Excellent article. I just have one thing to add and I know I have said this many times already, but here I go again. If you buy a house an pay it off you own a house. As you approach retirement age it is very comforting to know that you can stay put if you want, sell and live off the money, give it to your kids, or what ever. In the mean time you have a place to live. In today's mortgage environment there is often not much difference in loans under $729,500 between a 5 year fixed and a 30 year fixed.

My advice: read the article and if you want to buy, buy something you can pay off.

Marcy

Great article in today's WSJ about the value of home ownership.

It cover many of the topics discussed on these Palo Alto chat boards: real estate bubbles vs. the long view; own vs. rent; the notion of "imputed rent"; how to calculate ROI; only buy if you really like the house & the neighborhood; the non-financial benefits of home ownership; should home ownership be considered only in financial terms; etc.

http://online.wsj.com/article/SB1000142405297020373940457429…

Mathew,

I am not as optimistic as you. From my observation, I agree with Erica that the home market is not going to return to 2005-07 craziness for a long time. For the high end homes such as Palo Alto etc, the price was mainly driven by the stock bubble and low interest rate. Salary income without easy stock just cannot keep the current price level. Without many IPOs and as the interest rate goes up to normal level in the next several years, I just could not see how the price will keep stable. On the other side, since current Palo Alto residents are wealthy, the price fall will be slow. There may be some foreclosures but not much in Palo Alto.

My judgment is that the PA house market will be slowly bleeding in the next several years until next bubble comes. At this moment, I do not know what next bubble is and when it will come.

Your posts have been extremely optimistic so far since last year. I view your arguments as an opposite point.

=> They are not licensed to make projections about what the market will be like at any time in the future.

1. NRA (National Realtor Association) gives house price prediction all the time.

2. Yes, no one has a crystal ball to tell future. However, our decision still has to depend on a projection (like Warren Buffet), not just a random guess. If no agent is good at that, who else can provide good and reliable prediction for the PA house market with integrity beyond commision?

3. It has been for a while since many of us started the discussions in Trulia. We have observed many comments from many people including agents/sellers/buyers here. Which one gives good judgement so far? Who has been always wrong?

"An agent can tell you the market will go up or down or do nothing at all. It doesn't really matter because agents aren't prediction machines. An agent could tell you it would drop 30% over the next 6 months but they really have no substantial, conclusive evidence that it really will. It's merely their opinion and they aren't qualified or legally allowed to say it."

???!!! The agent you described should be a doll.

Hat off to you, Erica, for your honesty, integrity and standing above most agents here. A true Palo Altan.

I am preparing a luxury home for sale right now, and quite frankly, it really does not feel the right time to sell in Palo Alto. I attended Jordan, Paly, Addison Elementary, and my husband's family lives near Gunn. Even good schools can't fight the lack of qualified buyers compared to five years ago.

If your home is in the $2 million range, a buyer would need about 30% down in most cases, to get the best loan rate. Lenders are looking at several years of back tax returns reflecting a solid history; great credit; plus six months mortgage, taxes, insurance, etc., payments liquid prior to making a jumbo nonconforming loan. If your home is closer to $1 M then you shouldn't have trouble selling it. But if it is closer to my clients in the "luxury" category, get around your mind and just do a "worst case scenario" in your head. If you can go with the worst case -- about 20 percent less than just about any listing agent would ever want to present to you -- then go for it.

Now, if jobless rates continue (as projected) well into 2010 -- as the country shifts, and everything moves into a more economical focus -- you could look back in three years longingly at the equity you currently possess.

I am not seeing any indicators that the housing market will bounce back up to previously extreme equity jumps that we saw in the mid-2000s. I think we have more cautious investors; more cautious banks; and extremely cautious buyers.

So from that perspective, it could indeed be a good time to sell in comparison with unknowns (what the future bears). What if the future continues to chip away at the home prices in our luxury communities?

Here is an indicator that surprised me. Sunnyvale has four zip codes. 94087 (Cupertino schools/good schools); 94086 (next); 94085 (less desirable schools); and 94089 (lowest socio-economic level). When I was listing a home in 94086, once a mecca of 850K homes for your standard 4/2, I was shocked to see as many foreclosed homes in that zip code as in 94085. Now, that was a few months back.

Another indicator that surprised me. I met with an owner in Cupertino, and I saw 95 homes on the market available for good prices. Now, a few years ago, there would be 3-5 desirable homes on the market and they would sell and then a few more would pop up. You might have 10-20 that were priced crazy, but in general there was almost no inventory. We would rush over on a Thursday and try to make an offer that day before the rest of the pack descended (Thursday is the Cupertino realtor breakfast and tour).

Now owners are just plain surprised at the number of days on the market good homes at decent prices are sitting. So, your best bet is to undercut the price and over-prepare the home. Clean it, clear it, plant pretty flowers, replace the countertops with granite, and anything else that will make it look and feel like the buyer doesn't have to do anything when they move in.

Well, I am sure I am talking too much! Good luck.

Erica Nelson http://www.EricaNelsonEstates.com
408-416-7090
EricaNelsonEstates@gmail.com

Thank you all for your thoughts. I've spend the last two weeks talking with several agents and looking at houses in our price range. It has been very interesting -- intellectually, I find it fairly obvious that real estate will likely be a very poor investment for many years to come, especially in our higher price range. And I'm amazed at how relatively little you need to pay to rent very nice places here now.

Yet when I talk with agents about their views on pricing our place and visit comparable houses currently showing, I find it hard to accept the valuations given the expectations I've developed over the years! Honestly, I just can't believe it isn't worth more,and so I can't help but think I should sit tight with the hope that things recover. This disconnect between my head and my emotions no doubt explains why, as someone pointed out below, the only people selling now are those who must.

This is all quite ironic since my niece has taken my advice and now rented an awesome place from an owner who, just like me, is going to sit tight for a year and then try to sell! I like many others it seems, am susceptible to the same latest "homeowner delusion" mentioned in the article below... My wife, however, is far more practical so we are forging ahead for now (while she keeps gently admonishing me for posting the sort of negative views are "bad for the market").

http://www.businessinsider.com/henry-blodget-next-up-in-the-…

BTW, I think it is interesting that there wasn't a single local seller responding to my question.

I guess the post I sent in yesterday after the one posted by Matthew at 10:45 was deleted by the moderator. It disappeared half hour ago.

Matthew,

Please do not respond to my post any more. I feel like I am talking to a glob of chewing gum, sticky, slimy, and shapeless; shapeless as in no defined line of logic.

First, you rammed your words down my throat saying that I, in addition to other made-up assumptions, assumed the US economy is not fundamentally sound. That just totally negated the meaning of whatever gibberish you were and are uttering. So far, you still have not told me in clear definition what "fundamentally sound" is. The closest one you gave is: "Fundamental does not mean the financial banking sector of the economy, although it has had its effect on the economy as a whole, is only one piece of the puzzle." Read it again, do people define a term like this?


I am running out of patience and do not delight in debating with you. Please spend more time in reading in your spare time, that will improve your knowledge, logic and writing skill.

look, its not the best time to sell a property, but if you have to you need to get it done asap.
There is a lot of buyers out there that are looking for properties and if you will put the right price you will sell it fast and easy just make sure your real estate agent will understand that.

good luck

Matthew,


"Ruth's doomsday scenario is a bit pessimistic for me since it is based on the assumption that the US Economy is not fundamentally sound (which it is, otherwise our situation would be much worse)"

Be more specific, please explain what "fundamentally sound" means? Where is my assumption that the US economy is not fundamentally sound.

"and that no one locally is making a good profit despite the recession (which is also very false)."

Huh? Did I say or assume anything like that?

"There is foreign cash here and there helping the market,"

Here and there but everywhere.

"although I am not seeing swaths of homes bought up by foreign investors as investment property. The only investment I see that comes close to that is in East Palo Alto and East Menlo Park, where few investors are buying up 5 homes at a time because they can immediately run cash flow positive."

Oh, I see that you agree with my assertions that there is no or not enough foreign wealth coming to the rescue of PA and the foreign money goes to those places, such as East Palo Alto and East Menlo Park, where their property values are "pocket changes" to foreigners.

Too many other questions for you. Where will go? Are you comfortable renting? Are you ready to retire? Would you buy later if the market picked up? Are your monthly expenses for the house less than what you pay in rent or more? Are you afraid of losing several hundred thousand in the next year or two? Is there a substantial amount of equity in your home because you've lived there a long time? Is the gain portion past the the $500K exemption? Have you spoken to your CPA about the ramifications of selling? Are you over 55? Do you have children that might be interested in purchasing your home and taking over your property tax base? Would you take your property tax base to another home here or in another county? Do you enjoy living in Palo Alto as a long time resident and homeowner? Would the money be reinvested in something that can't lose value or equity? What would the return on that be?

I have clients that move out of the area and come back. I have clients that sell and then realize they should've bought again and didn't. I talk to buyers that say they're going to wait for the bottom of the market. It's hard to undo what you may be planning on doing.

Writing out these questions and taking the time to answer them (in writing) may help a great deal in making your decision. Palo Alto is usually a bellwether for real estate in Silicon Valley all the way to San Francisco. But it's more than that. When prices in some areas of the county went down as much as 35% between '89 and '93; Palo Alto property remained relatively unscathed. As we go through our current economic problems regionally and statewide, Palo Alto is stable and a lot of neighborhoods are increasing in value and sellers are getting multiple offers when they go on the market.

If it keeps you up at night, sell and don't look back.

We may very well have more declines in the market or at least go flat for a long time. Your investment in your home is still your home and you live in Palo Alto, a very enjoyable place to be. Go look at what your options are (physically go to where your next home will be) and see if that's OK for the next few years or the rest of your life. And if all that looks better, then sell.

Mark Burns, Realtor
Coldwell Banker Premier
Cupertino - De Anza Branch
DRE # 00896552 licensed since 1985
Saratoga native

Mikedt,

Maybe some of these if you aren't aware of them will help....

Homes sales.... http://www.sfgate.com/webdb/homesales/?appSession=55194424434706

http://www.sfgate.com/data/

Also... http://www.dqnews.com/Charts/Monthly-Charts/SF-Chronicle-Cha…
http://www.dqnews.com/Articles/2009/News/California/Bay-Area…

Good luck, Dunes

Oops, contributed=> attributed in my previous post..

Ruth there have been quite a few sales since June 5th. I will put them on my blog as soon as I get a few minutes. I have not analized them yet so I don't know if the increased activity goes along with prices going up, down, or staying the same.

Marcy

Sorry, I am not selling any properties in PA. But I applaud your courage of thinking to sell your home. I agree with you that the housing market has a long way to go.

Why?

1. The US economic power is in decline; it's losing it's competitive edge. The economic meltdown is caused by a variety of reasons but a big portion of it can be contributed to the loss of manufacturing jobs and the outsourcing of other jobs. This chronic bleeding has existed for quite a while and is still continuing. I do not see any tournequette can be used to stop this bleeding in the foreseeable future.

2. Many people including some of the posters in this forum kept using the proverbial statement, "Historically, the housing market always recovers after the recession and the prices only get higher, so it never goes wrong to..." I am not saying the prices absolutely will not get higher in terms of the dollar amount, but when and by how much in terms of true value, i.e., after adjusted by inflation? Unlike in the past recessions, can you see those jobs that were lost or moved due to globalization come back after this recession? If not, then why do you think this time around, the housing prices will just bounce back, kicking and running as before?

3. Someone in this forum had this theory that the "foreign wealth" can prop up the housing prices in Palo Alto. To me that's a wishful thinking. Because it won't work. A foreign bailout? Think about it, how big is the U.S.? Not long ago, I heard some of our great, smart and proud legislators wanted to loosen the immigration laws hoping the immigrants can purchase houses here. There are many reasons that can be used to encourage immigration, but counting on them to bail us out definitely should not be one of them. When did a great country like the US need foreigners come to rescue? Ask yourself: would you spend a fortune on a real estate in a foreign country? Usually, the amount the foreigners are willing to spare are the "pocket changes" (relatively speaking). The prices in PA definitely are not "pocket changes" to most people, no matter where you come from.

4. Another platitude here is that PA is different because there are tons of money in PA. What I believe is that an economy can not be sustained by the upper crust, a small group of people, alone. The rich people's money comes directly or indirectly from the product purchases by the general population, especially the middle class. That's why a country needs to have a vast middle class for it to be prosperous and stay vibrant. The PA housing market can not be insulated from the high and chronic unemployment nationwide.

I believe many of you have much better ideas about the current situation than I do. But I thought I would just say those that I have not seen discussed in this forum. They could have been said before but probably were worded differently.

I have been watching this market in PA for two years and I recall that my friends and the agents were telling me proudly that people in PA were so loaded with money that the prices could only go up, up, and...up. Up, they go?!

By the way, did any houses close the escrows since Jun. 5? I could not find any of them. If so, it would be weird since there has been so much hoopla about the increasing sales in PA recently.

Hi Mikedt,

I know there is alot of negative information out there about the housing market. However, there is no one that can exactly say what the market will do over the next 5 to 10 years. The real estate market historically has been cyclical. Looking at history we have had some very tough markets, and yet the values have always returned. I see no reason to believe that this market will be any diferent than others. Based on your statement that you do not need to sell, because of financial or job related reasons I would recommend that you stay where you are. If you still owe anything on the home, keep paying down that debt. However, like Brendan mentioned below, now is a great time to buy investment properties for the purpose of renting them out. Just like the stock market, when is the best time to invest, when the market is trading high or when it's trading low. The real estate market is no different with regards to values. Real Estate values are down and interest rates are low. Good luck in whatever you decide is best for you!

Matt

Mikedt,
Please do not take this as a glib answer, but if you are worried about your house and feel the long term does not look promising then you should sell. Your home should bring you happiness and security, not sleepless nights. If you like living where you are you should stay and finish paying off your home, assuming that you still have a mortgage. If you pay off your home and want to live somewhere else you can use it as a rental property and get a good steady stream of income. Right now many fully paid off homes can rent for enough money to pay for assisted living/nursng home care.

I am not worried about the future values of PA real estate, but I have no intention of selling my home as long as I am alive so my bullishness comes from a very different place than your concerns.

Marcy

Hi - I'm not a seller, I'm a broker, but I've sold property in Palo Alto recently and have a couple current listings. Palo Alto values vary greatly depending on the neighborhood. Late last year I sold two properties in Baron Park above listing price and within 30 days. I have a condo in Ventura that is priced below market and hasn't sold in 5 months and a tear-down house a street away that sold near listing in about 15 days. Although this information suggests that Palo Alto is a mixed market (which all towns are to some degree), I'm bullish on Palo Alto and think that it will go up considerably over the next 5 to 10 years. I don't know which neighborhood you're in and when you plan to use your home equity to retire, but I'd be glad to offer an opinion on your neighborhood from a purely investment perspective.
John

Hi Mikedt,

It depends on the price range of your home. Lower-end stuff is selling quickly and is a hot commodity right now. However, I do believe that the higher end market will continue to go down. However, no one has a crystal ball and can tell you where the market is going. But my belief in real estate is simple - Buy and hold (If you can, buy low) I never recommend any of my clients to sell their homes. Financially real estate is always great to hold on to and rent out. Where would you move if you sold your home? Would you stay local and rent? To me personally that doesn't make sense. Home prices go up and down, just like anything else. I can tell you there have been other large recessions in the past 30+ years and over the long term housing prices have always continued to rise a good amount above inflation. Talk to people in the bay area who have owned their houses for 20+ years. They will tell you it was the best thing they ever did.

If you need to sell your home now that’s a different story. Whether it because of loss of income or because you want a bigger home. Now is a great time to upgrade/buy-up because low end is hot and higher end is starting to suffer. If you need to sell your home, you need to sell your home - just choose a good agent and he/she should be able to get you the best price on the market.

My goal is to acquire as much real estate as I can, hold onto it, rent it out, and pass it to onto my children and hopefully they will do the same. I pass on this same advice to all my clients.


If you are looking for a good agent, who is not trying to sell you on selling your house - but can get the job done always feel free to contact me. (or you can contact me if you want to further chat about the real estate market and my personal experiences with it)

Brendan Aiello – Cashin Company Realtors
AielloB@gmail.com
(650) 403-6262
Twitter: @BrendanAiello
http://www.BrendanAiello.com

Hi Mike,

An individually performed Comparative Market Analysis (CMA) is the "gold standard" for approximating market value (in lieu of an actual appraisal). A CMA gives you the best representation of market price/activity/trend direction - for the specific property details you search on. Just because a property sells right next door to another does not mean that it's a comparative match. DO NOT rely on median and average-based statistics, these measures are meaningless for targeted selling/purchasing as they have no regard for any of the specifics you may be comparing and can be skewed by segments of market activity not matching your individual situation. A buyer/seller should look specifically at the targeted segment of properties that match their search criteria for the information to be meaningful. Generalized stats are easier to come by, but that doesn’t mean they should be used to make one of the most important financial decisions of your life.

Best, Steve