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I have been renting in this new development (Windemere, in the SF bay area suburb of San Ramon) for about a year and a half now. Meanwhile, I have spent a great deal of time researching buying in the area, both online and in discussions with neighbors/local agents/mtg brokers.What I started to see initially in mid-2007 just plain puzzled me: houses that rented for less than $3000 per month were listed at prices approaching or exceeding $1 million dollars. I was quite happy to be a renter at $2700, rather than own the same thing with a $6500/mo mortgage.By early 2008 I was seeing reason for concern - tons of for sale signs and huge numbers of rental listings on craigslist (mainly, people trying to rent out investment properties that they couldn't flip I suspect).But now, in November 2008 I think the neighborhood has reached an absolute meltdown phase, because of the following:1) A home just listed yesterday for a full half million dollars below where it sold in Dec 2005 ($1,375,000 then, listed for $875,000 now). I will protect the privacy of the seller but for those savvy enough you can find it on Redfin.
2) A good number of 2000+ sqft townhouses in the area to the west of Bollinger Canyon road have been languishing on the market for months priced in the mid to high $500s; these changed hands for $800k at the peak. Apparently, this area of Windemere is predominantly investor-owned (rather than owner occupied) so it is particularly susceptible to owners just walking away.
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3) For detached single family homes around 3200 sqft (the size I have been looking to buy), a number of them just hit the market priced at $799,000. These sold for as much as $1,150,000 at the peak, and even in June of this year “foreclosure investors” were buying them for 850,000 to 875,000, thinking they got a great bargain. But the market has continued to tank. You can rent this size of house quite easily for 3500-3750 so the price/rent ratio suggests that prices will fall even further, perhaps to in the mid-600k range.
4) based on the timing of the completion of this development (substantially sold in 2004, 2005, 2006), a conservative guess would be that about 75% of the homes in the area are in negative equity.
5) According to the MLS, there are 41 homes on the market right now in the area. But according to a mortgage broker friend of mine, there are also 72 homes that development in some stage of foreclosure but not yet on the market. So for each true seller, there are nearly two foreclosures. The foreclosures will set the true price of homes in this neighborhood.
6) The builders of the development (a consortium of several homebuilding companies) continue to pour more supply on the market, particularly in the area north of Albion Rd. The builders will typically price it in line with recent comparable sales, but then will throw in all sorts of extras such as upgrades and mortgage rate buy-downs. Apparently as well, according to a reliable source of mine, one of the builders sold off a block of 4000 sqft houses in bulk to an investor for a price of $750,000 each. This investor is now leaking these out slowly onto the market for 960,000 to 980,000. (If you are savvy with Redfin, you can see these houses as well on Kyler Ct and Wells Ct). At the peak, the builders were selling 4000sqft homes for about $1.4 or 1.5 million.7) At the end of December, jumbo financing drops from a 729,000 limit to 625,000 in this area, which will make it extremely difficult for the larger homes in the area to move (people are still attempting to sell in the 900,000 to $1million range).So based on my research, this area is facing such huge challenges from foreclosures, the distressed builders, desperate sellers/flippers, and financing pressures that I think large further drops are imminent. I wouldn’t be surprised if by the time my lease is up in May 2009, prices are 15-20% less than now. This sounds extreme, but prices have been falling at 3% or 4% per month through the fall, and this just continues that same trend.I think that 2000 sqft townhomes will settle in price to around $450,000, 3000 sqft homes around $650,000, and 4000 sqft homes around $800,000. All are about 45% less than “peak pricing” in late 2005 to 2006.But I would like to hear the opinion of agents “on the ground” in this area! Please let me know what you think.
non-agents on this board will tell you to wait. Those houses might be 20% lower next year. It sounds like this area doesn't really have a great track record.
Agents on this board will tell you that you can never really time the "bottom" so you might as well buy now. buy buy buy!
I'm not going to give you any advice myself. You seem like a very capable, intelligent person who has done a hell of a lot of research already. Do what feels right for YOU. Don't buy (or not buy) based on what anyone here has to say.
Thanks Slick. Part of the reason I wanted to post this is because sometimes I feel like I am in the twilight zone when talking to agents. Ever piece of information I dig up says that buying in this development is extremely risky, and the situation is deteriorating. But whenever I speak to an agent, they just point out how much cheaper houses are now than in 2006. But who cares if they are cheaper still in 2009/2010!?! Which I am convinced they will be based on the above.
I echo what everyone else here says, you're a data driven guy. I'm looking to buy also and it does seem like a twilight zone. My agent sent me one home that when I went to the county record site, the area had nearly 40% foreclosures. Now the neighborhood was beautiful on a golf course, but I don't want to be a part of a neighborhood where I'm constantly having special assessments from the HOA because of all the foreclosures, etc. He than had the audacity to tell me there might be multiple bids. My response to multiple bids, lets move on to the next one because this ain't 2004/5. I will do exactly like Slick says but I will say look for SF investor forums. Those guys are hardcore, the one in San Diego has true data driven guys who look at all the trendlines.
Thank you sunnyview for the kind words. When I first was looking in the area in summer 2007, the agent I was working with basically said I was insane not to be buying, as prices were just taking a temporary break from their rapid appreciation and would soon rocket upwards once again. It didn't make sense to me, so I rented instead (I think he got a $2000 commission from the rental, paid by the owner -- so not as happy as he could have been with a sale).
I feel so redeemed now. But I think Windemere is just going to get worse in terms of prices; the fundamentals are worse now than at any time since I have been following the market. Other markets I am sure differ, but this one is plain dangerous to buy in.
a number of them just hit the market priced at $799,000. These sold for as much as $1,150,000 at the peak, and even in June of this year “foreclosure investors” were buying them for 850,000 to 875,000, thinking they got a great bargain. But the market has continued to tank. You can rent this size of house quite easily for 3500-3750 so the price/rent ratio suggests that prices will fall even further, perhaps to in the mid-600k range.
You shouldnt be surprised to see these tank further well below $500K...
approaching mid $400K(?). Bear in mind the rentals cost will also tank...
as the market untangles itself... and the economic correction continues.
I think that 2000 sqft townhomes will settle in price to around $450,000, 3000 sqft homes around $650,000, and 4000 sqft homes around $800,000. All are about 45% less than “peak pricing” in late 2005 to 2006.
Sorry... but on a 2000 sq TH going from $100/sf back in 1997 to todays $450/sf isnt gonna happen either... at best you may see 50% down to $130-150/sf... so again dont be surprised you see that same TH go for around $250K-300K. Even in the Bay Area prices just dont double over 10 year period. Whats changed to warrant such inflated prices...
Tanking ... dropping like a rock...
It will never be cheap to live there
Actually Sunnyview that isnt historically true. Certainly it wasnt expense relative to incomes back in the 70s and early 80s... even after our prior correction to the bottom in 1991 to late 90s.. we had a balanced RE market. Once reality sets in .. the hype fades quickly!
Windemere sounds like an upscale Modesto where land is plenty and tract homes were sprouting like weeds. We still have to wait for the Alt-A and Option Arms shoe to drop. Then commercial RE/MAlls... Deleveraging is h*ll!
That is true Sunnyview.. but its relative to incomes... yes incomes are higher in Bay Area...
But thats a double edge sword sometimes...
It is interesting how over the decade Bay Area employers have migrated to Sac ... Intel, Oracle, and others... all due to higher BA costs.
I have posted on zillow before about the Windemere development. It sounds like the original poster has done their research, but here are my thoughts:
Like other quasi-bay-area places like Brentwood and Mountain House, the Windemere development is a product of the housing bubble. It would never have made sense to build there if builders weren't able to sell these things at $1 million plus, which they simply could not outside of 2003 to 2005. There is just not a large enough job base in the area for so many million dollar homes (or "McMansions" as you say). The commuting distance to the real job centers (SF, San Jose, Silicon Valley) is too far for most of the likely buyers.
So who bought out here? People who got too excited about rising housing prices, and fell for the aggresssive marketing of the promoters, who claimed this will be the next up-and-coming bay area community with parks, schools, etc. Not all of the buyers were "flippers" who didn't plan to live there, but even those who do live there didn't plan to stay long. Try this: drive around this area and look at how many of the back yards are still unfinished (the builder sold the homes with unfinished dirt back yards for the owners to landscape themselves). This is years after the owners moved in. Why? Because even most owner occupants didn't really plan to stay long, it was just a necessary step on the "property ladder" to sell and move to somewhere they actually wanted to live. Even these short-term buyers don't really want a hour plus commute each way.
So it doesn't surprise me that you estimate that 75% of the homes are in negative equity, if anything that sounds too low. Every home bought from 2004 on would be 15% to 35% below purchase price, so only those few who put down 20% would have any equity left. And those who bought in the first phase in 2002/2003 may have equity, but my guess is that a good amount of these folks pulled out their equity in 2005 or 2006 (possibly to buy a second home in Windemere as an investment, would you believe?).
Prices still have a long way to fall here, and the builders themselves are just adding fuel to the fire, as you mention. They of course will keep all of their new sale contracts secret, since those who bought in 2004-2006 would be furious to know what the builders are offering to buyers of similar homes today. But rest assured, the builders will always be able to undercut all but the foreclosure sales; a seller who is not in distress has no chance to sell right now and is trapped in a rapidly depreciating asset.
I don't take pleasure in what has happened to the buyers out here, but it does offer an expensive lesson in the true risks in real estate, particularly fringe developments. My guess is that the buyers thought these homes were as riskless as treasury bills, so perhaps going forward they will have gained some wisdom from the experience.
Bottom line: if you really want to buy here, and it sounds like you do - wait a year. You will be amazed by the prices you see.
Large bubbles when they correct unfortunately (or fortunately, depending on your circumstance) tend to "over" correct. Don't be surprised if in a year, two or even possibly three that home prices approach space's predictions in your area of NorCal.
Yes, they can and do overcorrect, and the most "bubblicious" of the bubble markets will correct the most. That is why Palo Alto (long-established, close to dynamic job centers with many million dollar homes built over a long period) is holding up OK in price, while Windemere (far from job centers and sprouted all its million dollar homes overnight at the peak of the bubble) is deflating rapidly.
Basically, if your home purchase in 2005 involved visiting a "sales center" where their was free coffee, baloons, and glossy brochures featuring multiracial kids playing soccer, you bought in a bubble market.
Basically, if your home purchase in 2005 involved visiting a "sales center" where their was free coffee, baloons, and glossy brochures featuring multiracial kids playing soccer, you bought in a bubble market.
This sounds like a Jeff Foxworthy comedy bit
Ahh thank you SlickPoertry, its my material - not stolen! But the point is that the more "hassle-free" your experience was, the more likely you overpaid.
Researching and finding the right home in an established neighborhood is hard work, but not beyond the capabilities of someone who is savvy online and reasonably organized. New developments will have sales offices that basically remove all of the pain from homebuying - everything is arranged for you, just pick a model choose your upgrades, and the financing etc will all take care of itself. Some people genuinely want a brand new home, but others are just lazy and find the new developments easier to navigate. But this often comes at a steep price. Mainly, larger markups and more uncertainty as to the true attractiveness of the neighborhood (regardless of what the promoter claims).
Thank you all for the comments. I would really like to hear from realtors or agents who know this area as to why it will not decline, if you think that it the case. I believe that it will continue its price slide given what I have posted above, but I would love to hear the counterpoint!
Well thought out comments only though, please. I do not want to hear "they aren't making any more land" or "interest rates are only going up!" Please spare us all.
That is why Palo Alto (long-established, close to dynamic job centers with many million dollar homes built over a long period) is holding up OK in price,
If this was true why are employers moving operations elsewhere? More recently we have seen 1000 jobs disappear in Palo Alto by Rouch moving jobs to New Jersey. HP today is much smaller than back in the 80s. Jobs more and more are moving outwards. You will notice plenty of vacant commercial R&D space as you drive around. Its more of a double edge sword, employees and their $1M homes are too costly to maintain by employers.
As for Palo Alto... way too much hype! Lets not forget some of the increases in PA were based on inflated stock options that were cashed out back in 1999. With homes ( shacks) going from $200-300K straight to $1-2M... who will come up with that much cash anyway today... and from where? Do you expect another wave of inflated IPOs offerings... dont hold your breath... aint gonna happen. With Wall Street firms going under, who will do the offers... Goldman, Merrill, Morgan ?
So Dymanic Job Centers arent as sparkly as some would think! You can get a better deal in SilverCreek or Alamden Valley in So San Jose...
Windemere Buyer - As an owner in Windemere since late 2002 I must disagree with you on a number of points you've made.
1. Windemere is in a melt down phase. If 41 re-sells are currently on the market along with the new inventory the builders have which is probably about the same and if you include the homes somewhere in the foreclosure process you said of double the 41, it still means there are abour 80 homes for sale in Windemere. There are over 3,500 homes/TH's & Condos in Windemere and it is now over 92% built out, with half of this 8% being TH's/Condos to be built. So only 2.3% of all potential homes that could be for sale in Windemere are for sale today. You call this a melt down?
2. One example of one home that just came on the Market and is $500K less than what the buyers paid 3 years ago means the bank owns it now and wants it off its books. This does not mean all of Windemere is melting away.
3. The TH's & Condo's in Windemere are mainly investor owned. Not sure where you got your data for this statement. Think about the profile of a condo or TH buyer. Usually their first place. Want to own something. Most people who own condo's & TH's do so because of price/affordability. These units in my opinion are bottomed out now. One reason - Interest Rates.
4. Also, when has anyone been able to rent in San Ramon for the same price as buying something. Probably never. Renting is almost, almost always less expensive. So don't use this ratio as a hard and fast yard stick. Good to understand, but not the rule of thumb. You are forgetting about the landlords tax incentives as a rental vs. primary residence.
Continued...................5. Now my main point that I've been waiting to get to. Interest Rates & Mortgage Loan Modifications. Since I'm assuming you do not currently have a mortgage and have not had one for at least the last 1.5 years since you've been renting here is some insight. By February of 2009 Mortgage Rates on Jumbo Loans will be at their lowest point ever in the US. 10 Year Treasuries are now at their lowest yields EVER! The Fed & Treasury have just in the last week implemented purchase programs that arefinally helping rates come down as originators are getting these securities of their books. Everyone knows what happens when the cost to own something drops significantly in a short period of time. People who felt comfortable buying the $500K house will now feel just as comfortable with the $600K house because their true locked in cost is the same. And these will be people who can actually afford their payments due to the excessive tightening in the lending standards. Mortgage Loan Modifications - I happen to own a number of homes around the US all of which have different loans with the property. Over the last week I called each lender who owns my notes to ask them about their loan modification programs. Amazing how willing these guys are all of a sudden to change the terms on your loans (do this well before you ever run into an issue because then any leverage is gone). No refinancing, just simple contract changes to the terms. I highly recommend everyone calling their lenders about this. Don't take their first answer either if you are current and have never been late.In summary about Windemere. It is not in a melt down phase. It is a highly desirable area to live (San Ramon, CA). The quality of the schools cannot be under estimated and is probably the driving force behind the reason people live here. Also to the person who lumped Windemere in with Modesto and Mountain House or Brentwood. Check your map and see where San Ramon is. Windemere has been in the planning process with Shappell since the early 1970's. Hardly a bubble project. Finally, enjoy the development, parks, schools and open spaces, it is a great place to live. If you need a realtor, agent, mortgage broker, etc., best of luck finding one as I am not involved in the industry and I'm sure people reading this assumed this until now.
By February of 2009 Mortgage Rates on Jumbo Loans will be at their lowest point ever in the US. 10 Year Treasuries are now at their lowest yields EVER!
this also shows how little you know the market. Try getting a jumbo mortgage loan in california without a minimum of a 25% downpayment these days and under 7.5% - even after the conforming rates have come down drastically, the jumbo market isn't. It's essentially an imposible feat. How many california residents have that $200,000 plus saved up for a downstroke for these days. Not Many.
"“foreclosure investors” were buying them for 850,000 to 875,000, thinking they got a great bargain. But the market has continued to tank."
A lot of brilliant investors think they're getting deals. I take great enjoyment knowing their greed will get their asses handed to them.
Timing the market is about the worse thing you can do. Things are extremely volatile and unpredictible right now. In the long term however, windemere is a sure bet. I agree with many of the points made earlier in this post by a windemere resident. I would not compare it to modesto, mountain house, brentwood etc. There is just no apples to apples there. I bought in windemere this year and am very happy with my home. The key for me was affordability. If you can afford the payment without sacrificing your lifestyle, in today's market, I would say buy. You will have the widest selection, strong bargaining position and in a few years rising prices will bring increased equity to your purchase. Every one who is buying in widemere today is not an investor or frenzied. So pay attention to your pocket book, do the math, and if you can afford it, go for it. They key here is, if you are buying a home as a principal residence, intend to stay in it for more than 5 years, buying in this market will not result in losing your shirt - even though in the short term prices may fall further. If you are buying a home that sold for $1.5M in the hey days, at $900K now, you will not lose. You may have, say $50K less equity than someone who buys the same house for $850 6 months from now. But if the house is worth $1M in 5 years, how did you lose?
Amazing how willing these guys are all of a sudden to change the terms on your loans (do this well before you ever run into an issue because then any leverage is gone). No refinancing, just simple contract changes to the terms. I highly recommend everyone calling their lenders about this. Don't take their first answer either if you are current and have never been late.
What part of the terms ? Is it rates or timespan ... certainly changing the principle will have "ripple effects" across the "money supply chain". If that happened, the bank saver, will not be getting his/her investment back + returns. Ouch! Secondly, it certainly voids any past sales figures as being somehow valid. If we were talking about larger number of foreclosures like Stockton, where rows of rows of forclosures sit.. all the past home prices have been stamped null/void and repriced downwards. We can certainly forget about any rebound happening...
and if you overpaid and still made the payment... well your just sitting there being ripped off for years to come as more recent buyers pay half ! We are living in interesting times indeed.
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