Yesterday the list price for 1409 20th Street was reduced to $799,000, exactly what was paid for the “beautifully remodeled” Potrero Hill single-family home a year ago (June 2009), and back to 7 percent under its May 2005 apples to apples sale at $860,000.
At the same time main stream media and industry reports continue to misrepresent tout confuse year-over-year increases in San Francisco’s median sales price with appreciation.
∙ Listing: 1409 20th Street (2/1) 1,225 sqft – $799,000 [MLS]
∙ A Potential Single-Family Apple Atop Potrero Hill: 1409 20th Street [SocketSite]
∙ Its Last Call Is Heard: Apples To Apples For 1409 20th On Potrero Hill [SocketSite]
∙ A 7 Percent Slide From 2005 To 2009…But Up 8 Percent Since? [SocketSite]
∙ A 7 Percent Slide From 2005 To 2009 But Up 8 Percent Since? Nope. [SocketSite]
∙ Medians Are Up, But Don’t Confuse That With Increasing “Prices” [SocketSite]
It will be interesting to see how the 2010 market compares to the 2009 “bottom.” But equally interesting is the $725,000 sale price in January 2001. The only real financial justification* for paying more than comparable rent to buy a place is the expectation of future appreciation. A mere 10% increase (~13% decrease in real dollars) over nearly 10 years puts the lie to that notion. And the 2001 sale was before the big 2004-07 run-up. Objectively considered, given the strong likelihood of further SF housing depreciation for the next several years, housing should be selling at a discount to comparable rentals, not a premium. It will get there just as it was before the ’00s, but it takes a while to change what people “know” to be true.
* There are, of course, lot of non-financial considerations. And the economics are different for those who materially improve a place.
Over a nine year period, one would normally paint a home, inside and out, replace the carpets, replace a hot water heater, fix the plumbing etc.
If you had bought the place in Jan 2001 and were selling now, I doubt you’d take any cash away from the transaction at all. The Realtors and transfer tax would take everything. No wonder Realtors talk up real estate. You take all the risk and everything goes into their pockets.
So in the end, a 9 year hold would just mean the owner had been overpaying for 9 years. Dumb. Just Dumb.
“But equally interesting is the $725,000 sale price in January 2001”
“And the 2001 sale was before the big 2004-07 run-up.”
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No disagreement at all with your general argument; however, there was a regional housing bubble (large by prior standards, small compared to the subsequent national one) at the time due to dotcom funny money.
Thus, not so sure that the 2001 sale price is a good example of intrinsic value.
I’m seeing a lot of potential issues. First off, why are there chairs blocking a doorway in a living area? How do you get to the bedroom behind it? So the only way to get to that bedroom is through the other room? Odd layout. Makes it seem like it’s cramped.
The garage is in rough shape and there are a lot of exposed wires. The kitchen needs to be updated. It’s a nice looking exterior but something tells me there’s a lot lurking behind the facade.
A.T. wrote “The only real financial justification* for paying more than comparable rent to buy a place is the expectation of future appreciation”
That’s not entirely true. A lot of pricing homeownership depends on what you are earning. You can deduct your interest payment. Can’t deduct your rent. Also in the event of appreciation, if you owned the place for over 2 years you get a free pass on anything made up to 250k… 500 if you’re married.
No one ever talks about tax considerations on this site.
anon, you are correct that tax considerations should properly be considered in the rent vs. own analysis. But I did not exclude them. As I’ve mentioned before, when we bough our place in 2000 we were paying less than comparable rent day one, but only by factoring in the tax deduction. Also, when you rent, you don’t have to pay 5% of the value of the place, an “exit fee,” to move, and that also needs to be factored in to the rent vs. own. We probably did not come out ahead taking that into account. To your capital gains point, note that in the event of housing depreciation (much more common these days) you cannot offset the losses from capital gains or otherwise deduct them, unlike other investments. Cuts both ways, but realtors don’t like to talk about the down sides.
this house is not at all indicitive of sf housing prices in general. it is in a terrible location about 2 blocks away from the housing priojects. i think a lot of people would consider this place undesirable and i am not surprised it has lost so much value.
Lori – The exposed wires in the garage look ugly but appear to be safe. Those wires that look to be sagging and tacked on are low voltage. The AC power wiring seems to be done properly with the exception of the power cord for the overhead fluorescent light, that does not look kosher though would not be expensive to fix. There are some outlets on one side of the wall that appear to have been tacked directly on top of the studs (including the conduit). That’s visually messy because now it protrudes from the sheetrock though the fact that it is protected by conduit makes it safe. The garage pad looks worn and stained but that’s to be expected of any pad over a decade old.
The AC wiring in the storage area is exposed though it is OK for storage space. I see one wire that seems a little goofy though.
I’m glad that the seller has included photos of these “ugly” areas of the house because it helps to evaluate the physical condition. This house seems to have good bones from these limited images.
I’m not a licensed contractor so take this evaluation with a grain of sea salt.
There’s not much tax consideration because 1) property taxes will usually nix tax savings in interest and 2) tax exemption on a profit after a 2-year hold depend on… a profit.
Renters cannot deduct rent, but the 50% they pay compared with true ownership cost more than makes up for it appreciation is out of the equation.
“Also, when you rent, you don’t have to pay 5% of the value of the place, an “exit fee,” to move, and that also needs to be factored in to the rent vs. own.”
Well if you are going to trying to factor in all possible costs (moving costs are not certaintities as someone may never move out of the house they buy) you would need to determine the probability that as a renter you may face a forced move through no fault of your own. Twice as a renter I was forced to move and always ended up in a smaller place that cost more after the move. So even though I got some financial consideration to move, in the long run each unwanted move as a renter did cost me money.
So to charge a home owner 5% when he moves when he choses to, but yet say somehow that renters never suffer costs associated with moving (which they have less control over) is unfair imo.
How do I account for the following as a renter?
1994-1998 rented a 3bd/2ba w/parking for $1,200 a month (eventually OMI’d, owner did provide moving expenses and some $)
1998-2002 rented a 3bd/1ba w/o parking for $1,600 a month (moved as a result of a fire caused by someone else, insurance covered pure moving costs only)
2003-2007 rented a 2bd/1ba w/o parking for $1,620 a month.
As an owner I do have the ability to control my own destiny and as demonstrated above, that is a financial consideration and can’t be lumped purely under non-financial considerations. But it is also hard to quantify it in order to include it in a rent to own calculation. As such I think it is fair just to exclude the ‘moving costs’ of a sale.
Those steps tell me someone is colorblind.
“Two blocks” from the projects? That’s a world away. Ghetto peeps tend to keep a pretty small world.
Rillion,
In SF, a renter is PAID to move out. What you pay after that, it is highly dependent on timing. Your rent could have come down if you had moved out in 2009 from a lease contracted in 2008.
Owners HAVE TO PAY to move out. No question about that. That amount is almost fixed.
About your situation, it probably has more to do with the evolution of demographic economics between 1994 and 2007. Techies and wealthy coming in, middle class getting out. 1994 would have been the greatest time to buy. You’d have sold in 2007 and gone back to renting with mucho dinero in your bank account. But hindsight is always 20/20.
Here is another ’09-’10 Apple (as far as I can tell) — higher-end.
http://www.redfin.com/CA/San-Francisco/63-20th-Ave-94121/home/2010374
6% discount to ’09 at the current reduced asking and 6% over the 2002 sale price. Five months on the market. Really nice neighborhood if you don’t mind the fog.
What does everyone think this will eventually go for?
Personally I can’t imagine paying anything *close* to asking for this place. It’s only a 2br, the kitchen would need to be completely redone, plus it’s in Potrero Hill. But maybe there’s someone out there who would be willing to fork up the dough…
lol,
If you read what I wrote, which I will assume you did since you are responding to me, you will see that I did mention that I was in fact paid to move out on the ome. You will also see if you do the math that I ended up spending almost twenty thousand more over the next 4 years for a smaller place without parking, I can assure you that I was not paid $20,000 to move out.
Also, I was not paid to move out when a fire made the next apartment uninhabitable. Could I have tried to get the landlord to let me move back in to that apartment after he dragged his heals taking forever to fix it up (a for rent sign did not go up until a year after the fire), knowing from my personal experience with the landlord that he would do the bare minimum to make it inhabitable and I would always be wondering if he actually got rid of all the mold that resulted from the water damage, always be wondering if he actually replaced the smoke damage wood and if the place would smell? I did notice that after it was rented it turned over again 3 times in the next two years.
As for your second point about “timing”, since when can you time a forced move? You can’t.
This all gets to the question I posed. How do you quantify this financial uncertainity in a rent-own calculation? To simply say, well it involves too many unknowns so we’ll just ignore it but meanwhile we will charge an owner a 5% exit price is imo an unfair attempt to bias rent-own calculations further against owning. I am not saying that this makes rent-own useless and that owning is always better, I am just saying that you can not just throw every cost you can think of onto one side while ignoring costs associated with the other.
Rillion, you can’t even see how silly you’re being, so let me help you:
A neighbor caused a fire and all you had to do was move out and stick it to your landlord to deal with everything that came after. You had it easy!
And it’s hard to just look at the rent numbers without seeing the quality or location differences.
I usually move up every time I move. All I have to do is to pick out a place I like and move there. I don’t have to have my kitchen torn out, bathrooms redone, even paint. I find a place I like and that’s what I move into. I could do that if I bought, but I’d have to pay the minimum 6% (realtor + transfer tax + seller paid closing costs anyone) move out fee. You might have to paint and fix stuff before you list your house for sale.
I think you are the poster child for why you should rent!
Tipster, Lol,
I have yet to see anyone on this site who has put as much work into Rent vs. Buy analysis as I have. I’ll refer you the now inactive (but still accessible) submedian.blogspot.com website for that.
Tipster, Rillion makes some valid points, and while we are at it you doth protest too much. if renting is so wonderful then why are you on this website so much?
Strictly on the numbers few homes in SF are cheaper to own than rent in the short run. That’s a fact. But I spent years living in apartments where the owner either deferred problems , or chose to deal with them in ways I would not have chosen were it up to me. As a control freak with a point of view, I am willing to pay a premium for control. And I can tell you that in my life I have never regretted paying that premium. And I think that’s what Rillion is getting at.
rillion,
My point is this:
Why would a rent increase be an issue when you have been asked to move out? If you are moving into a similar unit, why would it be more expensive? Outside of SF, this would be an easy question to answer: a landlord would decide whether to catch-up with the market or make you a sweet deal for whatever reason. Usually, you’d only have the hassle of moving, not the financial hit that SF renters take in your situation.
But this is SF. Rent control imposes all landlords to be “nice guys” and not follow market trends. The rent increases and “move downs” you got when switching places came from 2 things: 1 -a similar unit became out of reach, and 2 – your previous unit didn’t follow the market. If your landlord had adjusted your rent to the current market year after year, the schock would have been more gradual. You might have even moved out when the price became too much for you.
Even this last statement is not a given: with market setting prices across the board (long term leases and recent ones), rental prices would have settled to something in between, instead of todays situation where a $1000/m 2/2 rental signed in 1979 would go for 2500 today. Lack of supply created the gap between long term leases and market rent. Your landlord wouldn’t have raised the rent by as much because the market would have beem more fluid and renters more mobile.
A city where 60% rent and the median salary is $70K/y wouldn’t sustain current market rents if it weren’t for rent control. That $2500/m 2/2 would go for maybe 2000, and many of the people making less than 60K/Y would have moved out, which is another issue.
I see two comments above casting the location of this house in a negative light. For Potrero, anyway, this is a pretty good location. This person is a half block from the shopping strip on 20th and two blocks from shopping on 18th. The freeway is three blocks away but the noise is shielded by a rise on 20th (Texas is a sort of “valley” there). The elementary school across the street will be far noisier IMO.
The projects are three blocks away, yes – but the interesting thing for me is that they aren’t much farther from anyone else, either. Lots of desirable “north slope” houses are less than five blocks away from Potrero Terrace/Annex, and you’d scarcely know they were there. Either this house is OK, or all of what’s considered “desirable” Potrero is tainted by the projects.
As a matter of fact, this lack of mixing is kind of weird. But that may be a topic for some other post.
“No one ever talks about tax considerations on this site.”
You must not read this site very often. To the contrary, people almost always talk about tax considerations here. I know I do. And I often encourage people to use missionite’s calculator which certainly includes tax calculations. All you have to do is find the numerous threads where people are debating the appropriate percentage for the tax benefits or discussing the AMT to find proof of this.
“Desirable Potrero” is an oxymoron. At least for me.