In June of 2005 a newly remodeled 290 Frederick hit the market as a single-family home listed for $1,995,000. Two months later it closed escrow with a recorded contract price of $2,100,000.
A little under two years later in March of 2007, 290 Frederick returned to the market listed for $2,149,000. The sale closed escrow that May with a recorded contract price of $2,170,000, an apples-to-apples increase in value of 3 percent from 2005 to 2007.
This past February 290 Frederick returned to the market once again, this time asking $2,099,000, a sale at which would have represented a nominal 3 percent decrease in value from 2007 to 2010.
Last asking $1,699,000, two days ago the sale of 290 Frederick closed escrow with a reported contract price of $1,550,000, an apples-to-apples-to-apples drop in value of 29 percent ($620,000) from 2007 or 26 percent ($550,000) below 2005 for the “Sumptuous Victorian masterpiece in prime Cole Valley.”
∙ Two 2 Million Dollar Sales And Now Two Months At 22 Percent Less [SocketSite]
And the appraisers in the middle of Real SF home evaluations just concluded they better knock another 10% off of whatever number they had come up with.
Wow, lots of money/debt in money heaven, as LMRiM used to say.
620K loss
100K commission
Overpaying compared to rental: at least 4K/month for 45 months
Plus all the other fees.
That’s a cool million bucks, probably most of it Other People’s Money. In 3 years. Wow.
Money to heaven.
Upside down floor plan
Defects fester three short years
Money to heaven
So the last two buyers overpaid. Big deal.
Yes, they both overpaid, but the musical chair game only stranded buyer #2.
This kind of outcome is pretty disconcerting for prospective buyers. Who knows what one place will be worth in 2 years? 5 years? Anything can happen and uncertainty is not what home buyers are looking for today.
A home used to be a straightforward purchase. In the old days, Family A earned Z dollars/month, can purchase Z x 48 at 8% interest.
Now prices have tripled since the old days of 8% 30-Y fixed, and the numbers have much less connection with income. Nothing is less certain than prices at these levels.
$1.5 for this, I’d certainly take it if I had the $$. Seems like a good price, esp compared to similarly priced condos in SOMA.
Sell now or be priced in forever!
This is a perfect example of the poor decisions made during the bubble, when a lot of buyers were paying top dollar for flawed properties because they bought into the notion that there would be no end to increasing RE prices and they were afraid of getting shut out of the market. As many commenters have noted, the house has a terrible floor plan that would likely require an enormous investment to correct. Also the location in general is good but being on a corner is never great. During the boom years, everything went up, so people were much less attuned to factors that they would have paid attention to (like bad floor plans and being on the corner of a somewhat busy intersection) in normal times. Houses with nice finishes and good floor plans in good locations aren’t taking anything like the hit that this place did.
While nothing is certain anywhere in the current market, it seems like buyers who follow real estate common wisdom (location is critical, floor plan really important, avoid houses with serious flaws unless you’re getting a deep discount) should be fine.
So if the 2007 buyer would have put his/her money into an S&P 500 fund on May 30, 2007 near the peak of the stock bubble, instead of buying an SF home near the peak of the SF housing bubble, the loss today would have been just under 20% – about $430,000. That’s about $290,000 less than the loss (w/ commission) on this SF home. Plus, he/she could have offset the stock losses with investment gains going forward and at least gotten some capital gains relief. But there is no offset for this “investment” loss, and the seller has to eat the whole thing. Real estate can be a doubly-dangerous investment game.
Forget the first two owners – I think the current buyer overpaid.
No wonder, half of the lot has been developed with another building. Short term gain for the owner at the time, but that must really affect the price now.
Who are you trying to convince noemom, us or yourself? Everything is down, falling fast and everyone holding anything over the next 6 months is about to get slaughtered.
The good stuff, the bad stuff, it all went up. The real estate bubble pricing is now almost all out of the market, and that’s where you saw terrible houses going for good prices but that’s almost all gone.
However, we still have the dot com bubble to work back through. That pricing was masked by low interest rates. And those low interest rates are E-V-A-P-O-R-A-T-I-N-G before your very eyes. So the dot com prices are about to be wrenched out of the system. And those prices were not so indiscriminate – everything doubled, but bad houses already had lower prices and those are what doubled. Everything is going to get slaughtered by the same amount.
The fun fact about this purchase is that they likely locked the 4.21% rate of last month, which has now risen 20%. If they had to buy today, they would be able to qualify for 20% less, so they would have had to offer 20% less.
So if they put 20% down, they lost all of that the day they moved in! Nice going, ace.
Yesterday bankrate.com was reporting 5.00% 30-Y fixed.
Today, it’s 5.19%
What a difference a day makes…
Bankrate now says the average is 5.2%. Up 0.2 in one day. The increase is now 0.99/4.21= 23.5%. That how much LESS every potential buyer has to spend. In one month.
“Evaporating” was too weak of a word. 23.5% in one single month on a leveraged investment is simply breathtaking.
“i know armchair quarterbacking is the preference on this site and that is why the content and comments rarely match what is going on ‘in thetrenches’. still, it is fun to rattle a few cages…
so let’s here about this place trading 30-50% higher at peak. same for ford st. let’s see you guys own your misinformation…”
Posted by: anonee at December 10, 2010 10:04 AM
paco should be along any minute to rattle our cages… and to talk about tax deductions, leveraged investments, good buildings in good neighborhood is ess eff.
Oh, higher rates just means bigger tax deductions for us homeowners. And we never have to schlep our families from rental to rental!
Yes, YEWBA, that’s why I like these “apples” to avoid arguing in a vacuum. Were it not for the 2005 and 2007 sales on this place, we’d be hearing “There’s NO WAY this place would have gone for higher that $1.5M in 2007. Not with that floor plan and no yard. And only 5 places within a 3-block radius ever went for over $2 million, yada yada.”
I prefer real comps to hypothetical realtor “comps” (with air quotes).
tipster, I do not agree with your assumption we still have to churn through the dot-com bubble.
Tremendous wealth has been created AFTER the dot-com bubble. In some aspects some of the hype behind the bubble looks conservative compared with the current situation of some of the survivors. Sure CSCO, MSFT, ORCL haven’t turned out as well as we thought they would. Many sock puppets got mauled as well. But AMZN and EBAY did deliver pretty well, while GOOG, NFLX and AAPL have blown past even the best of the wildest estimate.
The end result: all my tech friends are still employed, and they’re pretty wealthy as well. Unfortunately many moved tech cash/stock into overpriced real estate…
lol, you might wanna look at this other sale a couple blocks over at 119 Frederick. Sold for $2.35M in 200a, renovated in 2004, sold 11/10/2010 for $1.725M.
http://www.redfin.com/CA/San-Francisco/119-Frederick-St-94117/home/1476307
There’s blood in the streets.
lol, Dot com prices were set as a function of this line of thinking:
“All I have to do is to show up here and I will play foosball all day and night, call myself a web “programmer” with my HTML skills learnable in about a week, and make millions. So I don’t really care what I have to pay, I just want something and I want it now.”
Is that line of thinking still valid?
No. No one thinks that way any longer. In 1995, there were lots of successful tech companies. So there were successful tech companies before the bubble. There are ALWAYS a handful of superstars. But the thinking that any idiot who an pick up an HTML handbook and become a millionaire is over. All those jobs are outsourced. The battle between the investors and the employees has been won by the investors – they outsourced as many jobs as they could to China or the Ukraine so that they could keep more of the money in their pockets. And the investors come from all over and so the money gets dispersed.
People in business like me see this where people who read the papers do not. I see the thousands of companies that start up for every one twitter. That’s tens of thousands of employees who walk away with nothing for every dozen that do. You don’t read about the 399 failed social networking companies in the papers, you read about facebook.
I see all 400, and all of them had employees and they didn’t make a dime. They made about half their salaries and got worthless stock options. In 2000, a company with no business plan, inexperienced management and no prospects got millions in VC money and an early IPO. Now, they get laughed out the door.
Just like they did in 1995 and that’s exactly where we are headed.
oy, that’s $2.35M in 2001, not 200a!
Dream dies in winter
Downpayment lofts heavenward
Angels are singing
YEWBA, 119 Frederick was already featured on SS:
https://socketsite.com/archives/2010/11/this_is_not_the_comp_youre_looking_for_on_frederick.html
And, YEWBA, not to disagree with the general sentiment, but people seemed to think the “renovation” of 119 Frederick was so highly personal that it actually contributed to the bad result. Not a great apple, but certainly a cautionary tale!
“People in business like me…”
Sounds like Noearch talking about design.
Or that guy who used to post about his “chicks in the marina” — I forget his name.
As for me, I’m just happy to see the return of Haiku to SS.
let me get this straight; b/c of these two sales on frederick you guys are confident that everything is now down comparable amounts?
also help me understand how these folks lost 20% instantly by getting a loan good for 30 years at 4.21%. sounds more like they sold a 30 yr bond which they could now repurchase for 20% less.
A+ to El Bombero for keeping the haiku orthodox
—————
wet winter storm comes
paco sails Egyptian stream
open house booties
“sounds more like they sold a 30 yr bond which they could now repurchase for 20% less.”
No. If they wanted to sell the place, the new buyer would have to finance it with a mortgage that is now 20% more expensive, so the new buyer could afford to pay 20% less. The value of a “bond” moves inversely with the interest rate.
Haikus are lovely
Nostradamian quatrains
could be more fitting
“let me get this straight; b/c of these two sales on frederick you guys are confident that everything is now down comparable amounts?”
Ha ha, all the realtors ducking for cover is as much fun as watching prices absolutely sink.
Here’s an SFR in a decent location, that just went for $20K UNDER its 2001 price. Wow. It went pending two weeks after the house on Frederick that is the subject of this thread, as interest rates started heading up.
It’s walking distance to Fillmore and to Japan Town, and it just sold for 2% UNDER its 2001 price. Wow!!! 2001!!!
It’s the first house on the left in this photo, with Japan Town in the distance:
http://maps.google.com/maps?q=map+1806+laguna+san+francisco,+ca&oe=utf-8&client=firefox-a&ie=UTF8&hq=&hnear=1806+Laguna+St,+San+Francisco,+California+94109&gl=us&ll=37.787929,-122.428594&spn=0.014177,0.033023&z=16&layer=c&cbll=37.788042,-122.428608&panoid=JSIjE8tS2FqjxuxcPxGzlQ&cbp=12,143.69,,0,-3.09
Redfin Link:
http://www.redfin.com/CA/San-Francisco/1806-Laguna-St-94115/home/1459735
2001! Under!!
“The value of a “bond” moves inversely with the interest rate.”
yes, they sold a 30yr and now have the use of that money for 20% less than they would have to pay if they were to borrow it now.
“If they wanted to sell the place”..which they may not want to do if tipster’s predictions of runaway interest rates are true.
anonee, they do not have the “use of that money” because they just bought a house with it! If they want to sell that house to get that money so they could “have the use of it” they would be looking at a pool of buyers that now has 20% less purchasing power. Sorry, no good way to spin buying in a low-rate market and then facing a higher rate market unless one never sells at all (which is possible, but extremely rare).
Not trying to derail the discussion, but I think the mortgage rate talk may be a bit…overemphasized. Yes, rates are up, but 5% is still dirt cheap historically. It probably affects a folks who were on the margin of affordability to begin with, I just don’t see it moving the broad market. But I could be wrong. In any case, TPTB may act to reduce levels from currently “usurious” levels anyway.
“anonee, they do not have the “use of that money” because they just bought a house with it!”
looks and sounds like they are using it.
i agree with legacy dude-tipster’s hyperbole is overheated as usual…its a deflationary world.
Even at $1,550,000 the price per square foot (Per the tax records of 2,400 SQFT, circa 2001) is $646. This is way above the $469. per ft that the sellers got at 119 Frederick St.(Redfin) just over a block away.
My question is- how does one figure out total sq ft on a house like this (or even on a condo/TIC). It seems to me the tax records do not include the full basement/ garage space below, since the redfin listing calls it “2400 Finished SQFT”. Assuming 1,200 per floor and two floors above the garage, the real total should be 3,600 ft. Meaning they sold for $431. per foot. This is AFAIK a new low for the area in recent memory.
Also of note- a quick glance at Redfin listing for 290, lists the recent comp sales at $629 per ft. and the open listings asking $688 per ft.
i think they count heated sq ft
“i agree with legacy dude-tipster’s hyperbole is overheated as usual…its a deflationary world.”
and it’s a great time to put large downpayments in first loss position on good buildings in great neighborhoods in ess eff.
I also think that rate movement will only effect a very small number of buyers at the margin and will not effect SF RE market pricing at this time. However, if rates were to go to 6% then maybe, but I don’t see that happening any time soon. There are still plenty of 30 yr fixed
SS ate my post:
… There are still plenty of 30 yr fixed under 5%, but who would want to get one of those? I’m paying 2.51% on a $3M loan for my most current investment property (adjusts monthly). …
I think the dotcom bubble was largely digested by 2001, and this was coming off the popping of the 89-91 bubble, after which prices declined about 30%. This was after the boom in chip making, and before the boom in dotcoms. So what year represents the real value of real estate? 1990, 1995, 2000, or 2010?
Relative to salaries, prices are a little higher than 20 years ago, but the job mix has also shifted to higher income. I used to live in Palo Alto. In 1990, a married couple of cub engineers could buy a 3/1 in midtown. Today, two managers of cub engineers would be needed. But, with the shift in job mix, there are more managers.
I would guess desirable good quality properties in desirable areas are overpriced today perhaps 10-15% max. Being sticky on the downside, inflation will catch prices up to a more realistic value in 5 years.
It’s important to realize how many years have gone by since the bubble. The time has gone by pretty fast. Most of the appreciation happened by 2004. That’s 6 years for underlying economic support to develop to support those prices that ran ahead of themselves and have since declined.
I look at the house we bought (10% less than 2 years ago, the peak year in the area), and I see another 15% decline easily – put probably no more. Two mid level managers at an average company can afford it, despite it being a prime property in one of the most desirable locales.
Maybe the board is including other factors in the statement that a 1% rise in interest rates equates to a 20% drop in purchasing power. I calculated it that if your rate is 4%, and you have a 100% purchasing power at that level, then your relative purchasing power is the following as interest rates increase
:
Interest Rate : PP Relative to 4%
4.0 : 100.00%
5.0 : 88.93%
6.0 : 79.63%
7.0 : 71.76%
8.0 : 65.06%
LD, it doesn’t matter that “rates are historically low”. What matters is that buyers were able to qualify for a certain amount of money and are now able to qualify for less. Same group of buyers gets less of the bank’s money so the same exact group of buyers has less money to spend.
The fact that a much different group of buyers had even less to spend when prices were lower sort of proves my point. The only time this did not occur was in the bubble years when a much larger pool of buyers (those with a pulse) were competing for the same number of houses. So stating that rates are low historically is not proof that prices won’t drop because prices were much lower when those higher historical rates applied.
Here, it’s the same pool of buyers, all with less to spend. It’s bad and getting worse and worse.
As for the buyer of this house, he does have the use of the money, but the asset he used the money to purchase is sinking in value. No difference now, but when he sells, he’s screwed.
You make this same point every eight months or so, always framing apr gains in terms of imminent calamity. People come and people go from the buying pool for a lot of reasons. Interest rates are one. So is a perception that interest rates are rising, for that matter. That can cause people who are hovering to commit for fear of continued rising rates, as well as cause people who are hovering and not locked in to back out of the buyer pool.
“People in business like me see this where people who read the papers do not”
Hey just for fun – anyone know what word the following defines?
“having or showing an exaggerated opinion of one’s own importance, merit, ability, etc.; conceited; overbearingly proud”
Interest rates will drop back down. The basic rule of thumb is that high interest rates do not accompany high unemployment and large excess capacity, both of which we are stuck with for a good long while.
Yes the Fed is printing money. Not to worry. Inflation is not simply related to the quantity of money, but to quantity multiplied by something called velocity, which measures the flow of money through the economy. Low velocity means low deals, loans, credit and growth. High unemployment and large excess capacity mean that velocity of money is low.
Don’t worry about inflation – or soaring interest rates.
I didn’t read any sense of self-importance from that line; all of us in our line of work likely know some information about our respective field that a person reading the newspaper would not know. if he happens to have more first-hand, unfiltered information about tech business activity than the media cares to report, there’s nothing arrogant about it.
Here’s another one that went pending 2 weeks ago after interest rates started shooting up and sold for a 2001 price. 1/1 in the north waterfront area.
And that was before interest rates really started rising.
http://www.redfin.com/CA/San-Francisco/240-Lombard-St-94111/unit-731/home/1586281
Game over.
How can it be?
so you think interest rates are going to continue higher then, tippy? i think you are wrong again.
we’ll see.
Interest rates will drop back down. The basic rule of thumb is that high interest rates do not accompany high unemployment and large excess capacity, both of which we are stuck with for a good long while.
hmmm… your quote has me scratching my head a little bit here.
as we saw in the early 1980s one most definitely can have high interest rates and also high unemployment together. This was seen during Volcker’s disinflationary tactic… and was called “stagflation”.
we don’t have this scenario partly because BenB’s tactics are different than Volcker’s were. Also because the background setup is different.
on a side note:
that only deals with Treasury rates etc.
although mortgage rates are clearly linked to the underlying various interest rates (usually 10 year Treasury and LIBOR rates), they are not correlated 100%.
the mortgage rate consists of the underlying benchmark (let’s say 10 year Treasury) and also the “risk premium” that compensates the investor for the extra risk of a mortgage over a Treasury.
recently, investors have realized that mortgages are MORE risky than Treasuries, and more risky than they thought. a higher risk premium = higher mortgage rates even with unchanged underlying 10 year Treasury rates.
our govt has been pushing down mortgage rates and also risk premia using various methods that are too cumbersome for this post. however, it comes at a huge price. it is unclear to me if recent mortgage activity means that the govt has decided to change tactics, or if the govt has lost the tenuous control it once had.
In other words, mortgage rates can increase if
-Treasury rates rise
or
-risk premia rates rise
or
-both.
I am not suggesting that mortgage rates will rise much in the near term. I have no idea what they will do. the only people who know this are the handful of people who are openly manipulating the mortgage market (Ben Bernanke, Dem and Repub leaders, etc).
as I’ve said… for some time the US RE “market” has been on full govt life support. for the most part it continues to be there. thus, it’s future depends on govt… or politics.
regardless, the recent runup in mortgage rates has been pretty striking.
For the Tipster who is posting Foreclosed properties selling at or under 2001 prices:
They were foreclosed! As someone who actually walked through a few foreclosures (me), I am curious about the condition of these places at time of sale! What I saw in the few I walked through (not these) is that they were either stripped, damaged or BOTH.
Yes, prices are down. I am not arguing this. But, please, use better comps!
This Fredrick place has a horrible floor plan! There was attention to detail and certainly an expensive remod recently done…but, no yard and an upside-down floor plan…
“This Fredrick place has a horrible floor plan!”
Yes! How foolish the last owners were to rearrange the floor plan of this house.
Oh wait! That’s not what happened! It’s the same floor plan it always was, that’s what makes it an apple.
Diemos…
Point taken. But, I think this house has more to do with what posters have already noted: There was a lot of exuberance during the housing bubble, which caused people to pay prime prices for a home that was not a prime house (upside-down floor plan). I saw this house. It is a weird house!
Yes!
Bubbles start with the good properties and areas and then spread out as people are priced out. When they pop the bad areas and weird properties fall first and fastest and then falling prices creep into the better areas.
As for using better comps. When foreclosures make up a significant part of the market then they become the market.
Diemos…
PS- I just wanted to add: It is a tastefully done, weird house. Seriously, it is gorgeous but it is extremely awkward!
Diemos…
I agree that when foreclosures make up a significant part of the market, they become the market. But, that is not the case in much of SF right now.
What is the case with the few foreclosures I have seen, is that the buyer is going to have to sink in money to FIX what was stripped, damaged or BOTH. And, in the few homes I saw (sold under market value), the money needed to fix the issues would definitely bring it much closer to market value. Seriously, you need a toilet and a kitchen.
ex-SF-er
High rates and unemployment coincided in the early 80’s because Volcker pushed rates so high that we had a recession. High rates were causal. They were not a response to high unemployment, they caused it.
Currently the Fed is pushing historic low rates (for the short term rates they control). The question is, will long rates soar in this context of severe unemployment and excess capacity (and Fed resistance to high rates)? Of course not.
The Volcker case supports the rule, ‘Don’t bet against the Fed.’
In our current context, expecting a raise in long interest rates is betting against the Fed. Don’t do it.
yeah, but tippy is smarter than the fed…what does that mean anyway when you say “game over”?
The two Frederick places are rotten apples. 199 Frederick was done up ultra-personal like a new orleans brothel. 290 Frederick, they went to all that trouble to make the living area up top for the views, but you still can’t see the water. It is just an awkward combination of two units. Both Frederick places had pretty much cosmetic work instead of structural work. I thought 199 was salvageable with many coats of paint and a new kitchen, but 290 seemed smaller than it looked, had a floor plan that made the space even less usable, no yard, and luxury check marks (hot tub on the upper deck, wine cellar) that were not well integrated.
As usual, great broader discussion of macroeconomic factors, maybe you’ll win some Nobel Prizes cause you’re so good looking.