17 Comments

Summary:

In case you were trying to get a visual graphic of the real estate bubble in the San Francisco Bay Area, here is a little something something. Paul Rademacher has produced a good looking love child of Craigslist and Google Maps. Just check out the million […]

In case you were trying to get a visual graphic of the real estate bubble in the San Francisco Bay Area, here is a little something something. Paul Rademacher has produced a good looking love child of Craigslist and Google Maps. Just check out the million dollars and higher homes in San Francisco, and their not so exciting locations. My colleagues at Business 2.0 have figured out eight ways to make money from the real estate bubble. As an aside, this ties nicely with my previous post on microformats!

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  1. Mihail Lari Friday, April 8, 2005

    Great links…thanks. Who cares if it is a bubble or not, except for the people who’re speculating and flipping real estate faster than you can say “Capital gains, anyone?” I thought real estate — like investing in stocks — is all about the long term. And, while our house in Palo Alto may have increased by almost 50% in the last 14 months since we bought it, we’d only benefit if we were ready to move inland from one of the bubble East/West Coast cities. Which I don’t think we are… :) That’s where the arbitrage opportunities exist as the Wall Street Journal pointed out last September: http://www.blogit.com/Blogs/Blog.aspx/readyfireaim/182324

  2. well there are more opportunities. i think the bubble is spreading even inwards and you can see the increase in prices of places like north dakota

  3. Blogging.LA Friday, April 8, 2005

    Bubble Watch

    Okay, I love great repurposing of existing info. I’m in love with some of flickr’s great groups like the squaredcircle because they’ve applied it towards a project – like krazydad’s color pickr to make posters. There was even a great…

  4. Well, it’s not necessary to move away from the Bay Area to hedge, one need only sell and rent. My wife and I sold (although ugh, a year early) and we’re renting a $1.2 million home in San Mateo for $2,500 a month. The guy who is renting it to us left the rent FLAT after the first year and may drop it in six months.

    Residential have dropped every single quarter in most Bay Area cities since 2001. They rose just a tiny bit Q4 2004 and everyone thought that was a turn in the market, but alas, they were down again in Q1 2005.

    There’s a clear reason for this: the Bay Area has lost population, jobs and median income for every single year since 2002. The Bay Area was number one in the United States for population loss from 2002 to 2003 — Detroit was second.

    These statistics are freely available from the US Census and the US Bureau of Labor Statistics websites.

    So, unless there’s some turnaround in the Bay Area job market on the horizon, I see rents staying this low or maybe even moving lower. With interest rates rising, you can even get 3.25% now on a savings account (www.emigrant-direct.com).

    My wife works in IT and I don’t see it generating a lot of jobs in the Bay Area in the next few years — there are always higher paying management jobs or kick ass engineers in certain specialties, but those 1 in 100 or 1 in 50 IT jobs aren’t enough to power a housing or rental market for the Bay Area. All of the new $70K to $100K jobs are being added in Boise, or in Bangalore, Shanghai, or Manila.

    It’s also interesting to note that 70% of all jobs created in California in the last two years were related to real estate — mortgage brokers/agents, real estate agents, construction workers, etc. If housing goes, it’s going to cause some fairly deep structural problems since California’s economy is now powered mostly by this one sector.

    There’s no telling if it’s going to happen this year or two years from now, but when it happens, it’s going to be a real bummer. And because people are so over the top with this fever, I could see prices go up another 40% in the next year or two before there’s a crisis. After all, it wouldn’t have looked too smart to have predicted the NASDAQ bubble in 1997 or 1998 because you would have lost out on 50% gains.

    But the real problem here is that Tech was a big mover in the economy in 2000 when the bubble burst and that should have hurt a lot. Instead the $6 trillion that was erased in that crash (as of today’s figures) was mostly reflated in home prices — so the average joe’s balance sheet was either unchanged or remains ahead.

    Housing is not merely a big mover in California’s economy today, I’d argue that as the source of 70% of all added employment, it is the only real mover. So, if it stops, whether you own a home or not, and whether you work in the real estate industry or not, it’s going to be more than a little noticeable.

    But in short, renting is a way to hedge and not leave the Bay Area. You can take your first $500K of capital gains 100% tax free (provided that you are married and lived in the home you are selling as your primary residence for a minimum of two years). That means at the measly current savings account rate you can get at emigrant-direct, you would be making about $1,400 a month in interest alone and you wouldn’t have mortgage interest payments, property tax payments, etc. And that’s only the first $500K of capital gains — the rest are taxed at a friendly 15% if you held more than a year… and if you have been in Palo Alto for a while, you may walk with more than $500K in capital gains.

    Anyway, it’s just a thought. I remember when everybody I knew would talk about their investments in tech companies — bragging about the big gains and their margin positions. Now everyone I know talks about their home, or their second home and they only mention the purchase price, not the interest-only loan, the 80/20 financing, the two or three year adjustible period even when interest rates are at 40-year-lows, etc. I imagine that at some point between six months and two years from now, it will be as unfashionable to talk about owning a home as it is to talk about owning tech stocks.

  5. I left the Bay area in 2002 and I couldn’t have agreed with you more.
    I have a website up regarding the real estate bubble with a ton of information on appraisal and mortgage fraud posted at:
    http://www.mossback.net/bubble.htm

    Thanks for the great read!

  6. I saw the bubble coming and sold my house in the Fall. It was on the market for 45 days and instead of getting overbids of $100K or more, as we expected, we got bits at or below the asking price. I had to negotiate $ back to the seller in the deal, so while the price that went on the record seemed to be “asking price” the actual price was much lower. Many other houses on the street at that time also sold for below asking — with this carefully hidden as a post-escrow deal.

    My next door neighbor’s house was on the market at the same time and it languished for 6 months. They pulled it off the market, reduced the price by $100K and eventually got an offer of $125K below asking.

    This seems to indicate to me that housing prices have actually fallen about $100 to $100,000 in recent months, cleverly hidden by the fact that most houses do not get overbids in the Bay Area anymore and that the practice of negotiating a lower price in escrow is pretty common.

    Has anyone else out there seen this? OR was this just a seasonal dip that happens every year at the end of the summer?

    g

  7. Stephane Grenier Friday, June 10, 2005

    I actually think we’ll see the bubble burst much more based on interest rate increases alone! I’ve recently written an article about this which shows the graph of how interest rates can greatly affect the affordability prices of mortgages.

    For example, if you want to keep a monthly payment of $1000/mth, and if interest rates climb up 2-3% from todays lows of 5% then you are looking at a 20-30% drop in mortgage affordability! In detail, if you have an interest rate of 5% and you can only afford $1000/mth mortgage payments, then you can afford a mortgage of up to $186,281.62. If interest rates climb to 7%, then this number drastically drops to $150,307.57, a $36k difference, or about a 20% drop in price!

    Regards,
    Stephane Grenier
    http://www.followsteph.com

  8. Whats interesting is that people realize there is a housing bubble, but don’t realize what it actually means. Most people think a housing bubble is just like a stock market bubble. But it really isn’t. THere are a ton of differences.

    Check out this link where they talk about that.
    http://www.kenlet.com/archives/2005/06/implications_of.html#more

  9. Om Malik’s Broadband Blog » Mashing the G-Maps Tuesday, July 5, 2005

    [...] ancisco, Seattle, Chicago and New York. Esme should be really happy with this development. I love this Mash-up which focused on rental/sales of real estate in the San Franci [...]

  10. The real estate bubble is getting so much hype right now, especially in the Bay area. I’ve been regularly reading a number of blogs and articles concerning the bubble, and I’ve been finding remarkably conflicting accounts of what is going on. Steve Sjugerrud has a great article on the real estate bubble. He seems to give a really honest and balanced account.
    http://www.investmentu.com/IUEL/2005/20050701.html

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