Have we hit the top of the market here in Silicon Valley?

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December 23 2013 - San Jose
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Profile picture for SteadyState
If we are not at the peak we are so close to the peak that the downside risk far outweighs the upside potential ...
Agents do not have a crystal ball but I do. Prices will drop up to 20% in 2015 as prices have irrationally gone up but household income in CA is flat.
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December 26 2013
Profile picture for Pasadenan
As they say, rent to buy ratio is always a good determination if it is a market bubble.  No one in their right mind buys if it costs substantially less to rent the same thing, assuming something similar to rent is available.

It is convenient that Zillow allows searches of both rent and buy options now, and has a rent estimate posted on the same page as a value estimate, so one can get starting point numbers for comparison quite easily.
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December 27 2013
Profile picture for gator70

A friend of mine who owns in Sunnyvale says the house next door rents for $1900 month while the average mortgage payment is $4700 month at these low rates. How long will that last?

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December 27 2013
Profile picture for Pasadenan
A key factor is always "housing turn over rate"; or "vacancy rate".  One needs at least 3% vacancy to allow for turn over.  That would be equivalent of 16.6 years stay in the same location assuming an average of 6 months to sell.

Zillow does not give the total number of ownership units in an area directly, but it can be obtained indirectly on the local information pages from the %sold in the past year and the "total units sold per month".

4.96% sold in 12 months as of October.  11,907 homes sold in 12 months as of October.  This places the number of ownership units at about 223,670.   A home search on Zillow for San Jose indicates 520 presently for sale.  That means only 0.23% of the existing housing stock is "for sale".  At an average of 6 months to sell, that would be a turn over rate of an average of 215 years.  (Zillow obviously doesn't list all homes for sale, and obviously this is a slow season for listings, so that number needs to be adjusted quite a bit.)

The job turn over rate in San Jose, and the desire of the companies in that area for good employees is much higher.

Thus, demand still substantially exceeds supply.  The two things tempering that is the 5.9% delinquency rate on existing mortgages, and the 8.9% of ownership households that are underwater on their mortgage to house value ratios.

Certainly we are not going to see the over 18% increase in housing prices in that area this year that we saw last year.  We might not even see the 5.1% increase that Zillow has forecast for the area.  But the Federal Reserve has tried to maintain a 2% annual inflation rate across the nation across sectors, and San Jose is a built out area with plenty of high-tech jobs.  Thus demand stays high and supply remains low.

Certainly, the changes to lending guidelines that will drive up new mortgage interest rates by at least 0.5% in additional "overhead" will have a moderating effect on home prices.  But not enough to get the price increases below the projected 2% annual inflation rate.  So, my "guess" is somewhere between 2% and 5% annual increase in housing prices for the area over the next year.

That is not across all neighborhoods and all housing sectors, but is the projected "average".  Results will vary substantially depending on price range, location, and specific house & features.
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December 26 2013
Profile picture for Pasadenan
An error on my present post... I'll post again after revision.
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December 26 2013
With the number of tech people looking for a home, I would say no, not yet hit the top. Keep in mind the foreign all cash sales, and we are still looking at prices rising in the early spring, just my opinion. 
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December 26 2013
Profile picture for Pasadenan
Bubble economics:
Pigs can fly...
(From NOVA, mind over money)
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December 26 2013
Discuss with your Broker, they will be able to help you with predicting the curve and reviewing historic data. 
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December 26 2013
Once you've decided that you're interested in buying or selling, and you have the means, then you've made your bet, haven't you?

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December 26 2013
Profile picture for gator70
People chase markets. So the peek is not realized until most folks see the top. Once that happens the correction is powerful. 
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December 26 2013
You can speculate using all the data available and you may get to a highly probable likely result.
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December 25 2013
Profile picture for Pasadenan

By the way, there were plenty of people warning about the housing market bubble and the pending bubble correction, only media people and typical "sales" people chose to ignore the signs of the times.  The signs are easy to read if anyone cared.  Sure, there can be "intervention" to change trends, but most intervention is not done soon enough nor with sufficient planning to be effective.  A major factor is whether one chooses to incorporate contingencies for other conditions that may arise.  Certainly JPL and NASA did proper contingency planning for their space-craft landings on Mars.  Certainly the Russian space agency did not.  Planning based on good forecasting is certainly not "rocket science", but is important in all industries, even "sales".

Some charts from Zillow's referenced page for San Jose:




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December 25 2013
Profile picture for Pasadenan
Forecasting is a "science" exercised  in all major industries, and especially investments, insurance, and actuarials.  Those that don't have familiarity with forecasting are in "sales" and not business management nor investment.  Good investors also typically include probability, tolerance margins, risk levels, risk management, and market hedging.  No insurance business would ever be in business if they didn't do forecasting.  Most businesses couldn't even maintain an annual budget if they didn't do forecasting.

Just because Federal political leaders are lousy at forecasting and completely disconnect from reality doesn't mean there aren't other people doing useful forecasting.

Why would anyone care about a "weather report" if Joseph claims they are 100% wrong 100% of the time?  I guess he purposely ignores all huricane warnings, storm warnings, and flood warnings...
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December 25 2013

Those who have knowledge, don't predict. Those who predict, don't have knowledge.
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December 25 2013
Profile picture for Pasadenan
And from the San Jose home value Local info Page:



Though West San Jose has now exceeded the "bubble peak", San Jose as a whole has not yet.
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December 25 2013
Profile picture for Pasadenan
From Zillow's San Jose page:

"The median home value in San Jose is $646,700. San Jose home values have gone up 18.0% over the past year and Zillow predicts they will rise 5.1% within the next year. The median list price per square foot in San Jose is $399, which is lower than the San Jose Metro average of $421. The median price of homes currently listed in San Jose is $619,000 while the median price of homes that sold is $597,150. The median rent price in San Jose is $2,250, which is lower than the San Jose Metro median of $2,300.

Foreclosures will be a factor impacting home values in the next several years. In San Jose 1.4 homes are foreclosed (per 10,000). This is greater than the San Jose Metro value of 1.0 and also lower than the national value of 5.1 Mortgage delinquency is the first step in the foreclosure process. This is when a homeowner fails to make a mortgage payment. The percent of delinquent mortgages in San Jose is 5.9%, which is lower than the national value of 8.0%. With U.S. home values having fallen by more than 20% nationally from their peak in 2007 until their trough in late 2011, many homeowners are now underwater on their mortgages, meaning they owe more than their home is worth. The percent of San Jose homeowners underwater on their mortgage is 8.9%, which is higher than San Jose Metro at 7.6%. "

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December 25 2013
No we have not. With a total inventory of active listings of 623 single family homes and 242 conds we will see another rise in prices starting next year. merry Christmas!
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December 25 2013
Ask again in about 1 year.  Hindsight is always 20/20.
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December 23 2013
 
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