While “permit status if any is unknown” typically means none (which could be a problem) and “in the process of being remodeled…no kitchen or bathrooms except for framework” can make financing a bit tricky, there’s nothing worse than paying for an amateur developer’s “designer” kitchen that never should have been. Okay, other than paying a “fixed” price for a fixer of a home.
∙ Listing: 727 Grafton Avenue (2/1) – $369,000 [MLS]
So which of our plugged-in developers are going to jump on this opportunity?
I’m sure the market will turn any day now, and this can be sold at a big profit.
Google just hit their 52 week low and is off 21% for the year, so all options granted in the last year are basically worthless and people are flying out of that company.
Rich foreigners? The Dollar is at 1.39 to the Euro. Those foreigners no longer think anything looks cheap, including all those products they bought in the last year, keeping our jobs market afloat.
I guess that just leaves Haas MBAs to save the market. Maybe they can use their bonus money to prop up the market.
And all the while, no doc loans are on their way out.
It’s hard to imagine why people are giving up their flips like this one in a market with such strong potential!
(Danger – sarcasm above)
This property was purchased in 5/05 for 605K.
financing involved 2 loans: 484K in variable, 121K fixed. Both were issued by now-bankrupt New Century Mortgage.
Typical post-sub-prime crash deal. Even at 369K this property is not at all attractive. How much will it cost to finish (with permits in limbo). Better gut it out from scratch and do everything properly with all proper permits. For a tiny 1050sf Ocean View home with all the headaches and sweat/money required I wouldn’t touch it at more than 200K in this market.
1050 sf is not tiny!
So what’s the normal psf in this area? Does anyone know? And rents? Does anyone know rents in this area?
1050 sf is not tiny!
If this is targeted at families with 2 kids, it could prove to be a bit small. This neighborhood is residential and that’s precisely the target. The lot is 1559 sf which limits expansion somehow. You have to choose between backyard or living space which is less of an issue with 2500sf lots in many parts of town.
why don’t you guys just type “I don’t know anything about this” and leave it at that
I know a little about this neighborhood. We were (are) friends with two families in the area (our kids all went to preschool together). In June, we were at a birthday party on Jules, right on the next block from this house, and the house where the party was the same kind of house (slightly expanded).
Fair value for houses around there should be around $200K in nice shape, perhaps $250K if it’s a particularly nice place. You won’t get rents above $1800 or so for a decent small house, assuming you want reliable, medium term renters. Those house prices and rents I mentioned are all the local incomes will support.
Amazing that people got so foolish that they “paid” $600K+ for places around there. Anyway, as Fronzi pointed out, this was 100% financed, so no need to worry too much. No personal balance sheets were harmed during the filming of this fiasco. I just hope no one put down their own hard earned cash in a downpayment on a nearby property based on this comp.
“why don’t you guys just type “I don’t know anything about this” and leave it at that”
Hi fluj! Why don’t you just go back to using your name. Nobody expected you to stay away anyway.
The rents for a 2Br in this area are about $2650. The area between Holloway and Garfield is quite nice. (It is only a block from Ingelside Terrace.) It starts deteriorating going north up the hill.
Where are you coming up with your 200K price Satchel?
realestateaddict,
This part of Grafton is about as jigh as you can go up the hill (1 block away). The main street there is Plymouth (5 blocks from this address) and there is open drug dealing on the corner of Grafton and Plymouth. This is a few blocks on the other side of the “racetrack” (Urbano), which is itself the “wrong” side of Ingleside Heights.
I get my estimate of rents from what ACTUAL families I know are paying there, not from craigslist. Anyone paying $2650 for a 2 bedroom there is a fool.
$200K is my fair value estimate, based on median income of SF and the “amenities” and housing stock in that area. I know we’re not there (yet), but give it time….
(Some people thought Google stock was worth $700+, people 3 years ago thought this “gem” was “worth” $600K, etc. Sometimes a little fundamental analysis and common sense goes a long way!)
A real actual family, rents in the block between Holloway and Garfield. A nice 2br house for 2500, and a 1 br in-law rents for 1200.
“$200K is my fair value estimate, based on median income of SF and the “amenities” and housing stock in that area. I know we’re not there (yet), but give it time….”
riiiight
I STILL don’t understand why anyone uses median income for any analysis of pricing in SF. Everyone should know that rent control, social programs, etc, skews that number considerably. Does anyone use median income for Manhattan to say that Manhattan real estate is overpriced? Manhattan is about the only other place that has close to as many distortions as SF.
There’s a fundamental misunderstanding of NYC/Manhattan vs. San Francisco. I grew up in NYC (lived there for over 20 years) and have lived in SF (or thereabouts) for 8 years, so I think I can comment with some insight.
NYC is 10 TIMES the size of San Francisco. NYC is NOT just Manhattan. This Grafton address is NOTHING like Manhattan, and especially nothing like the “Manhattan” that non-native NYers know. The only part of Manhattan that is perhaps remotely comparable would be the Inwood section, and that would be the Inwood of the late 1980s to 2000 or so (and it’s very “remotely” comparable).
Places like Oceanview or much of Daly City (which is pretty close) are IMO akin to places like South Yonkers or parts of New Rochelle (or maybe Eastchester for the nicest parts of Daly City) in the overall scheme of the NYC vs. SF comparison.
There are TREMENDOUS distortions in the NYC rental market, and to a lesser degree in the NYC SFH market (because NYC income tax means that property tax is relatively low in NYC), but these distortions are less in those “near suburbs” I mentioned.
I think median income is a sensible way to look at things, as long as you mentally make some adjustments to account – at least qualititatively – for the likely influence of some of the obvious distortions.
there’s a fundamental misundersanding, by you, of your role here. stop talking real estate values. do us all a favor and stay money-talk. enjoy being the smartest guy in the room.
yo uncle satch,
when you wrote “do us all a favor and stay money-talk. enjoy being the smartest guy in the room.” i wondered why.
why do you think satchel is so smart?
Uncle Satchel,
Satchel has built up more credibility on that subject than any other poster here. He trounced fluj, a real estate agent, on this thread:
https://socketsite.com/archives/2008/08/eight_eight_eight_on_eight_eight_eight_76_caselli_retur.html
I think you should stop the attacks on the person and state any contrary evidence, facts or opinions of why it should be higher, and let people decide whom to believe.
i don’t really. but he sure seems smarter there than when he puts on his appraiser hat.
I don’t mind all the venom. I AM an arrogant b*stard I guess 🙂
But, “he sure seems smarter there than when he puts on his appraiser hat.” Do we really want to say that appraisers know what they are talking about when it comes to fundamental value estimates? Didn’t every foolish bubble price in Modesto (and right here on Grafton!) have an “appraiser” OK it?
OT ALERT – Maybe it’s just the reaction to me personally, or the people I seem to know, but people the last few weeks in the Bay Area have seemed pretty sour. Over the past few months, I know personally of three potential house sellers who pulled their houses off the market and/or are holding them off until “after Obama wins, which will make the whole environment better”.
Latest Intrade odds and poll data (average):
Intrade: 51.5% McCain 47.5% Obama
Polls: 47.7% McCain 45.2% Obama
http://www.realclearpolitics.com
What a collapse – about as bad as this Grafton property!
Sorry (link wrong above):
http://www.realclearpolitics.com
The newly elected President will sell their overpriced properties for them? Finally some benefit from paying all those taxes! Don’t envy them, as his fee will surely be at least 6%.
I threw the 200K number when analyzing the situation. 1050sf, so-so neighborhood, unfinished/unauthorized redo.
This redo looks like it needs lots of time/money investment to be presentable. Say you theoretically spend 200K on getting the inside/outside/garden right. Accounting for the carrying costs, agent fees, property taxes for a couple of years, opportunity costs, you’ll end up with a house that costs you north of 600.
A house 3 blocks away sold for 575K. About similar size, similar period, similar style. Lot is also around the same size.
http://www.zillow.com/homedetails/482-Bright-St/15190443_zpid
The 369K asked are too high, imho. And if you assume the area will settle to 150 monthly rent or so, that would put the target price of this property in a finished state in the lower 300s tops. This is why I think 200K is a fair price for this work in progress.
Curious….what do everything think the lot is worth?
Saying things like Fair value for houses around there should be around $200K in nice shape, perhaps $250K if it’s a particularly nice place. just makes you look foolish.
Tell you what, I will bet you a beer that the median home price in this district, Ingleside (3-H), does not drop below $250k in the next five years. Since you think “fair value” is $200k and we both know that prices tend to overshoot on both the upside and the downside, this should be a very easy bet for you to make.
Saying things like “Fair value for houses around there should be around $200K in nice shape, perhaps $250K if it’s a particularly nice place.” just makes you look foolish.
You can call someone foolish only in retrospect. Just like someone doing 100% financing in 2004 and then HELOC-ing himself out of his vapor-equity in 2005-2006. It was widespread practice and very very few were telling them they were foolish. At the time, bulls would say things like “you’re foolish not to buy. You’ll be priced out forever”.
Guess who’s the fool today.
I’ll make that bet with you too, SFS, if you want.
I was wondering how safe a bet NoeValleyJim made regarding the median price in Ingleside. Here are the total sales and median price for single-family home sales in Ingleside (Dist 3-H) by year:
2008: 17 $580K (YTD)
2007: 32 $659K
2006: 48 $660K
2005: 67 $695K
2004: 70 $608K
2003: 64 $470K
2002: 61 $425K
2001: 56 $400K
2000: 70 $348K
1999: 49 $280K
1998: 56 $240K
1997: 76 $203K
1996: 52 $185K
1995: 52 $182K
1994: 77 $180K
It is interesting that the median price peaked in 2005. The current median price is back at the late 2003 level. We’d have to go all the way back to 1998-99 levels before NVJim would lose his bet on the $250K median. I think a lot of stuff will have had to hit the fan before that could happen – and there just aren’t that many days left in the Paulson administration. Look at the sales volume declines in 2007-08. Sales are on pace to hit just 25 this year – that’s down about 60% from the multiyear average. Of course, if you look at the rent-equivalent value of many of these homes in Ingleside, a $250K median might make more sense than the current $580K.
Yeah, 4 months ago everyone said we were going back to 2004 prices. Now it’s 2003 prices. Things move slowly but surely and not many markets are safe.
You can call someone foolish only in retrospect. “Just like someone doing 100% financing in 2004 and then HELOC-ing himself out of his vapor-equity in 2005-2006. It was widespread practice and very very few were telling them they were foolish. At the time, bulls would say things like “you’re foolish not to buy. You’ll be priced out forever”.
Guess who’s the fool today.”
hmmmm. you?
Just to be clear, I am calling 200K on this house in this poor condition, not as a median. Please re-read my posts before flaming. I think it would be worth in the low 500s TODAY in good shape and I provided a decent comp to back it up.
At the trough of the market, that’s a totally different story. I believe the trough for this kind of entry-level neighborhood is not there yet. Maybe the trough will be in the 400s, maybe 300s. Who knows, even the 200s? I don’t know and nobody knows.
The dollar could skyrocket, precipitating asset deflation. Inflation could come back with a vengeance and stabilize these prices still unaffordable to the median buyer.
One thing is proven though: so far it’s a bear market. Look at the thing with a wider angle instead of a microscope a-la-fluj. Sure you’ve got myriads of exceptions and NVJ can call people whatever he wants from the Noe Valley ivory tower where even I am seeing firsthand that cash is still plentiful. But overall it’s a giant black hole sucking a lot of wealth nationwide (including our taxpayer pockets and even the foolish sovereign funds).
But I’m sure we’ll be out of this crisis before we realize it.
Don’t get me wrong, I can see that prices are going down, I would just be astonished to see them go down 57%.
NVJ:
I certainly wouldn’t take your bet.
however I might consider taking your bet if it were $250k (the 1998 price) plus inflation over the duration of the downturn (which I think will go for quite some more years)
Measuring inflation is impossible of course, which makes it a sticky wicket.
but as example: if you used the official CPI figures for inflation, $250k in 1998 would be $337,368.10 in 2008 dollars
Many people think CPI understates inflation (I do as example). but measuring “true” inflation is impossible.
if we used 4% inflation we’d get: $370,061 in 2008 dollars
5% inflation: $407,223 in 2008 dollars
6% inflation: $447,711 in 2008 dollars
So actually, I would not be surprised if this unit sells for it’s 1998 price plus 5% inflation over 15 years.
that would be a 2013 price of $519,732 (in 2013 dollars).
this is all of course purely conjecture. and really just a thought experiment.
my only point with this:
inflation really obscures the real returns on all investments (housing, stocks, etc). (or in this case, real declines on investments).
inflation is the #1 threat to all of our financial security.
A pity nobody even cares about it.
but this is why I’ve said countless times that this housing downturn will take MANY MANY years and the largest aspect of the declines in housing will be wiped away by inflation.
we regular joes won’t even notice how our government stole our money to give it to the financial corporations. because we’ll look at our nominal house prices and our nominal salaries and our nominal food prices and our nominal stock prices and think we’re doing ok. but then we’ll wonder “geez, how did our parents do it???”
and before you say “no way can that happen, still under 600k in 2013!” please look at the S&P 500… which is currently at the same level as it was in January 1999.
Perhaps you missed my Keynes quote on inflation a few threads back, but yes, inflation is an insidious one and how I imagine most of the bubble will finish unwinding. I certainly would not buy any real estate in SF right now with the idea that it would be a good investment. There are starting to be some bargains in places like Sacramento but there is still no point catching the falling knife.
I would not be surprised at all to see average home prices in Ingleside or even nationwide be the same in 20163 as today in nominal dollars, in fact, I kind of expect that.
I am with Satchel on this. Why buy that house above $200K with all the work needed, when you can by something comparable for $550. It’s going to cost several $100K to get it in that shape, and who’s paying for that. Out of pocket? Construction loan?? I am against his un-needed fluj reference.
I’ve been away a bit – I’m glad to see this has gained a little traction.
I’ll post some thoughts later on the whole “fair value” question, because there seems to be a bit of sloppiness in the thinking. This should give “Uncle Satchel” a chance to throw some personal snipes.
But just a quick note about my $1800/mo rent estimation. realestateaddict above first said that $2650 is the right rent for a 2/1 in this area. I said that I got my info from actual families living in THOSE blocks (Jules right near Grafton). readdict then said $2500 for a “nice” 2 bedroom between Holloway and Garfield. This is a nicer neighborhood than the one we are talking about here. There is a large hill, and the riffraff ooze up from Capitol and Plymouth (main streets) and generally do not get east of the hill to the area and make it just south of the “ractrack” (Urbano), which is where realestate addict’s family lives. It sounds to me like most people writing here do not really know this neighborhood.
Nevertheless, realestateaddict, if your family is really paying $2500 for an attached 2/1 house, they are fools. Please give them this listing:
http://sfbay.craigslist.org/sfc/apa/834673390.html
For $2800, they will get a fully detached house in a very nice neighborhood (Westwood Park/Westwood Highlands), with a nice yard and garden. Their neighbors will be the nice side of Sunnyside to the east, and the $1M+ homes of Monterey Heights/St. Francis to the immediate west. Transportation should be even easier, as it is VERY easy to get on 101 or 280 at the bottom of Monterey.
Houses right at the next corner from the Valdez Ave rental sell even now for $900Kish, for instance this one (note the price history – there was a remodel in there in 2004 – and note how many purchasers ate capital looses in the “magical” market of SF0:
http://www.redfin.com/CA/San-Francisco-County/845-Monterey-Blvd-94127/home/692492
Oh, that $2800 rent for the place on Valdez is a wishing price. They have been advertising it for MONTHS, so your family should be able to get it for $2500 (as I have posted many times, I have both times I’ve rented SFHs I’ve gotten more than 20% off the wishing rent, and had numerous houses offered to us at more than 10-15% off).
I stand by my estimate of $1800 for an attached 2/1 for those blocks – even an attached 2/1 with an extra room and bathroom downstairs. I really don’t just pull these numbers out of thin air, and I thought I would have earned some credibility by now.
most families don’t clamor for houses on main arteries.
“extra room and bathroom downstairs. I really don’t just pull these numbers out of thin air, and I thought I would have earned some credibility by now”
No you don’t pull rent figures out of thin air. However, you do conjure bizarre property valuations out of the ether.
realestateaddict – No-one clamors for houses on main arteries : Families, DINKs, singles, etc.
Yet those houses on main arteries seem to be occupied by families, DINKs, singles, etc.
“No-one clamors for houses on main arteries”
Tell that to all the fools who paid $1M+ to live right on Monterey. My wife and I know at least a dozen families there (maybe half of them bought in the last 6 years or so, though, so not all of them were foolish enough to pay $1M+).
Besides, that rental I posted is on Valdez, a few houses off Monterey, so it’s not on the main artery. And, believe me, living close to some auto traffic beats living next to DRUG traffic anyday! (which is what you get if you live close to Plymouth and Capitol streets around where this Grafton dump is)
Here is another one who bought a place on Valdez about 4 houses off Monterey just this summer for $1.24M:
http://www.redfin.com/CA/San-Francisco/143-Valdez-Ave-94112/home/693612
Maybe it’s not a family… Should have rented on the same street IMO for $2800 (I think the rental is actually on the nicer, northern side of Monterey, but I’m just going by memory here.)
Let me summarize:
That 845 Montery rents for $2500 (according to Satchel), and sell for $900K-ish.
The property in discussion probably can rent for $2000 (again, according to Satchel), assuming in good shape of course(meaning the remodeling complete), and is worth $200K.
John,
LOL!
The 845 Monterey property is a little nicer than the Valdez rental (it had a complete remodel/addition of two rooms and two bathrooms downstairs). Take a look at the price history and note how just about EVERY purchaser in the 2000s has LOST money (even the 2004 purchaser didn’t make much – they put in over $100K in renovation costs). It would probably rent for around $3K/mo in this market, perhaps a few hundred more if the landlord wasn’t concerned with getting a medium- to long-term tenant.
Also, “worth” is much different from what it “sells” for. Worth is a fair value estimation, while selling price is simply a snapshot of what the marginal purchaser (who values the particular property more than anyone else in the world at the time of purchase) is willing to pay. What can I say? There are still many many foolish people with available funds in SF!
This Grafton property, fixed up to be in decent shape as a 2/1, would only get around $1800/mo rent IMO. I guess a little more if it’s a new remodel and rooms are added downstairs. Its “value” imo is no more than $200K-250K, but of course it would sell for more right now. Remember all those fools who paid $50+ for Merrill Lynch and $30+ for Bear Stearns and Lehman just a few short months ago? How about the people who thought the “worth” of google was $700+?
I am having a tough time figuring out a “fair” value that could be completely divorced from a “market” value. I understand how they can get out of whack, but shouldn’t they eventually pull back to even?
If so, any idea when that might happen? I figure it will take most of a decade of stagnant prices (which we are two or perhaps three years through), but I guess a lot depends on the rest of the economy.
OK, according to the revised Satchel, 845 Monterey can rent for $3000+ (to make it easier, let’s say $3600)/mo, and can sell for $900K.
The property in discussion can rent for $1800/mo, and is worth $250K.
John,
What’s so tough here to understand? The Grafton property is “worth” about 125-150x a reasonable estimate of attainable monthly rent, so around $225K-270K at the very outside. It’s a 2/1 in a crappy neighborhood. That’s a pretty high multiple actually, because distortions in California and SF (rent control and Prop 13, primarily, but also building restrictions/constraints) lead to higher multiples IMO. Of course, it would SELL for more right now (who knows how much more – maybe $450-500K if it were in decent shape?). That’s because people are foolish. The NASDAQ sold for 5000 index level when its fair value was 1500!
The Monterey property would NOT fetch $3600/mo. There are nice fully renovated smallish houses in West Portal that cannot atain $3500/mo on craigslist lately. It would probably get $3.2K. It’s a much nicer area than the Grafton property, and a much nicer house (nice detailing – I’ve been inside it). One could imagine raising a family there if necessary and staying for 10 years. It should have a higher multiple. Maybe 150-200x monthly attainable rent to reflect its increased desirability as an asset. So, ITS fair value is probably somewhere around $500K-650K (admittedly, a pretty broad range). Again, the fact that someone right now is willing to pay $900K (let’s see where it actually sells, though!) doesn’t change the analysis. Remember, LOTS of people were willing to pay over 5000 (index level) for the Chinese stock market just 9 months ago! Was it really “worth” that?
I hope that helps!
When could one buy a house in San Francisco for 125-150X monthly rent? In 1997, a friend was renting a 2100 square foot house on one of Noe Valley’s nicest streets for about $1800/month, but decided not to buy the house (it sold for $550k), because it needed too much work. Anyway, before the run up, the house sold for about 300X monthly rent.
Before I bought in 1995, I paid $800/month in rent for a 2 bedroom apt. The cheapest 2 bedroom condos in that neighborhood at that time were more than 300X my monthly rent– most were more like 400X. So in 1995, at the nadir of home prices in San Francisco, I bought a house for 500X my monthly rent. Had Satchel and Socketsite been around in 1995, would I have been warned that if I waited, I could buy for 125X my monthly rent? I’d still be waiting.
satchel doesn’t know anything about real estat valuation but he keeps talking
Wow, people have such short term attention spans. Even 13 years ago is like an eternity.
We’ve heard on SS that view lover rented a 3 bedroom house in Sunset (or Richmond) (he wasn’t clear) in the late 1990s for $3K per month. Not too many 3-bedrooms out there that cost more than $450K to purchase (150x that monthly rent) before 2000 I’d bet! Maybe view lover was paying too much in rent.
The 4/4 that I rented in mid-2002 in Monterey Heights for $3100 per month rented for $4000 per month from 1997-2002. In 1997 it would have cost about $800K to purchase, about 200x monthly rent. This relatively high multiple is what one would expect for a nice, large property that would be suitable for a very long term living arrangement. The house I rented was almost IDENTICAL to this one (I’ve been inside this one, BTW):
http://www.redfin.com/CA/San-Francisco/1285-Monterey-Blvd-94127/home/1518080
In 2002, it would have cost approximately $1.25M to purchase. Let’s see wher it goes for now (no doubt higher than $1.25M, but nowhere near enough to make up for the monthly loss incurred by buying it versus just renting it at $3.1K, especially after writing that $75K+ check to the used housesalesman!.
We have also heard on this site NUMEROUS times from people whose families have been involved in SF real estate for generations, who reported that SFH purchases “cash flowed” immediately as investments. Given the types of financing that have been available prior to this bubble (generally standard type mortgages), I’d have a hard time believing that these purchases were at more than 12 GRM (150x monthly rent).
We have also seen in one of the threads that a 1 bedroom apartment rented downtown fo $450 per month in 1974, while 3/2 houses in Noe Valley at that time cost $30-40K to purchase, while large 4/3 houses in St Francis at that time cost $50-75K.
These all sound like periods when 125x for relatively undesirable properties and 200x for desirable properties would not have seemed unreasonable.
All this evidence is of course ignored, because it’s more than 10 years ago (generally). Things are different now. I’ve heard that more times than I care to remember.
To get back to this Grafton property, it sold for $600K+ in 2005. Obviously, it was a “fixer” too! Can you just imagine how dumb and foolish one would have to be to think it was “worth” $600K+!! Uncle satchel, how did your “experts” – the real estate agents, the appraisers, etc. – do back then with their estimates of value??
Let’s see how this plays out. I’ve got my popcorn, that’s for sure. There are 4 properties within 200 yards of my new Tiburon 3/2 rental ($2800/mo or over 400x with regard to purchase price). EVERY ONE was purchased within the last 2 years, EVERY ONE is sitting, and EVERY ONE will cause its owner to absorb a large capital loss (they all had large downpayments). From where I am sitting, it looks like every one of their owners should have thought hard about the rental multiple before he placed his hard earned cash in the “first loss” position!
Dan, Satchel, I am going to interject here with a thought I have had for a bit… It appears to me that the multiple, at least in normally functioning non-bubble markets, is very directly tied to the 30-year mortgage rates. If I can get a 30 year fixed at 6% for an owner occupied residential property, here’s how I calculate, in rough round numbers, what multiple I can pay:
6%
– 1% (subtract mortgage interest deduction)
– 1.5% (inflation, paying back with inflated dollars)
+ 1.1% (property tax)
+ 1% (Maintenance)
=5.6% ( My true cost of renting housing dollars)
This is a multiple of 100/5.6 = 17.8
Now if I am willing to pay, $2000 per month in rent for a dwelling, I should be able to pay $2000*12*17.8 = $427,200 and come out even. That works out to a monthly rent multiple of 213.
If it were a rental property, obviously the multiple would be much lower because the rates are higher and you get no mortgage interest deduction.
If the 30 year fixed interest rates were to rise, the multiple will nose dive!
Which kinda brings up the question, where have the 30 year fixed rates and inflation rates (in other words, true cost of borrowing) been historically and where are they headed in the next few years? And that can provide some guidance to where the multiples are headed.
“We have also seen in one of the threads that a 1 bedroom apartment rented downtown fo $450 per month in 1974, while 3/2 houses in Noe Valley at that time cost $30-40K to purchase, while large 4/3 houses in St Francis at that time cost $50-75K. ”
So what were the rents then? don’t you think that’s germaine to your larger point?
wow. you are too much. get lost.
Satchel,
I was trying to help you out, that $3600/mo number is to make it easier for you to justify.
OK, so you say it won’t rent for $3600, then let’s go back to your numbers
$3000/mo rent -> sells for $900K
$1800/mo rent -> $275K (revised again by Satchel)
I am just summarizing Satchel.
John,
I always appreciate help! But let’s not summarize away the guts of the argument. Fair value is generally not the same as what something sells for.
$3200 rent -> $500K-650K fair value -> sells for $900K (maybe, let’s see)
$1800 rent -> $225K-275K fair value -> sells today for $450K (maybe, if fixed up)
The $3200 rent house commands a higher multiple than the $1800 rent house, because it is a larger, nicer property in a nicer, more stable area.
There is still a large gap between sales price and fair value. Let’s see if how long it holds up for.
Hey, Satchel, what happened to that “$200K” (quote) from you?
Just to clarify, if “fair” value does not mean market value, what does it mean? Someone can come here and say “the fair value is $10”. How is your “fair value” more fair than his “fair value”?
A rule of thumb for fair market value is whether a landlord would buy it to make a buck.
When experienced landlords will come and snatch property up, you’ll know the market will be affordable and have gotten under fair market value.
Sensible landlords (not flippers who rent for a few years and sell) will start buying under 100 times rent.
Markets do over-correct and under-100 might seem a stretch. But if banks cannibalize themselves, there will be less windows to borrow to and less competition means banks will be picky-picky and will apply rates that help them recover from the current crisis.
That’s the money-supply side. Add to this lack of confidence in the future, the fact that RE will be associated with SCAM for a few years, and maybe the coming of a recession. That’s an-almost perfect recipe for over-correction 101.
Maybe not in SF, but some regions in the US are seeing extreme under-valuation. Some houses in the Midwest are worth less than the replacement cost, meaning the land is free and then some. In Detroit, some houses are worth less than what it costs to paint them. That’s extreme and that will never happen in SF.
But no-one knows where we will be in 5 years. Fair value 2008 and fair value 2013 will be 2 different animals, imho.