Bubble possibility analysis on realtor.com

The article’s full subject is:

Bubble Watch: Could the Housing Markets in These Top Cities Be Getting Too Hot?

it lists the 10 most heated up markets, with SJ being #1 and SF being #2 (The City and the city)

They look at annual appreciation rates compared to historic rates. So, for that reason even places like Fresno and Salt Lake City are on the list. Baseline is year 2001.

When it comes to an outlook on the future, the article is a bit contradictive. In one paragraph they conclude that none of the 10 areas are at risk of a bust. Somewhere else they say “That means the high prices can’t be sustained” (in San Jose). So, this article has something for everyone :slight_smile:

The article talks about overheating and bubble. Bubble is such a loaded word. At least the article tries to quantify bubble.

Although article does not define overheating; it just had the word in italics. Sure, I’d say Bay Area is overheating since 2012. Article said overheating means it will cool down sometimes. What does that mean? Does it mean rate of increase slows down? Does it mean there can be some flattening or drop? Sure, all these are possibilities.

Then it talks about bubble, which they used 6 factors to identify. It then said none of these hot market are at bubble level. I don’t know how to define bubble. But at least these guys tries to quantify it. And I do believe we are not at bubble level yet.

I still say as long as employment is strong in this region we should be ok. We even attract so much foreign investment money because of how desirable the area is. Incomes here relatively speaking are higher than other places and while home prices are higher the low interest rates on fixed mortgages make it very doable. Come on, my mortgage on my home is less than some rent rates for 2 bd apartments!!!

While another poster likes to expound the virtues of other tech areas, we are the premier one that gets the vast majority of VC money and the companies here contribute so much to technology and the internet that are used by the entire world. Businesses like this are not closing down. Now, startups with fancy smancy ideas that burn through VC money and can’t make a profit, well, they may be gone. Hopefully, Tesla, ain’t one of them…

Nowadays, I started ignoring these two words.

Bay Area is full of tech and bio-tech and both were met with some setback. Real estate may have UPs and DOWNs depending on how local economy is performing.

Reason:

Either

  1. FED has to increase the interest rate which is very unlikely going to happen in near future (one year at least). If they do at least one time next, economy falls easily.

  2. Otherwise, US economy has to go negative in growth without FED rate hike. This is the main reason, FED stopped increasing the rate until world economies such as China, Europe and Japan come out of red status.

Just read this what_is_supporting_this_markets_all_time_highs

With “safe” investments all over the world yielding negatives rates (you pay your government to hold your money), where else are people supposed to put their money? Answer: the US stock exchange where blue chips yield 3-5%. That is what is keeping this bull market alive

What’s your take @ptiemann? Let’s pick Sunnyvale as it’s a very typical Silicon Valley market. Do you think it’s a bubble bursting?

@manch, as I posted in another thread, in Sunnyvale a 10% correction has already happened.

We had this house for sale:
https://www.redfin.com/CA/Sunnyvale/764-Limerick-Ct-94087/home/1476029

We finished construction in November, but did not want to list at that time. We thought we would get more money in February, because that’s the traditional buying season. Also, the weather wasn’t great (rain) for open house traffic etc.
We intentionally delayed finalizing the permit until January, so that it would show as a “2016 house” instead of “2015 house”

In November, this house would have sold for $2150k - $2200k. I can easily show you 3 comps from that time that support this number.

We listed around February 1st asking $1999k. We got 1 offer within 12 hours at $2050k. We had the $2150+ expectation, so we waited a few days. We never got a second offer. Lots of traffic to the open house, no offer. The poor buyer never got a counter to his 2050. He came up then to 2100. At that point, I would have sold, but my business partner refused.

We changed agents then. This is now the best time of the year, mind you. We concluded that listing low and waiting for multiple offers does not work in this price segment, so we listed for what we wanted to sell for … $2200k.

Hindsight… 20/20… yes… sure, we got no offers with that asking price. Dropped back to 1995, I forgot… I think we got some offers there, but not over 2000. Dropped the price to 1835… got maybe 5 offers then, 2 of them were 1900. One buyer had $3.5m in his checking account but was not willing to go to 1950. They had been looking to buy for a few months but were not willing to come up higher. This should tell you something.

Then we changed asking price to 1950 and sold for 1980.

The 1980 is in line with sales for spring 2016. So, there’s roughly a 200k drop from November.

And there is a change in buyer attitude. I have had houses that had challenges. Busy road. Ugly neighbor (house). 7/11 across the street. Too many people of race XYZ (yeah, that happens!). This particular house had no such challenges. And people would be picky because of a laundry salon 2 blocks away?

Buyers were more picky and less willing to bid over asking price in spring 2016.

To answer your question, I don’t think it is a bubble bursting. So, we had a 10% correction. This could be reversed at a similar speed (I have nothing listed there right now). I don’t think it will go down another 10% immediately, but it is an unlikely possibility for the next 12 months.

My expectation is that prices will stay flat for the next 12 months.

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When entire stock market went down in Jan 2016. I bought shares and fully invested by Dec 31st, it went down heavily, and now I am up 2%-3% from Dec 31st investment amount. It took six months to recover. Moreover, my profits came from brexit buy. Most of the investors lost money during brexit too. See AAPL, NLFX, SBUX, GOOGL, FB, AMZN, GILD …etc, See VTI and VOO, just 6% up YTD.

Until now, no one will be ready to sell their stock/shares to buy a home.

IMO, whatever you faced was a TIP - a small showing how hard times will come.

2016 will be like what you said flat, but 10% is not really a correction. Unless FED is increasing the rate, we will not face any real correction.

I have interviewed so many high tech guys during my job as a financial advisor, lol…than I kind of know now what they think.

They all are looking for the proverbial “fixer upper” but nothing pans out. I have the feeling that they somehow being smart and all don’t want to pay but for a bargain. The times when the day after the IPO are gone. People are more savvy, prepared for a fight with any competitor but knowing that the market may have reached a peak they don’t want to put their neck into the game of the realtor’s “there’s not a better time than now”.

I had a tale to tell. Last year I paid my dues to become a Realtor just because my neighbor wanted to sell the house. That’s it! With the commission I would then do better things with my title and then something else. I begged her, I encouraged her to sell but she played the I am between going here and there so no time to sit down and make numbers. What pushed her to be hesitant was the fact that one of the neighbors, one of the only White guys in the hood (2 only) had decided to call it quits and sell his home. I had the feeling his home would be sell better than anticipated. Nope! Well below, nice home, the biggest lot in the hood. Beautiful garden, the guy a gardener himself.

So, I told my neighbor that she should sell now before the stock market BS would turn the market into a negative one. She never responded, I sent her a letter, left voicemails, nothing. I spoke to her 3 times and she avoided the topic. I felt betrayed but somehow I knew about Karma. This year, on the one year anniversary of our conversation I spoke to her again. We talked about her mom, how she was doing and she said nothing about moving there at all to take care of her, which she had told me a year before.
5 days later, I see a guy fixing something in the garage. I spoke to him in Spanish, when the owner stuck her head in the garage, looked at me, I expected a hello or something like that but she looked at me and got so mad. That made me feel uncomfortable so I said good bye to the guy and left.

3 days later the for sale sign is on the front. She could have gotten at least $650K-$630K last year. She sold in $607K.:laughing::innocent:

We were talking about this other house in Sunnyvale the other day

https://www.redfin.com/CA/Sunnyvale/1032-Ticonderoga-Dr-94087/home/654448

It’s in the Cherry Chase neighborhood. It’s smaller, older and every way worse than your newly built house except one thing: it has much better schools. It’s 1650 ft vs your 2050, so 400 ft smaller. Sold for 1.7M.

It’s not an apple to apple comparison. Just another data point. The Ticonderoga house also had to cut their listing price by 100K, but buyers apparently paid cash. That gels with your experience: buyers have cash, but have become more picky.

So given that people still have tons of cash sitting idle in their bank account, my thesis is that they need some time to adjust to the new price level. It has gone up so fast people are questioning are they the greater fool holding the bag. Maybe after price stays flat for a year or two and people internalize it’s the new normal their enthusiasm will come back.

Just my theory.

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Your theory sounds good… people need to get used to paying $2m for Sunnyvale (used to be Cupertino)

That $1.7m sale had not only Cherry Chase, but also Homestead Highschool. Our listing had only Fremont High. I suppose that was the only “issue” we had. Any comps that I considered had exactly the same 3 schools as ours.

I recall an old house (1960) with a poor addition (done 1980) which sold for $1.9m… closed escrow in early March.
That house was about the same condition as ours when we tore it down, that’s how poor the interior was.

Quite frustrating to get only $80k more for “new” vs “old” :frowning:

So are you working on any new projects in the Valley? Or wait for a year or two for the price to come up again?

The higher end in SF has also slowed. This newly built house in Glen Park has been sitting for almost 4 months now. No takers.

https://www.redfin.com/CA/San-Francisco/300-Sussex-St-94131/home/844405

At 3.5M it’s the most expensive house in Glen Park. No other houses even cross the 3M mark. The house was featured on the Chronicle and they interviewed the builders. But that’s not enough apparently. People are questioning the 3.5M price level in Glen Park. There are a few asking for over 4M in Noe also sitting with no takers. But at least at Noe 4M is not totally out of line.

To my knowledge, no cash more than $50k sits in the bank idle. It may be in investment at least a mutual funds or ETFs or stocks or in business.

If I am actively looking at houses and making offers, I’d put 100s of K’s in bank accounts. I don’t want any sudden movements in stock markets to ruin my shopping plans.

JUNE report From CoreLogic

SUMMARY:

New data released today by CoreLogic® shows a total of 8,679 new and resale houses and condominiums sold in Alameda, Contra Costa, Marin, Napa, Santa Clara, San Francisco, San Mateo, Solano and Sonoma counties in June 2016, up 8.0 percent month over month from 8,035 sales in May 2016* and down 6.5 percent year over year from 9,282 sales in June 2015. It’s normal for sales to increase between May and June in the San Francisco Bay Area, and the average change between those two months since 1988 is a gain of 4.1 percent. However, sales have fallen on a year-over-year basis for the past three consecutive months. June sales have ranged from a low of 7,118 in 1993 to a high of 15,735 in 2004, and June 2016 sales were 11.7 percent below the June average of 9,825 sales since 1988 when data for this report begins (data start dates vary by county). In June 2016, sales of newly built homes – detached houses and condos combined – were nearly 34 percent below the month’s average. Resales in June 2016 were 9.2 percent below the June average, but ignoring the 2003-2006 housing boom that was fueled by risky home loans, last month’s resales were 3.5 percent below the month’s long-term average.

More details: http://www.corelogic.com/downloadable-docs/dq-news/dq-news-data-briefs/san-francisco-bay-area-june-2016-home-sales.pdf

Sorry, Jil, @manch is right…

I am locked and loaded and about to pull the trigger if anything sweet comes along…

@manch & @sfdragonboy

OMG, This is news to me, especially 100s of Ks, keeping at cash level.

I am also actively looking at buying home (you know me). However, I keep a tab on personal account just only 3 months and deposit 3% check level, rest in investment accounts, most of them in ETFs as I do not know when buying is possible. I am trying to add up REIT ETFs for higher cash flow and return.

Looks to me I am the odd person, but any way It is fine for me to sell those any time.

@Jil,

Believe me, when I go to the bank branch, the teller usually has to upsell me and ask why I don’t put the money in some cd or something and I usually have to respond no thanks I plan to buy some toys soon.

Every time they tell me the same, but I always move excess money to Merrill Edge (Bank of America) account where I get 30 commission free trade for any Equity/ETFs etc. Normally, I do not touch or trade them often, but you need to watchful for this, I have it in GOOGL, PYPL, HD, SBUX, NVDA, AAPL, COST, NFLX. Short term cash on equity earns easily around 5% YTD returns.

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That’s fine. Different people have different methodology. Whatever works for you. :slight_smile:

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