Remember when we promised to point out the bullish signs for the San Francisco real estate market based on good buy side analysis? Well, this isn’t it.

Multiple offers on properties listed below current market? Amazing! Sales up on significant price cuts and seasonality? Shocking! A rebound from the bottom? We’ll say no.

UPDATE: And in related news: SocketSite Sees Seasonality (Versus Signs Of A Rebound).

Comments from Plugged-In Readers

  1. Posted by kris

    It is something positive though, in most of America you can’t sell RE for any price.
    all my love

  2. Posted by kris

    “The real estate tracing firm Terradatum ran some numbers for CBS 5, which show that more San Francisco properties have gone into escrow in the last two weeks than at anytime in the last six months.”
    [Editor’s Note: Sales volume up on seasonality? Inconceivable!]

  3. Posted by San FronziScheme

    If you lower prices, buyers will come.

  4. Posted by Eoral

    Last two weeks activity does not signify a thing relative to long term trends.

  5. Posted by anonn

    “If you lower prices, buyers will come.”
    Sort of. Five to ten percent off peak is about what list prices were three years ago before competition and overbidding drove up sales prices.

  6. Posted by Jake

    Isn’t this when buying typically picks up anyways? Still, not bad news, at least someone is buying out there.

  7. Posted by tipster

    Goodness, why would higher volume be a surprise. Prices drop and the buyers willing to buy at that price buy. Then those buyers are out of the market, and prices drop again to allow prices to drop to reach the next set of willing buyers.
    Buyers bought a lot of Sacramento houses when prices dropped. Then prices dropped more in Sacramento.

  8. Posted by Pumkin Patch

    You’ve gotta be kiddin’ me! One thing I learned in taking two semesters of statistics is that it is a math of complete manipulation! Get an idea in your head and, prove it using stats! Homes in Excelsior? Sunnyside? $500k Infinity condos? Come On!!!!!! Who put together this crap? And, who are the idiots that fall for it?

  9. Posted by jj

    The numbers don’t add up. The number of loans are up 1/3 while the escrows are up 12 times. Can someone verify the escrow numbers? Perhaps Hank meant more escrows in the past two weeks than any two week period in the past 6 months.
    Alan Mark of Infinity reminds me of ORH last year. They came on TV and said that they were raising price because of the demand. We all know what happened since then.

  10. Posted by anonn

    The news is so garbage these days. Hyperbole on the way down, hyperbole (on the still to early to even call premature) way up. But there are expensive houses selling, getting into contract, and having contingencies removed on a daily basis too. It isn’t just Sunnyside, Excelsior, and 500K Infinity condos. I’ve divulged a litany of them over the past few weeks and they’ve largely been glossed over. SOME, and I repeat, SOME bigger ticket items are moving along side this other trend.
    Again, tho, I feel as the real story behind this story may be SF’s southward gentrification trend. Nowadays the rails of the train are getting greased by superconforming and 20% down for “affordable” areas. Who is more well heeled? The person who bought in Exelsior with a ninja loan for 750K in 2006? or the person who is buying for 650K and 20 percent down, in 2009?

  11. Posted by Daniel

    We’re in the 4th inning of a 9 inning game called: CAPITULATION

  12. Posted by Rincon Hill Billy

    Now hold off on the bashing for just a minute…
    Hank may be right…I think below median priced homes are being sold fairly quickly…especially if a the 10-20% price drop allows someone who is living in a tiny 1 bedroom to move up to a 2 bedroom in the city.
    I think the pain is being felt by what I call the “middle class luxury” units…the 2/2’s priced in the 700-1000k range that are now dropping, but still not investment-worthy for those who don’t have money to burn.
    Just from reading SS, I think most of the contributors here are in that middle range, so it seems like nothing is being sold. But if you’re a family earning a modest income (and didn’t over-invest in the boom time) still living in a 1/1, now 2/2s are affordable, and I can imagine how they can see it as a chance to upgrade, given the low interest rates and gov incentives.

  13. Posted by anonn

    “We’re in the 4th inning of a 9 inning game called: CAPITULATION”
    Do tell. And where are your seats in the stadium? You know, with such good sight lines and all?

  14. Posted by Rincon Hill Billy

    Then again…selling season IS coming…so Hank could be making something out of nothing…=P

  15. Posted by flaneur

    San Francisco being different was my favorite in this. Thanks, Socketsite, for a real funny video!

  16. Posted by Tall Guy

    Phew! I’m so happy the housing downturn is over. Okay, so what should I buy that guarantees me at least 4-6% appreciation per year over the next 10? I can afford up to $1.3M. Anyone? Anyone?

  17. Posted by ha

    I usually don’t like the kind of post that I’m about to write, but . . .
    this is the ridiculous dribble that you expect to hear from the NAR or the Chronicle Real Estate “news” section- totally unbiased from advertisers.
    Without claiming to know what is going to happen to real estate prices going forward, I do know that selectively choosing data from the last two weeks and using words like “serious real estate rebound” and that demand has been “unleashed” is . . . well, it’s obviously not journalism– and that is honestly the nicest thing I can say about it.

  18. Posted by SFer

    Tall Guy:
    Over the next 10? Bah-humbug! That 4-6% appreciation should last into perpetuity!

  19. Posted by Jimmy (No Longer Bitter)

    tall Guy: I loaded up on BP stock yesterday. That pays a 9% dividend (plus some potential upside as oil heads up to $60 this year) with a P/E of 4.
    That’s where I’d put my $1.3M … if I had it.

  20. Posted by anon

    Oh come on! I guess it depends on how you define “rebound.”
    Did anyone seriously think that prices would immediately jump back to where they were 2-3 years ago?! A rebound is a process, and at the simplest level, an increase in sales IS a rebound of some kind. OF COURSE they aren’t selling for what they were, but they are selling.
    I guess you have to feed your audience, but this site has become tedious.

  21. Posted by shakingmyhead

    Agreed anon. So tedious. It’s like groundhogs day here with the same exact snarky nonsense coming from the same exact posters every single day (makes a girl wonder if some of these people have jobs since they literally straddle the comment section)! I think that most of the regular posters on this site totally revel in bad news and will discount ANY sign of good news . . . because then they can’t point and laugh at those losing money.

  22. Posted by anon

    I am sure with all the tech layoffs and high unemployment rate for professionals there will be plenty of people to “snatch” these properties up.

  23. Posted by [kris]

    i agree shackingmyhead,
    I feel like a lot of bloggers on this site refuse to look at any good news, but consider it a “fake out” and reflective of nothing. They refuse to acknowledge anything positive.

  24. Posted by San FronziScheme

    jessep, what do you define as good?
    For me, as a potential buyer, low RE prices are good. For the economy as a whole, low RE prices are actually a good thing, as RE funnels too much money out of people’s pockets. Less money into RE means money put to a better use like education, childcare, consumption, diverse investments like planning for retirement or healthcare costs and many many other things. We have seen what happens when housing eats up 50% or more of someone’s actual revenue.
    Of course if you have a vested interest in seeing high prices (flipper, realtor, both, home-debtor), then sure, you must love overpriced real estate.
    In the mean time, for us mere mortals, RE is just a huge cash-sucking machine just like the IRS.

  25. Posted by M

    Rising housing costs are “good news”!?!? I can’t wait to pay more for housing as an individual and society. In fact, I’d rather spend more of my income on housing than have the opportunity to work less, take more vacations, retire earlier, eat out more often, volunteer, donate more money, etc.
    Cheap free market housing is a social good and will do more to help out the Bay Area economy than any multitude of misguided bailout and stimulus programs. If wanting people to be able to afford a basic necessity like shelter for less of their income means that I am “reveling” in “bad news”, so be it.

  26. Posted by Jus7tme

    Ask CBS5 to investigate itself, and Hank “the plant” Plante in particular.
    cbs5investigates@cbs5.com

  27. Posted by WeLaughAtYou

    Daniel will come clean before the realtor who uses multiple sockpuppets on this site does.
    [Editor’s Note: We’re pulling Daniel’s anecdote (and related responses) until we can confirm the circumstances.]

  28. Posted by sanfrantim

    Interesting report, but what does the lead quote — “more sales in the past 2 weeks than at any time in the previous 6 months” — actually mean?
    I assume Hank means more sales than during any other 2-week period over the past 6 months. Not too surprising given that this IS the season for buying. Some of the report’s factoids — “42 offers written on a single property; 41 with 20% down — is consistent with the view (often criticized here) that there is indeed pent-up demand in SF.

  29. Posted by sfrob

    Lots of cheap houses in Detroit. You can buy an entire neighborhood with your $1.3 million. Enjoy.

  30. Posted by Jeremy R

    Everyone that has been on the sidelines for years has rushed back in, in one huge jolt.
    The fed has done everything they can. 300 billion home rescue, 0% interest rates, 8k cash back, 800 billion stimulus, etc.
    If this jolt is sustained, all the way till December, then SF has officially weathered the storm. If this jolt begins to fizzle by May, then this will mark the beginning of total capitulation. The Fed has no more cards up its sleeves and there are no more desperate buyers just waiting to RUSH in. The market will drop well into 2010 until Jobs start growing by leaps and bounds again.
    We will see what happens.

  31. Posted by Trip

    Here are some hard numbers on what is going on and put the lie to any notion of “pent up demand” (yes, yes, I know — medians are affected by mix — but the sales volume and price numbers sure paint a different picture than this anecdotal, RE-cheerleader nonsense):
    http://sanfranciscoschtuff.com/2009/03/04/single-family-homes-february-04-06-08-09/#more-3707
    http://sanfranciscoschtuff.com/2009/03/11/condolofttic-feb-04-06-08-09/#more-3775
    http://www.redfin.com/city/17151/CA/San-Francisco
    I do see a lot of pent up supply. 42 offers and the HIGHEST was in the “high-500s”? None of those 42 was willing to go higher for a house in the sunset? It took more than that to buy a dump in the Bayview 3 years ago:
    http://www.redfin.com/CA/San-Francisco/1766-Oakdale-Ave-94124/home/1997482

  32. Posted by LMRiM

    It is something positive though
    I feel like a lot of bloggers on this site refuse to look at any good news…. They refuse to acknowledge anything positive.
    I agree that this video is a positive, especially the part about 20% downpayments. At this stage of the bubble unwind, it is important that new victims be encouraged to sacrifice their capital to the credit deflation (thereby lessening the future demands on the general taxpayer), and with videos like this the media and REIC are playing their roles in this salutary process.

  33. Posted by chuck2

    “I think that most of the regular posters on this site totally revel in bad news and will discount ANY sign of good news . . . because then they can’t point and laugh at those losing money.”
    Most people on this site are probably renters or people with tons of equity and want to move up on the cheap.
    I think housing falling to 500k is good news for us (me). We don’t like unemployment and homelessness, but we like cheaper homes, and if unemployment is the only path to correction, so be it.
    I am not poor by any means, but I want to spend my money on other things
    1) vacations
    2) Going green, even if it is $$$$
    3) schools/day care for my kids
    5) retirement, rainy day, funds
    6) expensive hobbies
    7) Healthy delicious food
    8) Charity
    There are a lot of things I want to do with my money. I don’t want to stuff all of it into an old crappy 2/1 just because everyone else decided to “get into the market” 2-5 years ago.
    I don’t feel sorry for those who are losing “fake” money. Many people who bought (many of which were my close friends) ONLY did so to make a profit. In fact, I don’t know a SINGLE person who bought a house primarily as a HOME rather than a sound investment.

  34. Posted by anonn

    “I think housing falling to 500k is good news for us (me).”
    Other than 1 brs at the Infinity, that wasn’t in the piece. The 5’s? Old crappy 2/1 houses in the 6’s are way out in the Sunset, need work, or are in bad neighborhoods.

  35. Posted by j

    WOW! 50 Units in contract at Infinity since the start of the year and 30 contract in 30 days? Not bad #’s and speaks for the strength over at Infinity compared to other condos in the city.
    [Editor’s Note: Once again: Infinity Sales Update: New Contracts Up But Driven By Discounts.]

  36. Posted by kthnxybe

    Chuck 2 – my sentiments exactly. I only want what people my age and income status had ten years ago – a nice enough 3/2 in the avenues. It doesn’t have to be Lake Street, it doesn’t even have to be the Inner Richmond.
    And no, anonn, we’re not there yet.

  37. Posted by anon

    @ LMRiM
    Give it a rest. There are lots of reasons people buy houses, and they’re not all victims.

  38. Posted by jj

    “Here are some hard numbers on what is going on and put the lie to any notion of “pent up demand””
    Yup, it’s mathematical impossibility. dec/jan/feb sales add up to about 300, which probably means over 500 sales in the past 6 months. If they closed 500 in the past two weeks, all of SF inventory will be gone in less than 7 weeks.

  39. Posted by San FronziScheme

    LMRiM,
    I agree,
    For one dollar created out of thin air thanks to creative overleveraging, one dollar appeared on a bank account and either stayed there, was invested, went into more leveraging or ended into consumption.
    Debt destruction needs to find its counterpart. Receivership at the bank level just means the fiat dollars are guaranteed by the USG (more liability on the US balance sheet).
    Disappearing downpayments are an elegant way to rebalance everyone’s books without too much intervention from the USG: someone shells his 20% down from real hard earned money, the seller barely breaks even and doesn’t get any cash out of the deal.

  40. Posted by anon

    Disappearing downpayments are an elegant way to rebalance everyone’s books without too much intervention from the USG: someone shells his 20% down from real hard earned money, the seller barely breaks even and doesn’t get any cash out of the deal.
    Sure, assuming the seller barely breaks even (what if they’ve owned the unit for a very long time) and assuming the new seller sells it while the price is down.
    I realize that it’s easier to make stuff up to fit your pet economic theories. If real estate is a long term investment, it doesn’t make sense to analyze it as if it were a stock.

  41. Posted by gowiththeflow

    In the video Hank discusses something about Wells offering low rates.
    1) I called Wells today, the revised increase conforming of 729k est has not been re-introduced yet.
    It will be interesting to see if we get a higher # of homes closing once this is initiated. This should help the around 1mil props that could be, or are in trouble right now/ not moving as well.
    In the interim does anyone know of any banks that have re-introduced the higher limit again?

  42. Posted by San FronziScheme

    anon,
    What I am describing is what is currently crippling the entire planet. Too much debt, too much paper profit cashed out and not enough actual stuff created to balance this fake wealth.
    About the “owner who has been owning for a while”, sure, there are chances he’ll get some real cash. But that cash is probably previous appreciation. Also bear in mind that many long-term owners got equity out too and cashed out this previous appreciation.
    In a decreasing market, if the seller gets some cash out, he’ll get less than what he would have gotten at the top. Less fiat money transformed into real money. More fiat money going to money heaven.

  43. Posted by sparky-c

    Every time a stock goes down fiat money goes to heaven too, so that’s not very worthwhile information.

  44. Posted by anon

    @ San FronziScheme
    Yeah, I agree that the debt must come down and asset prices come back to some reasonable level.
    But I think that prices ARE coming down, and at some point it will make sense for individuals to buy (and if inflation comes roaring back, a house would be a prudent investment again).
    LMRiM thinks that all buyers are suckers, which is an oversimplification but fits his theory.

  45. Posted by Mole Man

    It is kind of interesting that people still buy here, but month to month market volumes have been going down for years now. There are many I know with cash on the sidelines, and none of them are even really looking because prices going down is a huge turn off for anyone potentially paying real money that they earned.
    Actually, anon, if you can really be thought of as such when you use the strong voice and opinions you project, LMRiM has posted enumerations of various reasons for buying including several that are unrelated to price.

  46. Posted by 45yo hipster

    RE is not like stocks! (usual suspects, take note). And you can’t equate rents to ownership/mortgages. I mean, you can do that personally, just like someone can choose to eat ramen and mac and cheese to be cost efficient. The reality is that housing in the bay area (much less SF) has been more expensive than renting the equivalent for well over 20 yrs! And this is true for virtually all upper mid priced markets.
    Obviously it is very important for many people to own their home. This sentiment is deeply ingrained, and is not only an American notion. It is global. Only really sick markets (Detroit, upstate Buffalo come to mind) are examples of where you can buy houses for a few thousnad dollars, which is cheaper then renting. These places are often not worth the prop taxes, upkeep and liability of being in a decaying hood.
    This is all fundamental RE supply/demand and the specificity of location. Sure there was some hype in the SF market in the last 4 years, but some here are acting like it’s been 10 years of bubble. And they think that income to price will go back to levels we have not had in SF for over 20 years. Their judgements are simply wrong. We are not in a deflationary 10 year bubble! SF RE is not going to drop by 40+%. There is pent up demand, and the increasing sales #’s are showing that. The 5-10% price drop in real SF is definitely motivating some people to buy. And guess what, if this trend continues the so called “knife catchers” will be all smiles with a little plastic knife in their hand. If march to may sales numbers reflect increases as in previous years, this trend will further solidify my prognosis. Prices will not rebound soon, but they may start to stabilize later this year.

  47. Posted by San FronziScheme

    housing in the bay area (much less SF) has been more expensive than renting the equivalent for well over 20 yrs
    Good point. This probably brings us back to Ronald Reagan times, when he decided that debt was good and started the mindless deregulation that brought us where we are today.
    Numbers don’t add up and haven’t added up for a while (overall debt, own vs rent insanity). Time to go back to balancing the check books, I guess.

  48. Posted by diemos

    “You can buy an entire neighborhood with your $1.3 million. Enjoy.”
    If I was twenty years closer to retirement it would be tempting to buy an entire block in detroit. Bulldoze it and create a walled compound. Something on the Japanese model.

  49. Posted by Trip

    “The reality is that housing in the bay area (much less SF) has been more expensive than renting the equivalent for well over 20 yrs!”
    45YOH, I’m not sure this is true — do you have anything that supports it? I can only offer my own experience and that of many friends who bought in SF in the late 90s. By buying then — in a time of dot-com inflated rents — we were ahead in the rent vs. own analysis from day one. That’s actually the main reason we decided to buy (my wife was against committing so much to a down payment) — it made sense financially. I suspect this is the norm and the last 7-8 years when the result has been reversed is the anomaly. But I admit I have no long terms rental and sale price data on it.
    I do agree with you that I don’t think we’re going to go back to late-80s prices. And I can almost guarantee that March to May sales numbers will increase. But that won’t establish anything. I can also almost guarantee that July-December numbers will decrease. Those will reflect nothing more than seasonal norms regardless of the broader trend.

  50. Posted by diemos

    “but some here are acting like it’s been 10 years of bubble.”
    It has.
    “Their judgements are simply wrong.”
    Jan 1, 2012.

  51. Posted by San FronziScheme

    it would be tempting to buy an entire block in detroit. Bulldoze it and create a walled compound.
    Yeah, and hang a huge banner “rich folks live here, come rob us please”.

  52. Posted by diemos

    “Yeah, and hang a huge banner “rich folks live here, come rob us please”.”
    Well, the japanese model does include samurai retainers to man the walls.

  53. Posted by San FronziScheme

    Well, the japanese model does include samurai retainers to man the walls.
    Local jobs! I like it! Trickle down economics at work!

  54. Posted by 45yo hipster

    fronzi- “This probably brings us back to Ronald Reagan times, when he decided that debt was good and started the mindless deregulation that brought us where we are today.”
    sorry, but i couldn’t disagree w/your sentiment more. capitalism is based on debt. and wealth is created by it- reasonable debt. we all agree there were excesses in the last few yrs (no down, no doc, low credit.) but in principal, liberating banks to allow people on the margins (or who do not fit te tight-ass bankers mold) was a good thing for america. the self employed, people with income, but perhaps a low down, or so-so credit (pleae note i said one of the three factors missing, not all three!)were able to get a chance at home ownership. the excesses and the lack of accountability that allowed them will be fixed, and we will go back to a better debt model, as it’s too tight now.
    (man, why am i so optimistic today? maybe it was the mid-day walk on the beach i took today…great sun in pacifica today.)
    trip-on the rent/own, the ratio was/is much tighter in SF (due to high rent and proliferation of apartment like condos/tic’s.) but i’m quite certain that the ratio has been way off in san mateo/santa clara/marin SFR bedroom communities. my main point is that many people bust their behinds to be able to own, inspite of the ability to rent a home for less. in a market like this, inevitably some are sitting out, renting and waiting; but most want to eventually own. like it or not, the bay area has become an elite onclave (as other specific places in usa and WW, btw) and i just don’t see that sentiment changing.
    back to fronzi- WRT your sentiment that SF is overpriced, don’t you own rental prop in SF? (or did you sell?) personally speaking, as someone who owns units, my feelings are mixed on that question. one 1 hand i don’t want my net worth dropping, lower prices create buying opportunities. theoretically speaking, a steadily increasing market is the best for an investor (IMO), as it allows you to pull equity out of exisitng assets and apply them to new ones…with the likelyhood they will too incr. in cvalue. but in the real world non of us control asset values, financing conditions, etc. and consequently a good investor is one that can think on their feet, change directions, and seek opportunities in uncharted waters. that well worn chinese proverb is apropos: may you live in interesting times.

  55. Posted by diemos

    “theoretically speaking, a steadily increasing market is the best for an investor (IMO), as it allows you to pull equity out of exisitng assets and apply them to new ones…with the likelyhood they will too incr. in cvalue.”
    Ah yes, classic ponzinomics. It works great … until it doesn’t.

  56. Posted by [kris]

    reagan, national travesty.
    where’s lrmim to tell us that we’ll all be living in shacks w/ no bathroom in bangladesh?
    even if this is seasonality, it’s a good sign.
    There are some people who will never acknowledge that we’ll turn a corner. they just want to watch the world burn

  57. Posted by DanD

    Terrible reporting. Why is Brendon DeSimone referred to as “Real Estate Expert” and never “Paragon realtor”?

  58. Posted by San FronziScheme

    45yo,
    I still own RE, but in Paris. Bought in the 90s mostly. I sold 3/4 of it in 2005 all the way to 2007. Still patting myself on the back about that while waiting for true value to come back. Maybe the containment team at the USG will not allow that to happen, who knows.
    The places I sold went for crazy bubble prices to people that didn’t know what they were doing. Some people shouldn’t have been allowed to borrow, we both agree on that. And I agree that banks that previously applied the 20%-down, payment-less-than-35%-of-your-net-salary rule for mortgages should be allowing some of the affluent self-employed, but at an appropriate cost as the risk is theoretically different. Let banks assess/price the risk based on the people, not the projected future value of the underlying asset, because this is what basically happened during the bubble years. 15% up YoY meant 0% risk on anything and that couldn’t last.
    Where we disagree is that allowing more homeownership is a good thing for society. Do you favor a 30K/y family paying 600/month rent forever or the same family paying 1000/month + all the other costs of homeownership? We might look down on the first family as losers, but the latter can be losing proposition. Sure he’s got the house but he’s struggling twice harder for the same result as family 1 and no tangible extra benefit apart from pride and hope (that prices will go up). Plus this overpaying family consumes less. Very bad for the economy.
    About the “capitalism is debt”, I partially agree. Capitalism was mainly about working hard, accumulating capital and investing this capital to get return. It has been transformed into borrow and accumulate capital, invest it, work hard, repay your debt.
    This can work up to a certain limit and everything is about scale. 40X leverage cannot work for long just like 110% financing. We’ve been grazing at the edge of the cliff because this was where the fresh grass was still growing and it kept giving. But we ran out, went one foot too far and the cliff fell down from under us.
    About the business model you expose, yes, this is something that works. But not when everybody is doing it. A good plan that makes headlines is not a good plan anymore.

  59. Posted by kathleen

    This is real news. Everyone in the real estate industry is talking about the 42 offers in the Exclesior. All the action is in the 798K and under price point. Why buy a condo when you can get an SFR for the same price? If you are in it for the long haul, as a primary, it’s a much smarter buy. I call this the spring of “the millionaire next door” buyer. The cautious buyers are dropping off the sidelines and jumping into the pool because the water is fine, Fixed rates are low and buying is a good idea as long as you not a flipper. Glub glub glub.

  60. Posted by anonn

    “Capitalism was mainly about working hard, accumulating capital and investing this capital to get return.”
    That’s the accompanying myth of capitalism, or the American Dream, even.
    “It has been transformed into borrow and accumulate capital, invest it, work hard, repay your debt.”
    No. That’s what it always was. It’s largely about debt. Often it’s creating debt outside capitalistic nations’ own borders. Capitalism can backfire when there’s too much debt created within these borders, and that’s what we’re seeing now.

  61. Posted by diemos

    “and consequently a good investor is one that can think on their feet, change directions, and seek opportunities in uncharted waters.”
    And just so you know. The correct end-game strategy at this point is to load up a few of your properties with as much debt as possible so you can own the others free and clear. Then when prices fall you can walk away from your debts and keep a few income producing properties.
    Whaddaya say LMRiM?

  62. Posted by Michael

    “Everyone in the real estate industry is talking about the 42 offers in the Exclesior.”
    Funny how the Excelsior and all of its foreclosure activity has gone from not being part of the “real SF” to being what everyone in the industry is talking about.

  63. Posted by REpornaddict

    so who was this daniel guy?
    why were his comments pulled??
    [Editor’s Note: The first line from Daniel’s comment: “Real Estate Agents are absolutely liars!”]

  64. Posted by Mole Man

    “Where we disagree is that allowing more homeownership is a good thing for society.”
    The first round of subprime mortgages showed how to do things correctly. Banks wanted more customers, people wanted more homes, and the first subprime loans were extremely strict and had low default rates. This is critical to understand because so much economic and community development is all hogwash that wastes resources. Making very strict loans available at high interest rates led to a genuine transition in the lives of those borrowers. They didn’t just get homes, they became responsible owners who followed the strict rules they were given and took good care of their homes.
    This was in the early to mid 90s. It wasn’t until the late 90s that securitization started warping lending and subprime became a zoo of most exotic specimens.

  65. Posted by tipster

    42 offers? If you offer anything at 90 cents on the dollar, you get a lot of offers for that deal.
    As an example, the price of nearly any car you can buy will fall over time. If I list a 2 year old car for sale at half of blue book, I’ll get lots of offers. This doesn’t mean that cars are going up in value, or that cars are suddenly more desirable, quite the contrary, the car is going DOWN in value. But at any price point, people buy cars, and people who will ONLY offer if you give them a steal are ALWAYS out there, no matter what the market is doing.
    This doesn’t mean that buyers will suddenly offer any price for homes, but it means that, as always, people will look and if they see an outstanding deal, they’ll go.
    It does NOT mean that if they see an even ordinary deal (e.g. 95% of blue book) that more than one or two will jump. So to extrapolate anything from 42 offers is preposterous. I can pretty much guarantee that 38 of those offers were nowhere near the selling price.
    Buyers are not “dropping off the sidelines, the water is fine”, because prices follow J-O-B-S, and those aren’t doing so well right now, but if you price something low enough, people will try to get it. Goodness, even if I don’t want a 2005 Pontiac (I’d never buy one), if you offer it for $1, I’m going to try to buy it from you if only to turn around and sell it for more, even if I’m not seriously in the market for that car. 42 offers in a market with low volumes just means it was priced really low. The water is fine indeed.

  66. Posted by diemos

    “42 offers in a market with low volumes just means it was priced really low.”
    As a case in point let’s consider 767 Bryant Apt 205, a short sale which was offered for $377/sqft. I’m sure at that price it will generate plenty of offers and it’s already active contingent.

  67. Posted by Dan

    Trip, when I bought in 1995, it was still more expensive than renting, because interest rates were much higher then. I refinanced in 1998 at an interest rate 2% lower, and starting then my mortgage was less than (by then higher) 1998 rents for a similar place.

  68. Posted by tipster

    Oh my god, diemos, 767 Bryant #202 went for $1,000,000 2 years ago. It has about 100 square feet more than #205. 767 Bryant #204, about the same size as #205, went for $785K, less than 3 months ago! The buyer of 767 Bryant #205 paid $933K in 2007.
    If #205 went for anywhere close to $600K, “someone has some ‘splainin to do, Lucy!”

  69. Posted by 45yo hipster

    fronzi- interesting. pat on back is well deserved, depending on your next investment move and personal needs. i can’t imagine your plan back then was specifically to sell SF RE, wait, and buy in again. perhaps alot of stock folks would nod their heads, but RE investors know that the cap gains, sales commissions, transfer taxes, and overall hassle usually prevent repeated buy/sells based on up/down market conditions(unless you’re a flipper, a flipper in good times may i add.) also, a good, stabilized property you know first hand, with a decent tenant mix and in good condition, has specific value to you per se. (i’m sure you’d agree with that.)
    but of course i don’t know your personal desires, maybe you want to cash out or invest elsewhere. as for me, i still have alot of years to be in the market. i like my properties (some of my units being off RC is a big incentive 🙂 i’ll probably not be buying anything until values start rising again and more importantly, banks start lending to investors again with anything close to decent LTV’s. but someone who is in a strong cash position could be looking at making a move into SF RE.
    as an aside, i’ve been meaning to comment on the “is your home an investment question?” short answer: it depends. while many people have strong opinions on this, i know that in my personal case, my home was an investment- an instrumental one. as i gained equity in my first condo, i was able to take out a 2nd position against it, and invest in another property. sure there is risk, but the whole point is that i had access to money. a renter can’t do that (unless they make bank, and are diligent about saving it, then they can invest that; and a few SS bloggers aside, 98% of renters are not/will never be in that position.) also, many older folks in SF cashed out of their pricy homes, brought a condo at a fraction of the cost in AZ/FL/etc. and retired. for them it was alos an investment. so again, it depends.

  70. Posted by LMRiM

    The correct end-game strategy at this point is to load up a few of your properties with as much debt as possible so you can own the others free and clear. Then when prices fall you can walk away from your debts and keep a few income producing properties. Whaddaya say LMRiM?
    There’s a few considerations in there, diemos, but I think you are on to something.
    In purchasing any bubble asset in any bubble market, of course one wants to use leverage (other people’s money) as much as possible. Recourse of course is the key consideration. So long as the money is non-recourse (legally, or de facto), and the interest rates are attractive, leverage is the way to go. Heads I win, tails the taxpayer loses.
    Political considerations being what they are under the current (and former btw) administration, I would basically look at all mortgage debt on a personal residence (owner occupied, or one that can be stretched to look owner occupied) as nonrecourse, regardless of what the documents say. I just don’t think any bank is going to be suing any deadbeat owner for anything in this climate. I could be wrong I guess – we’ll see. In any event, the one action rule in California makes personal suits for performance on the debts pretty unattractive as a practical matter.
    So, for the average small time investor, the prudent course would seem to be to load up on as much nonrecourse debt on the primary residence as possible. On the “investment portfolio”, your idea of keeping certain properties unencumbered while loading up others with debt makes sense. The large proviso of course is that the properties are not cross-pledged to secure the loans or are part of the same legal structure (typically llc), which would allow the lenders access to the equity in the unencumbered properties. In the (likely IMO) case that property values fall significantly, one can just walk, retaining the income producing assets, as diemos notes.
    Unfortunately, the time to have done most of this strategizing was back in 2005 or 06, when lending standards were nonexistent. I would guess it’s *much* harder to cash out properties today, especially without personal guarantees or recourse to the other properties.
    I hope that helps some people out there in thinking through the endgame strategy. Again, notwithstanding the CBS puff piece, we’re just getting started on this decline in The Real SF IMO.

  71. Posted by tipster

    LMRiM: think FHA loans. 3.5% down if under $750K, and you can probably still get the seller to do closing costs.
    I suspect the insane amount of action in the east bay, and at the low end of the SF market, are people doing exactly what you are stating. The fraudulent buyers have just moved downstream. But don’t worry: more buyers in the last two weeks than in the last 6 months means people are figuring out how to work the system, as usual.

  72. Posted by San FronziScheme

    Chances are the action comes from heyday specuvestors that are still solvent. They got out of the musical chairs game early enough and are jumping on what they consider as good deals.
    But are these really good deals? I mean, take a house that sold for 250K in 1997, gets flipped a few times up to 700K in 2006. Not uncommon in the most undesirable SF. Is is really a good deal at 500K in 2009? I think we have been conditioned to accept high numbers but have forgotten what it means to pay a 3K mortgage + taxes/costs for the median worker living in Daly-esque Nabes.
    Good deals would be similar pricing as the mid-90s but that’s just my opinion. If you’re buying into 2003-2004 prices, you’re still buying at bubble ramp-up prices.

  73. Posted by sparky-c

    SFS,
    That scenario only works if they are specuvesting a primary residence. Which as a definition isn’t what I would call a specuvestor. Otherwise the banks want 40%-50% down if you already have a home. So I think it is more home buyers than investors. In this lending market most investors are still on the sidelines because 40% is a nice chunk of change.

  74. Posted by San FronziScheme

    Sparky,
    Yes, you are correct. Though you will find specuvestors who will live in the place, redo or expand the place and move on to the next venture after the usual 2 years. A friend of mine stuck in his own flip in Santa Barbara has lived in the house for 4 years now.

  75. Posted by sparky-c

    But they are stuck in a primary residence at least, it could be worse. These new buyers will have mortgages that get paid down so stuck as they may be (in the future) it won’t be the same as a vacant place for sale following the market down or rented at some lower number scenario.

  76. Posted by 45yo hipster

    Diemos/lmrim- wrt “the correct strategy”…you guys are funny!

  77. Posted by jj

    Great, now I’m getting this email from developers:
    NEWSFLASH!
    CBS5 Reports on Local Real Estate Rebound…

  78. Posted by San FronziScheme

    Desperate times calls for desperate measures. Someone’s obviously trying to lure fence-sitters into jumping into the falling knives shower.

  79. Posted by 45yo hipster

    SFS- so did you sell your SF RE investments specifically to get out/buy in again later? or was it a lifestyle change? as mentioned in my previous post, RE usually does not lend itself to sell/buy market timing, and i was wondering what your intentiones were BACK WHEN you sold.

  80. Posted by San FronziScheme

    45yo,
    Sorry, I just read your earlier post. I did not have RE investments in SF, only in Paris. My sentence “I still own RE, but in Paris. Bought in the 90s mostly.” wasn’t precise enough I guess.
    The reason I sold was originally for lifestyle changes. Living 7000 miles away was one reason with 9 hours time difference and all. I had some free time in Paris for other purposes, therefore I started by redoing / selling one small place in 2005. I had multiple offers and got 5+ times what I had paid for the fixer in 97. When comparing the rent with the money the other places were “worth”, I saw my current value/rent ratio was higher than 250 overall which I considered insane. Everything I had was at 80-100 tops when I bought them, sometimes less. Buying was definitely a no brainer. 40-50% down and 4 to 5Y mortgages covered 120% by the rent was a good business model. I see now that this was incredibly cheap. With the 2006 value, putting the proceeds into CDs would give me better returns with no hassle, no fees, no renter to manage, no 1AM calls for a leaking faucet. A no brainer again. It took 18 months to unload the whole thing.
    I thought I would call it quits in 2006, just keeping 2 places for pied-a-terre and as a way to keep my 2 feet on the ground. And this is what I did for a year. I wasn’t thinking of going back into the market. Prices were too high all around the world (I had considered buying into Eastern Europe but the ramp up was huge there too). I thought I wouldn’t get good deals again in my lifetime and went back to focus to my original career.
    Then came the first signs of a systemic shift in RE that propagated to the financial system and then the overall economy. Now it’s a self-feeding downward circle. Maybe the chance of a lifetime would happen twice? Maybe not in SF, but who knows?

  81. Posted by 45yo hipster

    i appreciate your candor SFS. your experience sounds very similiar to many who brought investment property in SF in the 90’s (certainly up to 98.) the main difference is the finacing/leverage, as most in SF did not put 40-50% down (20-30% is more like it.)
    the rent/value ratios in SF are similiar, 200+ in most cases. my whole schtick was buying properties that could be redeveloped to a higher and better use, such as converting an SFH to 2 units, expading into unused basements, etc. so my rent/value ratios are much more reasonable.
    we’ll have to see if the “twice in a lifetime” scenario plays out. in essence, it already has in lesser areas, and ares prone to booms and busts, where values are already +/- 50% off their peaks. but one of my whole points of investing in SF is that the city should weather the downturn better. regardless of how low SF prices reach, i strongly suspect the rental market here will fare much better. i.e. i think there is virtually no chance that SF RE will be -50%, and that the rental market will also be off by -50%. but as for heavy discounting, i suppose you could get some great deals on miami/vegas condos now and try renting them out. personally i do not like boom/bust markets at all, and would not put my money into them. these are the places where values do drop by 50%, AND the rents drop too (too many vacancies all at once.) no thank you!

  82. Posted by Outsider

    I don’t know where SF condo price will be a year from now. We have just contracted a nice unit at The Infinity for around $500/sq ft. Not a steal but after looking and couldn’t stomach $1,000/ for well over two years, this is where we decided to part with our funds. It is a lovely 2nd home and as some of you have indicated, when the seller drop prices low enough, someone will bite…

  83. Posted by diemos

    Be sure to come back and give us all the details once you close escrow. We love anecdotes.

  84. Posted by Ryan

    I got this video emailed to me by two different agents, and a new development. Maybe all these people paid Hank under the table to do this piece?

  85. Posted by gowiththeflow

    Outsider are you saying the same unit you contracted at $500psf was offered to you for $1000 in the past? If not is the unit a true comp to what was offered to you for $1000psf?
    If what your saying is true (not that it is not) way to go.

  86. Posted by condoshopper

    hehe, some agents that have me on their email list have sent me the link to CBS too, and taken the time to add in their own cheer-leading. i’m tempted to reply with reference to some comments on this thread. of course it would make it the last time i hear from them again.

  87. Posted by San FronziScheme

    45yo,
    You probably got a good deal of RE war stories to tell I guess.
    About pricing, my point of reference is the house I rented in premium NV until last year that was sold in 1998 for less than 450K. Typical little house with 2000sf but not all of it perfect. The buyers had seen prices starting to go up and were afraid to be priced out (yes, even at this price). A similar house but in better shape down the road sold last year for 1.6M+. There’s a lot of bubble built into that price despite all the Realtor talk of shifting demographics. A Honda is still a Honda, even if the salesman tell you it’s a sportscar.
    I have seriously considered Miami Beach but not LV. MB is a bit tricky, even if prices are much much better than 2006, the time I started considering buying property there. The main issue I have with new MB condos is that most recent towers have excessive overhead/HOA fees. Often the HOAs fees will eat 20, 30 and up to FIFTY% of the potential rent! (actual rent, not “wish” rent lingering forever on CL). If you want to do long term rentals, you cannot have high costs like that as you don’t want to eat Mac’n’cheese to subsidize tenants all your life like many investors that bought in 2004-2007, it’s not healthy. I don’t know how that can be resolved as a lot of those fees are structural, i.e. the cost of running the building safely and properly. My target will probably be well established small condo complexes, 4 to 8 units, where HOA fees can be more manageable with no elevators, minor landscaping, no extravagant needs like Valet parking or 24/7 security. In short not the Albino Pachyderms that have been sitting empty for ever. My limit will be 150/sf for a 2BR to make it work with a less than $1200/m rental and $200 HOA tops (rare gem).
    About Vegas, I haven’t been there in a few years. I do believe some of the city will be sitting vacant for a while from what I could gather. The population that came and made it expand so much is the highly mobile types. They’ll move out and move on as quickly as they came. And the Casino industry will not save the day as they have big problems of their own. Apart from the casinos and RE ponzis, what was Vegas about, by the way?

  88. Posted by Outsider

    Gowiththeflow: This is a far superior unit with 8 large curved windows and a balcony plus a nice, usable alcove. It is a 1,002 sq ft one bed room inside low floor unit with an attractive court yard view in Tower II. The old ones we looked at are the boxy rectangular units that are nice but nothing to write home about…

  89. Posted by gowiththeflow

    Outsider Congrats, you will love the community; welcome. You clearly got a great deal. I too would have selected a tower unit vs midrise if I was shopping for a 1 bd; I think they get more light plus having the balcony is a bonus. Higher floor, larger sf midrise are great however; a few floors have higher ceiling heights and some have very large terraces.

  90. Posted by diemos

    “You clearly got a great deal.”
    A tower II unit for $500/sqft and that’s all you have to say? No thoughts for the pigeons who last year spent $1000/sqft for their Tower I units? Shouldn’t we at least take up a collection to buy them some scuba gear?

  91. Posted by gowiththeflow

    Diemos it depends. I feel bad people may be underwater but on the other hand if they wanted the unit bad enough to pay $1000+psf for a 1bd, or even consider it well it’s a bit hard to feel sorry for them. I just assume they wanted those unit’s bad enough to pay the premium as people do with many things not just RE. I personally will never understand why anyone paid $1000+ psf. I know of some units in Tower I that although never fetched around $500psf were not too far off, advertised at at around $600-$650psf. It depends on what floor, how you negotiate with the sales team I suppose, etc.

  92. Posted by sfrob

    The fraudulent buyers have just moved downstream.
    So, for the average small time investor, the prudent course would seem to be to load up on as much nonrecourse debt on the primary residence as possible. “LMRiM”
    Yikes, one assumes fraud, the other advocates it.

  93. Posted by sfrob

    fyi, the first line from my comment above was tipster’s.
    if you price something low enough, people will try to get it. Goodness, even if I don’t want a 2005 Pontiac (I’d never buy one), if you offer it for $1, I’m going to try to buy it… “tipster”
    How about a little reality check:
    The home in question was 44 Dublin. A 975 SqFt 3BR, 1BA asking $589,000.
    Meanwhile nothing within a 1/2 mile radius had sold for more than $589k in over 5 months. Yet this one gets 41 offers.
    Also, per the MLS, there were 48 homes within a 1/2 mile radius of 44 Dublin with 1 bath that sold in all of 2007 and 2008. Average sales price of $589,260, median of $605,000.
    $1 pontiac indeed.
    [Editor’s Note: Sorry sfrob but you’ve got the wrong house. And the right house paints a very different picture. Plug in tomorrow for the scoop and real reality check.]

  94. Posted by LMRiM

    Meanwhile nothing within a 1/2 mile radius had sold for more than $589k in over 5 months. Yet this one gets 41 offers.
    Of course, that only tells us what has sold (presumably the most desirable properties), and not what the values have been doing. A quick perusal of redfin shows that someone needs to get the word out that the Excelsior is hot, because quite a few listing appear to need help.
    Look at this place, 123 Edinburgh, asking $399K and within 0.55 mile of the 42 offer miracle turnaround house:
    http://www.redfin.com/CA/San-Francisco/123-Edinburgh-St-94112/home/1430846
    From the sales history, it looks like some chump signed off on a $715,000 appraisal in 2006! (I’m hoping that it was a 100% financed deal, so no real money was imploded in that fiasco.)
    Or, how about this one, 314 Athens, asking $400K and 204 DOM:
    http://www.redfin.com/CA/San-Francisco/314-Athens-St-94112/home/947269
    Or, this Crocker Amazon gem, also just about 1/2 mile from 44 Dublin, now asking $375K:
    http://www.redfin.com/CA/San-Francisco/811-Rolph-St-94112/home/1623279
    Again, someone thought that was “worth” $680K when it sold in March 2006!! Real experts, lol.
    There are plenty of other examples of course. But these three should put the lie to the idea that prices are only down 5-10%. (They are down 40%+.) It’s easy to find numerous places in the south of the city that are down more than 40% from what look like peak values.
    It’s no surprise that with those sorts of drops there will be knifecatchers. There’s no reason to think the people catching these knives today are any smarter than the people who were buying in 2005-07. Arguably, they are less smart, because many are now putting their own money down (although I’m sure many are getting 3.5% FHA nonprofit downpayment assistance scams).
    Let’s see where this all winds up in a few years. The ponzi scheme looks to be unravelling nicely. I bet that places like 44 Dublin or the few I identified above have another 30-40% to drop before it’s all said and done.

  95. Posted by Outsider

    Diemos & gowitheflow: It is easy to say someone paid too much in hind sight. If the current price is $1500/sq ft, they would appear real smart. I thought $500/ for a nice unit ( only seven in the tower ) protects my down side a bit but that’s not to say it wouldn’t hit $400. Case in point – I wanted the new BMW M3 badly. It came onto the market late 07 and dealers were asking $15-30k over MSRP and getting it. I bought mine at 1k below invoice in August and thought I got a steal. Then came the crash. I don’t even want to know what I can get one for now. During my first visit at The Infinity a couple of weekends ago, there were 1 br units with city view that probably would sell in the mid 400k. The desire to meet investors ’09 first quarter expectation is what motivates the developer along with wish of not having to carry the huge HOA on unsold units. Anexation of Tower I and II opens the door for standard fixed rate conforming loans but I am concern over the % of rentals as the high number could derail any future financing and send the value of the development into the dumpster…

  96. Posted by diemos

    “It is easy to say someone paid too much in hind sight.”
    It is easy to say it in foresight too. Especially when price/rent and price/income ratios have diverged from their long term values by a factor of two.

  97. Posted by LMRiM

    About hindsight/foresight, the housing bubble was probably the easiest bubble to recognize that I have ever seen (or read about). Even easier than the NASDAQ/tech bubble, which itself was blazingly obvious.
    Residential housing is a nonproductive asset. Therefore, it is ultimately dependent on aggregate income to support its valuation. It is simply impossible to quickly raise aggregate productivity/income, as it is dependent on the aggregate productive capacity of people generally, so the rapid rise in value was unsupported. Unlike even sector bubbles, like the NASDAQ for instance, it was impossible to imagine that the US population as a whole (or even the population of a large area like a city or MSA) suddenly chanced upon some miracle productivity pill.
    Like all bubbles, it is extremely difficult to call the top. However, given the exponential ramp up in so many areas in the US from 2003 through about 2005/06, it was very clear we were in a parabolic blowoff stage and that the whole house of cards was going to fall apart soon. People could argue whether it became ridiculous in SF in 2004 or 2006, etc., but given the high transaction costs inherent in an illiquid market and the huge risk in any highly leveraged asset, it’s largely an academic question.
    BTW, $500 psf for a nice place in Infinity T2 doesn’t strike me as a crazy purchase decision. Sure, the value might go down, and probably will a bit, but as a second home for someone who could afford it and is tied to the area, I think someone could feel justified in having made a good risk/reward decision for his own circumstances. One thing for sure, I don’t see that $500 psf purchase falling 20-30% from here, which is more than I can say for a lot of SF real estate right now 🙂

  98. Posted by San FronziScheme

    LMRiM,
    Localized bubbles show a very interesting timelines: If bubbles were easy credit only with no real cash, the popping has been dramatically swift. This bubble was easy to identify.
    Wherever the bubble was created by easy credit + bubble cash windfalls, prices were holding thanks to the money stashes from people who cashed out from the great IPOs/M&As. This bubble was harder to see for all the actual money used during transactions, but some of it was liquid bubble money nonetheless.

  99. Posted by LMRiM

    SFS,
    I don’t disagree. But the localized bubbles were certainly part of a much larger, practically worldwide phenomenon (which hints at the true source of the housing bubble: primarily the monetary and regulatory policies of the monopoly supplier of the world’s reserve currency, the Fed).
    A long time ago I read some academic/experimental studies on bubble (it might have been Kahneman and/or Tversky – if anyone knows for sure, please post :)). Using college kids as “lab ats” in controlled experiments, the researchers identified 3 necessary conditions for the formation of valuation bubbles:
    1) Large ratio of new entrants relative to historic patterns (so, less experience for the marginal purchaser);
    2) fundamental uncertainty as to the “true” value of the asset/good (it’s hard to get a bubble going in the cost of a loaf of bread, or in utilitarian clothing, for instance); and
    3) presence of easy credit (the experimenters set up a “bank” from which the participants could borrow).
    Seems like all those conditions were well satisfied in the housing bubble. I think the article dates from mid 90s maybe (appeared in an academic finance journal) – again, if anyone knows the cite, please post!

  100. Posted by cam34

    Even if the numbers aren’t perfect, we should at least be excited to see something (anything!) positive in the media about real estate. The constant negative press isn’t making this dire situation any better.

  101. Posted by 45yo hipster

    Lmrim- “residential RE is a non productive assert…dependant on aggregate income to support it’s valuation”.
    The distortion with your way of thinking is that it pre-supposes that all housing areas have equal value/income linkage. As a consequence this model works well for areas like the central valley, where alot of new subdivisions popped up to accomudate new buyers, I.e. Classis boom/bust regions.
    This model works less well for entrenced areas like SF, marin, pall alto. (the SF is special argument, if you will 🙂 this is why central valley has already fallen 40-50% since summer 06, and why ‘real’ SF only began to decline late summer 08.
    I know there is alot of didain for realtors here but their swan song statements cannot be fully discounted. I’m sorry but “location! location! location! and ‘SF is special’ are not without merit. (granted they may be annoying anacronisms, but wise people do not throw out the baby with the bath water!)
    If you look at long term trends (since WW II) for SF RE, it has appreciated at about 4.3% per annum while the rest of the country was something like 2.3%. Additionally, in the early 90’s, housing dropped significantly less in SF than SoCal. SF also rose much earlier after the 90’s recession. These characteristics manifest themselves today in the decisions people with means make. Outsider, who just brought a condo is an anedotal example of this. And there are others too. Areas with stronger intrinsic values tend to be the last to go down and the first to rise (not accounting for mix, high end vacation spots, spectacular bubble prices, I.e the hamptons). This will help control the drop/duration of mid to mid-hi SF RE.

  102. Posted by San FronziScheme

    LMRiM,
    What you’re referring to is the “Prospect Theory”. Here is the link to the original paper:
    http://www.hss.caltech.edu/~camerer/Ec101/ProspectTheory.pdf

  103. Posted by LMRiM

    That’s a great paper, SFS, but I don’t think that’s it. (That paper brings back a lot of memories. It’s really a pretty profound theoretical treatment of why people make irrational choices like cutting winners and letting losers ride – the meat of the paper is in the “value” function graph on p. 279 in the linked pdf).
    The article I am thinking of is purely experimental, trying to identify the conditions for bubbles and then testing them using a game by paid college student lab rats. (I sort of remember that the asset was a stock that pays increasing dividends but with a 50/50 chance of either paying or not paying in any given period. It’s a trivial exercise to value it using rational expectations models, but the subjects “chased the bubble”, modelled after the South Sea Bubble, but I could well be mis-remembering it.)

  104. Posted by Outsider

    It never ceases to impress me how smart the readers of this blog are. To quote is tough enough but to pull out the original old Caltech paper just knocks me over. What are you guys – unemployed Republican economists that couldn’t land a job on Obama’s recovery team ?

  105. Posted by San FronziScheme

    lol, more like over-employed Democrat.

  106. Posted by LMRiM

    I’m a retired libertarian (sort of). I left the hedge fund world 10 years ago, and am still figuring out what to do with the next stage of my life (the last 10 years have been mostly relaxing, traveling, riding my bike, starting a family and raising the kids – and of course posting on SS the last 14 months or so :)).

  107. Posted by LD

    Buyers in San Francisco would be crazy to make an offer now. All buyers should continue to wait as prices will continue to fall through 2009. The longer they wait, the more the prices will fall.
    San Franciscans forget that the economy here is interdependent with the rest of the country and we’re on the tail end of the decline.
    Wait, wait, wait.

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