresno.

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Boraxo wrote:
...The peninsula, like 680 corridor, is in high demand - great schools, limited # of houses, and plenty of money from the tech community and others who can afford current prices.  So I would not expect to see prices fall 33-50% anytime soon, and I don't know why you think it is overvalued at current levels.  Supply and demand at work...

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There is so much demand that you do "not expect to see prices fall 33-50%"? Wow, that's really high demand. Not. But it's more demand than I see going forward.

There is very little supply because individuals are reluctant to accept that the market price of their houses is really as low as the foreclosure and distress sales reveal the market price to be. And would-be REOs are in short supply because the banks are, for one reason or another,holding them out of the pipeline. But with funny money no longer available for loans there aren't enough idiots to support pricing a levels with no visible sources of support.And the pick-a-payments are just coming up for recast, the Alt-A liar loans are running out of their 5 year terms,and renegotiations are going nowhere. The $8k bribe is gone and the Fed is promising to pull the rug out from under 5% money in March, though both these could change and it won't matter nearly as much as the foreclosure wave that is inevitable in the absence of cram downs. So, yes, there should be a window in which prices will drop 1/3 to 1/2 before the inflation wave pushes nominal prices up again. And that's when I'll be looking to buy again.

SF shopper - SF market is very different than the Peninsula or say East bay areas like Orinda etc. I've found the SF market to have more of a stable % gain over time vs these areas mentioned above. Though the Public School factor is probably the single largest factor impacting the non SF locations that are inclose proximity to SF but have very good Public Schools.

It will cost my wife and I close to 30K a year to send our kid to private school in SF where we currently live - if we move to say Orinda - or Penninsula areas where public schools have solid ratings we can pay more for the home given thats money going back into our pockets vs lining private school bank accounts.

Also another thought discussed quite a bit on other threads - many - many people are underbuying ie they are buying homes that they can afford on a single income or possibly with extended non employment which case you have people who in the past might have bought the upper level homes around the Bay Area buying the mid level homes with little stress or issue qualifying for these homes. This throws off the market by making it hard for 1st time buyers or even move up buyers who are stretching to get into the mid level house.

Why are people underbuying? Look at the past 15yrs how many up and down times have we had in the Bay Area? When things get rocky highly skilled white collar workers get laid off by the 1000's - the only way you gain staying power with that sort of up and down economic history is having a home you can afford in the worst of times. Loan agents base most loan approvals on best case situations - current income which tends to be the highest made to date unless you've gone backwards in income over the years not very common for those employed seeking a home loan.

Two major things need to happen in the Bay Area to create a more representitive % increase in housing value vs the very large swings we have seen over the past 15yrs.

#1 - public schools all around the Bay Area need to get on the same program and have similar performance scores this will greatly reduce the competition for the limited number of homes within proper commute to down town SF that also have top rated public schools. Is that possible? Not with the current CA and GOV program of no child left behind - not all kids are equal and not all neighborhoods are equal unless schools are given some method for putting kids needing special attention into proper programs and kids simply needing lots of fresh content to absorb we will continue to have school districts who struggle given their demographics vs the schools that perform given their demographics.

Great basic example - a few years back Ben&Jerry the icecream guys gave a presentation to a bunch of teachers telling them how to build a successful program in this case icecream etc. When the presentation was over one Teacher asked - what happens if you get ingredients that are sub par? Jerry says simple we toss it out the risk to the quality of our product is too high. The teacher says - hmmm? That appears to be where we are going wrong - we take all the ingredients given to us and make the best possible product we can often resulting in less than ideal results.IE they are not removing the kids that either lack behavior skills to function in the class or are behind the curve regarding learned skills etc. Its not the fault of the child its the fault of the adults parents&teachers not providing that child with the learning format they require.

#2 An even more strict home loan process which will force people to think about bidding up that 40yr old small rancher needing 200K worth of upgrades which they think will only cost them 50K to upgrade etc.

The #1 reason my wife and I are looking in said areas - top rated public schools! Would we move out of SF if we could have top rated public schools here? No we would not. Instead we take our market ST incomes to the burbs and look at 800-900K homes which is not much of a stretch for us. Yet we have major issues paying taxes on a 1mill old - small home and have little interest putting more of our hard earned money down on a 1+mill house when we'd rather have that money making a higher return in the markets - and being far more liquid than a family house.

So if we find a 800-900K home and there are many others also interested the folks who will have a hard time matching contract offers are those who are stretching to make that 800-900K house work vs the many folks who are underbuying.

Interesting, I just ran the analysis for San Ramon (different forum) after a realtor suggested that it was a seller's market because inventory was so low:

Is inventory really that low in San Ramon? Let's collect the data from the MLS using Redfin.com, searching on Single Family Residences (SFR) with 3+ bed, 2+ Bath, 2500 + square feet, and price range up to $1.25M:

http://tinyurl.com/yhvpk9t

Wow, there are currently only 34 resale homes in San Ramon that fit this description. That's a very low supply in comparision to the demand! Must be a red hot sellers market right?

Hold on, let's get a little more contextual data before we start jumping to biased conclusions.

We've all heard about "shadow inventory", referring to homes that are going through foreclosure, but that have not yet made it onto the resale market. If there were a lot of these "shadow" homes in San Ramon, then the supply and demand equation could be artificially skewed, making it look like supply is lower than it really is.

So, how much shadow inventory exists in San Ramon? Let's collect the data using the exact same profile as we did for the resale inventory (above): Single Family Residences (SFR) with 3+ bed, 2+ Bath, 2500 + square feet, and price range up to $1.25M:

http://tinyurl.com/yh9o548

Wow.  There are SIXTY SIX properties in some phase of foreclosure that have not yet made it onto the market. That's nearly TWICE the available resale inventory, meaning the apparent supply is only based on 1/3 of the potential supply.  Inventory in this market is actually understated by 66%. When considering the supply / demand dynamics, one should be using 100 homes instead of 34.

So, the informed conclusion is that supply is artificially low.

What about demand?  As discussed above and on other threads, demand is artificially high because of unsustainable government policies, such as tax credits, foreclosure moratoriums, loan modifications, absurdly low interest rates, etc.

So the contextual analysis is that the San Ramon market is experiencing artificially low supply and artificially high demand, neither of which are justified by traditional market conditions. As a result, home prices remain overinflated.

As foreclosures come onto the market (increasing supply) and the government policies expire (decreasing demand), the supply will go up and the demand will go down, significantly driving down prices.

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Bay_Realist wrote:

Would be great to hear everyone's opinion on this.

 

 

My question is what gives?  and how long can this hold?  Am I missing something that everybody else already knows? 

 

Thanks!

Bay Area Realist

 

 

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1. Goverment gives (just as much as it can hoping not to break a bank) USD savers, depts holders and taxpayers money away to support asset bubble.
2. for another 6-10 months, IMHO.
3. read the rest of threads here, this has been discussed to death.