Along with 118 other market reports, the National Association of Realtors has released the Home Price Analysis for the San Francisco Region (pdf) that it compiled this past July. Keep in mind that the report compares Q1 2006 versus Q1 2005, and that over the past six months year-over-year Median Price Appreciation and sales have continued to decline.
Considering that mortgage rates remain near historic lows, that the spread between short-term and long-term rates is negligible, and that we all seem to agree that real estate is a long-term investment, it’s worth noting that the “share of adjustable-rate mortgages (ARMs) remained very high in the first quarter. The 72% ARMS usage rate is modestly higher than the 69% rate one year earlier.” The national average is only 28%.
And we’re not trying to stir the pot, but we can’t help but notice the first bullet point under Additional Discussion Points: “Home price declines are very rare. In fact, the national median home price has not declined since the Great Depression of the 1930s.”
The month after publishing this report, NAR reported that the national median home price declined month-over-month for the first time in 11 years, and that year-over-year national median home price appreciation currently stands at 1.7%. As always, only time will tell.
∙ 2006 Market-by-Market Home Price Analysis Reports [realtor.org]
∙ Home Price Analysis for San Francisco Region – pdf [realtor.org]
So this 8% number for historical average appreciation is interesting, because I’ve seen 7-8% from several other sources as well. The inference I draw is that if the median home price in SF was $263K in 1996, it should be $568K today if compounded at 8% per year.The actual median was over $720K last time I checked. I guess the next year or so will reveal if mean reversion holds true.
72% ARM issuance does really stand out but hard to view it as a complete negative unless you drill into the mortgage structures. what % is option arms vs hybrids, etc? as long as folks aren’t foolishly financially shoehorning themselves into a home with neg am option ARMs @ 0% down. i don’t see anything wrong with fully amortizing ARMs given lower interest rates may be on the horizon for 2007.
Too bad the information is already nine months out of date. That’s a long time if the market really is turning.
Ah, this report has one of my favorite statistical tricks.
“Share of new loans with LTV higher than 90%”
If a person buys a home with an 80% first mortgage and a 20% piggyback then two new loans have been created with an average LTV of 50%. The number that really matters is CLTV, cumulative loan to value. In the bay area there are going to be A LOT of homes with CLTV greater than 90% (and many with CLTV greater than 100%).
Good point. Not to mention some who are in option ARMs, where the CLTV exceeds 100% and keeps rising. 2007 will be interesting.
HA HA, Socketsite you found it! That was the number I was looking for before – average appreciation over the last 20 years. So Dude, does your calculations on mean reversion (I have to look up what that means) take into account the ‘adjusted for inflation’ appreciation and do you think there’s any reason to calculate that into your equation?
Someone forgot to tell this person that we are ‘mean reverting’ and $885,000 over asking and $1,075 for a complete FIXER is not a wise choice. lol
http://www.sfarmls.com/scripts/mgrqispi.dll?APPNAME=Sanfrancisco&PRGNAME=MLSLogin&ARGUMENT=W74T0FsFpay93FeSfEH%2BLg%3D%3D
Regarding the link above, that home was purchased for the lot, which is ginormous, and can easily support a 5000 square foot home. Building costs for such a home will run 1.5M, and the land at 2.7 will yield 4.2 cost and at a reduced price of 1000/sq ft for a view home (no longer 1100-1300 like it was) still gives the developer an 800K profit.
The views from the houses up the hill from that property are absolutely wrecked by this home. If the neighbors purchased it and turned it into a park, it would increase the value of their homes by more than the purchase price.
So there are plenty of reasons this place can support that price. It doesn’t mean that real estate is not tanking. That was just a special circumstance.
You’re saying that $2.7 million to tear that home down nd spend another 1.5 million to build a home is “GOOD VALUE”?????
I love it. So long as people out there think that spending $2.7 million for just land is good value, real estat will continue to go up. Notice how the masses have become inured to multi-million dollar places now. 🙂
Yes, Prime (a notorious real estate salesperson who spams just about every board), the developers did the math and decided that the value of a lot that could support a large view home was in the millions. Not the 3.8 million that a smaller lot around the corner got about two years ago. Glad you “love” a million less for a larger lot. I’ll bet the owners wish they had sold two years ago so they could have gotten even more.
I doubt the “masses” you speak of are going to be able to afford a 5000 square foot view home, in one of the best neighborhoods. But with prices coming down they way they are, more of the masses will.
And we’re all happy about that!
So, in essence, yet more indicators that a mere middle class person, such as myself, with a job paying $100,000 per yr, with two university degrees, and ‘only’ $150,000 will NEVER be able to buy even a decent condo in S.F.
Such irony…..really – I would live like a King anywhere else. One wonders how anyone can buy a damn thing in this town unless the bank of “Mommy/Daddy” contributes heavily. The middle class has no hope here.
That’s why so many of us are leaving. 3 couples I know have left the Bay Area in the past year for just that reason, and I know a few others considering it. I say keep hope alive and wait. In the meantime, you’re saving a ton of money each month by renting and growing your down payment. If a recession comes, you could be in a good position by next fall.
One thing that I think really skews the RE in this area is the portion of people that have serious money from other than their salary. Stock options, rich parents, equity from past homes, investments. There is just so much cash floating around that it does strange things to the market. There are hundreds/thousands of people that have hit jackpot (over $900,000 liquid)at yahoo, google, excite, extremenetworks, scient, cisco, apple, genentech, ms, ebay, etc. They all want/have to own. Depending on the amount they have they will go after different property types. But the money is out there chasing the RE. I know some of the companies are not around but many people got rich before they folded. Not to mention the coming biotech wealth. There is a percentage of companies in this area that just know how to make their founders/early employees/star employees/investors extremely rich. And this money feeds wealth for the support players as well (star RE agents, interior designers, good contractors (some that build and sell to the new ultra wealthy), stock brokers). You have people paying cash for their property. As in no loan. That is a curve ball that most other markets are not dealing with.
Yes, and there are many well-to-do foriegners who move to California. California is a “net influx” state across the board. Always more people moving to the state vs. leaving.
Hey Mr. Middle class guy, you better hook up with a good looking, good earning $100-$150k guy/gal; then you too can own the SF dream.
But seriously folks, look at all the high end never ending luxury real estate in New York. I know it’s more of an international city than SF but is it really so hard to imagine there are consistent buyers for that type of product?