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Regular Contributor
EllenBettencvnt
Posts: 102
Registered: ‎03-25-2008
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Understaning (bay area) house prices

This is an attempt to understand what is going on in the bay area RE prices, and then using that information to predict the future.

 

Everyone knows  house prices are on fire! Prices are up 20% compared to last year (at least in houses I am looking at; south bay, around  $1M).

It's easy to understand why. For starters, interest rates are close to 0, tech companies are doing extremely well (GOOG, AAPL, BRCM, QCOM etc. etc.) [Yes, AAPL at $450 is still pretty good], people have no other place to put money, taxes have gone up reducing attractiveness of bonds, etc. etc. Sellers are probably holding on, waiting for even higher prices..

 

That makes case for bulls.

 

Here is where I see downside. House prices don't exist in isolation. What do I mean by that? Other things exist inthe  economy whose prices also ultimately decide house prices. For example, I see lots of new construction (near AMD headquarter; Mountain view caltrain station, corn field near Lawrence). A big reason people buy expensive (as in > $700k) houses is schools. Private school fees have not increased in last few years. So, that should make expensive houses less attractive. I might as well buy house in bad school district and use the savings to pay for private school.

 

From my personal experience - I have enough money to retire (well may not be retire with a house in Los Altos, but certainly with a house in Milpitas). However, I am extremely conservative and hence currently rent. At some point, I might just buy a house in Milpitas, take a low paying job in east bay or retite, or say adieu to bay area and go live somwehere else.. I dont feel like participating in this house price lottery scheme.

 

I am sure there are others like me, who can well afford to buy, but they need a house to live and not to make money. Those people are not going to buy when prices are going up 20% yearly! BTW, my rent has increased 6% from last year.

 

Ultimately, I feel the current boom in prices is due to Fed intervention.. but, there are factors working agaisnt the price too. At some point the two will balance out. None knows when. But, the current environment looks as bubbly as a textbook example.

 

For the record, I have been wanting to purchase for more than 1 year now, and kick myself for not buying last year! So, I am obviously not an expert. But, I try to be as objective as possible in my analysis.

Gold Super Contributor
Jil
Posts: 3,058
Registered: ‎10-24-2011
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Re: Understaning (bay area) house prices

[ Edited ]

BugMeNot wrote:  At some point, I might just buy a house in Milpitas.

   For the record, I have been wanting to purchase for more than 1 year now, and kick myself for not buying last year! 


 

At some point, I might just buy a house in Milpitas. => If you get it, you will, but there too competition!

 

I have been wanting to purchase for more than 1 year now => My friend started middle of last december 2012 and submitted 12 offers. He almost lost all the 12. He is always either second place or third place in multiple offers. He has put himself as backup offer wherever possible (Three homes) and recently got a home when the topper walked out!  Above all, the offer worked out was the lowest offer (25% DTI) of all the 12 he submitted. He is happy to get that in 2 months appx. Hence, it is not the one year that matters, but how you and seller come together that matters. Any way, let us see how the market is this year. Lot of fun with FED!

 

Silver Contributor
WCreeker
Posts: 433
Registered: ‎03-30-2011
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Re: Understaning (bay area) house prices

Private school fees haven't increased?  My boss is grumbling because his kids' private school in Oakland increased tuition 15% for next year.  The slightest twitch in the economy upwards will send all those private schools raising fees because they probably felt they couldn't during the recession, so they've got several years of rising expenses without rising fees to catch up on.

Regular Contributor
bahomeloaner
Posts: 80
Registered: ‎05-15-2012

Re: Understaning (bay area) house prices

Dear BugMeNot,

 

W.r.t - "I have enough money to retire" - I really would like to know how much you saved up. The same factors that drive up housing also destroys fixed income (low interest rates). If you have large sum of money, you could invest in stock market and get some dividend income. I am sure you get heart attack if DOW drops into 4 digits. Unless you are a retiree off of govt job, no one would say they saved up enough amount for retirement. Due to low interest rates coupled with high inflation as it exists now, I would not say I saved up enough for retirement even if I have had $2mn. In my case, I have very little amount saved up but huge home loan and hence I can/shall never claim (probably in my life) that I saved enough for comfortable retirement.

Regular Visitor
Bobby101
Posts: 5
Registered: ‎02-21-2013
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Re: Understaning (bay area) house prices

[ Edited ]

Nice house in Milpitas isn't cheap IMHO.

Silver Contributor
kinectimal
Posts: 442
Registered: ‎12-18-2011
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Re: Understaning (bay area) house prices

I think most people buying expensive houses are not ready to retire.  They're still in the rat race and just need a place to live.

Silver Regular Contributor
sfsfr
Posts: 689
Registered: ‎04-15-2012

Re: Understaning (bay area) house prices

Personally, if you can afford a house that you like and would be happy to live in for a while then I would go for it. I wouldn't concentrate too hard on the investment aspect of it if it is for your primary residence. Even many who bought during the bubble are now even or better.

 

Areas with high scoring schools aren't necessarily more expensive because of the schools, often it is because the areas are desireable for other reasons (nice houses, big lots, low crime, convenient location, etc.) and attract affluent people. Kids from affluent families score better on API tests. So finding a desireable neighborhood with low scoring schools isn't very common.

Platinum Regular Contributor
tjh
Posts: 4,741
Registered: ‎01-09-2010
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Re: Understaning (bay area) house prices


WCreeker wrote:

Private school fees haven't increased?  My boss is grumbling because his kids' private school in Oakland increased tuition 15% for next year.  The slightest twitch in the economy upwards will send all those private schools raising fees because they probably felt they couldn't during the recession, so they've got several years of rising expenses without rising fees to catch up on.


No lie.

 

Graduated from De La Salle HS mid 1970s.  Tuiton was a whopping $500/year which my parents grumbled about then.

 

Freinds today tell me (I haven't confirmed) that DLS tuition today exceeds $25,000 per year.

 

My handy dandy inlfation calculator tells me that averages more than ten and a half percent per year.

 

Wow!!  No wonder people make derogatory comments about me must have come from a rich family if I went to De La Salle.

 

My financial holdings haven't done quite that well over that same period of time.

Silver Contributor
WCreeker
Posts: 433
Registered: ‎03-30-2011
0

Re: Understaning (bay area) house prices


tjh wrote:

WCreeker wrote:

Private school fees haven't increased?  My boss is grumbling because his kids' private school in Oakland increased tuition 15% for next year.  The slightest twitch in the economy upwards will send all those private schools raising fees because they probably felt they couldn't during the recession, so they've got several years of rising expenses without rising fees to catch up on.


No lie.

 

Graduated from De La Salle HS mid 1970s.  Tuiton was a whopping $500/year which my parents grumbled about then.

 

Freinds today tell me (I haven't confirmed) that DLS tuition today exceeds $25,000 per year.

 

My handy dandy inlfation calculator tells me that averages more than ten and a half percent per year.

 

Wow!!  No wonder people make derogatory comments about me must have come from a rich family if I went to De La Salle.

 

My financial holdings haven't done quite that well over that same period of time.


The website claims it is $15,200, but I'm not surprise all the 'other stuff' adds a bundle.

Regular Contributor
EllenBettencvnt
Posts: 102
Registered: ‎03-25-2008
0

Re: Understaning (bay area) house prices

bahomeloaner, I have around $2M.. I think I get enough in stock dividend to live my non-flashy lifestyle. And, if you look at long-term charts, stocks have been best investment, and have always returned more than inflation.

 

From my limited experience with my friends: 3 of them recently (over last 12 monts) bought expensive (as in $1.2-$1.7M) houses. All of them have around $5M (think GOOG/AAPL long time employees) and have basically "retired".. They still work for their companies, but take it easy. If you offer extra $100k in salary, they would not bother. They bought because they wanted a nicer place to live. They are not looking to make money from RE. They are far from being in rat race.