San Francisco Listed Inventory: 10/13/08 (www.SocketSite.com)
Inventory of Active listed single-family homes, condos, and TICs in San Francisco continued to climb over the past two weeks, is flirting with the 1,800 units mark, and is currently running 16.8% higher on a year-over-year basis.
The number of listings that have undergone at least one price reduction is up over 56% on a year-over-year basis, setting a new record (at least since we’ve been keeping track) on both an absolute and percentage basis (currently 34.5% versus 27.4% at the same time in 2007 and 24.4% in 2006).
And based on our calculations, and setting the stage for tomorrow’s “on topic” post, new contract volume last week dropped 45% from the week prior and was off by 31% on a year-over-year basis.
And with that, we really are taking the rest of the day off.
[The standard SocketSite Listed Inventory footnote: Keep in mind that our listed inventory count does not include listings in any stage of contract (even those which are simply contingent) nor does it include listings for multi-family properties (unless the units are individually listed).]
SocketSite’s San Francisco Listed Housing Inventory Update: 9/29/08 [SocketSite]
Sequoia’s Take On The New New (And Quite Local) Economy [SocketSite]

132 thoughts on “SocketSite’s San Francisco Listed Housing Update: 10/13/08”
  1. I am surprised there was any activity at all last week. If you look at the stock market (and read SocketSite), you would think the world is ending.
    If I were a buyer in contract, I would use whatever excuse to at least delay the closing.

  2. This won’t be a peak, look at the stock market, look at the job market, look at people’s views on the economy, the fact that 75% of google employees have options that are worthless, the Euroe is falling against the $ so there goes the foreign buyers. Your average real estate investor who was looking for “instant equity” is gone as well.
    So no this is not the peak, I expect housing prices to fall about 30% in the next year and then stabilize. I am sure other people will have their own opinions on the price fall but even the most optimistic don’t see housing prices going up.

  3. Inventory will go down. Not because of sales, but because people will take their homes off the market:
    -because they are busy due to the holidays.
    -because they think they’ll get their price in the spring.
    -because their real estate salesperson tells them that nothing moves between mid October and the Super Bowl, and so their listing will just get stale, and all of the current buyers have seen it anyway.

  4. And yet……last 30 days SF Condo sales numbers were rock solid 110 units sold for an average 98.36% of asking. Median prices are near an all-time high.

  5. It would be interesting to see the price range that is most active and how that relates conforming vs. jumbo mortgages and how that has changed as the spread has increased..

  6. Fortress SF has been a surprise for quite some time… I, for one, wouldn’t be surprised if this does turn out to be the peak. On the other hand, for the record, I predict that this is not the peak.

  7. I thought I read that it is the $1m to $3m market that is taking a licking. I either read it somewhere here (possibly on another thread) or on sfgate.com
    I will speak for my family: We held our cards during the recent boom because we did not think prices could hold. Now that prices are dropping and more homes are available, our assets just shrank because it is tied up in the market.
    So, let’s think about this: The Wall St is rebounding today so, this is good for our pocketbook. But, is it enough to send people running out to buy a home? We are on the sidelines since we still took a bruising, even with today’s rebound.
    One thing for sure: People aren’t transferring their money from Wall St and placing it into a home like they did at the end of the Tech Bubble.

  8. “I, for one, wouldn’t be surprised if this does turn out to be the peak. On the other hand, for the record, I predict that this is not the peak.”
    For bonus points, which US president was famous for having asked someone to bring him a one-handed economist?

  9. Wow, have there really been only 110 condo sales in the last 30 days? That is a total crash. What are we looking at, 8 or 9 months of inventory in the condo segment at that rate, which will certainly further slow in October? Looking like Miami 2007.

  10. I am confused about the word peak. Peak means highest point.
    So, do you mean the highest point of the overall housing bubble? Meaning the rest is all downhill?
    Or
    Do you mean this is the peak of the downfall, as if you were plotting a line graph to represent how many price reductions have happened recently? Meaning, there will be less price reductions and housing will start to tighten up again…
    I am confused.

  11. this bump isn’t surprising, as we discussed last month.
    it is a typical seasonal finding. the only interesting thing about this bump IMO is how much higher it was than 2007 and 2008.
    just like previous years, the inventory levels will fall as people take their homes off the market waiting for the fabled spring bounce. during that time of inventory reduction some of the bulls will say “see, it’s getting better”
    then around the Super Bowl inventory’ll explode upwards again, my guess is that it will go higher in 2009 than it did in 2008. at least that’s the pattern that we saw in San Diego.
    only when the inventory rises for a few years in a row will the sellers realize that the market isn’t gonng just roar back, and then house pricess will fall.
    HOWEVER: the govermnents of the world are now acting in concert to prevent home prices (nominal) from falling. Thus, it’s anybody’s guess what’ll happen between now and then. Perhaps they’ll do a $100k tax credit to all people who buy Californian homes (hyperbole). that would change the market I’d bet. but you can guarantee that equally stupid ideas will get floated between now and Spring. we haven’t even hit the Alt A reset/recast bulge!

  12. “And yet……last 30 days SF Condo sales numbers were rock solid 110 units sold for an average 98.36% of asking. Median prices are near an all-time high.”
    Anon,
    This is indeed surprizing. Can you provide a link to the source of this info?
    By the way, spent some time this weekend looking around your building [Infinity]. Briefly, there were a number of positives and negatives. Well organized building with an awesome gym, nice, more private hallways and great being just a block from the Embarcadero. Cons – the living/dining rooms in the 2/2 all seemed much smaller than the spaces at our building. Views clearly aren’t the same. Individual lobbies are great for privacy, but not so much if one wants more of a community. Different feel, but I can see the appeal for certain types of buyers.

  13. This basically tells you that San Francisco has a huge ways to go in terms of lower prices. No sellers are willing to move prices so no properties are moving.

  14. 12 new SFH went on the market this week in Noe Valley. This is a huge number here.
    They are all priced at $744/sq foot and up though, except maybe the Probate sale at 3882 25th St. It will be interesting to see what that one goes for.

  15. Chippers, asad, et. al
    I believe the original post was referring to the historically seasonal peak in inventory (i.e. look at the graph), not price.
    Speaking for my family, this potential buyer is most decidedly staying out for now.
    Chippers, take heart. We took some losses in the market too, but they are pinpricks to the losses we would have suffered in housing.
    Let’s look at an example: You have $100k in the stock market, and the market drops 20%. That means you lost 20% too, so that’s a $20k loss.
    Now let’s look at a million dollar home with a $100k down payment. Your home drops in value 15%. You’re only down 15% instead of 20%, so you should be in better shape, right? Wrong.
    First of all you lost 100% of your $100k. Even worse, you now owe an additional $50k. So all of your life savings are wiped out, and if you need to sell the home for any reason you will need to write a check for $50k.
    Leverage is a bitch when it goes in reverse. And that’s why I’m not buying a home until the mortgage payments more closely match the market rates for rent of a similar property.

  16. I went to a few condo open houses yesterday for the first time in about six months. All except one were deserted. Of course, it’s possible that Fleet Week may have reduced the foot traffic.

  17. I use the word peak – as it’s intended to mean the highest point. And by that I am referring to the only thing referenced before my post – the actual chart.
    Translation – peak = highest # of active listings this year. That’s it. No commentary on prices, just inventory.

  18. I wouldn’t be surprised if the peak, in terms of number of listings, comes a little later this year. October has seen 400+ closings the last couple of years, and SS notes that we are likely to see 100 or more fewer than that this year. So we’re going to have more inventory hanging around unsold. 2007 saw a significantly smaller holiday season drop-off than 2006, and I suspect 2008 will see a still smaller drop-off. That there are far fewer buyers is not reasonably in dispute. I suspect we also have far more sellers who really don’t have the option of “just waiting” — but the latter could still be disputed.
    As ex SF-er notes, this pattern in SF looks an awful lot like that in San Diego, L.A., OC, etc. — it’s just a year later in the trend, but all the negatives are seriously amplified this year. All the offerings on the market that last changed hands pre-2003 (the vast majority from a quick check) can drop in price 30-40% and still come out OK, and they will. And a huge number of those who bought in 2004-2007 will really have no choice with the ARM re-sets starting to hit. It is hard to imagine anything the government could come up with lending support to SF’s $1M-plus market segment. Propping up California “millionaires” will never sell in Washington — notice the conforming loan limit drops starting in January.

  19. sorry,folks, I am hopelessly optimistic with RE, compared to most of the folks here.
    Not that I don’t believe that price can drop, but that I don’t believe this ARM reset thing is going to cause another wave (and bgger wave per talks on this board) of default/foreclosure.
    I bought in 2004, and a gang of my friends/coworkers did too. We put 20% down and took a fixed 30 yr loan. A number of them did 30-45% down.
    A reset (for those who took 7/10 yr loan) would mean a rate hike from 5.25% to 6%ish. what is the big deal?
    Yes, there are people who over extended themselves, but what is the % of these people as of the whole home owners? Are they a material portion of all the existing homeowners, like 5% or more????
    By the way, dimeos, I later noticed that I sold my DIA at $89 on thursday, and went in after hour and bought back at $86.

  20. ester-
    You are free to have your opinion. And your sample size is certainly biased.
    in 2003, 26% of all mortgages in San Francisco were interest only. Read: not only will rates reset, but principal will now be due. That may be no big deal on a $300k mortgage, but on a $1.5M mortgage, it’s a big deal.
    http://photos1.blogger.com/blogger/6511/1295/1600/IO-map.png
    Other people have posted other sourced stats of mortgages and their resets. Others have also posted % with

  21. RE is an interesting topic that you can argue one way or another.
    In the end, there are going to be people who believe in it and buy, like me.
    And,of course, there are going to be people who don’t and will always rent.
    Good thing that market needs both to balance.

  22. And then there’s the third kind. Who “believe in it,” just not like some deity or fountain of wealth, the way many zealots like ester seem to. We’re the ones who will buy when it makes financial sense.
    Sorry, but “It always goes up eventually” does not equal a sound or worthwhile investment.

  23. I hope this is not too OT, but it’s something I have wondered about.
    The US govt. is now moving forward with buying non-voting equity in banks vs. the original plan to buy bad debt only from the banks. A lot of people were pushing the equity route which Paulson had been opposing. Why? Was the opposition just due to ideology? I don’t think Paulson ever really explained the reasons for his choice. Anyone know or can speculate?

  24. It looks like the federal government is going to bail everyone out, so I actually think this housing downturn will be relatively mild from here.
    Our government has demonstrated a commitment to spray public money at falling assets of all sorts.
    But watchout, inflation is coming..

  25. Another thing:
    I think bubbles also occur in reverse. Sometimes there is an unsustainable degree of pessimism in fallen asset classes that cause them to fall farther and faster than fundamentals really reflect.

  26. chuckie, I do think it was an ideology thing. Bush administration likely didn’t want to appear to be socialist, so they figured out some roundabout way of adding equity to banks: just pay them more money for the mortgage assets than they’ve written them down to!
    Luckily they came to their senses and realized that would completely screw the taxpayer. They also probably picked up a history book and realized that nationalization has always worked best in times of economic crisis. It restores confidence in doing business with these firms, enables them to get back on their feet, and allows the government to reap the rewards of the recovery.

  27. “there’s the third kind. Who “believe in it,” just not like some deity or fountain of wealth, the way many zealots like ester seem to. We’re the ones who will buy when it makes financial sense.”
    I am also the “third kind”. Both my husband and I have bought before (I sold my studio condo when I got engaged because it was obviously too small for both of us to live in), and my husband gave his house to his ex-wife in his divorce settlement. We will buy again when it doesn’t cost 2-3X in mortgage to rent the same place.

  28. typing way too fast… I meant, we will buy again when mortgage payments are not 2-3x the cost of renting the same place. In the meantime, we will save the difference towards an even bigger down payment, retirement, and my son’s college fund.

  29. Be careful waiting2nest – there are those out there who have recently bought, and need the re-assurance that they made the right decision. As a result they will put FUD into the system and tell you that you belong to the group of:
    “And,of course, there are going to be people who don’t and will always rent.”
    Enjoy your perpetual renting.

  30. jessep, when the toughest bull turns bear, that’s the bottom because the perception can only go up from there.
    I remember last Friday, I saw a poll on money.com about the stock market…only about 15% say “it will get better” while 50% say “it will get worse”. I was thinking that might be an indication for bottom.

  31. Ester wrote:
    I bought in 2004, and a gang of my friends/coworkers did too. We put 20% down and took a fixed 30 yr loan. A number of them did 30-45% down.
    My response:
    it is unlikely that your cases typify what we are talking about.
    The loans that are due to reset are ALT-A loans.
    In general, ALT A loans did not average 20-45% down… it was much closer to 0-5% down during bubble years. in addition, most ALT-A loans were not 30 year fixed.
    so your examples have little if anything to do with the oncoming problem.
    FWIW: I too put down 20% and bought a house that was 1x my yearly income. But my stats, like yours, were the anomaly of the bubble in real estate, and not the norm.
    I’d love to go work for wherever it is you work. because I know lots of people in Bay Area who are doctors, Google Employees (including my SIL), Genentech employees etc etc etc and I know almost nobody who did what you and your coworkers did. Thus, I’d like to find out where you work so that I can apply there for a job.
    [Editor’s Note: And might we add: Interest-only loans meteoric rise in the Bay Area.]

  32. And,of course, there are going to be people who don’t and will always rent.
    How simplistic. People who split the world between losers and winners are very short-sighted. They’re the first ones being hit by the freight train of reality.
    If you consider RE as an investment, you have to know that there are 2 timelines to look at: the long term and the medium term. Short term does not really apply for RE (except for unbuilt Miami condo flipping in 2005 and we all know where this leads).
    But my personal opinion is that most of RE should NOT be an investment.
    – First, the entry fees are enormous. Buy stocks, oil futures, pork bellies, currency, your fees will just be a fraction of a percent.
    – Then you’re taxed on the VALUE of your RE asset, not even on your equity, how sick is that? You pay taxes on something you don’t even own in full!!! Leverage is supposed to pull you up, but taxwise, that’s the opposite.
    – You have to maintain the place! Since when did you have to repaint IBM stocks every 10 years? And because you’re leveraged, the cost of maintenance vs. equity is disproportionate.
    – RE is rather illiquid. If you need to sell due to a micro or macro-economic reason, let’s hope it’s a seller’s market.
    – RE transactions contain an emotional dimension. A straight investment should be void of anything emotional or irrational. Look at the fundamentals and make your decision based upon those. You can’t do that with a house. It’s a place you live.
    I am not saying you should not buy RE. It all depends on your personal situation. I am saying that the “investment” proposition is irrational.
    But the fact that most people consider RE as a valid and sound investment just proves the RE cheerleaders did a fantastic job these past 15 years.

  33. “The US govt. is now moving forward with buying non-voting equity in banks vs. the original plan to buy bad debt only from the banks.”
    The US. Government didn’t want the pressure, that would have obviously come next, to forgive the debt that they “bought”. So instead, they will just hand the banks cash, and the banks will continue to foreclose, with the lawmakers pretending their hands are tied, perhaps calling for temporary foreclosure holidays (which will mean in the future, you’ll need an 850 credit score and at least 25% down, to get just about any loan), but not much more. Much cheaper for the U.S. Government.
    And equally important, it keeps an important source of lobbyist cash flowing. Broke homeowners don’t give politicians much money to influence policy like the bankers will.

  34. I agree things will likely get far worse before they get better. I just don’t understand how SF prices can hold up like this. My wife and I are 30 + 31. We earned $475K combined last year, but this year we are looking at a pretty bad financial picture. I was laid off (investment banker) and she sells software for a major consulting firm. Her accounts are already starting to scale back spending which means lower bonuses. I have friends with high end tech jobs (chip designers, etc.) who are canceling their cable, telephone, etc. because they are so nervous about the economy. We are on a “no eating out” plan, and do not spend any money outside of basics. We still have cable and cell phones though. We are very nervous, despite 500K in the bank and no debt. We have worked hard, gotten good educations, and saved money. It seems like we are the only ones! I guess everyone must have hit it big in the IPO market?
    We live in a beautiful 3bd in prime marina which costs just under $4K a month. This is pretty expensive, however it would cost us nearly double to buy a place in the 800-900K range in an undesirable neighborhood. And then our hard earned down payment would also be at risk. Who takes this risk to consume lower quality housing?
    And how long does it take to pay down a 7-800K mortgage? My parents have put 4-5 million in the bank as they come within 5-10 years of retirement. How? They paid down the mortgage as fast as possible (300K(!) house w/ 5 bed, 5 bath) and invested the difference. My retired mom is freaking out and considering going back to work. This is just not feasible for the post-boomer generation, particularly in CA. I think 20 years from now the people who kept renting at low prices and saved the difference will be far ahead of those who pay too much for houses and then sink most of their paychecks into maintenance, repairs, taxes, mortgages, etc. banking on price rises to fund their old age!

  35. So your mom can’t live (in her paid off home) on the interest her $5M makes?
    An $800K place would cost double your current $4K rent??

  36. “So your mom can’t live (in her paid off home) on the interest her $5M makes?”
    It’s amazing how freaked out the elderly get about the possibility of dying penniless. Especially the ones, like my 82 year old mother, who grew up during the great depression and saw all sorts of fortunes go poof! I’m not sure those of us who have lived with safety nets and endless good times can really comprehend.

  37. i dont think i could blow $5M if i tried. heck i probably couldn’t even out-spend the interest income, assuming 6% return.

  38. 5M would go a LONG way if your folks would be willing to leave the Bay Area. There is life outside this expensive bubble and many many people have found there is happiness in less crowded scenic resort areas at 1/3 the cost of housing here. My parents sold their home and bought both a cottage at a Four Seasons resort in Santa Fe N.M., and a ski condo in Montana, and put in their pockets the remaining 1.6M which was added to what they have already saved throughout their lives for retirement.

  39. I read some shocking statistics in the WSJ recently that said something like: only 23% of baby boomers have $500K or more (total – meaning cash savings, stocks, retirement fund etc, but NOT including the value of their home), and even more shocking: LESS THAN HALF of 77 million baby boomers have $100K or less (again, not including the value of their homes). I suspect that many baby boomers who do not have enough money to retire on will eventually have to sell their homes to help fund their retirement. This will add to the already bloated inventory and further exacerbate declining RE prices.

  40. ok, I did it again…. sorry..I meant, more than half have less than $100K, not including the value of their homes. While that might be ok for someone living in Kansas, 100K will not go too far in expensive COG areas like the BA.

  41. “The survey found that three quarters of the respondents cited real-estate as “an opportunity,” ”
    Haha! Real estate has a LONG way to fall when 75% of people think it’s a buying opportunity. Does anyone remember all the morons who thought NASDAQ 4000 was a good “opportunity”??

  42. “Another silver lining: real estate. The survey found that three quarters of the respondents cited real-estate as “an opportunity,” compared with about a quarter who cited it as a “risk.” Fully 30% are in the market to acquire real estate this year.”
    Fabulous! I hope everybody buys today! Don’t you know that it’s a great time to buy? Lots of inventory to select from! fewer competition because there are actually people out there making $200K+ who choose to rent instead (and since nobody making that kind of money would possibly rent, they must all be exaggerating their incomes anyway). And of course, real estate always goes up uP UP I tell you! so for the love of God BUY TODAY!!!!!!

  43. There are actually some great deals on multi-unit properties in the Central Valley. I have a friend how just bought a six unit building in West Oakland and claims that the Cap Rate is 8%. It is his first building though and he might be underestimating expenses.

  44. NVJ: You are probably right about finding potential opportunities in places like the central valley that was heavily affected by the subprime fiasco and may have already bottomed out. The BA, however, still has a long way to go before any deals can be had.

  45. As one of maybe three people on this blog who defend the Buyer perspective, let me put my own scenario out there, and you guys can tell me if I made the right choice with two month’s hindsight.
    *I bought a new home in August for $660k, putting $210k down.
    *To afford the downpayment, I liquidated my stock portfolio when the Dow was at 11,500.
    *If I had not made this purchase, my money would still all have remained in the stock market index funds I had before.
    So the question is this: have the last two months been good or bad for me? I would have lost about $50k in share holdings. But some of you probably think that in the next year, my new home will decrease more than $50k…
    I think that most people in America (though not on SS) would say that selling my stock when the Dow was at 11,500 and then putting it directly into real estate was a fortunate chain of events.
    It will be an interesting 18 months 🙂

  46. Truth be told, no one really understands housing and credit markets. But there is one difference between housing and tech stocks in terms of bubbles:
    Housing equity could be used as easily credit for other things. For that reason, primarily, I think the government will spray money (as it is) at the problem and I wouldn’t underestimate how much we are all willing to put inflation on the back burner.
    I don’t think SF is as overly expensive as people make it out to be. Plenty of metropolitan areas have seen huge price surges comparable to the Bay Area (in percentage terms).
    What about these people asking 900K for a condo in downtown Phoenix, AZ justifying the high price for a 2 BD because it’s in an “artist’s community”?

  47. And then God created the “fourth kind”…those that choose to rent their house, with the use of some sort of creative financing. And this of course, represents the majority of Bay Area current home owners who bought in the last 5 years or so. This group finds itself perpetually in debt to the bank, pretending that he/she is not a renter. These individuals are far worse off than the renter because they are spending much more each month, and most of them are about to lose their shirts when they try to sell because there is no more value in their house which they overpaid for.

  48. “I don’t think SF is as overly expensive as people make it out to be.”
    On another thread, someone accused me of being rich and out of touch because I have a HH income of nearly $400k. Still, this rich person does indeed think SF is expensive – – esp. when it comes to RE.
    “What about these people asking 900K for a condo in downtown Phoenix, AZ justifying the high price for a 2 BD because it’s in an “artist’s community”?
    They are delusional.
    Also, “asking” is not the same as “getting”.

  49. NewBuyer: since you bought only 2 months ago when credit markets have already tightened, I’m assuming that the house you bought was one that you could actually afford on your income.
    I honestly think home prices will continue to decline for the next couple of years. But, since you already bought…and as as long as you are not loosing sleep over your mortgage payments, you should just enjoy your new home. Hopefully you won’t be forced to sell while prices are still falling (due to unforeseen job loss, job transfer, illness, etc.) or you could potentially loose a lot more money (say, your entire down payment plus 6% agent fees, etc) than the stock market.

  50. Whatever, I bought my home with cash and I’m happy. You can’t have sex in a stock and you can’t sleep in a stock.
    Housing is risky?
    Tell my ex-girlfriend who lost millions in Lehman’s stock option plan, while Dick Fuld and friends walked away with a 2.5 billion dollar package. I bet she’d rather buy a house and watch it go down 50% then watch what happened to her (try 99.9%).

  51. What about these people asking 900K for a condo in downtown Phoenix, AZ justifying the high price for a 2 BD because it’s in an “artist’s community”?
    The bubble was international and far reaching. Justifying SF’s expenses by other bubble cities does not make SF cheap… it makes SF part of the problem.
    You see the same thing everywhere, even in very low cost of living areas. “used” homes sell for price X, and new condos/lofts may sell for 5-10x that amount!
    As example, my mother lives in a small city (metro area around 200k in the northern midwest). It is beautiful, and a tourist area. Price for an average starter home: about $150k. A nice home $250k and a super nice home $500-750k. Price for a new condo near the water? up to $2 Million. THe median home price 8 years ago by the way was $62k.
    Do those $2M condos make SF cheap? No. It means that the credit bubble artificially elevated house prices nearly everywhere. There are very few places that were not touched. (parts of the Deep south the Rust Belt, and North/South Dakota are the only places I can think of that weren’t affected- and even then Farmland in SD shot up remarkably).
    FWIW: SF has an equally rediculous reason for why it’s so expensive there. it’s called “everybody wants to live here”. That delusion affected most of the country. SF is fantatic, but so are lots of places. and SF is no more fantastic than it was in 1998 (I’d actually argue that SF was more fantastic in 1998 than now) and yet house prices are appreciably higher. why do you think that is?

  52. Ester….
    I am not sure why Bay Area housing prices have traditionally held fairly well (few historic dips). BUT, I am from NY and real estate does have major fluctuations in an area where: 1. They ain’t building anymore land, 2. Everyone wants to live there.
    So…we did not buy into the recent housing bubble.
    The truth is that after the tech crash, housing prices SHOULD have come down. But, alias, people were putting their money into homes because they did not trust the market. Um…they aren’t trusting housing nowadays…
    Your optimism is only good if you are looking to live in your home for the next 15+ years.
    I am a pessimist, though. I have seen housing fall precipitously in highly sought out areas.
    This is not over.

  53. waiting2nest,
    you sure seem uneasy about your choice to continue renting even though you justify it. why are you so worried about what re buyers are doing? why do you care if they make/lose money?
    more importantly can you not see how other fiscally conservative types are still able to jump into/out of this market?
    fwiw there are ways to make (and lose) plenty of money in this local housing market if you are a hands on investor/flipper/landlord.
    many on this board just want to set up the strawman and knock him down. yawn…

  54. Jessep,
    A house with a 20% down payment that goes down 50% has actually lost 250% of your investment. It’s called leverage. If someone put down less than 20% (as many did) then their pain is so much worse.
    This is why a 30% decline in housing hurts people much more than a 30% decline in stocks.

  55. NewBuyer,
    If you bought your home as a place to live, enjoy it! You won’t know whether it was a good investment until you sell it.
    I think you like being the bull on a bearish site. But if you want to find others on your side, you might start checking out the home improvement sites. Whenever I finally buy a home again, I plan to quit haunting this site and start reading the home and garden sites instead 🙂 Right now it looks like I’ll be gathering wisdom from SocketSite posters for at least another year.

  56. @ester:
    Wow, perfect timing on the DIA! So you say sold at $89 on Friday and declared that it was “game over for you and stocks,” but then bought back at $86 a few hours later? Good thing you did, so that you were in the market for the big bounce this week!
    Sigh. I wish I had timing like that…

  57. why are people still comparing a loss in the stock market to a loss in housing? if you put 20%down on a $1M house + 3% commisiion ($230,000) and the value of your house goes down 20% you have lost 100% of your investment ($230,000), as you only had $230K in the game and the bank owned the rest.
    If you invest $230,000 in the stock market and the value drops 30%, you only lose $69,000.

  58. First of all, buying anything on leverage gets you in trouble. If my ex had bought a home in cash, she would be far head (even losing 50%) than losing her shirt in Lehman Brothers stock.
    @ex-SFer:
    “Do those $2M condos make SF cheap? No. It means that the credit bubble artificially elevated house prices nearly everywhere. There are very few places that were not touched. (parts of the Deep south the Rust Belt, and North/South Dakota are the only places I can think of that weren’t affected- and even then Farmland in SD shot up remarkably).
    FWIW: SF has an equally rediculous reason for why it’s so expensive there. it’s called “everybody wants to live here”. That delusion affected most of the country. SF is fantatic, but so are lots of places. and SF is no more fantastic than it was in 1998 (I’d actually argue that SF was more fantastic in 1998 than now) and yet house prices are appreciably higher. why do you think that is?”
    Those 2 M condos do not make SF cheap but they do not make it overly expensive on a RELATIVE basis. What I am saying is that despite wild inflation in real estate everywhere, SF does have more unique qualities than most metropolitan areas that have experienced similar huge increases.
    I never said that “everyone wants to live here” is a reason why SF is expensive; but this city does maintain demand historically and has a RELATIVELY restricted supply compared to most metro areas.
    That is not the same thing as saying “everyone wants to live here”. I never said that other places weren’t great, I fully acknowledge that. But there are quite a few metro areas with multimillion dollar homes that have plenty of very close substitutes in other cities, other states, etc. I don’t think the same thing can be said about SOME parts of San Francscio.
    What real estate is really worth is what you are willing to pay for it. If a condo is worth 2 M to you, then it is worth 2 M to you. I don’t disagree with you that prices have gone up way beyond fundamentals, but they have done so less here than other places in my opinion.
    (FYI: I grew up in a big sprawling city and I moved here this year (paid cash, no mortgage) and love it. Is it perfect? No. Is it the absolute best place on earth? No. Are there similar lower-cost cities in America? You bet. Did I overpay? I’d bet on it. Is it right for me? Yes. Do I like living here? Absolutely. Is it right for everyone? No.)

  59. paco,
    I don’t know what gave you the idea that I am uneasy about my decision to rent. I am not. In fact, I am quite happy with the fact that I did not buy a depreciating asset in this declining market.
    Also, I am not worried about what other RE buyers are doing. I am merely pointing out the risks associated with the buying NOW to counter all the ridiculous assertions that “RE is a great investment” (when there are people actually losing money on their so called “investments”), “everybody making $XXX buys”, and “RE is a better investment than the stock market”, etc. despite mounting evidence to the contrary.
    NewBuyer threw out a question, and I gave him my honest reply.
    Although Newbuy: I don’t believe I answered your question directly. Did you make the right decision? I really don’t know. Only time will tell. However, if you can comfortably afford your mortgage payments and you’re not stressed about the economy, then just enjoy your new home and not fret about it. You’ve already bought, so as long as you are happy with your place, there is no point in worrying about market forces you cannot control. And of course, I have to add my signature “there are risks associated with buying now” – – I’m sure you already knew that when you decided to buy.
    A very good friend of mine also recently (Aug.or Sept.08) bought in one of the prime SF neighborhoods. My friend also belive that the market is declining, but for various personal reasons, she bought anyway. She is a smart and sensible person, and knowing her as well as I do, I am sure that she did all sorts of number-crunching, market analysis, weighing of pros/cons before ultimately succumbing to her stong personal (and she admits even somewhat irrational) decision to buy, regardless of what the numbers may have looked like. She is very happy with her purchase, and I am very happy for her. She is also a high income earner with the resouces to buy, so she made the decision that was right for HER. I’d also like to add that in the beginning of her house-hunting process, she interviewed numerous brokers, and hired the only broker who acknowledged the fact that the market was indeed declining and that RE may not be the best investment right now. Why did she do this? because she only wanted to work with someone who was honest and well infomed about the market. I would say that this is good example of how I can see a fiscally conservative person jump into the market right now.
    Despite what you may think, paco, I am not anti-home ownership. As I mentioned a couple of times, I’ve bought before and will buy again – – but only when it makes financial sense to do so.
    Sorry for the lengthy post.

  60. waiting2nest,
    OT
    In another thread you mentioned you are in medical devices. I was wondering in what capacity? Invention? Sales/marketing? Invention to market? (I’m in the invention side)

  61. WOW, all these interesting posting, I had been busy since Saturday, but now it is lunch time.
    Yes, I sold and bought back DIA on Thursday, not Friday, because I remember regreting on Friday. Anyway, if you see me in foreclosure some day, that is NOT because I bought into RE and put myself into a “financially vulnerable position:, but because I played too hard with stocks.
    Then, some one mentioned that all his friends took out IO loans, and I don’t know what to tell you all. I can only say that people I know of took out fixed loans, and are very comfortable with where they are.
    To summarize, I think I differ from some folks here in the following two areas:
    1. My dollar seems to go longer, much longer than some of your folks. I don’t have 2 comma on my W2, yet we have 5 properties under our names, still comfortable, not close to default/foreclousre etc.
    2.We have $300K in joint income, most people that we call friends are a little lower than that. Yet, we all manager to have a stable life. Don’t understand why your folks, up in the city, can’t seem to afford anything with 2 comma.
    Lastly, I don’t believe mortgage is 2-3X of rental for the same place.
    the last purchase we made in Q407/Q108 is a 2/1 c ondo in RH. At $700K, we took a 30 yr fixed on $560K, mortgage (Int+ principle)= $2950 a month. rented it for $3200.
    You do the math. My montly outflow = 2950 +300 (HOA) + 700(tax) = 3950, out of which 400 is principle paydown. Income= 3200.

  62. I suspect that many baby boomers who do not have enough money to retire on will eventually have to sell their homes to help fund their retirement. This will add to the already bloated inventory and further exacerbate declining RE prices.
    Yes, this is expected to add to the inventory of larger older homes in the suburbs. Some have theorized that these younger retirees will want to buy condos in urban areas, possibly helping that market. I have met a few of these, one at the Soma Grand Socketsite reception, but I don’t know how ubiquitous this really is.

  63. Ok,I justpulled up this footnote that the editor added about IO loan, and read it carefully. And here are my questions:
    1. the article covered Jan& Feb only for 2005. Is there any seasonality in this? If the data covers a running 12 months, it would be more convinceing.
    2. these loans are reset in 3-5 yrs. about the ratio as high as 49% already in 2004, those resets should have been underway for some time now. Where is the impact?
    OK,guys, back to work. see you all tomorrow, or maybe after 10PM tonight.

  64. Well, I don’t want to be rude but…
    “the last purchase we made in Q407/Q108 is a 2/1 c ondo in RH. At $700K, we took a 30 yr fixed on $560K, mortgage (Int+ principle)= $2950 a month. rented it for $3200.
    You do the math. My montly outflow = 2950 +300 (HOA) + 700(tax) = 3950, out of which 400 is principle paydown. Income= 3200.”
    Good luck with that. You have convinced me that you actually have not done this, nor do you own 5 properties. But I’ll call BS on one thing alone (without even touching the upside down rental economics): 30 Fixed loan @ 4.835%?!?!? Yeah. That’s a nice bedtime story.

  65. waiting…
    “I am merely pointing out the risks associated with the buying NOW to counter all the ridiculous assertions that “RE is a great investment” (when there are people actually losing money on their so called “investments”), “everybody making $XXX buys”, and “RE is a better investment than the stock market”, etc. despite mounting evidence to the contrary.”
    so when i say re is a good investment you say i’m making a ridiculous assertion? really? i also believe that re has been a better investment than the stock market for the last year, 5 years, 10 years and 15 years. that’s ridiculous too?
    man, i guess i gotta choose between ridiculous and rich…hmm

  66. waiting…,
    there is a big difference between the kind of re that you or i would buy and that which is measured in your offered analysis.
    to be more specific and relevant, if you or i had bought almost anything in real sf vs buying the s&p500 we would be up WAY more over the last 5,10 or 15 years with our re.

  67. @ Jessup:
    sorry, my intention wasn’t to make it seem as though YOU said “everybody wants to live here [sf]”, it was only to show you that everywhere had the bubble mentality that fooled them into thinking the rise in RE values had more to do with some city-centric reasoning rather than a massive worldwide credit bubble. My apologies if I put those words in your mouth.
    I still have to say though, SF is a pretty friggin expensive place. I am starkly reminded of that every time I go back home. Only after you’ve been in SF for a while do you normalize it IMO. ON a relative basis, I’d say it’s still pretty expensive although you are correct that there are a lot of other very very expensive places.
    I personally think that everywhere has lots of unique attributes which is why different cities float different people’s boats. LA has glam, SD has perfect weather, SF has hills and liberal folk etc, Seattle has green and hills and water and grunge, NYC is the American city, DC is so political and all the parks/memorials, Miami has the beach and the Latin flavor, you get the picture!
    But yes, SF is one of those cities considered “more unique” than many other cities (like let’s say Houston or something)
    my only argument is that SF was that unique in 1998, and even less unique now. The city really lost a lot of its flavor when the tech boom began, bringing affluent bobos and LA style to the formerly-quirky city. It has fought an admirable battle no doubt. but I just don’t see why SF should cost more today than it did in 1999 during the height of internet bubble when cash flowed in the city like never before and never since.

  68. not to mention the fact that you can live in your re investment,
    take advantage of prop13 and other tax benefits AND paint it whatever color you want…

  69. these loans are reset in 3-5 yrs. about the ratio as high as 49% already in 2004, those resets should have been underway for some time now. Where is the impact?
    @ Ester:
    the resets come in waves. Ivy Zellman did research a long time ago that showed that there was a bimodal reset curve.
    The first wave of resets/recasts hit from Spring 2007 until January 2009, and are due to Subprime. And then a big lull.
    Then the second big wave hits from May 2009 until December 2011. This consists of Prime, Alt A, and Option ARM resettings. we face that wave NEXT year.
    There is a caveat however: people are defaulting on their mortgages (Prime, Alt A, Option Arm, Subprime) far FASTER than Ivy’s research indicated… they were so overleveraged that the mortgage holders couldn’t even make it to reset/recast date. Thus, the first curve “shifted” earlier, and there is evidence that the second curve may also shift earlier in time, but will still likely go on for years. it is thus possible that we are done with wave 1 a little early (the subprime wave) and now we must brace for the second wave which will start Summer 2009 or earlier if it too is shifted forward in time. I hate to say this, but we are in the eye of the storm before the next wave
    🙁
    Here is her paper from March of 2007. Sadly she was “let go” from Credit Suisse because the banks/investors didn’t want people thinking about this stuff… and Credit Suisse did not do a good job of keeping up with this chart and updating it as the defaults have accelorated.
    as a side note: I’ve posted this chart countless times on SS so I apologize for that. Also, this is why I’ve stated numerous times that our current housing downturn will go until about Dec 2011. HOWEVER: this may now change now that the government is heavily involved. the govt may decide to buy up all foreclosed homes and bulldoze them, or buy them up and let the foreclosed upon stay in them, etc… which will change the ratio of foreclosures in the future. Clearly a policy like that could have extremely beneficial or disastrous results (i bet disastrous, but the govt will likely do something)

  70. I think these bears just aren’t framing the analysis properly. Maybe I can help.
    Step 1: Assume the only investments you can make are either buying real estate or going long the DJIA or S&P 500. No currencies or commodities, no ETFs, nothing international, no options or shorts, etc. Just long Dow or House.
    Step 2: Compare the 2 against each other only over the duration of the largest property bubble in global history.
    Footnotes:
    – Ignore that this bubble took 5 years to build and has only been unwinding about 1 year, with plenty of pain left to be felt.
    – Ignore that you can rent a comparable property for much less than owning it.
    – Remember that the “real SF” is now limited to just one square mile, roughly the 94123 zip code.
    See how easy that is? Only takes a wee bit of cognitive dissonance to realize that real estate is the bestest investment ever!

  71. ex-sfer,
    “but I just don’t see why SF should cost more today than it did in 1999 during the height of internet bubble when cash flowed in the city like never before and never since.”
    i agree. the price gains from ’94-00 were already phenomenal.
    the gains since then are hard to justify and the reason anyone even considered bh or gp as good value.

  72. dude,
    i would contend that the gains in real estate in prime california over the last half a century have been bigger and more reliable than the gains in the stock market. is that a big enough opportunity? does that ‘frame’ the issue well enough?
    what’s your idea of the ‘bestest investment ever’ ?

  73. Treeman,
    You can choose to believe or not. but when I actually looked up my online WF website, it is $527K at 5.65% 30 yr fixed. Took out in March 08.
    All my 5 mortagage are with WF.

  74. ester, your posts have often been equivocal or outright contradictory. Off the top of my head, you’ve said things like (and I’m paraphrasing here): “I own one or two homes”, “no, actually I own five”, “I paid with 10% down”, “make that 20% down”, “I paid $673K for my PH condo”, “the PH condo was in the $700K range”, “I can’t remember how much I paid for my main house” (although I really don’t know how anyone could possibly forget how much they paid for their biggest asset), and others. Is it any wonder that your credibility has been called into question?

  75. what i have actually said before are: I own more than 1 0r 2, I paid 10% at COE, another 10% after 6 months when the lower rates expires. etc …..
    Check my old postings.
    I don’t think I ever said anything conflicking each other. I made partial statements at times, and people tend to take what I did NOT say as a no.

  76. waiting 2 nest, i’m still awaiting your answer.
    sf re that you would have bought/or would be willing to buy
    vs. s&p500 over the last 1,5,10 or 15 years…

  77. Seriously, paco, I’m wondering if you’ve even thought through your suggested comparison. Berkshire Hathaway, as an example of a blue chip stock, has generated an annual return of over 18% a year since 1990. Berkshire is a good proxy because it doesn’t pay dividends and hasn’t split.
    Meanwhile, median home price in LA is up about 4% a year in the same timeframe. That includes the 90s wipeout as well as this correction (I couldn’t find SF data going back to 1990 but it’s probably within 1-2%).
    Not to mention that stocks can be sold in a day, don’t require maintenance, and can also be bought using leverage. I’ve been told by an architect that the average home needs to be rebuilt completely every 50 years, at least, in terms of maintenance expenses. Factor in time, labor, etc., and residential real estate just isn’t a good investment unless you buy multi-unit properties to rent out. Even then I’d still rather own REIT stocks.
    It’s very easy to say, “I bought it for X and sold for 2X 15 years later!” But most folks forget that they probably spent X in renovations, maintenance, and interest, as well.
    And to answer your previous question, there is no “best investment” in my opinion. I’m a big believer in diversification and building wealth over time rather than riding the boom/bust roller coaster.

  78. paco – forgive me, but I was not aware that you were waiting for any kind of answer from me. In your last post directed at me at 2:22, you made a statement: “to be more specific and relevant, if you or i had bought almost anything in real sf vs buying the s&p500 we would be up WAY more over the last 5,10 or 15 years with our re” and not pose a challenge as far as I could tell.
    FYI, here is a quote from one of the articles I posted earlier: “The average pundit, planner, lender or broker making the case for ownership doesn’t look at returns since 1890… If they do look at returns, they focus on recent ones (like in the last 1,3,5,10,or 15yrs). Those tell a different story.”
    In any case, the stock vs. house as investment argument has been discussed ad nauseum – even on this very thread (see earlier posts by others), so I really don’t want to get into it YET AGAIN here.

  79. Dude,
    This is the point that irks me the most. Amateur RE investors (and Realtors) often forget that their investment has pretty substantial recurring costs such as maintenance, interest expense, property taxes, insurance etc. These certainly add-up over time and are often not accounted for in their mental arithmetic.

  80. I do find it interesting that in 1 thread ester says she has 5 properties, with none making a profit. This thread, she makes a profit.
    None of her conversations ever include the cost of increased taxes on her income from the rentals. This just reeks of someone who doesn’t actually rent out a place.
    She is on ignore for me from here on out. Just noise, as nothing posted by her is intellectually honest.

  81. Thanks for the link to the chart Dude. I couldn’t see if the prices were adjusted for inflation or not. The wild thing was that the District 7 average price ($1,171,600) adjusted for inflation to 2007 dollars would be $1,935,896. The average 2008 price as of October 10th is $3,883,160.
    Once again, I don’t know if the prices in the chart are adjusted for inflation, but if not, that’s not a very impressive return for a 19 year span.

  82. dude,
    i suggested the s&p500 b/c it really is a good proxy for the market-in fact, its the benchmark for relative performance.
    you came back with one stock-and one with an extreme barrier to entry to boot. my answer to that is montecito, laguna , pebble beach, malibu, pacific heights, bel air, etc..
    so, dude and waiting2,
    again i’ll throw down the gauntlet; in the last 50 YEARS, or 40,30,20,10,1 show me how the broader stock market beat primo cali real estate.
    dude, i agree that diversifying asset classes is critical. but when you have abundance you need to prioritize. i contend that re is a better store of value than what is offered on wall street…
    plus, you are going to have to live somewhere.

  83. paco, you either have to compare the broader stock market to the broader RE market in the same non-bubble time frame (and not broader stock vs. only primo cali RE) — or accept Dude’s example of Berkshire Hathaway.
    If we compare broader trends in the stock mkt vs. the broader RE market between 1978 and 2004, stocks returned an average of 13.4% while RE only returned 8.6%.
    http://money.cnn.com/galleries/2007/real_estate/0704/gallery.stocks_v_realestate.moneymag/index.html
    To be frank, I am quite burnt out on this topic, and I’m sure we’re boring everyone else on this board to tears by now…so with that, I am sounding off…

  84. “paco, you either have to compare the broader stock market to the broader RE market in the same non-bubble time frame (and not broader stock vs. only primo cali RE) — or accept Dude’s example of Berkshire Hathaway.”
    Why ? ? ? Once again, you can not ‘live’ in a stock.

  85. @waiting2breed:
    you make the classic mistake, confusing assets with liabilities.
    If you buy a house to live in and take a mortgage, it is not an asset- it is an asset paired with a liability.
    The asset is the physical structure itself.
    However it is paired with significant liabilities including the mortgage owed, taxes, insurance, and maintenance.
    when you buy a stock or a bond, it is an asset only. (there is no liability).
    and this brings up why comparison between stocks and RE is difficult, because in general people forget to account for the liabilities of RE.
    A basic example
    FWIW: I have used an example that is VERY advantagous to the homeowner.
    ===
    Rent for a place: $833/month or $10k/year
    Buying costs for an exact same place (let’s pretend that the yearly cost is the same to be “neutral”):
    total mortgage: $100k
    Downpayment: 0
    15 year mortgage fixed at 6.25%
    Principal paid first year: $4156
    Interest paid first year: $6132
    Taxes paid first year: $1000
    Insurance: $500
    Remaining mortgage: $95843
    RE appreciated 5% so condo now worth $105k.
    The owner of this place would say “I made 5% in the last year!”
    or some would say, I made INFINITY percent because I made 5K using none of my own money!
    But this is not true.
    Really, this person paid:
    4156+6132+1000+50= $11338 over the course of the year
    MINUS the $10,000 they would have paid in rent anyway equals:
    $1338 is how much they paid for their investment.
    Their asset is now worth 105000 (current house worth) MINUS 95843 (current mortgage) which leads to $9157
    So their $1338 lead to a $9157 profit for the first year. A 584% profit over the first year!
    If they sold, they would pay 6% transacation costs. thus they would receive 105000*0.94= 98700
    minus the mortgage remanining 95843 which is 2857
    their $1338 thus lead to a profit of $2857 which is 114% on the money you put down. (which is nice due to the LEVERAGE!)
    ===
    So you see, it’s MUCH more complicated than just looking at purchase vs selling price.
    Obviously, the numbers look VERY different if cost to own is much more than cost to rent similar property, OR if cost to own is much less than cost to rent.
    It is also different if you are using this as a rental vs owner occupied.
    It is also very different if House prices DEPRECIATE (in which case this leverage works against you, as many people are finding out today).
    my example just shows the fallacy of comparing the S&P from time X with houses from time X, since the S&P is an asset, whereas the house is an asset AND a liability.

  86. I’ll use a real life example (with some very big assumptions to make the math “easier”): the Watermark
    503 Beale:
    Rent for $4300/mo.
    Price when bought: $939,000
    For sale now: $1,032,000
    Bought 12/2006, sold 10/2008 for 22 months holding.
    assumption: 6% interest only loan, 0 down
    Principal paid over 22 months: $0
    Interest paid over 22 months: $103,290
    Taxes (1.02%): $17,559
    Insurance: $16,500
    HOA: 17,160
    Total: $154,509
    MINUS RENT: 4300×22 mo=94600
    Equals total investment: $59,909
    Let’s pretend it sells at current asking price:
    the owner will claim that they MADE 1,032,000 minus 939000 or about PLUS 10% over 22 months.
    This is wrong.
    more correct:
    $1,032,000 minus 6% commission: 970,080
    970,080 minus mortgage left 939000=
    $31,080.
    So an investment of $59,909 got you $31,080, or
    NEGATIVE 48% (over 22 months).
    if you compare the S&P 500 to RE, RE looks better if you use the plus 10%. However, RE really lost this person 48%, so the S&P 500 was actually a better “investment” (lost less).
    (SP was 1410.76 on 12/22/06 and today is 998.01 so lost 29.3% over that time period)
    again: the math here changes based on how much this person put down, what type of loan they took out, etc etc etc. but the gist remains: you can’t easily compare S&P to RE.

  87. ok, lets make this easier. if you bought and held a sfr or 2bdr condo in d5,6,7,8 in the last 50 years you did better than if you had bought and held the s&p500.
    did houses in kansas do as well? who cares b/c we don’t want to live in kansas. we want to live in prime san francisco.

  88. If you bought and held a sfr or 2bdr condo in d5,6,7,8 in the last 50 years you did WORSE than if you had bought and held the s&p500.
    Just following in the footsteps of “paco” and making a declarative statement without any data to back it up.

  89. d5,6,7,8 were not all prime areas 50 years ago.
    sf as a whole wasn’t very prime 50 years ago.
    and 20 years from now it won’t be prime again and neither will all those districts.

  90. This unit doesn’t make sense at all as rental property.
    However, the cost of owning is about the same as renting (assuming $4300/mo rent) after you calculate the tax deduction, if the couple’s income is over $200K (which is about right for the target market)

  91. okaaay,
    waiting2nest has household income of $475k
    and pays 10% of that out to shelter her family.
    she diligently saves, say $200k each year.
    so where does she put this $?
    how has that worked over 1,5,10,15,25 years?
    where are those compounded gains that the stock market was supposed to be generating? anyone?
    more importantly, have housing values over where waiting2nest wants to live given back 5-10years’ worth of appreciation?

  92. paco:
    you frame the argument wrong IMO.
    There are more things in which one can invest than stocks or RE.
    for instance: I’m not investing in either. I’m in Treasuries and cash (CD, actual cash, etc). one can also use investment money to start a business, like a Banana stand (sorry, I love “Arrested Development”).
    also:
    you obviously didn’t read my last post on why it is difficult to compare your returns on RE with S&P500.
    what were your holding costs over the course of those 50 years (minus the costs from comparable rent)?
    or if you bought as an investment: what were the rental payments and taxes and holding costs and labor that you put in etc etc etc.
    I’ve personally done well in RE and well in Stocks. And also well in bonds and Treasuries and cash at times.
    Cash is king right now. RE and stocks are both depreciating assets, and RE is also a liability.
    I’m not saying stocks are better than RE. Far from it. if you’ve read what I’ve written on here for the last year or so you’d see that I recommended selling all stocks last year. (the nice thing about stocks is that they have low transaction costs and are very liquid)
    There are some RE bears who give data that would support another 30% drop in RE values in SF in the next few years (I’m not saying they’re right but they have some interesting data)
    There are some stock bears who give data that would support the DOW falling to 4500. (again, not saying they’re right, just saying it’s some interesting data).
    Remember folks, we had a worldwide CREDIT bubble from 1997 to present. The housing bubble was just one small facet of that bubble. Almost ALL assets were artificially inflated by that bubble. They will ALL likewise fall in value (to varying amounts) as we have deleveraging and credit unwind.
    this will possibly be reversed by govt spending. but it’s tricky… they don’t want to see hyperinflation like Weimar Germany or Zimbabwe… hard to reflate a credit deflation without causing massive inflation.
    Very dangerous times right now. it is possible we will have a second Depression. (inflationary or deflationary, both would suck, both are possible).

  93. I agree with waiting2nest – this is getting so pedantic it’s bordering on reductio ad absurdum. Zealots like paco will find any loophole in a rational argument, or just set up irrational strawman arguments that don’t really reflect anyone’s reality.
    S&P 500 for 50 years vs. same house for 50 years? Not a realistic option for anyone. I won’t even be alive another 50 years.
    paco, you referenced very specific areas in California, which also have high barriers to entry. Blue chip areas. I referenced a blue chip stock that matches. Forget stocks, look at currencies. Or commodities. Gold is up over 11%/year in the last 10 years. Even prime SF real estate has now generally gone back to 2005 pricing, giving up 3 years of appreciation with SIGNIFICANT holding costs (which you conveniently keep overlooking). And prices continue falling.
    So how about some quid pro quo? Show us a link or demonstrable example of a specific California property that has outperformed gold or Berkshire stock during the last 20 years. Please factor in all holding costs, including commissions, maintenance and interest. If you’re going to make sweeping generalizations, you should at least be able to defend them.

  94. @Dude: Nice try, although you’ll never convince this guy. He’s not only had second helpings of the Kool Aid, he bathes in it a thrice a week!
    However, something you said earlier in the post has me wondering. Is there a way to calculate annual gain of the S&P over a set number of years *factoring in* splits and divvys? Obviously that number would be significantly higher, especially with the power of compounding. I’ve never seen that stat, but it must be somewhere…

  95. jeez. Berkshire Hathaway with its 100K buy in and 18% returns of a specific stock, versus the entire Los Angeles region. So 700K gets you seven shares, and 126K in a year?
    Well LOS ANGELES only made you 4% this year on your the six trillion dollars you spent buying up every single building in Los Angeles.
    No. Since we’re cherry picking (and gold looks great now, it hasn’t always so give that a rest too) how about a specific property? That’s a more apt comparison. Anyone could cherry pick hundreds of development deals that generated more than 18% per annum.
    Plus, smart developers leverage. Construction loans, etc. 500K gets you 500K. Things like that.
    Berkshire versus LA — wow. I

  96. Nice try yourself. That wasn’t even a retort. Apply a gross multiplier to the class B and get the same dollars values for the sake of comparison. Can you even do that? The dividends aren’t even as good for class B Berkshire. So you defeat your own point to begin with.
    But honestly, what are you and your friend even saying?
    Because if the argument is site specific R.E. development versus 18% returns, you’re wrong. No developer in his or her right mind would think of touching something that only projected as 18% annually.
    And if you’re arguing a specific stock versus an entire region, then why? Why can you pick the stock but not the specific development.
    Give it a rest. It was “Berkshire versus LA” and you guys think that’s somehow valid. This is beyond silly.

  97. I’m not saying anything, and I have no friends on this board. You made a misleading statement (“Berkshire Hathaway with its $100k buy in”), and I corrected you.

  98. No developer in his or her right mind would think of touching something that only projected as 18% annually.
    really? I would.

  99. Posted by: ester at October 13, 2008 1:22 PM
    “By the way, dimeos, I later noticed that I sold my DIA at $89 on thursday, and went in after hour and bought back at $86.”
    let me guess, ester sold yesterday…

  100. Now fluj is back with his non sequiters.
    Chronology: paco makes blanket generalization that real estate is the best investment ever. Goes on to say California real estate has outperformed stocks for any holding period in the last 50 years, and challenges someone to prove him wrong.
    I counter with an example of a stock that has outperformed California real estate, LA real estate, and Marina/Pac Heights real estate. Berkshire is just one – there are plenty of others. Then I offer a commodity that has done the same. Then I ask paco to defend his point with a specific example, which I haven’t seen yet.
    If you don’t like the analysis, fluj, take it up with paco. He was the one who made the ridiculous comment in the first place.

  101. dude,
    “Then I ask paco to defend his point with a specific example, which I haven’t seen yet.”
    my dad bought a beach house in emerald bay (laguna) in ’71
    for $62k.
    my uncle bought 2 lots in seadrift (stinson) in ’68 for $6k each.
    that’s just two examples i’m personally aware of.
    but back to the point, i said you could pick to own in a nice part of california-or you could put that money into “the stock market” as represented by most people’s proxy for the market, the s&p500. you can compare the two over any time frame up to the present that you want; in other words, bought a house or the ‘market’ one year ago, 3,5,10,15,25,50 years ago…i’m saying my real estate to date is still worth more than my stock market gains to date. that’s not ridiculous, hombre.
    btw, its non sequitur

  102. and my answer to all the points made about the maintenance
    and taxes and other expenses involved with owning re is this-
    unlike rent, a mortgage is finite. also prop 13, mortgage interest deduction, property tax deduction (against gross taxable income), irs 121, 1031 starker exchange and the pride of ownership.

  103. “my dad bought a beach house in emerald bay (laguna) in ’71
    for $62k.”
    Sounds like paco is just bitter that his dad didn’t save that $62k and buy MSFT 15 years later. Would be worth $15M today.
    “i’m saying my real estate to date is still worth more than my stock market gains to date.”
    All that proves is that you need a new broker.

  104. yo micheal,
    actually, we still enjoy lots of extended family time down there.
    plus i’d rather have that equity than msft. how’s msft done over the last oh, EIGHT years?

  105. and another thing, (might as well)…
    we’ve actively enjoyed our equity in the beach house w/out having to sell it. way more enjoyable to have your cake and eat it too…

  106. paco:
    perhaps people are arguing 2 different perspectives?
    1) RE as investment
    2) RE as home.
    I already gave you 2 examples above of why you can’t just take the purchase and sell price of RE and then compare that to the S&P, because doing so does not take into account all the CONSIDERABLE liabilities and holding costs of RE. (which you seem to ignore… surprisng since you know RE so well).
    if we’re talking RE as home (case #2) it fares quite poorly long term in terms of “investment” because for the most part it’s really consumption and a liability, not an investment.
    using your example of the lots in stinson: how much money has your family sunk into those lots?we would need to see EXACTLY how much your family spent over the last 40 years before we can compare that to the S&P or to a specific stock. you aren’t giving us that information. But I wouldn’t be surprised if you’ve spent up to a $1,000,000 on those lots over the years given their location (unless they are shacks or something).
    If it is RE as investment property, it’s a different bird IF THE PROPERTIES ARE CASH FLOW POSITVE. (which by and large many have not been for quite some time now). The golden age of RE as investment ended with the bubble, as valuations got so high that most properties bought in the last few years are cash flow NEGATIVE, and one depends on appreciation to make them “work”. But I would agree that a cash flow positive property often will beat stocks (remember to subtract out of that any “sweat” equity of course). so all you gotta do is find a cash flow positive property.
    that said: your argument is relatively weak.
    The S&P 500 is a proxy for the AVERAGE of what the stock market has done in the last X years. whereas you compare that with only the BEST of RE. you pair Laguna Nigel with the average in S&P as example. why do you do that? I’m not saying you can’t do it, but it makes for a weak argument. we could just as easily compare Sacramento RE or Detroit RE to the S&P
    One of the problems is that one cannot buy the “average” of RE. I’d rather compare the OFHEO data or Case Shiller data to the S&P since both of those are using averages of an aggregate, instead of comparing an average to a specific property.
    again: I think going forward BOTH stocks AND RE are going to suck hard. So I’m not trying to push anyone to either. Anyone “investing” in either right now is either a fool or a gambler or has inside connections.

  107. good points exSF’r,
    you are right that investment property is a different animal and certainly a hands-on type investment.
    i’m really going after waiting2nest’s comments about ‘re being a poor investment’. we are talking about sf re on a local blog rather than sacto re or detroit re. and even tho re in those places may be good or bad they are just not places we would move to no matter what the price; on the other hand we want to live here (no matter the price). and indeed, waiting2 is spending tens of thousands of $$ to live here anyway. in fact, she is choosing to live in a premium nabe paying premium rent so obviously her housing demand has price elasticity. is this a good use of capital? who cares, if she values lifestyle more than economy.
    so my argument is that buying in a premium area is better than renting and investing the difference. this has shown to be true in the places where i want to live (primo cali) and over the short and longer run.
    if this does not make much sense then i would ask why d7 re has not fallen as much as the central valley’s re.

  108. thanks for the clarification.
    as I suspected, people are arguing slightly different points causing confusion. I agree with all of you! (wink)
    Traditionally, I think that a knowledgeable investor could do very well with stocks or very well with RE. Then the credit bubble inflated them all, making us all look like geniuses.
    currently, they are all overvalued significantly, and thus going forward both appear bleak. Hard to say which looks more bleak. I suspect it depends on one’s personal outlook.
    Paco is a professional RE person, so s/he sees RE as “easy” return on investment, and often doesn’t consider how hard it would be for other novice investors. Satchel is a trader so feels the same way about equities. I’m in the middle and float from one to the other, although I’m more handy with stocks/bonds/Treasuries/cash etc than I am with RE.
    so the game going forward is to choose which you think will lose the least FOR YOU IMO… and it may be better for an individual to choose the “wrong” category if they are knoweldgeable in it. i’d bet Paco would do better in a down RE market than a down stock market, even if the overal RE market underperforms the stock market, given Paco’s experience/expertise.
    Likewise, I’m significantly outperforming this year in equities because of the down market, even though equities have underperformed RE since January.

  109. i’ve made close to $80k trading skf from home this year and i’m happy to say this has outpaced the losses i’ve endured on my “stock market portfolio”.
    down markets produce much quicker/larger opportunities to profit imo and ime. still, i favor certain re as an asset class.

  110. Darn! I was hoping to come here and read some good posts about the tech industry but I see goog somehow pulled out a decent quarter. I bet their programmers probably found a new way to defeat click fraud detectors. Seems that they are still hiring, albeit ‘cautiously’; too bad.
    Just for fun- lets hear what everyone had prepared if goog had actually filed a crappy report today.

  111. Yes, goog has had big market gains today and has almost clawed back to within 50% of its 52-week high. Good times.

  112. Because stock valuations are everything. Projected growth is a terrific model. Not profit, jobs, or money going into local economies.

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