Comments on: Real Estate Bubble – The "Tidal Wave" of Foreclosures Strikes the Bay Area

By: SavingDiva

SavingDiva — Wed, 30 Jan 2008 20:52:04 +0000

The housing bust in the midwest is more like foreclosure central…there are bank foreclosures every where!

By: Kanwar

Kanwar — Sun, 27 Jan 2008 16:09:01 +0000

Another way to value real estate is to look at the P/E ratio -> Price to Earnings ratio of a property. i.e what does a house cost per month to own (mortgage payment=price) vs. what does it cost to rent(rent=earning potential). The historical P/E ration of residential real estate in the US over the last 100 years has been 1.33. For example, if the house on Birch Ln above rents for $1800, it would be a good buy if the primary mortgage payment on it was no more than $2400/mo (1800×1.33). Based on current interest rates, a $2400 payment would service a loan of approximately $320k, resulting in the property being valued at $400k (primary mortgage=80% of the total price), which is what it is listed for. This is a bit higher than your estimate of $360k because of the historically low interest rates at present. This methodology takes into account fluctuating interest rates. Affordability is based on your ability to sustain a payment, rather than the price of a house. For example, if the interest rates were to go to 10% next year (historically we have had them at over 15%), then the property value would go down because as a consumer, I can only qualify for $2400/month and in a case of higher interest rates, a greater percentage of my payment will go towards the interest.

By: ericabiz

ericabiz — Thu, 17 Jan 2008 20:31:10 +0000

@cheri – Pacifica has had a few good ocean-view REOs at about 15% off peak prices, so the decline has started there. While San Jose will have some good values toward the end of this year, I don’t realistically see very many good deals in Pacifica until mid-to-late 2009. I’m watching closely and will update as things change. Keep yourself subscribed to my blog — have it send you an email update whenever I post. I expect to post about once a month on the state of the real estate industry.

@eric77 – I rented in Pacifica for a year. Beautiful place. It made me smile to see the ocean every time I commuted anywhere. No air conditioning needed since it is a nice coastal temperature all year long, and the air just smells really clean and wonderful. Hard to describe unless you’ve hung out on the coast. Rentals are few and far between with ocean views, so I’m cool with San Jose for now.

By: eric77

eric77 — Thu, 17 Jan 2008 11:03:24 +0000

I agree with Erica’s prediction that prices will continue to drop in ‘08, and maybe early ‘09 even just from looking at Credit-Suisse Boston’s graph of the #’s of mortgage resets.

One side question, what make you all want to live in Pacifica?

By: cheri

cheri — Wed, 16 Jan 2008 17:04:33 +0000

Love your blog! We too want to live in Pacifica too. My partner and I have been looking since the summer and have seen the prices slowly decline…when do you see the prices truly drop considerably, if ever, in Pacifica? Anyone…?…

By: ericabiz

ericabiz — Wed, 16 Jan 2008 08:18:35 +0000

@Ksilebo: Colorado has already had some major real estate losses. It’s probably not going to be as bad there. I use ZipRealty, which has an “Estimated Value” tab where you can easily see what the property last sold for. If ZipRealty doesn’t work in your area, just check zillow.com and it can usually tell you. 50% off the last price = a pretty good deal.

@dhuberma: Darn good question. They both say “Partial Baths: 0″, so I guess 1 does really mean 1 and not 1.5 when it comes to these two houses.

By: dhuberma

dhuberma — Tue, 15 Jan 2008 21:47:45 +0000

You indicate properties #1 and #2 only have 1 bath listed. Is that full bath, with an assumed 1/2 bath? Or do the houses you’re looking at really only have one bathroom, because . . .

By: Ksilebo

Ksilebo — Tue, 15 Jan 2008 04:46:48 +0000

It’ll be interesting to see what happens here in Colorado.