Marco

Hi John,

I am also interested in this segment. I would guess there are a number of buyers waiting in the wings for price reductions which at this stage seem all but inevitable. The sales are anemic, and as matthew pointed out the already bloated inventory is about to see further increases.
I have been offering 30% below asking and got a response, but after some due diligence we decided to back away from the property. Not everyone needs to sell at fire sale prices, but if you are flexible you are due to find someone who is. - Tue Jan 13 2009, 11:05

The question of historical home appreciation always comes up in these type of discussions. It is important to note that home appreciation changes drastically depending on what time period you choose. Case in point, if you look at home appreciation in the sf/bay area overall you see a 7% average return from 1987 to 2007.

However, if you discount the period from 1997 to present, you obtain 4% which is just one 1% better than inflation. The graph provided by SP/Case Shiller is actually very informative as you can clearly see housing prices being fueled by two bubbles: stock wealth created by technology companies in the 90's followed by a brief correction in '01, leading into the prices increases fueled by the reckless availability of credit , which peaks in 2007. Can one reasonably expect this growth to continue?

On way to look at this is as follows, if you believe housing will continue to grow at 9% in the peninsula, you probably also thought broadcom stock was a good buy at $300 per share in 2000. It trades today at $17. - Wed Dec 10 2008, 18:53

Hi matthew,

You raise a good point in terms of checking that the original subdivision remains intact when comparing home appreciation. I'll keep that in mind as I do more research.

To clarify a couple of points, the AMT consideration is very real in my case. There is simply no tax incentive to home ownership in this price range. The same is true for a number of my colleagues. In general, people who look to purchase in this range would be affected in the same regard.

You touched upon the key question that many buyers on this fence like me are facing. Home appreciation has been 10-15% in the past decade. However, can we expect this trend to continue in light of a tight realignment of credit availability? From the limited data I can discern, this recent appreciation is a historical anomaly, which implies a regression to the mean is due. Jonathan was fortunate to sell when he did.

My comment about changing demographics is related to this. In light of an aging population nationwide, there simply will be less demand for large homes and an increased supply as people retire, regardless of estate planning on their side. - Wed Nov 26 2008, 12:38

Hi Jonathan,

I am actually interested in the response to this question as I am also considering a purchase in this price range. As matthew mentioned, I've had difficulty to find a believable data set. On an anecdotal basis, you can find examples such as the one matthew described . However, you can also find many counter examples:

Take for instance 9 isabella in atherton. It sold in '88 for $2,130,000. It was recently on the market for $2,695,000, with the original listing price > $3,600,000. It is currently off the market, although I am not sure if it indeed sold. If you assume it sold for its asking price, it represents a 1.1% return on your money, which doesn't even cover your property tax bill. It probably did not even get offers at its current level, which makes stacks the example further against a purchase of this size

From what I have been able to discern, homes in the upper price range appreciate much more slowly than the rest of the market. Two reasons are that the tax incentive for fome ownership is capped at $1M. In addition, AMT makes it that in most cases home interest and property taxes are not tax deductible for people who can afford these purchases. Going forward an aging population which presumably wants to divest itself of larger properties will likely put increased downward pressure on homes in this price range.

I've come to the conclusion when I do buy a home it will be for the lifestyle in might afford my family, but I am not counting on any financial gain in long term ownership. You should seriously consider buying again if you only are doing it to avoid cap gains. - Mon Nov 24 2008, 15:51