According to the July 2010 S&P/Case-Shiller Home Price Index, single-family home prices in the San Francisco MSA rose 0.5% from June ’10 to July ’10, down 34.4% from a peak in May 2006 and up 11.2% year-over-year (YOY) versus a 14.3% YOY gain reported in June.
For the broader 10-City composite (CSXR), home values rose 0.8% from June to July for a fourth straight monthly gain but remain down 28.3% from a peak in June 2006 as the year-over-year gain slipped to 4.1%.
The year-over-year growth rates for 16 of the cities and both Composites weakened in July compared to June. While we could still see some residual support from the homebuyers’ tax credit, which covers purchases closing through September 30th, anyone looking for home price to return to the lofty 2005-2006 might be disappointed. Judging from the recent behavior of the housing market, stable prices seem more likely.
In the monthly data, 12 of the 20 MSAs and the two Composites were up in July over June; but the monthly rates also seem to be weakening. The next few months may give us an idea of the true strength of the housing market, as the temporary economic stimuli will have ended. Housing starts, sales and inventory data reported for August do not show signs of a robust market, and foreclosures continue.
Prices were up across the bottom two price tiers on a month-over-month basis but declined for the top third of San Francisco MSA single-family homes for the second month in a row.
The bottom third (under $342,906 at the time of acquisition) gained 2.2% from June to July (up 15.1% YOY); the middle third gained 1.2% from June to July (up 9.6% YOY); and the top third (over $621,684 at the time of acquisition) fell 0.4% from June to July (up 2.8% YOY versus 5.1% in June).
According to the Index, single-family home values for the bottom third of the market in the San Francisco MSA returned to October 2000 levels having fallen 55% from a peak in August 2006, the middle third is back to just below May 2003 levels having fallen 34% from a peak in May 2006, and the top third is back to just below April 2004 levels having fallen 22% from a peak in August 2007.
Condo values in the San Francisco MSA rose 1.7% from June ’10 to July ’10, falling to a 2.2% gain on a year-over-year basis (down 25.9% from an December 2005 high).
Our standard SocketSite S&P/Case-Shiller footnote: The S&P/Case-Shiller home price indices include San Francisco, San Mateo, Marin, Contra Costa, and Alameda in the “San Francisco” index (i.e., greater MSA) and are imperfect in factoring out changes in property values due to improvements versus appreciation (although they try their best).
∙ Home Prices Remain Stable Around Recent Lows [Standard & Poor’s]
∙ June Case-Shiller: San Francisco MSA Tips Atop As YOY Gains Retreat [SocketSite]
Looks like the market is stabilizing very nicely! Looking forward to my Zillow z-estimate crossing $1M in 2011 (its at $915k now, up from $850k when I bought).
Jimmy, I like your positive attitude, but Zillow? Come on man!
stabilizing? doesn’t seem like it’s been very stable to me.
it was rapid price drops from 2007-2008 then (arguably) rapid price increases in 2009 to early 2010 and now back to price drops.
your house may cross to $1M in 2011. or it may cross $850k again and then $1M and then $850k once again.
much of this depends on Mr. Bernanke. If he pumps QE2 directly into housing again then your $1M home may be a reality. If not, then $850k may be closer to the mark.
18 months ago, the index hit 117.71 in SF. Many of us looked at that number and thought “nope, not low enough yet, im gonna wait til the REAL declines come.”
Now, 18 months later, the index is at 143.23. Sure we may get some weakness in the winter, but does anyone think we will see 117 ever again? In hindsight, waiting is increasingly looking like a terrible, terrible mistake.
“In hindsight, waiting is increasingly looking like a terrible, terrible mistake. ”
Yeah, my lack of debt in a depressed economy has me trembling…
Maybe spending some of the money I save by renting will make me feel better.
“In hindsight, waiting is increasingly looking like a terrible, terrible mistake.”
That is a very true statement — for sellers! “Apples” from 2009 to 2010 indicate, at least in SF, that we did not “bottom” last year and prices continue to fall here. May be different in places like Concord as the tax giveaways helped more out there. But, of course, those are gone now.
“but does anyone think we will see 117 ever again?”
Yes.
Before people get to excited about the July CSI numbers remember
http://www.calculatedriskblog.com/2010/09/case-shiller-home-prices-stable-in-july.html
So we are still seeing the effects of the 8k credit in the July numbers.
Also, it depends on what numbers you are looking at. From Calculated Risk in the comments of this story.
http://www.hoocoodanode.org/node/11090
“”Apples” from 2009 to 2010 indicate, at least in SF, that we did not “bottom” last year and prices continue to fall here.”
No they don’t.
Market pricing looks stable to me if you are looking at either first six months of 2009 to 2010 or Q1 to Q2 2010 for all of City SFR and Condo markets. Case-Schiller data seems to provide more backing for that assumption. Also, IMO trailing 3 month data is the correct way to look at any RE pricing data as it smooths out some of the noise. One month does not make a trend.
I have posted both of these numbers on this site before with regards to Avg, Med, $/sqft, but here is a link to the six month YOY data again if you are interested: http://www.callumhutchins.com/2010_July_Update.pdf
@AT: your statement “…and prices continue to fall here.” clearly shows your bias, which is fine as your personal opinion, but it is not supported by any statistically relevant data. Cherry picking some “apples” from what is posted on SS is NOT statistically relevant. What I have been seeing is some softening, but overall stable prices. It will be interesting to see what the Q3 MLS data shows as well as next CS report. I predict relevantly stable pricing through the rest of the year.
I’m sorry to keep repeating this, but every time CS showed YOY gains, there were few, if any apples that showed any gains, but quite a few that showed losses. If some showed losses or no gains, in order to hit 20% on average, we’d need others with 40% gains. I didn’t see a single home like that, let alone hundreds that would balance out the hundreds of near zero apples we saw in the last year.
Thus, I’ve stopped believing CS for the bay area because I think their methodology is flawed for the bay area. From what I can tell, and this is only a theory, when a home is foreclosed and resold, CS boosts the price to account for the fact that many foreclosed homes get sold for less than their fair value. So three identical homes that sold last year for $500K that sold without a foreclosure for $400K this year would cause CS to show a 20% decline.
However, if those same three homes sell for $400K after a foreclosure, CS will show no decline because CS boosts their sold prices back up by some factor (here, I’m assuming 15% but I couldn’t tell you what the number is) to show a 10% decline. Same houses sell for the same price, but CS deals with them differently.
I think that works for other areas but the banks don’t seem to be dumping homes for low prices in the bay area. Many foreclosures undergo one or more price drops. That means they are not priced aggressively low. They sell for the market price. There doesn’t seem to be any difference in the price of a foreclosed home from that of a non foreclosed home in the same condition. That’s especially true for SF, even more so than the rest of the bay area.
So when you have stabilizing prices, a home that sold last year for $500K sells for $500K this year, CS boosts the price of that home up to $575K if it is a foreclosure sale. The average goes up! The more foreclosures, the higher the CS index goes even with prices relatively stable.
So the only “horrible mistake” I can think of that anyone on here made was not looking at the market with your own two eyes and deciding that statistics, while useful, may not always tell the whole story.
Look at that graph: the average price was up 20% YOY? Really? We saw lots of homes flat to down, so where are all the others up 40% to get a 20% average. Horrible mistake my ass: the only one who made one was CS.
And now look at the number of home sales from Redfin and the number of listings. Inventory is sky high and yet the number of listings is outpacing sales by a wide margin. That tells me everything I need to know. When inventory was lower and foreclosure moratoria were coming out with a new one every month, prices stabilized while interest rates dropped like a rock. All those positives are now gone. It’s pretty clear where the direction of the market is.
CS is a useful tool and it does show trends, but unless you understand their methodology, you’re going to get fooled by it occasionally. Unless you can show me the hundreds of homes up 40% YOY that is.
I love how when CS was crashing the bulls pointed out that SF proper was holding up, causing mocking responses from the bears.
Now that the CS data is going the other way, the bears are resorting to the same argument they used to mock.
once a figure stops telling people what they want to see, then people stop believing in that figure.
funny how that works…
I believe the CSI numbers. I believe the massive government intervention has managed to shore up prices for the Spring into early Summer.
However, much of that government intervention is ending. Incomes are flat or declining, job growth is weak and inflation is flat or even declining.
Without growing jobs, income, or inflation it’s tough to see how nominal prices, much less real prices, see a continued rise with the end of much of the intervention and stimulus.
Hopefully the economy picks up and RE prices have stabilized and do start a sustainable rise leading the overall economy out of this ditch. I just don’t see any significant indication in any leading or trailing indicators of that currently happening.
^ What he said.
Agree with Tipster. The CS methodology leads to a widely divergent conclusion than what the apples are telling us every day. For some time now, CS hasn’t been telling the story in San Francisco proper.
I’m willing to be convinced otherwise, but this doesn’t do it.
“Now that the CS data is going the other way, the bears are resorting to the same argument they used to mock.”
It wasn’t a mocking response. Where are the 40% YOY homes? I see lots of 0% YOY. Go ahead, get to 20% on average with all the flat homes by showing me hundreds of homes up 40% YOY. You can’t.
Therefore, the statistical result is distorted. All statistics have some distortion: you are trying to boil down a lot of unrelated transactions into a single index. But sometimes, your method fails and the single number is just wrong.
This isn’t a bunch of real estate agents trying to protect their incomes or hopeful flippers trying to say, with no reason at all, “CS is full of crap now buy my condo”. That’s how it was on the other side, when CS started diving. There was no reasoning, just platitudes: they aren’t making any more land, or real estate always goes up. I’m not that stupid, none of us are, so that wasn’t really sufficient. BTW, I also didn’t believe “reversion to mean” either. Too simplistic and makes no sense.
But back to CS, this is me saying, I don’t see 20% on average. I see lots of zeros so to hit 20% on average, I need to see as many 40% up sales as I see zeros and I don’t see them. Got it? Want to say it’s sour grapes and now I’m ignoring the data because it doesn’t show what I want it to show, then show me the 40% increases that make the 20% average work. Where are the homes up 40%?
Until then, I’m saying this doesn’t match what I see on average so there has to be a problem with the statistical methodology used to compute it.
I’ll repeat: show me all the homes up 40% YOY. I’m ready to admit my mistake.
Where are the homes up 40%?
Where are the homes up 40%?
Where are the homes up 40%?
It looks to me like CS says prices up 11% YOY, not 20%. Other data on SF City specifically says up around 5% so seems to be withing the expected margin of error. Also, one does not need any single transactions that sold in 2009 and then in 2010 to be up 40% YOY or even up at all for rise in CS. First, there are very few samples that have a 1 year turnaround. Secondly, this is not what CS attempts to measure. Third, I would claim that 1 year turnaround transactions are outliers anyway.
IMO we have exclusion bias, or selective sampling, for the apples-apples presented on SS. I don’t believe we have anything resembling a probability sampling to the apples presented. Hence, the data is not valid when trying to get a good idea of the market and is only useful for understanding the transactions actually presented.
“Where are the homes up 40%?”
Hi, how do internet lads you call it? erm, strawman? Hi.
You know what would answer your question. And that’s, where are the apples from 2009 or even late 2008? Just about every apple you ever see on here is from 2005-mid 2008. Everyone knows prices have gone down from peak.
And that’s another problem with CS. The post late 2008 buyer by and large needed to put more money down in SF, and by and large had a better idea what he or she could afford. So you’ll probably not see as many of those turn over as rapidly.
@ skirunman
IMO, your theory about selection bias doesn’t hold. You don’t need resales of the *exact* same units to prove a trend. There are plenty of condo buildings where you can look at units that sold in 2008 and 2009 and see where same stack/similar units have been priced or sold recently. I haven’t seen any data of that sort that shows prices increasing.
I would be interested in seeing any comps of this type that show a stable or increasing price trend.
Also, in the case of several apples presented on this blog, we have seen prices walking back to 2005, 2004, 2003 levels.
You don’t need to see resales of units that sold in 2008-2009 to show that pricing levels are reverting to successively earlier levels.
It’s not my purpose to argue that prices *can’t be* increasing. I’m just asking for some data that’s more convincing than the Case Shiller index which is heavily massaged.
I think CS methodology is generally fine. The biggest problem with it is that in the first half of 2009 the market was destroyed. Volume collapsed, particularly for homes that were not at the extreme low end. So YOY comparisons with 2009 are going to be noisy and inherently unreliable. But the market calmed down and smoothed out a lot by the second half of 2009 with all the incentives and foreclosure moratoria. One cannot ignore a key point — even for the May-July blended period, where tax incentives were propping up things, prices are down in the top tier M-T-M for the second report in a row and the YOY comparison is trending down, all but flat over 2009. Look for the drop to continue.
@SausalitoRes: First, the time frame discussed is YOY or June/July 2009 to present, not earlier and certainly not 2008. No one is arguing that prices have not dropped since 2008.
Secondly, I will claim that you can’t use comps, i.e. close, but not the same unit, if you are going to apply the apples methodology. Who knows, another unit could have solid gold faucets or whatever as improvements over the other unit.
Third, I think CS measures exactly you has asked. It’s main problem for those of us interested in SF RE is the index is too broad. It would be nice to have just a SF City CS Index.
Finally, there is certainly exclusion bias with regards to the apples presented on SS. I have posted on this previously and pointed out contrary examples on this site and directly to the Editor. I don’t know personally the criteria used to post an apples story, but I can say with 99% certainty that it is not any one of the accepted methodologies to generate a probability sampling.
I didn’t read tipster’s response too carefully, but one statement is true: “The more foreclosures, the higher the CS index goes even with prices relatively stable.”
This was shown in the Morgan Stanley data. Foreclosures were up quite a bit in SF MSA, but normal market sales were turning down again. You can see this result in a SocketSite post (the data is based on May Case-Shiller which uses March, April, and May):
https://socketsite.com/archives/2010/08/mix_pshaw_whos_ever_heard_of_such_a_ridiculous_thing.html
That said, badlydrawnbear’s analysis is right. I still do believe in the Case-Shiller numbers in that they do tell a story. It just might not be the story that you think it is. The Morgan Stanley numbers diced up the Case-Shiller numbers in a way that told a better and more complete story, IMO.
And for anyone who thinks the apples don’t show prices are down, please provide some evidence. SocketSite provides more evidence than any of the people who claim that they have positive apples repeatedly, and yet these people still make their unproven claims (almost always using the word “cherry-picked” without providing evidence to the contrary).
Anyway, as I’ve mentioned several times, I imagine housing prices will be largely flat nominally which will show an increasing real loss, as in many housing busts, assuming we don’t have any market changes, like government intervention or a significant rise in mortgage rates for some reason.
“Finally, there is certainly exclusion bias with regards to the apples presented on SS. I have posted on this previously and pointed out contrary examples on this site and directly to the Editor. I don’t know personally the criteria used to post an apples story, but I can say with 99% certainty that it is not any one of the accepted methodologies to generate a probability sampling.”
No offense, Skirunman, but last time you asked about this, you didn’t understand the term “apples” at all. It requires successive sales without remodels/renovations. If I remember correctly, you tried to imply that if you cut out the construction costs that something was an apple, which is not how the term is used here.
That said, I encourage you to point out apples, in the SocketSite sense, as often as you find them.
Wow some of the comments here remind me of the early days of the message boards (early to late 90s). Back around 97, I recall seeing some discussion of how the 1990s home crash was not over, and how SF proper was going to tank. Of course now, you look back at the stats, you see how they were increasing month after month, and think, how could they be so blind (or just obtuse) back then?
Then again, im sure thats what future generations will be saying about this thread. In the year 2017, people will read this thread, read about how the bottom has not been hit, and just laugh and laugh and laugh.
OK, I take back my statement “…but I can say with 99% certainty that it is not any one of the accepted methodologies to generate a probability sampling.” and change it to “…but IMO based on what I have seen posted on SS, the apples presented are not derived from a probability sampling of the underlying data set.”
@SausalitoRes: as I posted above, med/avg/$per for 6 months YOY shows pricing up about 5%. My interpretation of this data is pricing is stable.
@sfrenegade: come on, you truly don’t believe the apples presented on SS are cherry picked? It certainly is not my job to prove they aren’t, but instead, if one is going to use the data as statistically relevant then the Editor should post his methodology on deriving said samples. I have given multiple examples to the Editor that he chose not to post as a story with contrary evidence. I have referenced two such properties in other apples-apples discussions. In any case, it looks like we agree on our opinions on short term outlook on market pricing.
“It looks to me like CS says prices up 11% YOY, not 20%”
Really? You couldn’t look back and see 20% two months ago? That tells me I am dealing with someone who is just going to deny, deny, deny. That’s all I need to know. Head planted firmly in the sand because you make too much money if you can take that approach. And gold faucets? SR is talking about completely unimproved condos from 2005+. I’m not seeing any solid gold faucets in some 2/2 soma condo. Again, that just tells me you are trying to deny, deny, deny because the average SF condo doesn’t have solid gold faucets. I rarely see any condos that do. This is going to distort the average? Hardly.
As for straw men, no it’s called math. If there is a 20% average increase, and you see some zeros you need to see some 40s or you get suspicious.
If you had looked at CS data, you would have guessed wrong on this one year apple, as almost everyone on socketsite did. My point is this: there is a real estate industry who has a vested interest in misleading you. When there is a statistical anomaly, they will use solid gold faucets and straw men arguments to try to tell you that you should believe the stats and not your own eyes. Do so at your peril. For every one of these, you should have seen one go up more than 40%. I didn’t see any.
https://socketsite.com/archives/2010/04/1409_20th_street_apples_2005_to_apples_2009_to_apples_2.html
the cs data is interesting but the tiers don’t translate well to the bay area.the bottom tier 1M
would be more informative in the inner bay area.
skirunman wrote:
“Who knows, another unit could have solid gold faucets or whatever as improvements over the other unit.”
This is a strawman. Information regarding remodeling (and photos) is frequently available on the MLS website accessible by realtors and some of the readers/ commenters on this site. The data can be sufficiently clean to be able to draw inferences, even if decimal-point precision isn’t possible.
Anyone claiming that home prices are increasing is free to post some of the sales comps that went into the CS index. It’s fine to say that the apples posted by the editor of this site are “cherry-picked”. It’s another to show comps supporting price increases.
My sense is that long-term mortgage money in the 4% range implies a continued weak market. The recent “housing is dead” article in Time Magazine is probably a fair reflection of buyers’ attitudes and perceptions.
“Tipster said… I see lots of 0% YOY.”
Precisely – when the SF market was going down 20% YOY, bulls would point to prime SF being 0% YOY – and bears would mock ITS DIFFERENT HERE.
Now, once again, CS is going up 20% a year, and now bears are resorting to “its different here” to show prices arent going up (which they arent).
“Its different here” was true for SF proper when CS was declining, and its true when CS is increasing.
gh,
There’s some truth to that. But what was the anomaly? The mid-90s (low?) prices or the following bubble?
I said it before, but the creation of bubbles came on the back of the “where’s the next growth now?” moment. We lost manufacturing, tech was being built. We needed the next growth. It was created out of thin air.
In general the US today is in very slow growth mode. Most of the world’s growth is in Asia.
What I see in the US is a split between “Haves” regions and “Havenots”. Unsurprisingly, the Tea Party feeds on the frustrations of the latter. But some US regions are definitely getting their piece of the action. We are lucky enough to be one of them.
Does that justify high prices? Sure it does.
Does it justify THESE high prices? I do not think so.
SF is not in a pure vacuum. Rent vs. Buy is completely out of whack here.
To the Editor:
Would you be open to letting Skirunman post some of his “contrary evidence”? Perhaps a guest post? I think an examination of the data would be worthwhile.
@sfrenegade: No offense taken. I now understand the SS apples methodology, even though I believe it has some flaws that I will post later.
@tipster: no one is sticking their head in the sand, at least I am not. The gold faucet comment was said “tongue in cheek” and I thought one would pick up on this, but it is sometimes tough when communicating electronically. In any case, I think the point is either use apples-apples or don’t. We have other methodologies to measure non-apples transactions including avg/med/$pSF, etc., and no, I did not look back in time as I am interested in discussing this specific CS report and what it means. Also, a single data point while interesting, is just that, a single data point out of hundreds every quarter. It proves nothing. Now off to do some real work.
“the cs data is interesting but the tiers don’t translate well to the bay area.”
I’m not sure if you understand the tiers. The tiers are based on the 1st purchase, not the resale. As a result, you could have house A sold in 1996 and resold in 2009, and house B sold in 2005 and then resold in 2009, where house A was in the low tier and house B was in the high tier, but where house A nonetheless sold for a higher price than house B in 2009.
I still don’t understand the people who deny the apples that are posted on SocketSite without posting any to the contrary. It might not be statistically significant, certainly, but you should at least be able to find some, right? Instead we hear about some non-apple that is going to fly off the market.
“No offense taken. I now understand the SS apples methodology, even though I believe it has some flaws that I will post later. ”
Thanks, Skirunman. I would love to hear about what flaws you think there are in the methodology when you have a chance.
@tipster, @sfrenegade. It is possible for prices to be up 20% YOY without any individual apples being up at all. Suppose the market consists of two identical houses both bought at the peak for $1m. House A sold in 2009 for $800K, house B sold in 2010 for $960K. The market in 2010 is up 20% YOY.
“@sfrenegade. It is possible for prices to be up 20% YOY”
Not sure why I got tagged here, as I didn’t provide input on this point. I will say, from the Morgan Stanley data on the Socketsite post I linked above, that it appears that market sales (i.e. non-short sales, non-foreclosure sales) in SF MSA appeared to be up YOY from Jan ’10 to Apr ’10, but might be down YOY since that point. REOs were up around 20% for Apr ’10 and May ’10.
Yes PaulG. But when you actually HAVE house C that you know wasn’t touched, was in move in condition in both sales and it sold for $799K in 2009 and $800K in 2010, and you see that a couple of times, then, because I took third grade math, I need to see house D that sold for 800K in 2009 that sells for $1.120 before I’m going to believe houses are up by 20% on average.
I saw a couple of places that sold for about their prior year price, and none that sold for more. So I’m having difficulty with the up 20% thing. Maybe its because I have actual common sense.
Now you could have the occasional 0% increase and ten houses with 22% increases. That would also get me to a 20% average. OK, that would be fair. Didn’t see that either. Didn’t see much of anything go for over its year ago price. And I have a pretty good sense where prices were last year. I’m not seeing much of anything go over what I’m expecting either. I guessed this one at 4.750 6 months ago and it just sold for 4.2:
https://socketsite.com/archives/2010/03/below_the_surface_of_50_saint_germain.html
So, because I actually *have* common sense, and CS is not a measurement but a statistical estimate, I conclude that the assumptions they use to estimate are now outside of the market. I had lots of help in pinpointing that conclusion from Morgan Stanley, who hinted at the one source of distortion (how CS deals with foreclosures) I mentioned, there may be others.
You raise an important point, which is to say that CS could be getting misled with the amount of rehabbing that happens off permit here. If, in your examples, house B was dramatically rehabbed, CS could again get misled into believing home prices are up when in fact the price was flat but the owner did a non permitted addition.
“no it’s called math. If there is a 20% average increase, and you see some zeros you need to see some 40s or you get suspicious.”
Actually that’s not how averages work. You could have 1 0%, and and 21 21% increases and still get to 20%……
Having said all that, I don’t really care what this number says…. I take a look at the direction. While 1 month doesn’t make a trend, the down tick is so strongly down, that I suspect in a very short time frame we will be back negative.
As for the aggregate index in SF…. it reminds me of October 2000 in the NASDAQ or April 1930 in the DOW:
http://www.amateur-investor.net/Dow-Nasdaq2003.GIF
“but does anyone think we will see 117 ever again?”
Yes, and then some. It’s not even being a bear – it’s having common sense about our economy.
This tread is hysterical. C/S is a valid metric and one that we’ve come to rely on as a group. SS has their standard disclosure.
I’m late to this game, but it seems pretty silly to use the aggregate SF MSA CS YOY numbers in the context of most socketsite discussions.
Seeing as the SF CS top-tier includes any property above $682K, it would seem reasonable that this metric describes San Francisco properties better than the aggregate index. The top tier index is up a whopping 3% YOY.
3% YOY.
Seems pretty consistent with the casual anecdotal observations made around here. Maybe the Case Shiller isn’t so flawed after all…
“Seeing as the SF CS top-tier includes any property above $682K, it would seem reasonable that this metric describes San Francisco properties better than the aggregate index.”
That is absolutely wrong. Please re-read my post at 12:33PM. Case-Shiller tiers are based on the first sale, not the last sale.
The tiers actually aren’t particularly helpful.
New census survey data is out. Lots of interesting data for SF for numbers junkies. One item here stands out:
http://factfinder.census.gov/servlet/MYPTable?_bm=y&-geo_id=05000US06075&-qr_name=ACS_2009_1YR_G00_CP4_1&-context=myp&-ds_name=ACS_2009_1YR_G00_&-tree_id=309&-_lang=en&-redoLog=false&-format=
41.5% of those with a mortgage in SF pay 35% or more of total household income on housing. Too high and not sustainable — SF is higher than Sacramento County and the same as San Bernardino County. From the census: “many government agencies define excessive as costs that exceed 30 percent of household income.” If even a small percentage of those give it up, and it will be more than a small percentage, the levels of distressed inventory will remain high and continue the downward pressure on home prices.
As we’ve seen, it is the lack of buyers that is driving the market now. Plenty of actual and pent up supply, but few willing and able to buy at prevailing prices.
but does anyone think we will see 117 ever again?”
Yes, and then some. It’s not even being a bear – it’s having common sense about our economy.
Posted by: Treeman at September 28, 2010 3:04 PM
I nominate this comment for one we will look at in years to come and just laugh, and laugh, and laugh…
gh, I nominate your post 😉
SFrenegade-
I agree that the tiering system isn’t perfect, and there are sure to be some distortions with individual properties, but you’re wrong to dismiss the tiered data entirely.
I’d argue that the kind of properties that the typical socketsite reader is interested in has been in the top-third of properties in the Bay Area (if not top tenth) for the last 30 years. The fact that the YOY price movement in the top tier reflects the general consensus supports the notion that the top tier is useful.
Further, it’s important to keep in mind that the SF MSA Case Shiller index includes repeat sales from all of Alameda, Contra Costa, Marin, San Francisco, and San Mateo counties. I think we can all agree that stats describing Alameda and Contra Costa won’t describe San Francisco terribly well. Guess what? 70% of July sales in the SF MSA were in Contra Costa and Alameda counties (see DataQuick). So I guess the SF MSA CS aggregate index would describe the East Bay well. But it doesn’t meet my standard for San Francisco.
AT- Yep, 41.5% paying more than 35% of income on housing is high! In 2002 it was 35.1%. It’s too bad the data sets don’t go back further, but I’d bet that San Franciscans have been paying too much for a loong time.
On a related note, it looks like San Franciscan’s median income dropped by nearly 5%, and that the number making $200K or more dropped by more than 7000.
AT:
interesting data.
I also find it interesting that
42% of homeowners moved into their homes 2005 OR LATER
19% moved in 2000-2004
18.5% moved 1990-1999
so a substantial amount of SF homeowners bought during bubble times (up to 60%).
“I’d argue that the kind of properties that the typical socketsite reader is interested in has been in the top-third of properties in the Bay Area (if not top tenth) for the last 30 years. The fact that the YOY price movement in the top tier reflects the general consensus supports the notion that the top tier is useful. ”
That is not how the tier system works. If something sold for $500K in SF in 1996 and $500K in Antioch in 2006, they would be in the same tier, even though that SF property might be worth $1.2M now and that Antioch property might be worth $250K now.
If something sold for $400K in 1987 in SF, it wouldn’t be in the top tier for July C-S. But if something sold in North Oakland for $692K in 2006, it would be in the top tier for July C-S, even though that 1987 SF property is probably worth more now than the North Oakland property.
The tier system is only helpful if most of the first sales were recent. Case-Shiller does give less weight to older sales vs. more recent sales, but that’s within each tier.
SFrenegade-
You are a little off there- first time sales are compared against other first time sales from the same period to define the property tier. In other words, the $500K 1996 SF sale would be referenced against other 1996 sales to define its tier, and the $500K 2006 Antioch sale would be referenced to other 2006 sales to determine its tier.
From the CS methodology, page 7-
“Moreover, each sales pair in each metro area is also allocated to one of three price tiers –
low, middle and high – depending on the position of the first price of the pair among all
prices occurring during the period of the first sale.”
http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-Type&blobcol=urldata&blobtable=MungoBlobs&blobheadervalue2=inline%3B+filename%3DMethdology_SP_CS_Home_Price_Indices_Web.pdf&blobheadername2=Content-Disposition&blobheadervalue1=application%2Fpdf&blobkey=id&blobheadername1=content-type&blobwhere=1243624745188&blobheadervalue3=UTF-8
“so a substantial amount of SF homeowners bought during bubble times”
I think that may include apartment leases + home buying, not just home buying.
“of the same period” is a little vague. I don’t think it necessarily means in the same year, for one thing, but it’s really unclear what it means. For example, if the $500K 2006 Antioch sale is referenced to other 2006 sales, then how are we determining the breakpoints in 2010 if the breakpoints are based on first sale?
Here’s another statement on the tiers:
“Note that the allocation into tiers is made according to first sale price. Individual properties may shift between price tiers from one sale date to the next. We use only the tier of the first sale, ignoring the tier of the second sale. This allocation was chosen so that each of the tier indices closely represents a portfolio of homes that could be constructed on each date using information actually available on that date. Thus, the tier indices are essentially replicable by forming a portfolio of houses in real time. The Low-Tier index for a metro area is an indicator of a strategy of buying homes falling in the bottom third of sale prices (while the High Tier Index as an indicator of a strategy of buying homes in the top third of sale prices) and holding them as investments for as long as the homeowner lived in the home. The trend of home price indices in each of the three tiers reflects the outcome of such an investment strategy.”
What “date” are they talking about? I’d love a better explanation of this from C-S.
You’re right, the term “time period” is vague, and it probably doesn’t mean year, it probably means month (i.e. June, 1996, not just 1996), or perhaps quarter.
In summary 1) the tiered data is useful, 2) San Francisco is best represented by the top tier and 3) that top tier is up 3% YOY, in line with apple-vs-apple anecdotal observations. All of this talk about aggregate is referencing an overly-broad dataset.
I’m not completely convinced that the tiered data is useful without knowing even more about the methodology than is in their methodology docs, nor that it represents SF. However, I will point out that the methodology doc says that the top tier resembles the aggregate indicator pretty well because the indices are value-weighted. Thus, if your hypothesis is correct, then the aggregate is probably close enough.
“The high-tier indices will tend to lie closer to the aggregate indices than do the low-tier
indices. This is as we would expect, since the aggregate indices are value-weighted and
hence the high-tier repeat sales figure more prominently in the aggregate indices.”
“Its different here” was true for SF proper when CS was declining, and its true when CS is increasing.
This is correct. Owning housing in San Francisco is like owning Blue Chip stock, you don’t go up as much in the boom times, but you don’t crash as much in the down times as well. This is especially true in the better neighborhoods.
What I find most interesting in looking at the tiers is that they appeared to move all in lock stup up until about 2001, then they started moving completely out of sync. I suspect the dot-com & easy credit happened right around this time, and the tiers being out of sync are an indication of the unnatural state of the market.
I think that the tiers will come back into sync, and that of all three, only the bottom third is anywhere near where it should be, and the other tiers will come down to meet it, although I think even the bottom tier is still going to drop further before it stabilizes.
I haven’t seen any information from the bulls that even acknowledges the massive changes in finance that created the housing bubble, much less any support for the idea that the market has reached the bottom. We haven’t even reverted to the mean yet, much less accounted for the continuing instability in the economy.
As ex SF-er has said, the only support for housing prices I see is potential government intervention, but I really don’t even see how much of an impact that can have… it seems like they’ve already used the big guns, what else is there left to try?
lyqwyd: I agree with much of your post.
I only disagree about the big guns. They have used big guns thus far, but it was mainly focused on the banks.
focusing the guns on housing could have massive effect. or maybe not. There is really no way to know since most of this has never been done before (in a modern economy). The Japanese experiment into QE may give us some clues, but as both bears and bulls acknowledge there are major and significant differences between the 2 countries.
Never underestimate the Fed. This was the mistake that the very smart Satchel made. He underestimated the power of the Fed.
also, never understand the willingness of the Fed and Govt to risk a currency crisis and an economic collapse in order to further their bank-centric goals. this was the mistake that I made. I knew the Fed/Govt could do a lot of these actions, I just never thought they’d ever do most of them.
I quickly was disabused of that notion back in around January 2008. I then took every one of Ben’s suggestions/ideas in his now-infamous “helicopter” speech to heart.
in real terms, little can save housing in the short to medium term. however, the govt (and the bank balance sheets) don’t worry about real terms. they worry about nominal terms. nominal housing prices could clearly be stabilized longer term depending on what the govt does.
the link below is an idea of “big gun” mentality. I actually am not sure that I agree with the author here, and the wording is full of hyperbole. However, just read the numbers and charts and you’ll see what a “big gun” could do in the short to medium term to asset valuations. again, not saying this WILL happen, saying it’s how we must expand our minds to what the sociopathic political and economic elite MAY be thinking of things.
again: I think that most of the gains will be in gold and oil and commodities (which will constrain the Fed’s ability to do QE2)… but I think housing will be affected as well.
http://www.zerohedge.com/article/why-qe2-qe-lite-may-mean-fed-will-purchase-almost-3-trillion-treasurys-and-set-stage-monetar
“I then took every one of Ben’s suggestions/ideas in his now-infamous “helicopter” speech to heart.”
I had no doubt he would do everything he said, I just couldn’t believe that our foreign creditors would put up with it. I missed that as soon as TSHTF there would be a flight to safety and USTs would still be seen as safety.
“I haven’t seen any information from the bulls that even acknowledges the massive changes in finance that created the housing bubble, much less any support for the idea that the market has reached the bottom.”
I still get a kick out of people who tout the SF market as being “healthy”. The market is in a bed in the ICU with tubes coming out of every orifice. From trillion dollar interventions to drive interest rates down, to formal and informal foreclosure moratoriums, to government backed loan modification programs, to F&F providing mortgage guarantees it’s a Potemkin village. The SF market couldn’t even crawl out of bed on it’s own without massive government intervention.
The overwhelming govt intervention saving SF’s RE for now is low rates. Even fractional TIC rates are now way under 6%.
Low rates helps prevent foreclosures by reducing payments and supporting loan mods.
very interesting article ex, thanks for posting. I definitely see now that there are some pretty big strategies the gov’t can use. It’s very concerning… I need to re-read that article, but if I understand it correctly it seems like we’ll be looking at some intense inflationary pressures starting in about 6 months…
diemos,
“The SF market couldn’t even crawl out of bed on it’s own without massive government intervention.”
so why are rents still so high?
Rents are very low compared to cost of owning…
When you can get an interest only ARM to pay your rent, even if your credit stinks, then maybe there will be a rent bubble too. For now, landlords in SF are just subsidizing their tenants hoping for another bubble soon.
Rents are not low compared to owning across the board in San Francisco. Especially not when it comes to top notch 2 to 3M SFRs.
“For now, landlords in SF are just subsidizing their tenants hoping for another bubble soon.”
my 1040 would beg to differ. any proof of what you are asserting?
The proof is self apparent for people with basic math skills.
((opportunity cost on downpayment + property taxes + closing costs + loan payments + property taxes + HOA) – tax savings)/rent = 2 to 3 for most SF residences.
$3M SFRs huh? Great representation of the broad market…
basic math skills=counting property taxes twice.
Actually, scratch that. It’s true across numerous price spectrums. People are getting mortgages in the low to mid 4’s APR. You cannot unilaterally say that renting is cheaper than owning any longer. I mean, 3K and slightly higher is a typical rent for a lot of 2 BR condos.
coupla nits to pick j; whats the going rate on opp cost? and why would ll pay hoa?
i am not saying its a good idea to buy a lux condo in soma and try to cash flow it. i’m saying there is a premium to own and if that premium goes way down then investors will come in to exploit cap rates that are much higher than returns elsewhere.
Oh no, Someone may have been confused that property tax was included 2x… oops.
“”For now, landlords in SF are just subsidizing their tenants hoping for another bubble soon.”
my 1040 would beg to differ. any proof of what you are asserting?”
“i’m saying there is a premium to own”
Then you yourself are saying that landlords are subsidizing tenants…a bubble indicator.
If you have no HOA, then you plug 0 into that part of the equation. But you do then need to set more money aside for maintenance…
Yes loan rates are low, but to qualify for a low rate, you will probably need to put 20% down. Money that could be earning. You can get a no-risk 1-3% on that right now, depending on your CD or Treasury term. If you are willing to take the kinds of market risks involved with real estate, possibilities are obviously endless.
“You can get a no-risk 1-3% on that right now”
cap rates would appear to be many multiples of that
but hey, 1-3%-knock yourself out..
I mean, 3K and slightly higher is a typical rent for a lot of 2 BR condos.
Which is less than the loan payment alone would be for $650k @ 4%…
Then you know the drill, add property tax, hoa, maintenance, realtor commission when you want out, etc, etc…then subtract tax deduction.
No, it’s not. That would be $2166. “Realtor commission when you want out” supposes they don’t hold it for a longer period and turn a profit. I don’t want to get into this, actually. But you cannot say that scenarios do not exist where buying is cheaper monthly than renting, across numerous price spectrums. I said the 2 to 3M SFR market first because I know of not one, but two, renters who got hosed by landlords becuase SFRs aren’t subject to rent control.
“cap rates would appear to be many multiples of that”
I’d like to see an example of a cap rate that isn’t negative for a decent property on the market in SF today… Or just calculate the cap rate with current estimated value.
That would contradict your assertion that, “there is a premium to own”.
The deductions you get are important, but don’t be distracted by the fact that the IRS says you are making money. That is a VERY arbitrary calculation, not relevant to whether or not the investment is wise.
i guess i’ll defer to your knowledge of depreciation schedules and the like
Look at 117 – 121 Ord.
Two different debates are getting mashed up on here. Fluj is probably right that given low rates there are some — primarily low-end — places that pencil out pretty close in the rent vs. buy analysis if you are a high-earner with a high tax rate (of course, those people won’t want to live in a low-end place) — but high move-out costs and risks of price declines wipe out any slim advantage. Anonee is wrong that there are many, if any, opportunities to buy an SF place, rent it out, and make a profit — only get close if you ignore all sorts of costs, like vacancy periods, higher interest on commercial loans, opportunity costs, less deductibility, etc.
No, it’s not. That would be $2166.
Check your math.
$650k @ 4% (which you wouldn’t even get) = $3103.20 /month.
http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx?mortgageamount=650000&mortgageterm=30&mortgagerate=4&
Sucks that your friends got hosed, that doesn’t really change the math though.
“my 1040 would beg to differ. any proof of what you are asserting? ”
Don’t you mean Schedule E? Of course, I’m guessing you don’t actually know that.
“Anonee is wrong that there are many, if any, opportunities to buy an SF place, rent it out, and make a profit — only get close if you ignore all sorts of costs, like vacancy periods, higher interest on commercial loans, opportunity costs, less deductibility, etc.”
Very few places that you could do this in SF right now without having a ridiculous amount down. And the places where you could do this tend to go quickly or are in bad neighborhoods. If you think otherwise, you are ignoring all those costs that A.T. mentions.
There were plenty of amateur landlords who ignored all those costs during the boom because they depended on undue appreciation, but that’s not really working now.
That’s a PITI, J. I did the math. You plugged numbers into a website.
very interesting article ex, thanks for posting. I definitely see now that there are some pretty big strategies the gov’t can use. It’s very concerning… I need to re-read that article, but if I understand it correctly it seems like we’ll be looking at some intense inflationary pressures starting in about 6 months…
@lyqwyd:
please don’t take that article as gospel. It is but one of a multitude of possibilities, and one full of hyperbole at that (as many zero hedge posts are). it is a plausible HYPOTHESIS but nothing more. as I said when I posted it, I don’t necessarily agree with the conclusion… only wanted to use it to open people’s minds to possibilities.
but then choosing the correct possibility is near-impossible (without insider knowledge about how QE2 will happen… and even then it’s barely doable).
it is reasons like these why I’ve said for some time that economic forecasting is largely useless… it is too dependent on political decisions made by small numbers of people.
“Owning housing in San Francisco is like owning Blue Chip stock, you don’t go up as much in the boom times, but you don’t crash as much in the down times as well.”
That is true, but ignores inflation. Housing in “Real SF” is more likely to stay flat for a long period and have inflation eat away at prices than to crash like Antioch or even Bayview.
I should add that my comments above re becoming a landlord do not pertain to multi-unit buildings. I admit I have not looked at that market or business.
[anon.ed],
“Look at 117 – 121 Ord.”
i did the last time it was for sale. this time around it looks like the rents are a little higher iirc. have you looked at it? did they deal w/the retaining wall issues?
at,
“Anonee is wrong that there are many, if any, opportunities to buy an SF place, rent it out, and make a profit — only get close if you ignore all sorts of costs, like vacancy periods, higher interest on commercial loans, opportunity costs, less deductibility, etc.”
you are incorrect.
commercial loans only involve 5+ unit buildings. opp cost is close to negative presently. depreciation=much more duductability.
“I should add that my comments above re becoming a landlord do not pertain to multi-unit buildings. I admit I have not looked at that market or business.”
clearly, yet you do not restrain yourself from posting as if you knew what you were in fact talking about.
@sfrenegade,
“Very few places that you could do this in SF right now without having a ridiculous amount down.”
what is ‘a ridiculous amount’ to you is excess cash looking for better returns.
“the places where you could do this tend to go quickly or are in bad neighborhoods”
some are on the market in pac hgts,nob hill, noe, the richmond..
“opp cost is close to negative presently.”
That’s a ridiculous statement. So short-term CDs are the only alternative to an incredibly risky venture like commercial real estate?
“depreciation=much more duductability [sic]”
Wrong again. First, most people wouldn’t be able to depreciate anything because of the relatively low (for SF) income cut-offs. Second, depreciation must be recaptured on selling so that’s simply a paper loss that has to be offset by the later “gain” of the same loss. Just an interest free loan in a near zero interest rate environment.
But don’t let the fact that you don’t know what you’re talking about stop you from posting! SS would be much less fun!
at,
the recaptured depreciation is taxed at 25% iirc (not at regular rates). as for the comment about not being able to use depreciation on income property b/c of income cut-offs? not sure i understand this. please educate me
“Don’t you mean Schedule E? Of course, I’m guessing you don’t actually know that.”
hmm, schedule e…where would i go to find that?
There is a phase-out for deducting passive losses for most people if your modified adjusted gross income is between $100,000 and $150,000.
Also, in many, or most, cases, the 25% recapture tax rate would be higher than the effective tax rate (I’m in the highest marginal tax bracket but my effective rate is less than 25%), plus don’t forget state taxes.
“what is ‘a ridiculous amount’ to you is excess cash looking for better returns.”
Okay, anonee. I’m not buying your argument that people with “excess cash” would do well to go into San Francisco rental property investment with tons of money down. Oklahoma City or somewhere else in flyover territory, maybe, but not SF. This is yet another reason you seem like a guy who got lucky during the boom and not a true property investor.
Btw, non-residential loans can apply to 1-4 unit properties if they are not OO and if you are not committing mortgage fraud by saying you’re OO even when you’re not.
For another thing, unless you are actually a bona fide property investor (i.e. it is your job in a manner justifiable to the IRS), you may not be able to deduct depreciation in SF because you are more likely to make $150K in AGI here than passive property investors in other cities. And if you make less than $150K and aren’t a bona fide property investor, you can only deduct up to $25K against AGI. That won’t necessarily make the business profitable upfront when you include all costs, given the rent-buy disparity. For one thing, depreciation is over 27.5 years typically and is only on the building, not land.
I’m don’t doubt there are a few good properties for residential (i.e. 1-4 unit) investment here, but they tend to go quickly if they aren’t rundown, and if you’re in the slumlord business, they go quickly despite that.
“the recaptured depreciation is taxed at 25% iirc (not at regular rates).”
If you’re in the 33% or 36% bracket, then you often won’t qualify for depreciation deductions in the first place, so there’s no recapture. You can use suspended write-offs upon sale, however, but that doesn’t help you now.
“unless you are actually a bona fide property investor ”
ding ding..its not that hard to qualify. 750 hours working in some way on your buildings and no w2 job.
yes, anonee, we know you can use Google. 🙂
And yet you didn’t know about the deduction limits if you do have a W-2. Or about Schedule E. You sure you’re a rental property owner?
Fluj: “I mean, 3K and slightly higher is a typical rent for a lot of 2 BR condos.”
Me:” Which is less than the loan payment alone would be for $650k @ 4%…”
Fluj: “No, it’s not. That would be $2166.”
Me: “$650k @ 4% (which you wouldn’t even get) = $3103.20 /month.”
Fluj “That’s a PITI, J. I did the math.”
Come on dude, loan payment = P+I
It does not include Taxes and Insurance.
See what happens if you borrow $650k and mail $2,166 to the bank. Your credit will not look to good after that.
And as far as commercial vs residential loans, that’s a red herring. You won’t be able to get the lowest rates on a non-owner occupied residence without a huge down payment. But maybe mortgage fraud will work out for you.
Come on yourself. If they’re paying down a grand a month they’ll only owe 590K after five years too. Whenever anybody does these exercises on here it’s interest only as far as I’ve seen.
I love how this debate is raging on using totally flawed (i.e. made-up) numbers! I posted an actual example of a multi-unit building bought this month with a 2.55% IO loan for $1.144 mil (from First Republic Bank), and a $400k downpayment.
Plug those numbers into your model and see how the ROIs turn out.
Then add in a couple of “OMI” evictions, buy-out of the remaining rent-controlled tenants, depreciation (the building would be held in an LLC of course) and the cash-on-cash returns start to look rather healthy under a scenario that uses ACTUAL numbers.
People, they are GIVING money away right now. And the give-aways are about to get a whole lot better. Everyone has to live somewhere. Figure it out …
“Then add in a couple of “OMI” evictions, buy-out of the remaining rent-controlled tenants, depreciation (the building would be held in an LLC of course) and the cash-on-cash returns start to look rather healthy under a scenario that uses ACTUAL numbers.”
Isn’t that what the Lembis were attempting to do across many buildings on a larger scale? Seems like it’s easier said than done, and you’d spend a lot to get rid of the rent-controlled people, especially if you have protected tenants who have you over a barrel.
You are talking about speculative returns, not actual expected returns. If you can successfully do these things, then yes, you can get those returns. But that’s an absurdly cheap loan if real.
I actually personally know two people who successfully took over tenant-occupied buildings in SF. The example in question, and another couple who bought a 2-unit. In each case the buy-outs were in the $10k-$20k range. Expensive but so worth it to get rid of those cheapskate tenants.
“yet you didn’t know about the deduction limits if you do have a W-2. Or about Schedule E.”
not having been w-2 for oh, 21 odd years i fail to see why i would care about what happens to wage slaves ;-). as to sch. e, that’s part of your 1040. i’ve used the same accountant for 24 years.
very happy with him.
jimmy is right. buyouts average $18k/apt. depending obviously on length of tenancy etc..
many young people come to the city to be near jobs and lifestyle. the turnover on units is much higher than you may assume so the ‘stuck with longtimers bogeyman’ is more imagined than real.
“The example in question, and another couple who bought a 2-unit. In each case the buy-outs were in the $10k-$20k range.”
Well, you said your friend is just now buying this 4-unit building. He hasn’t actually done it yet, right? Does that include all costs of buy-out?
Seems like that would wipe out a lot of people’s profits for quite a while at SF prices, but you haven’t given us all the numbers. What types of below-market rents are we talking about?
Do your friends intend to then sell the building after getting it up to market rent or keep it?
Couple #1 — who bought earlier this year — are living in the upstairs and fixing up downstairs to rent out. I think the gain in rent is ~$1500/mo.
Investor #2 — who is buying now — is actually a group of investors who intend to do multiple OMIs / buyouts and then probably break all the rules by renting everything out at market rates and eventually re-selling the building. Obviously they’re bad, bad people who should be punished, but then again there’s money at stake here.
better check on the ‘multi-omi’ part of the plan.
remember too that wrongful evictions carry treble damages…
For couple 1, they qualify for OO rates, which is good, but $20K is more than 12 months at $1500/mo. If it took 6 months to effect the buyout and now they are renovating it, that’s more months with below-market rent and no rent, respectively, so your overall calculation goes down even further. It would take a good look at their timeline to figure out if this pays off, but good luck to them.
For investor #2, multiple OMIs itself is a rule violation I think, but I don’t begrudge them for breaking stupid rules. I wonder if they resell it if the new owner gets tagged for rule violations. Common sense would suggest no, but we don’t operate by common sense in SF.
Couple are doing fine and had parental help on the downpayment. $20k financed over 30 years is about $100/mo @ 5%. I would spend $100/mo to get $1500/mo. Evicting that tenant, in their case, offered a huge ROI.
As far as investor group … we’ll see how they fare. At least their monthly nut is as close to zero as it could ever be. I have a feeling they will also do just fine. Just OMI the longest-standing tenants and buyout the rest. Problem solved!
“Couple are doing fine and had parental help on the downpayment. $20k financed over 30 years is about $100/mo @ 5%.”
a good example of why it is a good time to buy-bypass the banking cartel/fed and put money to work. lenders and borrowers are happy on this one.
Here are some real rates I posted in another thread. Investment property and non-OO. Almost free money.
https://socketsite.com/archives/2010/09/another_new_high_for_listed_san_francisco_housing_suppl.html#c473313
yaaawwnnnn, over 100 wasted comments. tipster as usual way off base….. CS is bay area MSA and long proven that it does not reflect well on SF proper. Tipster looks like he re-wrote a 5 year old bull argument in reverse and no one called him on it?
and more yack about income to price ratio…. i sold yet another condo to a 20-something with parents help – so much for the end of that cycle…. apparently there is still a LOT of cash lying around. Or how about the wealthy who don’t report high incomes? can they not buy? Are they not more prevalent in SF than say Oklahmoa?
just for the record i am in no way arguing that prices are going up, i’m just continuing to tell those of you who don’t live and breath SF real estate with actual buyers and sellers that your text book wikipedia buy vs. rent vs income vs whatever is different in SF.
as for prices up or down…. i heard someone say SF RE is like the stock market – one day it’s up, the next it’s down. here someone compared it to blue chip stocks. today i’m on board with the general concept. we seem to be in a “trading range”. The moment you think prices and sales are up, things drop. the moment a downtrend takes hold buyers jump in. so argue all you want cause you’ll be right one day and wrong the next.
right now there seems to be a lot of running around with little to show for it. maybe tomorrow will feel different
I happen to like what tipster writes, and agree with him more often than not. Your characterization of him being “as usual wrong” is wrong.
As to the rest of your comment, including the bs about trading range, it could only have come from a real estate professional.
“Or how about the wealthy who don’t report high incomes? can they not buy?”
Is this the new “foreign buyers will save SF?” Now it’s “tax evaders will save SF.” Brilliant.
If the “trading range” thing means that prices are mostly staying flat and may do so for a while without market changes like significantly higher interest rates and without government intervention, I’m on board.
I sold this one place to some trust fund guy and so — see — SF RE is still Hot Hot Hot!!!
Let’s see what the monthly sales numbers look like for September in a few days and see if your anecdote is anything more than just that. I suspect the verifiable evidence will confirm that to the extent there is a LOT of cash around, people ain’t willing to spend it on SF real estate.
alazyman if you agree with the many made up things that tipster says then i’m happy to have you in the RE pro hater club. good on ya mate.
sfren – not making excuses, also not posting anything i haven’t said before. cash and wealth create the effect we have in SF RE. whether or not the gap btwn rent vs own, or debt to income ratios will continue to close or not isn’t an argument i’m making. i’m just saying that smart people like exSFer continually discount the impact that cash and wealthy people have on the SF market vs less desirable places. you can’t find some census or other report that proves me right, so you just assume i’m wrong because you don’t like the argument and the non-stop anecdotes in my little RE business. and i’m not talking tax evasion. how about the $100,000 income from dividends and interest who buys a home? no other income to report. how much home can they afford?
and yes, that is a good definition of trading range. like i said, i no longer have a foot in the bear or bull camp since i’m willing to admit i have no idea where the market is going.
“how about the $100,000 income from dividends and interest who buys a home? no other income to report. how much home can they afford?”
Not sure I follow. Household income measures generally includes dividends, interest, capital gains, and things of that sort. At some point someone must have made income in order to have wealth. So unless you’re suggesting that new people constantly come to SF with wealth that they made elsewhere, which is an odd suggestion, I’m not sure what you’re saying.
“new people” – well yes. lots of buying and selling in SF are people coming and going. lots of the money that comes into SF RE are parents helping their kids buy here, or 2nd and 3rd homes from the truly wealthy. And in my example of $100k from dividend/interest income which obviously has to come from a large portfolio could be a portfolio handed over early – aka trust fund baby, or more recently transfered wealth from mom or grandma after she passes…. from my perspective a lot of the buying i am involved in, the buyer is usually in one of the above camps. Often, they make good income from a regular job – say $250,000 and then buy a $2 million home because they use cash from one of the above sources in addition to a “manageable” loan.
and all of the above supports an out of whack income to price ratio that will remain far wider than 90+% of the country. how wide of a gap, and whether or not that gap shrinks much more from here, remains to be seen.
i just read the QE2 article exSFer pointed to…. “After all, if this last attempt by the Fed to spur asset price inflation, in which Bernanke is effectively telling the consumer that a house can be had for no money down, and for no interest ever, thereby eliminating the risk of price deprecitation, fails, it is game over.”
gee – so either prices will sky rocket thru the roof or it is “game over”. no wonder i can’t predict friggin crazy market.
((opportunity cost on downpayment + property taxes + closing costs + loan payments + property taxes + HOA) – tax savings)/rent = 2 to 3 for most SF residences.
If by loan payment, you mean the interest on your loan payment, then I agree with you. The “P” part of PITI goes directly to paying down the loan, so increases your net worth. You should put in a line for maintenance if you don’t have an HOA.
Yes paying down debt increases net worth, but your net worth is going to fluctuate with the value of your assets, so it could still be very negative, even if you are putting $1k+ towards principle every month.
It is kind of silly to think that you don’t count principle as an ownership cost. As long as you have debt, you are a renter. You are just renting money from the bank instead of a property. You lose the ability to easily relocate for work, or to easily upgrade/downgrade, and that’s why it should be cheaper(and is when there is no credit bubble).
All these rationalizations just don’t seem to take the potential for market declines into consideration.
What a load of crap. There have always been rich people everywhere. But in 2003-2007, there were ALSO a lot of not rich people buying homes. Not only are many of them not buying, a lot of the ones who bought homes they couldn’t afford hung on as long as they could and now are selling. Or they stopped paying because they can’t refinance and are waiting for the inevitable.
Supply up, demand down, prices drop. Supply is way up, demand is way down. And there is more stuff flooding the market far faster than the number of idiots who flunked economics buying right now.
so explain to me again why rents are still high and why i cannot find good sfr’s in d5,d6,d7.
I see only six new SFH in Noe this week, most of which will be interesting apples if they fall:
http://www.redfin.com/CA/San-Francisco/893-Elizabeth-St-94114/home/1343451
Sold for $1,350,000 in 2006, asking $1,599,000 now. Claims a “remodeled kitchen” but the online SF DBI database shows that the last work was signed off just before the 2006 sales, so it is probably a true apple.
http://www.redfin.com/CA/San-Francisco/437-Valley-St-94131/home/1956500
Went for $690,000 in 2002, asking $995,000 now. No permits listed.
The latter is a 3/2 under $1M that is not a fixer on a decent block in Upper Noe, so I will definitely be keeping on eye on it,
“lots of the money that comes into SF RE are parents helping their kids buy here, or 2nd and 3rd homes from the truly wealthy.”
Everyone says this, but no one can prove it, other than a random anecdote or two. You’re basically suggesting that SF real estate is a Ponzi scheme as more and more money comes in. I guess that’s who was supposed to buy all those overpriced condos too…
Artificial constraints on land use probably provide a large percentage of the price increase by themselves.
This guy did rudimentary estimates on cash flow for rental properties in many cities, just in case anyone is interested:
http://www.deptofnumbers.com/blog/2010/09/cash-flow-rental-yields/
He did not do any calculations regarding taxes (which would be hard to do in this table), but also didn’t include things like maintenance, vacancy, etc.
Looks like Ohio and Florida are good places to be a landlord.
Looks like Ohio… [is a] good place to be a landlord.
sparky-b, Have you ever thought of investing back there (or perhaps you already have)? Of course, the downside is flat or negative appreciation.
“Of course, the downside is flat or negative appreciation.”
Of course, what you lose in appreciation, you make up in cashflow and volume (i.e. actually investing, as opposed to being a speculator on appreciation).
EBGUY,
Ohio or Florida? Family and relatives in both. But I assume you are talking Ohio, and yes I have been looking at it. Almost pulled the trigger twice recently but I don’t think there is a big hurry over there. One was units on Lake Erie with a second vacant lot which could be built on (house or more units), I probably should have done that one.
^^^Sorry meant to say, “I have family and have lived in both”
I am pretty bearish but I will agree with hangemhi on this one. I have recently seen first hand some decent wealth buying property. It was mid-2000s bubble cash that the friend had wisely socked in safety. As hangemhi said, big cash input and very manageable mortgage, like 50/50 which makes payments be 60-70% of rent equivalent. These buyers still exist. Maybe they’re crazy.
That friend just snatched a very well priced unit from a seller who couldn’t pass up the chance of great buyer. Cash is and will always be king. Sell low enough and you’ll be allowed to pick a reliable buyer.
sfrenegade wrote:
You should talk to more mortgage brokers, sfrenegade. That said, I (obviously) am not a licensed mortgage broker, all the below is based on what I’ve read and heard.
Leaving aside the epistemological question of whether or not we can “prove” anything using econometric methods, there’s the simple practical matter that most wealthy parents know that they can’t just write an adult child a check for more than $13,000 to assist with a down payment without the IRS getting interested. Given the costs of the “overpriced condos” you refer to, a minimally effective assist for a down payment would have to be be a lot more than thirteen grand.
On top of that, I believe most mortgage lenders have a limit to the amount that you can borrow from others to come up with your down payment, or perhaps the GSEs do, I’m fuzzy on that part. But the idea is that at some point that pre-existing indebtedness would have to be taken into account when calculating your debt-to-income ratio if you borrowed from somewhere or someone other than the mortgage lender to come up with the down payment.
Thus if one gathered up a bundle of gifts from relatives, no-interest or low-interest under-the-table loans etc. in order to assemble a large six figure down payment, one probably has a large incentive to not disclose this fact to his or her lender, because the size of that borrowing could make one ineligible for the mortgage loan. Now, mortgage fraud carries a federal penalty of 10 years in prison and/or a $10 million fine. Even if most naive borrowers don’t know this, mortgage brokers advising them certainly do.
So let’s assume that you have a really great idea for a real estate economics paper; you’d like to find out what percentage of first-time buyers in The City under the age of 30 are getting down payment assistance from their parents and what effect that was having, if any, on the placement of the price level curve for entry-level homes.
Even if you had the financial wherewithal and academic motivation to survey people taking out mortgages and grab a really solid sample size of original loan documents, the individual original mortgagors have a substantial incentive to not disclose or to dissemble about how they came up with the down payment so as not to get the IRS interested or run afoul of the aforementioned loan origination rules.
So of course all you’ve heard is a “random anecdote or two”, given the circumstances I think that’s all you’re going to get. On the other hand, I did read a study a few years ago that did a fairly good job showing that about 60 percent of applicants who apply for stated income loans exaggerate their income by more than 50 percent, so perhaps it’s not totally out of reach. Maybe some clever economist took a “Freakonomics” approach to this and actually cracked it, please by all means point me in that direction if so. But I haven’t seen one yet.
“most wealthy parents know that they can’t just write an adult child a check for more than $13,000 to assist with a down payment without the IRS getting interested. ”
FHA down payments can be gifted.
As I have stated before, I don’t think individual apples are a very good way to look at the entire market, but here is one on the appreciation side of the ledger. http://www.1042filbert.com/
Sold for $1.675M ($837/sf) 10/31/06 and sold again 3/4/10 for $1.85M ($925/sf) or about 3% appreciation/year. It was remodeled in 2005.
As I have stated before [ever since the market started turning down], I don’t think individual apples are a very good way to look at the entire market [because mostly they are negative], but [in spite of my firmly held belief, I will violate it whenever I find an instance where the place appears to have sold higher] here is one….
@tipster: you are hilarious. I posted this specific information because someone asked for a contrary example (sfrenegade from above: “And for anyone who thinks the apples don’t show prices are down, please provide some evidence. SocketSite provides … without providing evidence to the contrary).”
I stand by my earlier statements that a single apple means squat and I have never changed my position on this fact. If we are talking all of SF RE I believe prices are down 15-20% off their highs and are up 0-5% in the last year (stable pricing). I also believe the market is slightly softening, but prices will remain fairly stable through the end of the year. Could I be wrong on my outlook, of course, but I don’t pretend to be the great prognosticator that you do. Also, I’m sure it has been asked or speculated on SS before, but why the virulent negativity? It is one thing to take a short position on a market, but another thing to let it consume you so much. Maybe you are just one of those negative people that also bet the Don’t Pass line at Craps. Peace Out.
Tipster rents, wants to buy and continues to watch the market closely hoping that one day it will return to a “normal” market where he can buy a place w/o feeling like he IS going to lose money. I’ve got no issues with someone rooting for his team and I don’t perceive it as negativity. It’s just like the rowdy fan at the Giants game taunting the other side (e.g., fluj) when it gets ‘negative’. How else is someone going to make an informed decision when the time is right other than staying close to the game?
At the same time, hoping to get a ticket to the world series for $1 isn’t realistic so you have to have a strategy / thesis for when you are going to buy. I can’t recall the specifics from Tipster on when / where he would feel the market would be ripe for him; but I do think he’s posted as much.
Anyway, I hate jumping into these psychological questions related to anonymous people on the internet.
“On top of that, I believe most mortgage lenders have a limit to the amount that you can borrow from others to come up with your down payment, or perhaps the GSEs do, I’m fuzzy on that part. But the idea is that at some point that pre-existing indebtedness would have to be taken into account when calculating your debt-to-income ratio if you borrowed from somewhere or someone other than the mortgage lender to come up with the down payment.”
Banks often do care about this when it’s their own money on the line. Sometimes, on a full doc, they will even ask for bank records going back a bit to prove that you didn’t get money as a gift.
“but here is one on the appreciation side of the ledger. http://www.1042filbert.com/
Sold for $1.675M ($837/sf) 10/31/06 and sold again 3/4/10 for $1.85M ($925/sf) or about 3% appreciation/year. It was remodeled in 2005.”
Thanks, Skirunman, appreciate the data point. Very few people have actually taken me up on the offer for some reason.
Anyone in the market in 2006 want to comment about the likelihood that a place on Russian Hill in tip top condition with a bay view really sold for $837 psft in 2006?
Here’s a hint: the median ppsft for condos in in Russian Hill after the peak, in 2009 and 2010, was higher than 850 psft. The place put forth as an example of “appreciation” is in tip top condition, to the studs remodel, even has new plumbing, is on the top floor and has a view.
837psft in 2006? Yeah, riiiiiggghhht.
Here you go: http://www.redfin.com/CA/San-Francisco/1042-Filbert-St-94133/home/28688869
You can have an agent confirm on the MLS as well if you wish.
Clearly an outlier. The 2006 buyer way underpaid.
No doubt that for every 100-odd “apples” that show a big drop from the peak you’re going to have a few that go the other way. If da bulls want to point to that phenomenon and pretend prices have not fallen far and wide, have at it. I don’t think anyone seriously thinks the rare exceptions do anything but prove the rule. But keep digging for them — keeps things interesting!
He knows full well this either wasn’t the price paid or wasn’t an arms length transaction.
There are a few of these kicking around: examples where the buyer also buys $500K for worthless furniture that gets hauled to the dump the next day, so that they can avoid property taxes. For example, instead of reporting $1.5M as the sale price, you report $1M and hand the seller $500K for worthless art and then pay much less in property tax. Mortgages were 0 down in 2006, if you had a downpayment, you used it to “buy” art work or furniture so you didn’t have to pay the property tax on the full amount of the sale.
NVJ posted one of them last week as an apple in the making: completely redone Noe Valley SFR claimed as being sold in 2006 or 2007 for $535 psft. Yeah, right.
You can usually smoke these things out using some plain old common sense.
“Clearly an outlier. The 2006 buyer way underpaid.”
I’d love to see fluj, as he does when implying something is overpaid, saying “$$$ per foot is the lowest price ever paid in 2006 in _____________” or “there weren’t many houses going for as low as $$ million in 2006 in _____________.” I assume he won’t do it in this case if what tipster and R are alleging is true. Anyone else willing to provide stats?
At a glance the 68 condos that sold in Russian Hill in calendar 2006 averaged 803 psqft. The larger ones, 1500 sq ft and more less, averaged 752 per square foot. This one was 1900+ feet. So its 837 psqft seems to be pretty expensive for larger 2006 Russian Hill condos. Only five condos that weren’t located on Green street sold for more money that calendar year.
There, you see? Once again Tipster is full of it. Now stop talking to me so much, novice. And if you don’t think anything at all, not anything at all, of the editor routinely picking record setting overbids to display as apples then that’s saying something about you, not me.
This one was completely to the studs remodeled, top floor, and has a bay view. The “average” property has no bearing on this one. The average property back then was some old piece o crap, no view something other than the top floor, etc. This one went for only 10% more than “average”? Pretty expensive? Not. a. chance.
Well, from what I see, 26 of those 2006 condos have no sf listed. A fair number of very pricey places don’t list it — in fact, only one place that sold for more than 1042 Filbert lists sf. And only 8 that list sf are over 1500 sf. So you’re drawing big conclusions flujie from a small dataset with a lot of holes in it. Let’s try not to be dishonest about these things if you’re going to crow about someone being full of it and a novice.
(also, tipster was talking about medians, and you countered with a “stat” about averages).
Thanks for the data, fluj. Please provide your “true apples,” if you have them and you think the editor is only picking overbids.
Clearly my comment missed the mark. Tipster et al regularly lambast folks when someone says the buyer overpaid or the sale was an outlier, or whatever, in order to explain why the owner lost so much money.
But then they come right back and say the same thing when the opposite result happens.
Can’t have it both ways. Although maybe you can here.
I see. So the guy who routinely misinforms, with no other info here other than a hunch gets a pass. And you criticize someone who took the time to look up the calendar year’s sales. Got it.
AT, you’re not even worth a milisecond of my time.
I post “true apples” occasionally.
“you criticize someone who took the time to look up the calendar year’s sale”
No, I criticized your intentionally deceptive summary of the data you took the time to look up. I have no comment on tipster’s hypothesis one way or the other because I have no idea if the 2006 deal was straight-up or not.
“AT, you’re not even worth a milisecond of my time.”
Translation: “OK, you called my B.S. and I have no credible response.”
Is median $/sf. reported anywhere? All data I have ever seen on SF RE is average(mean)$/sf unless I am mistaken. Also, I asked the real estate agent that rep’ed the buyer in 2006/seller 2010 and deals were at arms length. @tipster, call her yourself or the other agents if you believe there is a conspiracy going on.
The point is:
1) The methodology to select apples presented on SS is unknown, and if not proven to be a true probability sampling, will by definition contain the exclusion bias of the Editor.
2) Any single apple, while interesting to discuss, does not represent a statistically significant representation of the underlying market. In fact, even 50 won’t unless you can show they were selected randomly.
3) I’m not a bull as I’m neutral on the market. However, I will challenge claims that are based on opinions and not backed up by relevant data. I agree there are certainly more down-apples than up-apples over the time frame of mid-2000s to present as I believe overall pricing is down 15-20%, but there are many up-apples that never see the light of day on SS.
4) IMO the apples methodology has significant flaws when used to try to understand the overall market. I will post my thoughts later as I have stated before.
5) No single representation of a market is perfect including median, avg/sf, C-S or apples. They need to be looked at in aggregate along with actually being in the market to get a sense of where things really are at and potentially going.
I saw 893 Elizabeth today. No evidence of recent remodeling – so probably a true apple. Nice place all and all; a blend of the old and the new with a bit of funkiness that will charm some and turn off others. Feels light-filled and spacious. If I were to guess I think this apple falls somewhere close to halfway between its $1.35 2006 price and the current list of $1.6.