This page has been archived and commenting is disabled.

More Unreal Estate

Tim Knight from Slope of Hope's picture




 

From the Slope of Hope: I have the good fortune to live in Palo Alto, and - mercifully - I bought my house way back in 1991, which was three bubbles ago. Over that time, the house in which I live is worth nine times what I paid for it. Those outside the Silicon Valley might find perverse comfort in the relative bargains of their own neighborhood.

Below is a simple chart showing the median sales price of Palo Alto houses and - helpfully - the percentage of the list price received. It's a pretty interesting litte chart. At first, it gently descends, as the Valley dipped from the Internet bubble bursting. Next, it began a steady ascent, as interest rates plunged (thanks to Greenspan) and the housing bubble went into full swing. The financial crisis took the froth out (although Palo Alto didn't suffer the 50%+ drops of less attractive areas, like Stockton) and, most recent, we have soared into unchartered territory, both in terms of median sales price and price received (as you can see, the price being paid is actually averaging 11.6% above the already lofty asking price).

0523-graph

The same realtor who put together the chart above also keeps a blog, and they showed the amazing jump higher in prices since the financial crisis (Palo Alto +86%) combined with the plunge in available inventory (Palo Alto -74%). Personally, I think the poor souls buying at today's prices are going to find themselves underwater in a big hurry and, just to add salt to the wound, will be paying 1.1% property taxes on the purchase price every year until they manage to sell the house, irrespective of the mark-to-market value (my own taxes, thanks to Prop 13, are pegged at a value 80% less than the actual present value).

0523-party

For those of you who figure I'm just being a pessimist and are eager to jump on board this gravy train, I can bring to your attention a couple of plum properties. Here's one in Los Altos - not quite as expensive as Palo Alto, but still a nice town - for $2 million (probably more like $2.1 million+, given the bidding wars). Just look at that curb appeal, ladies and gentlemen! Ever see such a sweet garage? And, yes, this is the actual color newspaper ad. This is the very best "face" they could put on the property.

0523-patlen

If that's too low-end for you - - that is, if you've got something along the lines of $3 million you want to spend instead - - fear not, I've got you a listing. It is shown below. As you can see, it hasn't been on the market in 91 years (nor, apparently, has it been cleaned in the same timespan). Something tells me the family who owns the property decided, after nearly a century, it would be a good time to cash out.

0523-rustin

Get in line. Sign right here. Could you possibly write that in blood?

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sun, 05/25/2014 - 11:01 | 4793187 My Days Are Get...
My Days Are Getting Fewer's picture

No basements in California houses - why?

 

I have lived in the East all of my life - practically every house here has a basement.

Sun, 05/25/2014 - 09:42 | 4793025 CheapBastard
CheapBastard's picture

Real Estate is cyclical like almost everything else.

 

The next Bust will be worse.

Sun, 05/25/2014 - 09:34 | 4793012 tip e. canoe
tip e. canoe's picture

just be happy your property doesn't have any "wetlands" on it.
talk about a land grab...agenda 21 was always a bit too tinfoilly for my tastes until i took a look at those maps and how they correspond with actual reality in the soil.
this is coming from someone that understands & cherishes wetlands much more than the average person.

Sun, 05/25/2014 - 08:10 | 4792917 AdvancingTime
AdvancingTime's picture

I liked the way Tim pointed out he bought his house "three bubbles ago."  Because of the uncertainty in today's market and the direction events might take the subject of "value and worth" continues to garner a fair amount of interest and remains relevant.

History is chucked full of  distorted markets, debts unpaid, promises unfilled, and bubbles. These "interesting times" play havoc with the value of things and what they are worth. Like some of the cruel games children play you don't want to find yourself without a chair or holding the "hot potato" when the game ends. Below is the full article sporting a minor facelift and update.

http://brucewilds.blogspot.com/2014/05/value-and-worth-constantly-change...

Mon, 05/26/2014 - 11:50 | 4795505 Comte d'herblay
Comte d'herblay's picture

Chock full, too.

Sun, 05/25/2014 - 08:02 | 4792914 Notsobadwlad
Notsobadwlad's picture

Value, price ... dang I always get those two confused. Now which is which?

Sun, 05/25/2014 - 09:32 | 4793009 sodbuster
sodbuster's picture

>Over that time, the house in which I live is worth nine times what I paid for it.< Not really, Tim. Your fiat money has been debased so much it takes a lot more of the worthless stuff to buy anything. Have the wages kept up in the area to the same extent?

Sun, 05/25/2014 - 07:48 | 4792903 Singelguy
Singelguy's picture

In Florida, property taxes are 2.25% of appraised value. If you have homestead the increase in taxes is limited to 4% per year. 1.1% is cheap!
On the other hand, Florida has no income tax and 6% sales tax.

Mon, 05/26/2014 - 11:54 | 4795514 Comte d'herblay
Comte d&#039;herblay's picture

Add 1% for each of these:

Bugs

Mosquitoes,

Big Bugs

Palmetto Bugs

Termites

No basements

Shlocky architecture

Alligators

Humiditty

Heat

Sweltering unliveable exterior living for 4 months a year

Jeb Bush

Old, Grey, Blind, deaf, Jewish drivers (1% each)

South Beach

Gays

polluted Atlantic Ocean H2o

Plastic tits, asses, and lips

 

 

Sun, 05/25/2014 - 01:33 | 4792710 ImGumbydmmt
ImGumbydmmt's picture

As soon as he said

"have the good fortune to live in Palo Alto" I realized this is one deluded SOB.

We left nearby San Mateo in 2012 and have never been happier to be out of PRK (peoples republic of Kalifornia)

So we can easily assume this SOB has over a million in home equity. Dude if you dont have at least 2x this amount in capital you can lay hands on somewhere else, its time to sell and move to a Free State.

in many beautful parts of the world that equity is a retirment fund.

Why the F anyone would want to continue being trapped working to pay the bills in that commuting nightmare, communist state is beyond me.

I left 17 years of freezing to death in Chicago for SF Bay, and loved being out of the cold, but finally grew up and learned there are places in USA which are nice weather also, nice folks more freedom and 1/10 the cost of living.

Sun, 05/25/2014 - 08:17 | 4792925 AdvancingTime
AdvancingTime's picture

Americans must make a greater effort to understand that prices vary greatly throughout the country. Areas with the highest prices are more vulnerable to large swings. This should not become the problem of other areas.

Sun, 05/25/2014 - 00:45 | 4792662 ricky663
ricky663's picture

Been there, done that..... Grew up in the SFO Bay Area, and started my first business out of the garage. When it was time to "move up," I rented the loft in my friend's commercial business in Redwood City. Eventually took that over, until we needed more space and moved across the bay to Hayward. Moved to Santa Cruz county in the early '90s, where the gross income and (constant) taxes peaked out. Great Income with reduced net income, because of taxes and unemployment insurance (employees are a frikkin burden/load!)
After running the numbers, I decided that moving to a "tax free" state with a low cost of living would be prudent. So, we moved to Nevada... And it was good! Then, the financial meltdown came, wiping out allot of our real estate equity.
After years of prep/planning, we decided it was time to retire... To Thailand. Everything is now paid off, banks pay interest on savings, and we live in "Paradise" again. Low cost of living, beautiful surroundings, and relaxed lifestyle.

Three lessons come to mind:
1) being on the "hamster wheel" in the US is doable for awhile, but
eventually they "get you" via taxes, inflation, fees, etc.
2) real estate wealth is fleeting, so you better have perfect timing and good
luck getting in and out.
3) Now that we have been here for awhile, I realize what a scam housing
in the US has become....Most of the "value" of the real estate is sucked
out by the vendors (builders, suppliers), banks/lenders (via interest on free money they get from the Fed), and government (via fees, taxes). I believe that young Americans have caught on to this scam and aren't buying it .... Thus the ponzi eventually crashes.

Sun, 05/25/2014 - 08:27 | 4792935 FredFlintstone
FredFlintstone's picture

Thanks for sharing Ricky. The scales have fallen from my eyes and I am seeing what you mention. I would like to add to that the cost of owning cars. I had 4 cars and 4 drivers until last week when I gave a car to my 23 yo who graduated and got a good job. When I dropped that car and driver Allstate said my rates would go up $445 for ever 6 months!

Told them I thought they made a mistake and to check their math or I would shop around. Wouldn't you know it, they made a "mistake". I pay too much and need to look around. That is what happens when you put your wife in charge of insurance :)

Sun, 05/25/2014 - 09:42 | 4793026 ricky663
ricky663's picture

Top shelf insurance on our new 4WD pickup here (Thailand) is $600/year, no matter who drives it. And the premiums go down based on the vehicle value every year (claims don't seem to matter).
Top shelf health insurance here is ~$800/year. I checked last month, and Obamacare was going to cost us (myself and wife) ~$1100/month if we had stayed in Nevada.
Thai citizens here pay $1 + medications per hospital visit, regardless of the procedure/operation. Hospitals (and dentists) are very good here.
I know Thailand has political issues. But what system is better?

Sun, 05/25/2014 - 00:40 | 4792656 boeing747
boeing747's picture

In 91 years old house, chairs will move to one corner by themselves. You have to remodel it to its original spec because it's historical value. Steven Jobs had same problem when he bought a mansion in city of Woodside and tried to remodel it. But he passed away before he can move in.

 

 

Sun, 05/25/2014 - 00:25 | 4792641 Rastadamus
Rastadamus's picture

I pray for the day that each and every one of those homes are underwater.

Sat, 05/24/2014 - 23:31 | 4792566 Nassim
Nassim's picture

I was last in Palo Alto in 1981. It was a really nice quite place with a great campus - tennis courts with pretty girl players and so on. Very laid back. I don't want to see it now as I might get disappointed.

Sat, 05/24/2014 - 23:08 | 4792530 starman
starman's picture

Tick tock tick tock 

Sun, 05/25/2014 - 00:15 | 4792629 Pareto
Pareto's picture

+1 tick tock tick tock .......motherfuckers!  There - fixed it for ya Starman

Sat, 05/24/2014 - 21:35 | 4792336 DerdyBulls
DerdyBulls's picture

I'm in the real estate business. I'm supposed to understand this insanity. I can't identify with person who'll pay $2m for this cow patty and straw. Look, I live in a nice home. I have no problem with people owning homes if they want to. $2m buys 9,000 sqft, 6 BR and 8 BTHS in Dallas Texas. I can tell you point blank however that the home you live in is NOT an investment. It takes money out of your pocket everyday you live in it, even without a mortgage. The dirt is the only thing that doesn't depreciate. The structure is a liability. It also restricts liberty, i.e., mobility. I learned this the hard way in 2008. I wanted to move to a better market. It took me almost 2 years to sell my home. This left a bitter taste in my mouth.

Homeownership is not a "dream" anymore. More and more people are starting to realize this. If the lure of low interest debt doesn't lobotomize people's rational faculties it will be healthy for prices. I'm not sure rationality will rule regardless, in Palo Alto. This blows my mind, man... 

Sun, 05/25/2014 - 08:32 | 4792939 FredFlintstone
FredFlintstone's picture

Yeh, I live in a home built in 1998. Just spent $9,000 for a roof, 2,300 for gutters downspouts, $2,900 for painting. Last year I spent $8,000 for some retaining wall work. I am now looking for landscaping and someone to fix my foundation. There is also some concrete work that needs done.

 

Next I will focus on the inside. Bathrooms need remodeled. Some carpet needs replaced - $4,000 for that.

 

Now that the kids are out, I want to find a small ranch that I can work on myself. Prices are too high IMO to make a purchase right now. Wait for the current bubble to pop?

Sun, 05/25/2014 - 09:19 | 4792983 DerdyBulls
DerdyBulls's picture

The single family home a consumable good. Perfect post to demonstrate why. It only becomes an investment if someone else is paying the debt, maintenance, insurance, taxes, vacancy and the rest of it. It is very, very slow money at the single occupant scale. In Florida they are now building lifestyle apartment complexes to acomodate the needs of retirees who felt the burn of the last housing bust and soured on having so much of their money go down the drain. The shame of "renting" is disapating. Screw the bubble monsters.

Sun, 05/25/2014 - 08:14 | 4792921 duo
duo's picture

An "investor" bought the house next door to mine, empty for 3+ years, falling apart, for MORE than my house is worth according to Dallas County.  The buyer has put about $80K into it, but then found out (from my wife) that it is in a horrible school district (nearly all Section 8ers) and that no one with kids would ever buy the place.  Great neighborhood for dog owners, BTW.

Long story short, within 2 months Dallas County slaps me with the maximum appraisal increase.  I'm looking at an extra $1500 a year in property taxes with no end in sight.  Mr. Investor's house has been on the market for 2 months in an area where houses sell in a week.  The house fixed up is worth what he paid for it trashed.

Sat, 05/24/2014 - 21:11 | 4792298 I Write Code
I Write Code's picture

You must have bought at the best moment in the last thirty years!

All those obscene billions from the Internet and social networking have to go somewhere, and I guess a lot of that is Palo Alto real estate and adjacent.  I've lived up there and never much liked it, flat and crowded, congested, hills to the west cut off the sun 30+ minutes early, nothing but mud flats on the bay side, Los Angeles has more charm IMHO.

Probably getting some Chinese money there, too, that's a lot of what's inflating prices in Los Angeles and adjacent.  The continental US (minus Alaska) is what, about 3,000,000 square miles?  Cut out about six hundred square miles (about 0.02%) in Silicon Valley, San Francisco, Manhattan, Los Angeles, Washington DC, and Miami areas, the the aggregate numbers on the rest must look like absolute sewage.

These are just weird-ass perverse times.  Stuff is gonna happen.  Be prepared.  Or resigned.

Sat, 05/24/2014 - 21:05 | 4792283 Pemaquid
Pemaquid's picture

All you crazy Californians need to do the rest of us a favor and please stay where you are!

Sat, 05/24/2014 - 20:40 | 4792234 kaiserhoff
kaiserhoff's picture

It's all good, Tim.

I'm sure they got variable rate mortgages, so the monthly nut can only decrease,

forever and ever, amen;)

Sat, 05/24/2014 - 19:21 | 4792060 MontgomeryScott
MontgomeryScott's picture

I'm dialing the emergency environmental violation number RIGHT NOW!

The GREEN POLICE need to be informed that the first house is wasting energy, because those 12 dollar Chinese 'sconce lights' in front of the garage are turned on in the DAYTIME! In THE DAYTIME, for Algore's sakes!

That'll teach them a lesson!

(Operator? Yes, I have a complaint. Could you hook me to the E.P.A.?)

They BETTER have BICYCLES in that garage, or the fecal matter will REALLY hit the bladed air-moving device!

(No, Muffy. I'm NOT using 'swear words' again. Yes, I remember. The P.C. police taught me to be good, last time when you called them. I'm just filing a complaint, I SWEAR!) Five minutes later: (No! I WASN'T using St. Gore's name in vain! Yes! Your new strap-on is MUCH larger! YES! Anything for you! I'll buy it! I'll BUY IT!)

TWO MILLION for a '70's brick single-story tract house with NO land in a place where water doesn't EXIST, and taxes are EXORBITANT, and communist bankers control EVERYTHING. It's like a dream come true (if you are married to a fat ugly woman who likes to fuck you in the ass with a strap-on).

 

Sat, 05/24/2014 - 20:02 | 4792151 pitz
pitz's picture

There's no shortage of water in the Bay Area, especially not Palo Alto.  If you've ever been, you'd understand that. 

Sat, 05/24/2014 - 19:57 | 4792142 shovelhead
shovelhead's picture

Your mother must be so proud...

Sat, 05/24/2014 - 19:00 | 4792001 AdvancingTime
AdvancingTime's picture

California has the distinction of holding 13 of the top 25 spots and the top five most expensive real estate markets in the United States.  In contrast to California, the now de-industrialized Midwest has 15 of the nation's 25 least expensive real estate markets with Cleveland, Ohio having the least expensive four-bedroom, two-bathroom homes listing for an average price of only $63,729.

Sadly for me I live and own a great deal of property in the Midwest where prices have gone nowhere. The link to a Viable Opposition article can be found below that is one of the best articles I have read or seen on just how uneven the recovery in housing prices has been.

http://viableopposition.blogspot.com/2013/11/americas-most-and-least-exp...

 

Sat, 05/24/2014 - 19:46 | 4792120 MontgomeryScott
MontgomeryScott's picture

Dear,

The PLA thanks you for your real estate prospectus. Many rich Chinese, wishing to invest, are seriously considering purchasing your lands, and since you appear to be able to accept offers for what you hold, we are highly interested in contacting you for negotiations.

As you might realize, Detroit was also interesting to us, and Cleveland sounds like (how do you whites say it?) 'heaven-on-earth'.

No, we think it is a 'diamond in the rough', and with the proper tending and culling of the wilded darker population, could be made once again to shine as a jewel in our ownership portfolio of positive investment vehicles.

Let us shine in your desire to be rich. "Sadly for me I live and own a great deal of property in the Midwest where prices have gone nowhere."

In the spirit of East/West cooperation, we will offer you double what you are told this land is worth, in the spirit of mutual freindship between our opposing cultures.

Nothing bad will happen. The nuclear waste storage on Lake Huron by our allied PPP Ontario Power Genaration will be totally safe; but we might need to use your land (in case we come to the point of overcapacity). We will include in the contract a stipend, in case we need to do this, and you will be paid an extra amount; should this need arise.

http://www.youtube.com/watch?v=ZFpKvDdvDWA

This should give you the capital to purchase any of the houses that you have seen in the article that you are posting on.

     Thank you for your time.

Won Hong Lo (official party representative)

Sat, 05/24/2014 - 18:51 | 4791989 joego1
joego1's picture

If you like your Palo Alto you can keep your Palo Alto.

Sat, 05/24/2014 - 21:27 | 4792328 Cpl Hicks
Cpl Hicks's picture

No, no no...you didn't build that house.

Sat, 05/24/2014 - 20:22 | 4792187 DerdyBulls
DerdyBulls's picture

Yes, stupidity is a right.

Sat, 05/24/2014 - 18:25 | 4791946 DerdyBulls
DerdyBulls's picture

Sheer idiocy.

Sat, 05/24/2014 - 17:40 | 4791858 kurt
kurt's picture

The second house looks like the Joad house just before the dozer came.

Sat, 05/24/2014 - 17:21 | 4791824 algol_dog
algol_dog's picture

I lived in, and around Palo Alto from '90-05'. I Thought it was all over for housing after the Tech bubble burst in '00 (There was a mini housing bubble burst in '91 too, if you remember) and left for Hawaii in '05. I can still remember a couple of condo units going up around 1997, at Rengstorff and El Camino (Mt. View), and my friends absolute sticker shock at the price they were going for. Got to be tripled by now. The 90's were a glorious time to be in the Valley. A truly decadent extravaganza. 

Sat, 05/24/2014 - 20:15 | 4792175 MontgomeryScott
MontgomeryScott's picture

"...at Rengstorff and El Camino"

Don't you find it interesting, the mix of German and Spanish; in the naming of subdivisions there? It's like those stories about Hitler escaping to Argentina on a U-boat, and establishing a foothold in the Americas.

'El Camino' actually means 'The path', like a secret dirt road, which might be less travelled than most roads, boulevards, sidewalks, or madacam-coated lanes of today.

'Palo' means 'STICK'. 'Alto' means 'TALL'.

Both are usually written with the male gender when combined (the last letter 'O' refers to MALE, while 'A' refers to FEMALE).

I have to assume that the Spanish missionaries named it thusly when they were shown the outlying forests of tall trees in the mountains (that reminded them thet their dicks were short).

As far as Geman stuff, I'm gonna pass in this description (you probably don't want to know). I am reminded of the scene in 'Young Frankenstein' where the hoar sees the big creature's dick.

http://www.youtube.com/watch?v=epkdangGuow

 

 

 

 

Sat, 05/24/2014 - 17:44 | 4791862 pitz
pitz's picture

Yeah most Valley companies actually made money in the 1990s, and engineers were paid enough to be actual participants in venture capital.  Now we have VC dominated by outside money, and very few truly profitable firms. 

A good purge of the terrible VC culture and reducing the unprofitable firms down to size would really go a long ways towards cleaning things up. 

Sat, 05/24/2014 - 20:23 | 4792190 MontgomeryScott
MontgomeryScott's picture

Well:

http://www.youtube.com/watch?v=a1Tpe-dbPQI

Wipe, when you're done, please.

Sat, 05/24/2014 - 17:00 | 4791776 whoopsing
whoopsing's picture

That second house includes the little farm in the back...right?

Sat, 05/24/2014 - 17:54 | 4791884 DeadFred
DeadFred's picture

If any of that open space is included there will be quite a war to get that place. The only benefit to the house is it means you won't have to pay to bring utilities in. Kind of a wash when you factor in disposing of the asbestos and lead paint debris when you knock it down (an unfortunate fire makes things easier). $500,000 in construction costs will give you a nice house plus the barn for the horses. You might have to kick in extra if you want the highest grade fencing and pasturage for your mounts. This is a tech executive's dream site. At 91 years it may have its own water supply. Priceless.

Forward the 1%!

Sat, 05/24/2014 - 17:34 | 4791848 Nadine of Tyrol
Nadine of Tyrol's picture

$3 million will get you a 10,000 square foot lot in Palo Alto / Menlo Park in today's market.  The shack is thrown in as a bonus..... along with the feral cat.

Sat, 05/24/2014 - 16:52 | 4791769 pitz
pitz's picture

Once all the scammy companies of the Silicon Valley (ie: most of them lately, especially those involved with advertising or social media) dissappear, those houses aren't going to cost that much. 

When one does the math, its quite astonishing to see that Silicon Valley tech workers, after everything is said and done, really aren't taking home much of anything after they pay those prices.  RE vendors, heck, even mere police officers, are paid more than most tech workers.  Its like the Alaska gold rush -- most of the actual miners made little to nothing (and many paid with their lives!), but the people who supplied them did very well.

Sat, 05/24/2014 - 16:49 | 4791768 Nadine of Tyrol
Nadine of Tyrol's picture

My first employer recently passed away and her heirs sold her house in Menlo Park for $2.5 million in a single day after a bidding war.  The house was built in 1947 and was never upgraded or remodeled; original 1500 square feet, original kitchen, original bathrooms, etc.  The young couple that bought the house are tearing it down and rebuilding completely.  Here is where the fun comes in!  Under California's new Green Building Standards that house must be torn down one board at a time and all of the debris separated into its appropriate State Mandated debris container.  A demo project that used to take a day has been going on for weeks now.

Sun, 05/25/2014 - 09:16 | 4792978 Mad Muppet
Mad Muppet's picture

Well, we don't know for sure how the fire started...it may have been the old electric. Problem solved, and it's once again a one-day demo.

Sat, 05/24/2014 - 16:43 | 4791757 Freebird
Freebird's picture

Lend me a fiver Tim

Sat, 05/24/2014 - 16:04 | 4791697 williambanzai7
williambanzai7's picture

I can't make up my mind which is worse, Levittown or Palo Alto. Given the high population of geek douchebags, I would have to say Palo Alto. But the architecture is a tie.

Sat, 05/24/2014 - 21:03 | 4792280 I Write Code
I Write Code's picture

Brother, do you know Joseph Eichler?

http://en.wikipedia.org/wiki/Joseph_Eichler

He build modernist, cheap-jack slab foundation and glass wall small homes that twenty years later all turned to shit, major communities were near UCLA in Los Angeles and in Palo Alto.  Architecturally you're probably better off with Levittown, but I suppose Eichler had far better location!

Most of these are torn down now, and rather than preserve any for their historical value they should all be condemned.  Most are already gone and the rest will go soon.

Sat, 05/24/2014 - 23:03 | 4792523 Never One Roach
Never One Roach's picture
Malaysia's IOI Properties Q3 net profit falls 70 pct on quarter

 

KUALA LUMPUR, May 23 (Reuters) - Malaysia's IOI PropertiesGroup Bhd on Friday reported a 70 percent on-quarterdrop in January-March net profit as new governmentprice-controlling measures hurt domestic sales.

 

http://news.yahoo.com/malaysias-ioi-properties-q3-net-062330430.html

 

I remember when Congress changed the RE tax laws in the USA in the 1980's...my properties sunk over 40% in a matter of weeks. Be careful if you invest in RE anywhere...watch the Re laws, zoning, taxes [local and Federal], etc very carefully. As the deficit soars you can bet Congress is looking at abolishing the tax advantages of RE.

Do NOT follow this link or you will be banned from the site!