Bay Area housing frenzy cooling

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Poppy1234
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Bay Area housing frenzy cooling

Post by Poppy1234 » Mon Aug 20, 2018 2:23 pm

We have been in the market for a house this summer and all agents are saying the market is seeing fewer people seeing homes, fewer offers coming in per house, and slight more inventory, and yet expected sale prices are still the same. My theory is that buyers haven’t wisened up yet to what’s going on. We have personal experience that buyers have not realized the tide is turning yet. Guys, wisen up! As buyers, we don’t need to be killing each other anymore for these houses. Stop overpaying.

barnaclebob
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Re: Bay Area housing frenzy cooling

Post by barnaclebob » Mon Aug 20, 2018 2:29 pm

Poppy1234 wrote:
Mon Aug 20, 2018 2:23 pm
We have been in the market for a house this summer and all agents are saying the market is seeing fewer people seeing homes, fewer offers coming in per house, and slight more inventory, and yet expected sale prices are still the same. My theory is that buyers haven’t wisened up yet to what’s going on. We have personal experience that buyers have not realized the tide is turning yet. Guys, wisen up! As buyers, we don’t need to be killing each other anymore for these houses. Stop overpaying.
Without some kind of 2008 event, housing markets probably take a couple months to start to swing the other way. People have to put houses on the market and have them sit for a couple months and go through price drops before the new houses on the market start getting priced to match. If you think the market is cooling off then wait. Maybe a bunch of people that have been holding onto their houses to try to time the top will put them on the market and start actually driving prices down.

clar0097
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Re: Bay Area housing frenzy cooling

Post by clar0097 » Mon Aug 20, 2018 2:52 pm

I've been in the market in the Bay Area for the last 9 months. I've noticed a slow down as well. Hoping there will be a sweet spot soon where houses decline somewhat but interest rates haven't increased to make it a wash.

clutchied
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Re: Bay Area housing frenzy cooling

Post by clutchied » Mon Aug 20, 2018 2:55 pm

Even the 2008 event took a year + to start materializing any downward pressure.

people just held tight until they were distressed and the distress built up and then more and more places ended up on the market pushing prices down as people either sat it out or weren't eligible.

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Chan_va
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Re: Bay Area housing frenzy cooling

Post by Chan_va » Mon Aug 20, 2018 3:33 pm

This is not just a Bay Area phenomenon. Lots of markets are cooling off significantly. Seattle for example is cooling off rather abrubtly. See the Redfin CEO's take.

Lots of hypothesis as to why, but will be interesting to watch as to whether this is an overdue correction in a few overheated markets, or a harbinger of a broader problem in the economy.

Valuethinker
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Re: Bay Area housing frenzy cooling

Post by Valuethinker » Mon Aug 20, 2018 4:21 pm

Chan_va wrote:
Mon Aug 20, 2018 3:33 pm
This is not just a Bay Area phenomenon. Lots of markets are cooling off significantly. Seattle for example is cooling off rather abrubtly. See the Redfin CEO's take.

Lots of hypothesis as to why, but will be interesting to watch as to whether this is an overdue correction in a few overheated markets, or a harbinger of a broader problem in the economy.
It's hard to believe it's a general economic problem. The US economy appears to be very strong, unemployment is at a 10 year low, etc.

If you read Calculated Risk, the best blog on housing, construction and the US economy, I don't think he thinks this is a worrying sign.

It is true, however, that it would be a leading indicator.

Valuethinker
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Re: Bay Area housing frenzy cooling

Post by Valuethinker » Mon Aug 20, 2018 4:22 pm

Poppy1234 wrote:
Mon Aug 20, 2018 2:23 pm
We have been in the market for a house this summer and all agents are saying the market is seeing fewer people seeing homes, fewer offers coming in per house, and slight more inventory, and yet expected sale prices are still the same. My theory is that buyers haven’t wisened up yet to what’s going on. We have personal experience that buyers have not realized the tide is turning yet. Guys, wisen up! As buyers, we don’t need to be killing each other anymore for these houses. Stop overpaying.
Prices got so crazy, I think, that affordability is finally hitting?

If there is a tech downturn like 2000-03, the market will fall. Otherwise it's hard to see it. It's the tech sector that counts, not the general US economy particularly. Just as the Securities industry drives a lot of other economic activity in greater NYC area, so tech industry drives what goes on in SF Bay.

Valuethinker
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Re: Bay Area housing frenzy cooling

Post by Valuethinker » Mon Aug 20, 2018 4:29 pm

barnaclebob wrote:
Mon Aug 20, 2018 2:29 pm
Poppy1234 wrote:
Mon Aug 20, 2018 2:23 pm
We have been in the market for a house this summer and all agents are saying the market is seeing fewer people seeing homes, fewer offers coming in per house, and slight more inventory, and yet expected sale prices are still the same. My theory is that buyers haven’t wisened up yet to what’s going on. We have personal experience that buyers have not realized the tide is turning yet. Guys, wisen up! As buyers, we don’t need to be killing each other anymore for these houses. Stop overpaying.
Without some kind of 2008 event, housing markets probably take a couple months to start to swing the other way. People have to put houses on the market and have them sit for a couple months and go through price drops before the new houses on the market start getting priced to match. If you think the market is cooling off then wait. Maybe a bunch of people that have been holding onto their houses to try to time the top will put them on the market and start actually driving prices down.
In New England in the early 1990s, and Toronto, prices took a long time to stop going down. The market became sticky - sellers would not get the offers they expected, and would wait for years until finally accepting a lower price. I would say from peak to bottom was c. 5 years?

2008-09 was perhaps anomalous in that it all happened so fast - I suppose any owner or buyer reading a newspaper knew that things had changed fundamentally. The inability to refinance caused a lot of forced sales and repossessions, and thus a price collapse?

That said, I believe US housing prices actually peaked in December 2006. It was probably the summer of 2008 before most of us realized just in what trouble the US economy was. So sort of 18 months of just hovering around the peak and slipping gradually, before it all become apocalyptic. I don't know the stats, but I imagine housing prices bottomed c. 2010?

toomuchRE
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Re: Bay Area housing frenzy cooling

Post by toomuchRE » Mon Aug 20, 2018 8:26 pm

Umm, So you guys think my prediction is coming true??


viewtopic.php?f=10&t=250256&p=3944276#p3944276

toomuchRE
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Re: Bay Area housing frenzy cooling

Post by toomuchRE » Mon Aug 20, 2018 8:31 pm

Poppy1234 wrote:
Mon Aug 20, 2018 2:23 pm
We have been in the market for a house this summer and all agents are saying the market is seeing fewer people seeing homes, fewer offers coming in per house, and slight more inventory, and yet expected sale prices are still the same. My theory is that buyers haven’t wisened up yet to what’s going on. We have personal experience that buyers have not realized the tide is turning yet. Guys, wisen up! As buyers, we don’t need to be killing each other anymore for these houses. Stop overpaying.
Wait, did you not buy a house in bay area last year... :happy

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Re: Bay Area housing frenzy cooling

Post by Noobvestor » Mon Aug 20, 2018 8:47 pm

My philosophy is pretty simple: if houses become affordable, I'll buy one. If they don't, I won't, and will eventually leave the Bay. It's not exactly conducive to building long-term friendships out here, but there's no other option, really. I'm rich in the Midwest, poor in California.
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nova1968
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Re: Bay Area housing frenzy cooling

Post by nova1968 » Wed Aug 22, 2018 7:52 am

There could be drop in Bay area real estate prices. Instead of $2M for a 3 bed room rambler you will pay $1.7M which is still pretty high.

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CyclingDuo
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Re: Bay Area housing frenzy cooling

Post by CyclingDuo » Wed Aug 22, 2018 9:01 am

toomuchRE wrote:
Mon Aug 20, 2018 8:26 pm
Umm, So you guys think my prediction is coming true??


viewtopic.php?f=10&t=250256&p=3944276#p3944276
Homebuilder stocks have contracted, lumber has risen due to tariffs, days on the market has risen, mortgage rates slip, applications for mortgages slip, existing home sales down 4 months in a row, and the supply/demand may continue to turn in favor of the buyer.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

kjvmartin
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Re: Bay Area housing frenzy cooling

Post by kjvmartin » Wed Aug 22, 2018 10:03 am

Still historically hard to buy a house in my midwest metro area. Trying to find employment further out of town, getting strangled by rising rent.

Hoping for a nationwide cooling.

Valuethinker
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Re: Bay Area housing frenzy cooling

Post by Valuethinker » Wed Aug 22, 2018 10:22 am

CyclingDuo wrote:
Wed Aug 22, 2018 9:01 am
toomuchRE wrote:
Mon Aug 20, 2018 8:26 pm
Umm, So you guys think my prediction is coming true??


viewtopic.php?f=10&t=250256&p=3944276#p3944276
Homebuilder stocks have contracted, lumber has risen due to tariffs, days on the market has risen, mortgage rates slip, applications for mortgages slip, existing home sales down 4 months in a row, and the supply/demand may continue to turn in favor of the buyer.
I really think you can only talk regionally or on a Census Metropolitan Area for the US market. National numbers are, at this stage, not likely to be too helpful?

There's no sign the US is in general recession and employment numbers are still very strong. Some occupations, like truck drivers, are seeing double digit pay increases. Places like Texas and OK which might have done worse now have an increased oil price to bolster activity.

The synchronized national downturn in the US housing markets of 2008-2010 was the first one since the 1930s, I believe.

Valuethinker
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Re: Bay Area housing frenzy cooling

Post by Valuethinker » Wed Aug 22, 2018 10:23 am

nova1968 wrote:
Wed Aug 22, 2018 7:52 am
There could be drop in Bay area real estate prices. Instead of $2M for a 3 bed room rambler you will pay $1.7M which is still pretty high.
How much is that offset by rising mortgage rates ie has affordability really moved?

Dean.Collins
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Re: Bay Area housing frenzy cooling

Post by Dean.Collins » Wed Aug 22, 2018 10:57 am

Valuethinker wrote:
Wed Aug 22, 2018 10:23 am
How much is that offset by rising mortgage rates ie has affordability really moved?
Yep, this is the real reason sales are slowing.

Same thing here in NY...people are comparing last years 30yr at 3.5% to this years 30 year at 4.35% and going dammmmm that's more than I though. (especially when including the Trump tax changes-eg expect an even bigger drop in March when people get their taxes done under the new system).

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CyclingDuo
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Re: Bay Area housing frenzy cooling

Post by CyclingDuo » Wed Aug 22, 2018 11:32 am

Valuethinker wrote:
Wed Aug 22, 2018 10:22 am
CyclingDuo wrote:
Wed Aug 22, 2018 9:01 am
toomuchRE wrote:
Mon Aug 20, 2018 8:26 pm
Umm, So you guys think my prediction is coming true??


viewtopic.php?f=10&t=250256&p=3944276#p3944276
Homebuilder stocks have contracted, lumber has risen due to tariffs, days on the market has risen, mortgage rates slip, applications for mortgages slip, existing home sales down 4 months in a row, and the supply/demand may continue to turn in favor of the buyer.
I really think you can only talk regionally or on a Census Metropolitan Area for the US market. National numbers are, at this stage, not likely to be too helpful?

There's no sign the US is in general recession and employment numbers are still very strong. Some occupations, like truck drivers, are seeing double digit pay increases. Places like Texas and OK which might have done worse now have an increased oil price to bolster activity.

The synchronized national downturn in the US housing markets of 2008-2010 was the first one since the 1930s, I believe.
I'm not a bear on homes, just looking at the data and the current wall of worry with regard to home sales, national trends, etc... . Certainly, the longer term trend in the Bay Area (we are former home owners from there) has been in the up direction in spite of the ups and downs along the way.

In spite of 4 consecutive months of a drop off in home starts nation wide, today's report said the $1M+ housing market experienced over 3% growth (a rise from 2%), but the lower end home sales have fallen off. Of course, that is nation wide and as we know, real estate is regional. That doesn't mean we don't have cycles based on supply and demand, inventory, material costs. Prediction in January was for homebuilding stocks to soar in 2018. Hmmmm....they have done nothing but tanked in part thanks to the 72% gain they achieved last year and a wall of worry that seems to grow taller each month as we go through 2018. Home prices have risen faster than wages, and at some point - that disconnect leads to a reversion where some froth gets flushed out of the system. So my response was to toomuchRE. Will there be a reversion? Will wages play catch up? Will it be a combination of both?
"Everywhere is within walking distance if you have the time." ~ Steven Wright

blinx77
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Re: Bay Area housing frenzy cooling

Post by blinx77 » Wed Aug 22, 2018 11:48 am

Valuethinker wrote:
Mon Aug 20, 2018 4:21 pm
Chan_va wrote:
Mon Aug 20, 2018 3:33 pm
This is not just a Bay Area phenomenon. Lots of markets are cooling off significantly. Seattle for example is cooling off rather abrubtly. See the Redfin CEO's take.

Lots of hypothesis as to why, but will be interesting to watch as to whether this is an overdue correction in a few overheated markets, or a harbinger of a broader problem in the economy.
It's hard to believe it's a general economic problem. The US economy appears to be very strong, unemployment is at a 10 year low, etc.

If you read Calculated Risk, the best blog on housing, construction and the US economy, I don't think he thinks this is a worrying sign.

It is true, however, that it would be a leading indicator.
There has been an incredible divergence of real estate prices between and within markets. While real estate values in certain markets are stretching all sorts of ratios, there are other markets where real estate is still priced quite reasonably when compared to income, unemployment, etc.

It's possible there could be a downtown in certain markets that does not affect other markets. Historically this is how U.S. real estate operated. I think things are tied together more now than they used to be, but that doesn't mean that going forward prices in all cities will continuously move together.

It's also possible that we have a correction / recession that is unpleasant but not anything close to a 2008 event. Again, that's actually the norm.

Of course, I'm just speculating. I won't say nobody knows anything, but I readily admit I don't know much. I'm just paying down my 30 year fixed mortgage one plink at a time.

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serbeer
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Re: Bay Area housing frenzy cooling

Post by serbeer » Wed Aug 22, 2018 2:10 pm

toomuchRE wrote:
Mon Aug 20, 2018 8:26 pm
Umm, So you guys think my prediction is coming true??


viewtopic.php?f=10&t=250256&p=3944276#p3944276
not its stock-related part, that's for sure :)

mast3r_of_univ3rs3
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Re: Bay Area housing frenzy cooling

Post by mast3r_of_univ3rs3 » Fri Aug 24, 2018 9:44 pm

What OP has noted is correct. I have been watching the housing in my zip code (94555) regularly for quite a few years and I can see an abrupt decline in last 2 months (starting July). The market had gone "extra nuts" since the end of the last year.

I feel one of the problem is that real estate agents are not guiding their buyers well. They, of course, are more interested in buy/sell to go through. Like I keep showing my real estate hard data on Redfin about the prices the homes sold for during Summer and much better homes having a hard time to sell in last 2 months but he finds one reason or other and tells me "the market has slowed down but the prices have not gone down". Prices have definitely gone down in 94555 if you compare the sales/listing prices of current homes vs what sold in Summer.

One thing I have to admit though, if the house is in great condition, those houses are still commanding good money. But the kind of crap that sold for over $1.3M in my neighborhood this Summer ain't happening anymore.

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Re: Bay Area housing frenzy cooling

Post by AlphaLess » Fri Aug 24, 2018 10:08 pm

Valuethinker wrote:
Mon Aug 20, 2018 4:22 pm
If there is a tech downturn like 2000-03, the market will fall. Otherwise it's hard to see it. It's the tech sector that counts, not the general US economy particularly. Just as the Securities industry drives a lot of other economic activity in greater NYC area, so tech industry drives what goes on in SF Bay.
Spot on!

I do agree with the general sentiment that the US economy has not reached top yet.

I was around for the past two tops. I think we need wage growth in real terms in the bottom half to accelerate. We need consumers to be a bit more irresponsible, although there is plenty of evidence of that already. We need one or more policy mistakes.
"You can get more with a kind word and a gun than with just a kind word." George Washington

finite_difference
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Re: Bay Area housing frenzy cooling

Post by finite_difference » Fri Aug 24, 2018 10:24 pm

AlphaLess wrote:
Fri Aug 24, 2018 10:08 pm
Valuethinker wrote:
Mon Aug 20, 2018 4:22 pm
If there is a tech downturn like 2000-03, the market will fall. Otherwise it's hard to see it. It's the tech sector that counts, not the general US economy particularly. Just as the Securities industry drives a lot of other economic activity in greater NYC area, so tech industry drives what goes on in SF Bay.
Spot on!

I do agree with the general sentiment that the US economy has not reached top yet.

I was around for the past two tops. I think we need wage growth in real terms in the bottom half to accelerate. We need consumers to be a bit more irresponsible, although there is plenty of evidence of that already. We need one or more policy mistakes.
I get that tech jobs pay well, but don’t see how they pay well enough to make houses cost like $2 million. And that’s apparently in the suburbs with a terrible commute.

Even if you are making $200k/year that’s not exactly affordable. Especially with the hits to the property tax + mortgage interest deduction and mortgage rates climbing well above 4%.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

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Re: Bay Area housing frenzy cooling

Post by AlphaLess » Fri Aug 24, 2018 10:58 pm

finite_difference wrote:
Fri Aug 24, 2018 10:24 pm
AlphaLess wrote:
Fri Aug 24, 2018 10:08 pm
Valuethinker wrote:
Mon Aug 20, 2018 4:22 pm
If there is a tech downturn like 2000-03, the market will fall. Otherwise it's hard to see it. It's the tech sector that counts, not the general US economy particularly. Just as the Securities industry drives a lot of other economic activity in greater NYC area, so tech industry drives what goes on in SF Bay.
Spot on!

I do agree with the general sentiment that the US economy has not reached top yet.

I was around for the past two tops. I think we need wage growth in real terms in the bottom half to accelerate. We need consumers to be a bit more irresponsible, although there is plenty of evidence of that already. We need one or more policy mistakes.
I get that tech jobs pay well, but don’t see how they pay well enough to make houses cost like $2 million. And that’s apparently in the suburbs with a terrible commute.

Even if you are making $200k/year that’s not exactly affordable. Especially with the hits to the property tax + mortgage interest deduction and mortgage rates climbing well above 4%.
There is a fairly large tier of jobs that pay $1MM+, all in. Top tier tech companies in the Valley have hundreds of people in that pay range.
There is even a larger group of people earning $500-$1MM.
And the group of people earning $300K to $500K in top tier firms is measuring by thousands.

Look at median employee comp. Median is the 50th percentile across ALL employees:
https://www.recode.net/2018/4/30/173012 ... alary-tech

Many have stock grants. All of them have to stick with their stock grants for 3-4 years, minimum. Stock market has been on a rip. Tech stocks have been on a double-rip.

It all adds up.
"You can get more with a kind word and a gun than with just a kind word." George Washington

finite_difference
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Re: Bay Area housing frenzy cooling

Post by finite_difference » Fri Aug 24, 2018 11:08 pm

AlphaLess wrote:
Fri Aug 24, 2018 10:58 pm
finite_difference wrote:
Fri Aug 24, 2018 10:24 pm
AlphaLess wrote:
Fri Aug 24, 2018 10:08 pm
Valuethinker wrote:
Mon Aug 20, 2018 4:22 pm
If there is a tech downturn like 2000-03, the market will fall. Otherwise it's hard to see it. It's the tech sector that counts, not the general US economy particularly. Just as the Securities industry drives a lot of other economic activity in greater NYC area, so tech industry drives what goes on in SF Bay.
Spot on!

I do agree with the general sentiment that the US economy has not reached top yet.

I was around for the past two tops. I think we need wage growth in real terms in the bottom half to accelerate. We need consumers to be a bit more irresponsible, although there is plenty of evidence of that already. We need one or more policy mistakes.
I get that tech jobs pay well, but don’t see how they pay well enough to make houses cost like $2 million. And that’s apparently in the suburbs with a terrible commute.

Even if you are making $200k/year that’s not exactly affordable. Especially with the hits to the property tax + mortgage interest deduction and mortgage rates climbing well above 4%.
There is a fairly large tier of jobs that pay $1MM+, all in. Top tier tech companies in the Valley have hundreds of people in that pay range.
There is even a larger group of people earning $500-$1MM.
And the group of people earning $300K to $500K in top tier firms is measuring by thousands.

Look at median employee comp. Median is the 50th percentile across ALL employees:
https://www.recode.net/2018/4/30/173012 ... alary-tech

Many have stock grants. All of them have to stick with their stock grants for 3-4 years, minimum. Stock market has been on a rip. Tech stocks have been on a double-rip.

It all adds up.
Yeah the median salary is $200k (or less). So $200k is pretty representative of what someone might be earning.

Now, if the median earner is also earning $100k/year in stocks then that’s a different story. I guess we need to know median total compensation. Still, to afford a $2 million house it seems like you would need like a salary closer to $500k/year with an interest rate of 5% and high property taxes. Not to mention the high cost of living in the Bay Area. I just don’t see how it holds up unless there is just no inventory or the median is stretching their salary quite a bit.

But I guess for a couple each earning $250k/yr they would be able to afford it!
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

curiouspanda
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Re: Bay Area housing frenzy cooling

Post by curiouspanda » Fri Aug 24, 2018 11:58 pm

I've been looking at this as well I think there's still a frenzy in certain price range... meaning the "affordable range". For example, recently I saw a 2 bed/ 1 bath condo in an old building that sold for 120k over asking price. That's a condo with no in-unit washer/dryer and an unsecured carport that sold close to $1M. The pluses include a relatively low HOA and good schools. Then again, maybe the realtor was smart enough to underprice it to create a bidding frenzy. Financial Samurai alluded to this, too. https://www.financialsamurai.com/go-up- ... ter-value/

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Re: Bay Area housing frenzy cooling

Post by stocknoob4111 » Sat Aug 25, 2018 12:02 am

Orange County, California is also cooling a little. Median home price county wide now is higher than the previous bubble peak. What I find illogical is that the last peak represented the biggest bubble in the history of the country... how can returning to that level be called a "normalization" or "recovery" or whatever they want to call it? Affordability is still seriously out of wack.

The median household income for the county is only $76,000/yr, even if you take the relationship between median home price and household income at the 60th percentile and the conservative affordability metric at 3X income we'd be seeing home prices in the $255,000 range. So forget that and take it at 5X income which is NOT recommended at all by any financial planner, so even at 5X it should be at $425,000.... however, the actual value is currently $850,000. Incomes just have not gone up in real terms at all, affordability has stayed the same yet prices have skyrocketed.

My take is this is mainly due to cheap credit and high DTIs, low interest rates have taken the factor from 5X to 8-10X. But then what happens when interest rates revert to mean or if there is a recession and people start losing their jobs with leverage at 10X income? Whether this is going to be a repeat of 2008... maybe even worse is to be seen.
Noobvestor wrote:
Mon Aug 20, 2018 8:47 pm
My philosophy is pretty simple: if houses become affordable, I'll buy one. If they don't, I won't, and will eventually leave the Bay. It's not exactly conducive to building long-term friendships out here, but there's no other option, really. I'm rich in the Midwest, poor in California.
I have the same philosophy, infact posted an entire thread about this recently because it just baffles me how people all around me are still buying using very shady affordability metrics and very low down payments. My take on it is that if you can't max out your 401k, don't have much in an emergency fund and have credit card debt you have no business buying a house. Virtually everyone I know that bought can't satisfy even these basics and these are all high income individuals with high credit scores so i'm scratching my head trying to understand what is going on, perhaps they have just thrown in the towel thinking this is the new reality and they just have to get into the market at any cost.

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Re: Bay Area housing frenzy cooling

Post by AlphaLess » Sat Aug 25, 2018 5:56 pm

All signs are pointing to another bubble.
We have a combined housing and stock market bubble forming.

FOMC have not been increasing the funding rate fast enough.
It is only a matter of when and how deep the burst of the bubble will be.
"You can get more with a kind word and a gun than with just a kind word." George Washington

likashing
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Re: Bay Area housing frenzy cooling

Post by likashing » Sun Sep 09, 2018 5:27 pm

Poppy1234 wrote:
Mon Aug 20, 2018 2:23 pm
We have personal experience that buyers have not realized the tide is turning yet. Guys, wisen up! As buyers, we don’t need to be killing each other anymore for these houses. Stop overpaying.
If Bay Area house price drops 20% from now, people who bought pre-2017 are still ahead/not lost any money.

There are a lot of "wise guys" in the Bay who have been "looking" for 3-4 years, while the type of houses they "look at" have gone up $100k+ per year and they are not able to save $100k cash per year.

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corn18
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Re: Bay Area housing frenzy cooling

Post by corn18 » Sun Sep 09, 2018 5:37 pm

AlphaLess wrote:
Sat Aug 25, 2018 5:56 pm
All signs are pointing to another bubble.
We have a combined housing and stock market bubble forming.

FOMC have not been increasing the funding rate fast enough.
It is only a matter of when and how deep the burst of the bubble will be.
If the FOMC does 2 more .25 point rate hikes, the 2/10 yield curve will likely invert, recession to follow in 18 months and a subsequent stock market correction/bear and housing prices resetting to sane levels. I predict 2020 for the bear. I plan to stand around and do nothing. I might go to Quebec with my wife.

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Re: Bay Area housing frenzy cooling

Post by AlphaLess » Sun Sep 09, 2018 5:39 pm

corn18 wrote:
Sun Sep 09, 2018 5:37 pm
AlphaLess wrote:
Sat Aug 25, 2018 5:56 pm
All signs are pointing to another bubble.
We have a combined housing and stock market bubble forming.

FOMC have not been increasing the funding rate fast enough.
It is only a matter of when and how deep the burst of the bubble will be.
If the FOMC does 2 more .25 point rate hikes, the 2/10 yield curve will likely invert, recession to follow in 18 months and a subsequent stock market correction/bear and housing prices resetting to sane levels. I predict 2020 for the bear. I plan to stand around and do nothing. I might go to Quebec with my wife.
I hope you are right. The sooner the recession comes, the better. Deeper recession? Even better.
"You can get more with a kind word and a gun than with just a kind word." George Washington

sunspotzsz
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Re: Bay Area housing frenzy cooling

Post by sunspotzsz » Sun Sep 09, 2018 5:42 pm

remember this time 2016? There was a cooling as well. What happened after?
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corn18
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Re: Bay Area housing frenzy cooling

Post by corn18 » Sun Sep 09, 2018 5:53 pm

sunspotzsz wrote:
Sun Sep 09, 2018 5:42 pm
remember this time 2016? There was a cooling as well. What happened after?
If we stayed the course, we made a lot of money.

blinx77
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Re: Bay Area housing frenzy cooling

Post by blinx77 » Sun Sep 09, 2018 6:03 pm

Valuethinker wrote:
Mon Aug 20, 2018 4:21 pm
Chan_va wrote:
Mon Aug 20, 2018 3:33 pm
This is not just a Bay Area phenomenon. Lots of markets are cooling off significantly. Seattle for example is cooling off rather abrubtly. See the Redfin CEO's take.

Lots of hypothesis as to why, but will be interesting to watch as to whether this is an overdue correction in a few overheated markets, or a harbinger of a broader problem in the economy.
It's hard to believe it's a general economic problem. The US economy appears to be very strong, unemployment is at a 10 year low, etc.

If you read Calculated Risk, the best blog on housing, construction and the US economy, I don't think he thinks this is a worrying sign.

It is true, however, that it would be a leading indicator.
I think it's interest rates. I bought my house 2.5 years ago at a 3.5 fixed mortgage. Now it would be 4.65. That's a few hundred extra dollars a month.

I stretched for this house as-is. If I was buying today, I think I would cry uncle and look at a different (cheaper) neighborhood.

SoAnyway
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Re: Bay Area housing frenzy cooling

Post by SoAnyway » Sun Sep 09, 2018 8:07 pm

Chan_va wrote:
Mon Aug 20, 2018 3:33 pm
Lots of hypothesis as to why, but will be interesting to watch as to whether this is an overdue correction in a few overheated markets, or a harbinger of a broader problem in the economy.
I concur. I suspect that the "why" is a confluence of factors, many of which have already been mentioned - rising rates, tariffs, etc. I'll simply throw in another: Changes to the tax code, i.e. SALT capped at 10K, mortgage interest capped at interest on $750K of mortgage debt.

Since CA is a high-tax state and many mortgages in the Bay area are above $750K (let's leave out the cash buyers for now), that takes a number of potential buyers out of the market....

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Re: Bay Area housing frenzy cooling

Post by HEDGEFUNDIE » Sun Sep 09, 2018 8:41 pm

SoAnyway wrote:
Sun Sep 09, 2018 8:07 pm
Chan_va wrote:
Mon Aug 20, 2018 3:33 pm
Lots of hypothesis as to why, but will be interesting to watch as to whether this is an overdue correction in a few overheated markets, or a harbinger of a broader problem in the economy.
I concur. I suspect that the "why" is a confluence of factors, many of which have already been mentioned - rising rates, tariffs, etc. I'll simply throw in another: Changes to the tax code, i.e. SALT capped at 10K, mortgage interest capped at interest on $750K of mortgage debt.

Since CA is a high-tax state and many mortgages in the Bay area are above $750K (let's leave out the cash buyers for now), that takes a number of potential buyers out of the market....
Mortgage interest deduction was already capped at $1M, and as you say the Bay Area market exceeded that years ago.

SALT cap is more meaningful, but let’s do some quick math. For a family earning $300k (state income tax of $20k) and property tax of $20k the change means $30k in newly non-deductible income, which translates into only additional $10k of tax, not a game changer. I’m not even taking into account the lower federal tax brackets, which mitigates these impacts.

SoAnyway
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Re: Bay Area housing frenzy cooling

Post by SoAnyway » Sun Sep 09, 2018 8:56 pm

HEDGEFUNDIE wrote:
Sun Sep 09, 2018 8:41 pm
SoAnyway wrote:
Sun Sep 09, 2018 8:07 pm
Chan_va wrote:
Mon Aug 20, 2018 3:33 pm
Lots of hypothesis as to why, but will be interesting to watch as to whether this is an overdue correction in a few overheated markets, or a harbinger of a broader problem in the economy.
I concur. I suspect that the "why" is a confluence of factors, many of which have already been mentioned - rising rates, tariffs, etc. I'll simply throw in another: Changes to the tax code, i.e. SALT capped at 10K, mortgage interest capped at interest on $750K of mortgage debt.

Since CA is a high-tax state and many mortgages in the Bay area are above $750K (let's leave out the cash buyers for now), that takes a number of potential buyers out of the market....
Mortgage interest deduction was already capped at $1M, and as you say the Bay Area market exceeded that years ago.

SALT cap is more meaningful, but let’s do some quick math. For a family earning $300k (state income tax of $20k) and property tax of $20k the change means $30k in newly non-deductible income, which translates into only additional $10k of tax, not a game changer. I’m not even taking into account the lower federal tax brackets, which mitigates these impacts.
As I'm sure I don't need to tell you, HedgeFundie, most people don't do that math (whether or not correct) and even if they do, $10k might or might not be a "game changer" to THEM. All they heard is that, under the new rules, they won't be able to deduct all the taxes and mortgage interest as a homebuyer under the old rules. Rational or not, that potential buyer might move to the sidelines. Supply-and-demand, baby: Fewer potential buyers, equal or more sellers, price goes down....

And oh btw, no need to derail into the minutiae of the tax changes. As I said, there are LOTS of contributing factors....

HEDGEFUNDIE
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Re: Bay Area housing frenzy cooling

Post by HEDGEFUNDIE » Sun Sep 09, 2018 8:59 pm

SoAnyway wrote:
Sun Sep 09, 2018 8:56 pm
HEDGEFUNDIE wrote:
Sun Sep 09, 2018 8:41 pm
SoAnyway wrote:
Sun Sep 09, 2018 8:07 pm
Chan_va wrote:
Mon Aug 20, 2018 3:33 pm
Lots of hypothesis as to why, but will be interesting to watch as to whether this is an overdue correction in a few overheated markets, or a harbinger of a broader problem in the economy.
I concur. I suspect that the "why" is a confluence of factors, many of which have already been mentioned - rising rates, tariffs, etc. I'll simply throw in another: Changes to the tax code, i.e. SALT capped at 10K, mortgage interest capped at interest on $750K of mortgage debt.

Since CA is a high-tax state and many mortgages in the Bay area are above $750K (let's leave out the cash buyers for now), that takes a number of potential buyers out of the market....
Mortgage interest deduction was already capped at $1M, and as you say the Bay Area market exceeded that years ago.

SALT cap is more meaningful, but let’s do some quick math. For a family earning $300k (state income tax of $20k) and property tax of $20k the change means $30k in newly non-deductible income, which translates into only additional $10k of tax, not a game changer. I’m not even taking into account the lower federal tax brackets, which mitigates these impacts.
As I'm sure I don't need to tell you, HedgeFundie, most people don't do that math (whether or not correct) and even if they do, $10k might or might not be a "game changer" to THEM. All they heard is that, under the new rules, they won't be able to deduct all the taxes and mortgage interest as a homebuyer under the old rules. Rational or not, that potential buyer might move to the sidelines. Supply-and-demand, baby: Fewer potential buyers, equal or more sellers, price goes down....

And oh btw, no need to derail into the minutiae of the tax changes. As I said, there are LOTS of contributing factors....
You’re telling me that a professional College-educated couple earning $300k and wondering whether to pull the trigger on a $1.5M house (probably the largest purchase in their lives) can’t do the math on tax impacts? I find that hard to believe.

TigerNest
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Re: Bay Area housing frenzy cooling

Post by TigerNest » Sun Sep 09, 2018 9:04 pm

We left the Bay Area because of house prices. To Manhattan, where they're more reasonable. :shock:

I think prices are sticky on the way down, often for years. The highest recent price burns into people's minds so they don't want to sell at a "discount". Those that have to sell do, those that don't languish longer on the market, inventory gradually builds... It's healthy.

Inventory is so low in the Bay Area and the local economy is doing so well that I doubt there'll be much actual downward prices over the next few years, just slower appreciation. But what do I know!

SoAnyway
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Re: Bay Area housing frenzy cooling

Post by SoAnyway » Sun Sep 09, 2018 9:16 pm

HEDGEFUNDIE wrote:
Sun Sep 09, 2018 8:59 pm
You’re telling me that a professional College-educated couple earning $300k and wondering whether to pull the trigger on a $1.5M house (probably the largest purchase in their lives) can’t do the math on tax impacts? I find that hard to believe.
Hahaha. Relax, dude. I didn't say "can't". Of course they can. They're just understandably busier with other things - getting their kids to soccer practice, attending to their demanding bosses, etc. Whether or not you find it "hard to believe" is irrelevant. They're not you, and you're not they. Like I said, supply and demand.... :happy Focus on helping OP.

HEDGEFUNDIE
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Joined: Sun Oct 22, 2017 2:06 pm

Re: Bay Area housing frenzy cooling

Post by HEDGEFUNDIE » Sun Sep 09, 2018 9:28 pm

SoAnyway wrote:
Sun Sep 09, 2018 9:16 pm
Focus on helping OP.
Sure thing.

OP, if you’re still around, check out the thread that just popped up by that guy who’s about to vest $8M in stock. Record-setting tech IPOs are not slowing down. As for interest rates, friends of mine who are in the market now are getting the same ARM rate (3.25%) that I got back in April. And I’ve shown above that the tax changes are no big deal.

There may have been a slowdown over the summer, but now things are picking back up. House across the street from me just went under contract in 6 days.

If you’re looking to buy, lock it in and forget about it for the next 5-10 years. You will definitely come out ahead.

finite_difference
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Re: Bay Area housing frenzy cooling

Post by finite_difference » Sun Sep 09, 2018 9:37 pm

HEDGEFUNDIE wrote:
Sun Sep 09, 2018 8:59 pm
SoAnyway wrote:
Sun Sep 09, 2018 8:56 pm
HEDGEFUNDIE wrote:
Sun Sep 09, 2018 8:41 pm
SoAnyway wrote:
Sun Sep 09, 2018 8:07 pm
Chan_va wrote:
Mon Aug 20, 2018 3:33 pm
Lots of hypothesis as to why, but will be interesting to watch as to whether this is an overdue correction in a few overheated markets, or a harbinger of a broader problem in the economy.
I concur. I suspect that the "why" is a confluence of factors, many of which have already been mentioned - rising rates, tariffs, etc. I'll simply throw in another: Changes to the tax code, i.e. SALT capped at 10K, mortgage interest capped at interest on $750K of mortgage debt.

Since CA is a high-tax state and many mortgages in the Bay area are above $750K (let's leave out the cash buyers for now), that takes a number of potential buyers out of the market....
Mortgage interest deduction was already capped at $1M, and as you say the Bay Area market exceeded that years ago.

SALT cap is more meaningful, but let’s do some quick math. For a family earning $300k (state income tax of $20k) and property tax of $20k the change means $30k in newly non-deductible income, which translates into only additional $10k of tax, not a game changer. I’m not even taking into account the lower federal tax brackets, which mitigates these impacts.
As I'm sure I don't need to tell you, HedgeFundie, most people don't do that math (whether or not correct) and even if they do, $10k might or might not be a "game changer" to THEM. All they heard is that, under the new rules, they won't be able to deduct all the taxes and mortgage interest as a homebuyer under the old rules. Rational or not, that potential buyer might move to the sidelines. Supply-and-demand, baby: Fewer potential buyers, equal or more sellers, price goes down....

And oh btw, no need to derail into the minutiae of the tax changes. As I said, there are LOTS of contributing factors....
You’re telling me that a professional College-educated couple earning $300k and wondering whether to pull the trigger on a $1.5M house (probably the largest purchase in their lives) can’t do the math on tax impacts? I find that hard to believe.
So buying a $1.5 million dollar home today vs the same $1.25 million dollar home 2 years ago:

1. House prices increased ~20%.
2. No tax break from property taxes. Assuming a rate of 1.25%, then you are paying $18,750 in property taxes per year. (Two years ago you’d be paying even less at $15,625, a savings of $3k per year but you’d also be able to deduct all of it.)
3. Mortgage interest rate increased by 1.25%.
4. Not being able to deduct mortgage interest on $250k at 4.75% is $11,875 additional that’s not deductible, vs 2 years ago.

So the addition of yes $30k/year in non deductible income, so your $10k extra per year looks reasonable.

Also your property taxes went up by $2-3k/year compared to 2 years ago.

Plus the fact that houses cost 20% more, and that interest rates went up by 1.25%, so all told your mortgage goes from $6000/month to $7600/month (both 20% down).

So you’re looking at $2600/month extra ($1600/month + ~1k/month in tax).

That might not be a big deal to you, but let’s just say my entire PITI is less than $1500, which is about 40% less than just the delta increase you are talking about! ;)

All that must put some kind of a dampener on things.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

HEDGEFUNDIE
Posts: 1001
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Re: Bay Area housing frenzy cooling

Post by HEDGEFUNDIE » Sun Sep 09, 2018 9:43 pm

finite_difference wrote:
Sun Sep 09, 2018 9:37 pm
HEDGEFUNDIE wrote:
Sun Sep 09, 2018 8:59 pm
SoAnyway wrote:
Sun Sep 09, 2018 8:56 pm
HEDGEFUNDIE wrote:
Sun Sep 09, 2018 8:41 pm
SoAnyway wrote:
Sun Sep 09, 2018 8:07 pm
I concur. I suspect that the "why" is a confluence of factors, many of which have already been mentioned - rising rates, tariffs, etc. I'll simply throw in another: Changes to the tax code, i.e. SALT capped at 10K, mortgage interest capped at interest on $750K of mortgage debt.

Since CA is a high-tax state and many mortgages in the Bay area are above $750K (let's leave out the cash buyers for now), that takes a number of potential buyers out of the market....
Mortgage interest deduction was already capped at $1M, and as you say the Bay Area market exceeded that years ago.

SALT cap is more meaningful, but let’s do some quick math. For a family earning $300k (state income tax of $20k) and property tax of $20k the change means $30k in newly non-deductible income, which translates into only additional $10k of tax, not a game changer. I’m not even taking into account the lower federal tax brackets, which mitigates these impacts.
As I'm sure I don't need to tell you, HedgeFundie, most people don't do that math (whether or not correct) and even if they do, $10k might or might not be a "game changer" to THEM. All they heard is that, under the new rules, they won't be able to deduct all the taxes and mortgage interest as a homebuyer under the old rules. Rational or not, that potential buyer might move to the sidelines. Supply-and-demand, baby: Fewer potential buyers, equal or more sellers, price goes down....

And oh btw, no need to derail into the minutiae of the tax changes. As I said, there are LOTS of contributing factors....
You’re telling me that a professional College-educated couple earning $300k and wondering whether to pull the trigger on a $1.5M house (probably the largest purchase in their lives) can’t do the math on tax impacts? I find that hard to believe.
So buying a $1.5 million dollar home today vs the same $1.25 million dollar home 2 years ago:

1. House prices increased ~20%.
2. No tax break from property taxes. Assuming a rate of 1.25%, then you are paying $18,750 in property taxes per year. (Two years ago you’d be paying even less at $15,625, a savings of $3k per year but you’d also be able to deduct all of it.)
3. Mortgage interest rate increased by 1.25%.
4. Not being able to deduct mortgage interest on $250k at 4.75% is $11,875 additional that’s not deductible, vs 2 years ago.

So the addition of yes $30k/year in non deductible income, let’s say $10k extra per year.

And so your property taxes went up by $2k/year compared to 2 years ago.

Plus the fact that houses cost 20% more, and that interest rates went up by 1.25%, so all told your mortgage goes from $6000/month to $7600/month (both 20% down).

So you’re looking at $2600/month extra ($1600/month + 1k/month in tax).

That might not be a big deal to you, but let’s just say my entire PITI is less than $1600, which is less than just the delta increase you are talking about! ;)

All that must put some kind of a dampener on things.
Thanks for doing the math in detail. $31k extra per year in payments, representing extra 10% of income for our hypothetical $300k couple.

How much has FAANG stock appreciated over the past two years? More or less than 10%?

finite_difference
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Re: Bay Area housing frenzy cooling

Post by finite_difference » Sun Sep 09, 2018 9:44 pm

TigerNest wrote:
Sun Sep 09, 2018 9:04 pm
We left the Bay Area because of house prices. To Manhattan, where they're more reasonable. :shock:

I think prices are sticky on the way down, often for years. The highest recent price burns into people's minds so they don't want to sell at a "discount". Those that have to sell do, those that don't languish longer on the market, inventory gradually builds... It's healthy.

Inventory is so low in the Bay Area and the local economy is doing so well that I doubt there'll be much actual downward prices over the next few years, just slower appreciation. But what do I know!
The corollary to everything I just wrote is that housing could become like Manhattan. Maybe the Bay Area will be the new Manhattan? Good luck buying a house (brownstone) in Manhattan for $2 million ;)
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

visualguy
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Re: Bay Area housing frenzy cooling

Post by visualguy » Mon Sep 10, 2018 12:44 am

TigerNest wrote:
Sun Sep 09, 2018 9:04 pm
Inventory is so low in the Bay Area and the local economy is doing so well that I doubt there'll be much actual downward prices over the next few years, just slower appreciation. But what do I know!
+1

I wouldn't expect anything worse than slower appreciation.

2015
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Re: Bay Area housing frenzy cooling

Post by 2015 » Mon Sep 10, 2018 1:04 am

stocknoob4111 wrote:
Sat Aug 25, 2018 12:02 am
Orange County, California is also cooling a little. Median home price county wide now is higher than the previous bubble peak. What I find illogical is that the last peak represented the biggest bubble in the history of the country... how can returning to that level be called a "normalization" or "recovery" or whatever they want to call it? Affordability is still seriously out of wack.

...
Noobvestor wrote:
Mon Aug 20, 2018 8:47 pm
I have the same philosophy, infact posted an entire thread about this recently because it just baffles me how people all around me are still buying using very shady affordability metrics and very low down payments. My take on it is that if you can't max out your 401k, don't have much in an emergency fund and have credit card debt you have no business buying a house. Virtually everyone I know that bought can't satisfy even these basics and these are all high income individuals with high credit scores so i'm scratching my head trying to understand what is going on, perhaps they have just thrown in the towel thinking this is the new reality and they just have to get into the market at any cost.
Woohoo!

Just sold my place located in the heart of Trendoid Central in Lost Angeles (just outside Beverly Hills). Been told market has "softened" (realtor speak) since early summer so we listed it a tiny tiny tiny bit low. Sure glad we did as it stayed on the market for just two days, and sold to an all cash buyer from China decently over asking, no contingencies after inspection, and they asked for a ten day escrow (I gave them 14 so I could have time to move). What's more I had a back up offer that was lower but still over asking. I agree real estate prices here are obscene but that's why I sold! I'm finally out of this place never to return to California's gridlocked and stiflingly overpopulated coastal cities.

visualguy
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Re: Bay Area housing frenzy cooling

Post by visualguy » Mon Sep 10, 2018 1:45 am

2015 wrote:
Mon Sep 10, 2018 1:04 am
I'm finally out of this place never to return to California's gridlocked and stiflingly overpopulated coastal cities.
Where are you headed?

User avatar
Top99%
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Location: Austin, TX

Re: Bay Area housing frenzy cooling

Post by Top99% » Mon Sep 10, 2018 8:35 am

Here in tech heavy Austin the frenzy is also cooling in spite of record low unemployment and lots of high paying tech jobs. And I see that as a very good thing. Rising interest rates seem to be letting some steam out of the market.
Adapt or perish

ssquared87
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Joined: Tue Apr 02, 2013 9:54 am

Re: Bay Area housing frenzy cooling

Post by ssquared87 » Mon Sep 10, 2018 8:39 am

visualguy wrote:
Mon Sep 10, 2018 1:45 am
2015 wrote:
Mon Sep 10, 2018 1:04 am
I'm finally out of this place never to return to California's gridlocked and stiflingly overpopulated coastal cities.
Where are you headed?
+1 curious as well.

I can’t wait to get out of this state. CA is a complete dump and a waste of money. Am considering some smaller cities (Denver, Austin, Charlotte) but haven’t come up with an exit plan yet.

2015
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Re: Bay Area housing frenzy cooling

Post by 2015 » Mon Sep 10, 2018 9:09 am

Somewhere in California's Coachella Valley. An amazing Amtrak trip through the Pacific Southwest and spending 8 months intermittently near outside Las Vegas this year removed any doubt that I am first and foremost a desert rat. OTOH, the involuntary stay near and in Las Vegas strongly reinforced a several year old decision never to return to Las Vegas again. LA's rotting San Fernando Valley, one of the ugliest places I've ever been to (besides anywhere near the 5 in Orange County), is the future of Vegas in about 50 years. It never ceases to amaze me that the rest of the country has failed to learn from the historically bleak results of California's continued planning failures.

Returning to the subject of this thread, I agree with Howard Marks that we cannot predict, but we can prepare, by looking where we are in any market cycle. It's obvious we are nowhere near a bottom in any market cycle at the present moment. I sold because if real estate grinds to a halt in the next year I would regret not having sold and being stuck in Los Angeles much more than leaving any gains on the table. In doing so, my personal macroeconomics served as my guide much more than current macroeconomic activity. It might be helpful to toy with this type of thinking if you are considering buying.

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