Housing prices going down in Silicon Valley
Gordon Hamachi
>Has anybody have any horror stories about housing situation in
>Silicon Valley?
Bad News for Real Estate Owners, Part 2:
15. CalFed Inc, one of California's biggest thrifts, set up a $96 million
reserve for losses, mostly related to new-home sales by a subsidiary.
Prices have declined as much as 20% from August 1989 levels, at 17
new home subdivisions in Southern California. CalFed's chairman and
CEO said the drop isn't readily apparent in list prices, but is realized
mostly through sales concessions. [Wall Street Journal]
16. Some properties in posh San Francisco neighborhoods have lost at least
$100K each in value over the last six months, according to a twice-a-year
survey by Coldwell Banker. Depreciation is 15 to 20% since April. [San
Francisco Chronicle]
17. Softness in the local housing market has been well-documented. The median
sales price of a home in Santa Clara County has fallen nearly $10,000 in
only two months, to $220,000 in September. [San Jose Mercury News]
18. The Southern California homebuilding unit of CalFed Inc. cut prices
on $300,000 to $400,000 homes by 10% to 20% and surveys indicate expensive
homes throughout the state are being cut by similar amounts. Fears of
large-scale defaults by residential builders and homeowners have dropped
the stocks of the biggest banks and thrifts in the state by 40% to 88%.
"There's real hysteria here, like I've never seen," says Joseph Jolson,
an S&L analyst. [Wall Street Journal]
19. For months, major brokerage houses have been issuing alarmist reports
about shaky California real estate and the likely fallout for West Coast
financial institutions. Prudential-Bache securities declared "The great
real-estate boom is over" in the state. "On the basis of independent
research, we have concluded that prices on existing homes are off
today 10-20% from their mid-1989 all-time peaks and that they could fall
a total of 25%+ by the end of 1991. The potential also exists for
further declines in 1992 and beyond." Pru-Bache said much of the rapid
appreciation in California home prices during the '80s was merely a
"speculative binge" similar to what happened in the stock market prior
to the 1987 crash. The coming correction, in their view, may be "the
greatest percentage drop ever seen in this land of fast-rising home
values," a fall that threatens some of the state's biggest lenders with
rising loan defaults. [San Francisco Chronicle]
--------------------------------------------------------------------------
The headline was "COUNTY HOME PRICES PLUNGE" the day they so cleverly :-)
challenged me to put my money where my mouth is.
Gordon Hamachi
20. Given the current market conditions, some sellers are considering taking
their properties off the market until next year rather than to cut the
price any further. They're betting we'll have a better market then. The
California Association of Realtors doesn't think so. The CAR predicts
existing home sales will fall from 470,000 units this year to 400,000 in
1991. If so, today's sales prices will look high next year. [San Francisco
Chronicle]
21. In the next few weeks real estate developers trying to ease the financial
strain of a long housing slump will auction off more than $45 million
worth of expensive residential property throughout Northern California.
In one horror story, the price tag for 2 choice homes a year ago were
$895,000 and $599,000. Now the developer will settle for the price of the
mortgage and loans: $525,000 and $245,000. [San Francisco Chronicle]
22. Some frustrated home sellers are turning to the auction block, but they
often end up disappointed. Sellers, who pay as much as $2,000 to be a
part of the auction, find that the promised crowds of bidders seldom
materalize. And the high bid is often tens of thousands of dollars below
offers received before the auction. [San Jose Mercury News]
23. Some local economists say the slowdown in Silicon Valley mirrors the
difficulties facing the nation. Others say Silicon Valley's high-flying
days are over and that current difficulties are more than a cyclical blip.
[San Jose Mercury News]
24. Retreating from the defiantly optimistic predictions of just a year ago,
bankers and appraisers finally concede that the Texas real estate market
still hasn't hit bottom. [Wall Street Journal]
25. California's housing slump intensifed in September, as sales of existing
single-family detached homes fell 10.7% from August, and 26.5% from a year
ago. The median price of such homes in California was down 1.5% from
August, and down 4.2% from a year ago. [San Jose Mercury News]
26. Bay Area home prices suffered their biggest one-month decline in nearly
seven years -- 5.4% -- during September, while the number of homes sold
dropped a whopping 23.7%. The sharp drop "clearly resulted from more
than just a regular seasonal slowdown ... and I think it will continue to
ripple throughout the market over the next several months," said the VP
of research and economics for the California Association of Realtors. The
chief economist for the National Association of Realtors said consumer
concern that prices are just too high shouldn't be underplayed. "They are
bothered by high prices, which they figure have got to break, so they're
holding out," he said. [San Francisco Chronicle]
27. Many experts feel current stratospheric prices in Japanese real estate are
unsustainable and warn that should they collapse, the US would quickly
feel the impact. Already, Japanese investment in the US has slowed.
Should Japanese real estate crash, Japanese owners would have to sell off
their US holdings and bring their money back home to pay off the banks.
[San Jose Mercury News]
28. While the state's industrial base collapses, many Californians reiterate
the ludicrous claim that the state is recession-proof. High housing costs
make it increasingly difficult to recruit employees; for example, few would
trade a $100K, 5-br, 3,000 sq. ft. house on a golf course in Pueblo
Colorado for a 2-br condo on some side street in San Jose. [Forbes]
29. How bad is the real estate recession? Is it just a cyclical downturn? Or
is it something deeper and more frightening? Five of 6 real estate powers
from the 1989 Forbes 400 thought the nationwide slump would last a couple
of years. The one exception is a bear who remembers the Depression. He
thinks the slump could last the decade. But all of them think the rewards
may never again be so great as they were in the 1970s and 1980s. [Forbes]
30. The ratio of outstanding consumer and mortgage loans to aftertax income
jumped from 61% in 1982 to 82% last year. This behavior is unsustainable,
and is already reversing. With the end of the postwar boom in housing
prices, homeowners will no longer have automatically-growing piggybanks to
tap via home equity loans and for early retirement. [Forbes]
David Wang
>Bad News for Real Estate Owners, Part 3:
>29. How bad is the real estate recession? Is it just a cyclical downturn? Or
> is it something deeper and more frightening? Five of 6 real estate powers
> from the 1989 Forbes 400 thought the nationwide slump would last a couple
> of years. The one exception is a bear who remembers the Depression. He
> thinks the slump could last the decade. But all of them think the rewards
> may never again be so great as they were in the 1970s and 1980s. [Forbes]
>
.... more stuffs deleted
---> It is interesting to note that the majority of the interviewees
(I think 5 of 6) are from the East Coast!. The one guy from
California suggests that the real estate market will turn up in 1992
or 1993. He doesn't see a plunge in price from the current levels.
I 'd put more weight on the CA real estate tycoon's insights than
the East Coast crowd.
As to the future gain potentials, who know? It all depends on
inflation rate and the local economy. I found it amusing that Gordon
never acknowledge positive news but only focus on the negatives.
So, it is probably a bad time to buy real estate now, but at some
point in the future, it will be a good buy again.
Dave
.
Gordon Hamachi
>I found it amusing that Gordon
>never acknowledge positive news but only focus on the negatives.
Whether you regard something as positive or negative really depends on
your point of view. If you currently own real estate, then to say that
the current published news about real estate is "negative" is an enormous
understatement. In fact, it is a disaster.
I challenge anyone to dispute this.
From my point of view, as someone who almost bought a home at the peak
of the market, the news is actually quite positive.
Daniel Hachigian
> If you currently own real estate, then to say that
> the current published news about real estate is "negative" is an enormous
> understatement. In fact, it is a disaster.
>
> I challenge anyone to dispute this.
Ok, Gordon, I dispute this.
Your quotes keep telling us that doomsday is coming (sometime soon).
But most of the statistics that you quote show that (from last year's
peak!!) prices have declined by about 5-10%. But just for the sake of
argument, let's say that prices have dropped 15%. After two consecutive
years of 25% advances, I am personally quite content with this drop.
My leveraged return on my investment property has remained in the 300%
to 1000% range, so I'm just not too darn upset. Furthermore, I finally
bought a condo in Palo Alto for myself last year, and its price is
still up more than 50% which I admit is a slight decline from being
up almost 60%.
I personally believe in dollar cost averaging, so I believe that it
makes sense to buy at least one property/year to meet your *long
term* financial goals. This is simply impossible to do if you're
constantly trying to time the market. By the time you see it start
to go up, you're too late. In a bull market, you'll never get the
kind of owner financing that is available to you *now*. This market
spells o-p-p-o-r-t-u-n-i-t-y to me.
You give the impression that properties on the market languish for
tens of months unsold, but the Merc's statistics indicate that the
mean time that a property spends on the market is about 2 months
for most areas of the Bay. Most places in the country would consider
that a reasonably healthy market, a far cry from the desperation
that you convey.
I will concur that the upper end properties have been/are quite
stagnant. Hence you can talk about $100K price drops, but we're
talking homes over $750K here. I doubt that these are the homes
that you're looking at buying, though some of us move up buyers
are getting excited about the prospect of finally being able to
transition into something nicer since our entry level abodes have
remained *relatively* stable.
Just call me anyone.
Dan
PS It still amazes me that you believed all of these so called experts
when they claimed that the dougle digit appreciation would never stop
and prices could only go up. Now you're putting the same kind of faith
in another bunch so called experts that speak of catastrophe. If all
of these experts are so good at timing and understanding the market,
how come they aren't all millionaires? It certainly hasn't been for
lack of opportunity for the last 30 years!
Gordon Hamachi
>But most of the statistics that you quote show that (from last year's
>peak!!) prices have declined by about 5-10%.
You're thinking wishfully, sadly misinformed, or an outright liar. I saved
my recent real estate news summary postings, and have attached the relevant
ones to the end of this article. I count:
Articles saying prices dropped only 5-10%: 3 (1, 2, 25)
Articles saying prices dropped 10% or more: 6 (8, 12, 13, 15, 16, 18, 19)
Note that 2 of the 3 articles that say 5-10% are August and September
articles, old news. I prefer to think you are simply thinking wishfully.
In addition to this, real estate experts have consistently gone on record
stating that often price concessions by sellers do NOT show up in median
prices. Instead, the seller pays loan points or pays for expensive home
improvements instead of lowering the sale price.
>After two consecutive
>years of 25% advances, I am personally quite content with this drop.
>My leveraged return on my investment property has remained in the 300%
>to 1000% range, so I'm just not too darn upset.
Great. I'm happy for you, and congratulate you on your investment genius.
But have you actually sold and realized these gains? If not, then don't be
so quick to pat yourself on the back. There are literally thousands of
shocked homeowners who just can't understand why their $300,000 2-bedroom
shacks aren't selling right now. If you have sold, congratulations again,
but don't expect me to believe you can do it again this year.
>Furthermore, I finally
>bought a condo in Palo Alto for myself last year, and its price is
>still up more than 50% which I admit is a slight decline from being
>up almost 60%.
Then you bought early in 1989, are very lucky, or you're lying.
Median prices on condos and townhouses have been flat in Santa Clara County
since July of last year. Also, see my earlier comment on seller concessions.
I prefer to think that you bought early in 1989, and that you also haven't
tried to realize this gain by selling.
>You give the impression that properties on the market languish for
>tens of months unsold, but the Merc's statistics indicate that the
>mean time that a property spends on the market is about 2 months
>for most areas of the Bay. Most places in the country would consider
>that a reasonably healthy market, a far cry from the desperation
>that you convey.
Wrong again. It is a very common local real estate tactic to relist the same
house again and again. The number of days on market reported by the board of
realtors typically represents only the duration of the last such listing
period. Houses get relisted when the price drops, when the listing expires,
when one realtor gets fired because the house hasn't sold, and when the listing
agent feels other agents have forgotten about his/her listing. Don't forget,
in August 1990 there was a 10.6 month supply of homes on the market!
>I will concur that the upper end properties have been/are quite
>stagnant. Hence you can talk about $100K price drops, but we're
>talking homes over $750K here.
Actually, in an October 1990 article titled "Auction Fever hits Northern
California", the SF Chronicle reported that the price tags for 2 choice homes
a year ago were $895,000 and $599,000. Now the developer will settle for the
price of the mortgage and loans: $525,000 and $245,000.
In August 1990 the Chronicle, in "Some New Gimmics to Lure Home Buyers",
reported that one developer shaved $100,000 off the price of new homes that
previously sold in the $400,000 range, and previous buyers were "hopping mad".
In a previous article I wrote
> If you currently own real estate, then to say that the current published
> news about real estate is "negative" is an enormous understatement. In
> fact, it is a disaster.
>
> I challenge anyone to dispute this.
In article <74...@sgi.sgi.com> d...@earth.esd.sgi.com (Daniel Hachigian) writes:
> Just call me anyone.
I stand by my statement that the PUBLISHED real estate news (Wall Street
Journal, San Jose Mercury News, New York Times, Forbes, Barron's, San
Francisco Chronicle, Times Tribune, Business Week, etc) has all been bad.
You haven't disproved this. You've simply recounted personal anecdotes of
your recent triumphs in real estate. I'd have to say that while "anyone"
can disputed my claim, "nobody" has disproved it.
---------------------------------------------------------------------
The headline was "COUNTY HOME PRICES PLUNGE" the day they so cleverly :-)
challenged me to put my money where my mouth is.
===NEWS SUMMARIES THAT MENTION YEAR-TO-YEAR PERCENTAGE DROP IN HOME PRICES===
1. The California Association of Realtors revised their 1990 projection for
median price single family homes downward from 9% to 1.5%. [Aug 1990]
2. The median has dropped 6.3% since it hit a record $237,000 in August 1989.
[Mercury News, Sept 1990]
8. "The homebuyer who purchased a home here two years ago would probably have
to drop his price 10% to 15% if he put his home back on the market today".
[Ken Rosen, co-chairman of the Center for Real Estate and Urban Economics
at UC Berkeley, Sept 1990]
12. In middle-class neighborhoods, prices dropped nearly 21% from a year
earlier. [SF Chronicle, Oct 1990]
13. ...home prices in many areas of the state already have fallen about 10
to 15% from last year's high and will drop a total of 25% over the next
three years. [Oct 1990]
15. Prices have declined as much as 20% from August 1989 levels, at 17 new
home subdivisions in Southern California. [Wall Street Journal, Oct 1990]
16. Depreciation is 15 to 20% since April. [SF Chronicle, Oct 1990[
18. The Southern California homebuilding unit of CalFed Inc. cut prices on
$300,000 to $400,000 homes by 10% to 20% and surveys indicate expensive
homes throughout the state are being cut by similar amounts. [Wall Street
Journal, Oct 1990]
19. Prudential-Bache securities declared "The great real-estate boom is over"
in the state. "On the basis of independent research, we have concluded
that prices on existing homes are off today 10-20% from their mid-1989
all-time peaks and that they could fall a total of 25%+ by the end of
1991. The potential also exists for further declines in 1992 and beyond."
Pru-Bache said much of the rapid appreciation in California home prices
during the '80s was merely a "speculative binge" similar to what happened
in the stock market prior to the 1987 crash. The coming correction, in
their view, may be "the greatest percentage drop ever seen in this land of
fast-rising home values," a fall that threatens some of the state's
biggest lenders with rising loan defaults. [SF Chronicle, Oct 1990]
25. The median price of such homes [existing single-family detached] in
California was down 1.5% from August, and down 4.2% from a year ago.
[SJ Mercury, Oct 1990]
Jim Remedios
>
>So, it is probably a bad time to buy real estate now, but at some
>point in the future, it will be a good buy again.
>
>Dave
Now is a relatively good time to buy in the SF Bay Area. It is a bad time
to sell. Compared with the recent run-up ('87 - mid '89), when you had
to make a buying decision within a few days (in some cases within a
few hours) of when a house went on the market, now is definitely a
buyer's market.
Houses are sitting on the market for months and buyers are calling the
shots as opposed to the aforementioned period when many sellers were
receiving multiple offers.
Additionally, prices have come down by a few percentage points
(in some areas many percentage points). However, I do not think that
they will ever reach pre-1987 prices, in general (of course there may be
a few exceptions). Since it is very difficult to pinpoint exactly when
the market will heat up again (for sellers), as it surely will as
Dave has mentioned, now would be a good time to buy a house, assuming
you don't have to sell one first :-).
Jim