CFAH

2760 Sacramento (www.SocketSite.com)
Twenty (20) months ago 2760 Sacramento #3 was purchased for $827,000. Two months ago it was listed for sale at $849,000. And three days ago it closed escrow with a contract price of $840,000 (1.1% under asking).
That’ a $13,000 gain in value since November 2005. In other words, a compound annual growth rate (or “appreciation”) of a little under 1.0% a year for this condominium in Pacific Heights.
We’ve Almost Got A Line (Another Data Point At 2760 Sacramento) [SocketSite]
But Isn’t The Median Sales Price Up? [SocketSite]

Comments from Plugged-In Readers

  1. Posted by Paul E. Ester

    Minus the 5% and it was cheaper to rent, for this particular homeborrower.

  2. Posted by james

    interesting
    with all the realtor commissions this guy lost his ass
    speaking of which, has anyone tried redfin?

  3. Posted by anon

    In SF, it’s cheaper to rent for just about everyone who doesn’t already own. With prices flat in the best case scenario, and prices down slightly to significantly in the most likely to worst case scenario, there is no financial advantage to buying right now. There may be intangible benefits (knowing you can’t be evicted, etc.), but from a straight financial standpoint, it is crazy to buy. In two years when prices have dropped, the calculus might change.

  4. Posted by Damion

    If the person who bought it in 2003 had kept it until now, they would have gained approx. $69,000 a year on their purchase price of $565k. It doesn’t look like this particular person bought it for invstment purposes, but because it’s a cool condo in a great location — he paid almost $200k above the asking price.
    So what’s the problem? He didn’t become rich off a property he probably enjoyed for merely a year, in one of the finest neighborhoods on the West Coast, when he may have had no interest in renting in the first place? This is not a tragedy.

  5. Posted by Damion

    What does Redfin have to do with it?
    In Pacific Heights, Redfin has had a grand total of one succesful listing. One. They are not a player in that market.

  6. Posted by Damion

    Anon, do you honestly think prices in Pacific Heights are going to be lower in two years?? It’s not an issue of whether it’s a good time to buy now or in two years, but whether it’s a good time to SELL just a year after you buy. Unless you found yourself an underpriced property in the first place, no one woudl think that’s the road to RE riches.

  7. Posted by tharpo

    Comments lately have varied wildly between, “You have to be crazy to buy — renting is cheaper!” and, “I can’t believe rents are so high! What are they trying to do, cover their mortgage?”
    Renting is only fiscally responsible if you plan to move every couple years (which isn’t terribly fiscally responsible). If you’re going to settle down for a while, why would you not build equity?
    Sure, when I bought my place four years ago, it would have been much cheaper to rent than buy it. But now I can rent it out for much more than I pay in mortgage. Ownership shouldn’t be evaluated as a snapshot in time scenario — over time, it’s going to be beneficial.

  8. Posted by anon

    The point is that even in the desirable areas, prices can remain flat or even decline.
    Damion – You don’t know if they didn’t purchase this condo as an investment. It seems like in the last few years, everyone viewed their property as an investment rather than a home.

  9. Posted by anon

    Agree that for many, even most, it makes long-term sense to own rather than rent. But it does not make financial sense to buy in a market where the overwhelming consensus is that prices are falling or flat at best. Yes, prices in Pac Heights will be lower 2 years from now than they are today. That’s not just a crazy opinion, it is all you see coming from economists, even from the NAR who has a huge bias toward cheery forecasts.

  10. Posted by condoShopper

    “Anon, do you honestly think prices in Pacific Heights are going to be lower in two years??”
    isn’t this article a case-in-point example that this very thing can happen?

  11. Posted by Michael

    “do you honestly think prices in Pacific Heights are going to be lower in two years??”
    Perhaps not, but do you honestly think anybody would have expected 1% appreciation on Pacific Heights over the past two years?
    “If the person who bought it in 2003 had kept it until now, they would have gained approx. $69,000 a year on their purchase price of $565k.”
    True, but these numbers suggest that all but $13K of that gain was from 2003 to 2005. From 2005 to 2007 this investment in Pacific Heights underperformed a savings account at Washington Mutual.

  12. Posted by PacHeights

    I think now is a great time to buy. The flat or declining market in SF will only last so long (less then 2 years) and its much better to buy as the market is going down. You can never time the bottom of the market perfectly and once it starts going up you’ve missed your chance.
    If you are planning on living in your place for 5 years or more you should definitely see some strong appreciation. If you are planning on staying for 2 or 3 years it probably makes sense to be a renter.

  13. Posted by Matt

    Does no one remember this calculator?

  14. Posted by rut

    wow, that anon comment @ 9:07 is curious. do you truly believe economic forecasts are never wrong (even NAR) and that following herd mentality always yields optimal results? is the time to buy when all the economists turn positive and newspapers are abound with rosy real estate stories? i think those successful in real estate purchases/sales may often make decisions that contradict prevailing wisdom.

  15. Posted by ex SF-er

    I’ve got a crazy idea.
    buy a house to live, not for “appreciation” and “equity”.
    Nobody knows the future. SF real estate may FLY HIGH in the next few years, or may TANK. who knows for sure?
    Is it really worth GAMBLING on this? Regardless of whether or not your house/condo appreciates, you still must pay off the ENTIRE loan. we’re talking hunderds of thousands (maybe even millions) of dollars here! My god, I’m constantly amazed at how overextended San Franciscans are with their mortgages… the incomes clearly don’t justify the mortgage expenses!
    ask yourself:
    1. will I still be happy if I buy this house/condo and it loses value? (if not, then you’re gambling on a price increase as opposed to viewing the house purchase as a “home”)
    2. can I afford this house/condo (without resorting to some interest only or option arm mortgage or other financial “gimmick” or teaser rate)
    3. will this house/condo fit my needs (not just a year or two, but for many years)
    If you are dying to buy a house, and it fits your needs, and you can easily afford it with CONSERVATIVE lending practices, then by all means buy!
    If you “need” a certain apprecation to stay above water on the house, or if you “need” an interest only loan or a teaser loan rate or an option arm to qualify, or if you don’t plan on staying put for a while, then you shouldn’t buy.
    It is certain that there will be stories of higher prices (e.g. Infinity) and lower prices (e.g. this thread), but in the end it is impossible to accurately predict what any given house/condo will do in the near future… even the best informed has to take a leap of faith.
    FWIW: I am a RE bear given the recent RE insanity around the country combined with the financial market meltdowns we’ve recently seen in the subprime and alt-a fields of MBS finance. That said, a RE market can stay irrational far longer (years) than fundamental analysis would indicate.

  16. Posted by anon

    Can we look at appreciation on quality condos in Pacific Heights? Let’s face it, a condo under $900k in Pacific Heights is a slum. How do the >$2MM properties fare in the “compound annual growth rate” comparison?

  17. Posted by anon94123

    I am curious what would have been the story if this unit had parking? I notice in my neighborhood that units with parking sell easier and with a better chance of a profit than units without parking.

  18. Posted by Sleepiguy

    Wow.. a 1br/1b condo with no parking doesn’t sell for hundreds of thousands over asking! Clearly this one example proves beyond all doubt that all condos in the Pacific Heights area have only appreciated 1% in the past year… I’m all the more convinced because it’s been highlighted in bold print.

  19. Posted by anon

    “I notice in my neighborhood that units with parking sell easier and with a better chance of a profit than units without parking. ”
    I understand the “sell easier” part – but why the “better chance of profit”? Because people a year ago didn’t understand that a parking place was important? Do you really think a unit with parking would have appreciated that much more – enough for them to make a profit?

  20. Posted by anon

    ex-SFer –
    Apparently, the current owner and the previous owner probably could not afford this condo. Both used ARMs to purchase. You can pull up the loan info. on PropertyShark for details.

  21. Posted by Damion

    This one-bedroom condo priced at over $800,000 sold rather quickly too — at a time when most of the country is experiencing a serious drop in sales price and activity. If this is a downmarket for Pacific Heights… well, good luck buying something when the market “improves”.

  22. Posted by anon

    “I notice in my neighborhood that units with parking sell easier and with a better chance of a profit than units without parking. ”
    I understand the “sell easier” part – but why the “better chance of profit”? Because people a year ago didn’t understand that a parking place was important? Do you really think a unit with parking would have appreciated that much more – enough for them to make a profit?

  23. Posted by anon94123

    Well, in my building 8 of the 12 units have parking and although I own a 2 bd. with parking unit, I have watched sales here over the last 3 years. Two 1bd. with parking units came and were sold within one week of listing (this was last year), while a 1bd. without parking sat for 3 months, and sold for $110,000 less even though that owner had invested in new kitchen and bathroom as well as floors and expensive lighting.

  24. Posted by ex SF-er

    “Apparently, the current owner and the previous owner probably could not afford this condo. Both used ARMs to purchase. You can pull up the loan info. on PropertyShark for details”
    I’m quite aware that most people in SF use non-30 year fixed products when “buying” a home (or better put, “renting a home from the bank”). I also believe that people who do so can’t really afford their purchase.
    People these days are all about “how much is the monthly payment”. Today, there have been a lot of “innovative” financial products that allow one to have low initial monthly payments but which are not condusive to actually paying off the home.
    Don’t you find it interesting that this house was sold after 2 years, when the reset time for many interest only and option ARMs is 2 years?
    I wouldn’t be surprised if the first owner had a 2 year IO ARM loan, that reset. Suddenly s/he couldn’t make the monthly paymets so s/he sold to another person who used an ARM as well.
    Interest rates are at/near their all time historic lows. 2 years ago they were very close to all time lows. why use an ARM when you can get a 30 year fixed, especially when the ARM is VERY likely to go up in interest rate in the future???? (answer: because you can’t afford the home on a 30 year fixed… in other words you can’t afford the home)

  25. Posted by Sleepiguy

    Seriously though…
    I expect prices on condos even in nicer areas to basically flatline… There is sooo much inventory out there now and even more coming up soon. I’m not sure I wouldn’t rather live in a newer complex than in an older bldg that may need updating.

  26. Posted by Damion

    I think what you’re betting on is that South Beach will become more desirable for condos than Pacific Heights, and thereby bring down the prices in Pacific Heights. But what evidence is there of that? There are so many differences in terms of product, location, price — it’s a risky comparison to make.

  27. Posted by Thoughts

    Couple things:
    1) Don’t plan on buying real estate if you plan on selling within a year, or three frankly.
    2) This is a $840,000 one bedroom. If you are looking at buying real estate, there is not much upside on $800K+ 1 bedrooms, due to limited demographics. Also, this is an $840,000 1 bedroom. Just goes to show you want people are comfortable with.
    3) Look at any 2 or 3 bedroom condo or house bought in 2005 selling now. Prices are up 20-30%. Look at 2745 Laguna St. purchased for $1.2 mil, now in contract for $1.595 mil. Or 1330 Chestnut St. purchased for $1.025 mil last year, 200K remodel, and now asking $1.495 mil and likely going more than asking.
    I WISH the market was flat so I can upgrade, but sadly, the market is up another 5-10% this year for properties I’m looking at.

  28. Posted by Stu

    Clearly this was a pretty bad financial move for the persons who took on this condo in Nov. 2005. As to how bad, we’ll probably never know. My feeling is that after you factor in closing costs on the two mortgages, 6% commission on the sale, mortgage payments and taxes (less tax deductions) for the 20 months, HOAs for the 20 months, insurance, maintenance or improvements (you have to play house at least a little bit, right?), staging costs if any, and inflation, as an investment, this one was pretty poor. Anyone want to hazard a guess on these numbers? Or as to the equivalent rent for a 1 bedroom/1 bath “pacific heights slum with no parking” in 2005?
    One number I do know is the S&P 500 is up 23% since November 2005. A low-cost index fund for the apparent downpayment of 215K would have made on the order of 50K by now.
    While I wouldn’t say one data point does a market direction make, there’s cautionary lessons to be (re)learned with these cases: Transaction costs will eat you alive if you buy and sell in a short period of time, real estate in california does not appreciate at 10% annually ad infinitum, etc. etc.
    But maybe buying a house isn’t all about an investment? I agree. Personally, I look at all housing as an expense. And expenses should be minimized. If I could afford anything in san francisco that I a.) wanted to live in and b.) cost 3-4X my salary, I’d buy it, market direction be damned. But at these prices, most people are forced into looking at their house as an investment, simply because that’s where ALL their money goes.

  29. Posted by ex SF-er

    ALSO:
    just to be clear, in my first post above at 10:51 am, I didn’t say that one must use a 30 year Fixed rate loan (although that would be a wise idea), I simply said one shouldn’t buy using an OPTION ARM or INTEREST ONLY ARM.
    In general, I don’t see why we call people who don’t/can’t pay down their home debt as “homeowners” when they’re really just “mortgage-holders”
    Research that is coming out is showing that
    1. increased Combined Loan-to-Value (CLTV) ratios are indicative of increased early foreclosure/default. (in other words, 80/20 loans and 100% financing make you more likely to lose your home compared to putting 20% down)
    2. Option ARMs and Interest ARMS are indicative of higher foreclosure rates (in other words, people using Option ARMs and IO ARMS are more likely to lose their homes compared to 30 year fixed people)
    3. The CLTV ratio and the type of loan are MORE important than a FICO score when it comes to early default and foreclosure. (in other words, the FICO score won’t help you pay your loan off).
    You can find the research by doing a google search for:
    “Standard & Poor’s Reexamines Risks Of EarlyPayment Defaults In U.S. RMBS”
    The real study you have to pay to get… but you can get a synopsis on Google.

  30. Posted by Kathleen

    Buying your home should be about how it serves you needs as a family, not as an investment vehicle. Real Estate is a long term play, values flucuate over time, but in the long run you do better than renting. Sometimes you sell and break even, sometimes you take a loss, sometime you make incredible gains. Over the course of your lifetime, the trends show you will do better then if you stay in a rental. And you have autonomy to create a personal home environment that nutures your psyche. These are the important things about a home, not how much it is worth, but how do you feel when you are home, does it make you feel happier, safer, more content with your life? Year over year, for a 25 year period the gain in SF is 7.9% per year, according to the National Association of Realtors. Slice the timeline in thin one and two years strips, you dont get an accurate reflection of the big picture.
    Affordability is key. Dont buy what you cannot afford.

  31. Posted by Pac Heights Renter

    Don’t forget that the the guy that bought two years ago probably paid about $75K more (after tax) to “own” his place than people (like me) were paying to “rent” on the same street (this does not even include the fact that HOA dues have been increasing rapidly along with special assessments as many of the Pac Heights condos get close to 100 years old). I’ll be looking to buy again in a couple years as ARM resets force more people to sell but right now I’m happy to watch prices drop as the cash in CDs from my sale in 2005 covers 100% of my rent…

  32. Posted by Gdog

    “one shouldn’t buy using an OPTION ARM or INTEREST ONLY ARM.”
    I’ll buy statement A, but not B. A 10/1 IO ARM makes a lot of sense in many cases. If you take the difference in monthly payments between the IO and non-IO and invest that in diversified stocks you will very likely come out ahead after 10 years if/when you sell the stocks to pay down the principal or refinance if you choose to do so. Note that it’s very unlikely for people to hold a loan that long. If you’re not disciplined enough to do this then certainly don’t get an IO.
    “Year over year, for a 25 year period the gain in SF is 7.9% per year”
    A key thing to remember is that in real estate, like stocks, the return you get in a given year is usually nowhere near the average return (usually it’s far above or below). Also, people are horrible at timing the market — buy a home when you need one and hold.

  33. Posted by Dave

    Hey, fine. This is one data point. But kudos to
    Socket for highlighting it. Whether I’m a bull
    or a bear, I appreciate people researching and
    providing data on both sides. It’s nice to be
    informed and that means not having your head in
    the sand.

  34. Posted by anon

    Ex-SFer It is very eye-opening when you pull the loan info. from Property Shark. Even in prime areas, people are using ARMs. It is rampant. What will happen when the lending standards tighten and exotic loans disappear? I’m guessing SF has got to be affected in some way.

  35. Posted by anon

    Wow! I guess you actually HAVE to think about repaying the entire loan now. 🙂

  36. Posted by jeccat

    Just a note: for individualized-loan TICs, many banks are not providing fixed rates. For my unit, I had a choice of a 3-year fixed ARM, a five-year fixed ARM, a 3-year fixed interest only ARM, and a five-year fixed interest only ARM. I would have picked a fixed if I could have, but it was not an option. Just because people are financing with ARMs doesn’t mean the PEOPLE didn’t qualify for a standard mortgage– maybe the BUILDING didn’t qualify for a standard mortgage.

  37. Posted by ex SF-er

    GDog:
    In principle, I agree with your 10 year IO statement, but you must acknowledge that there is risk involved with your strategy.
    in real life, I don’t know how many people are really educated AND disciplined enough to do what you propose (sorry if I come off as condescending here). Most of the people I know with IO and option ARMS either used them to stretch into a more expensive home and thus pay the minimum payment, or used them to free up cash and used the rest on depreciating assets and consumer spending.
    your house is where you LIVE. If you are using money to invest in the stock market INSTEAD of paying down your loan balance, then you are opening yourself to a bunch of different risks including
    1. interest rate risk (on your mortgage)
    2. equities market risk
    3. housing volatility risk
    4. Payment shock (Due to interest rate risk and amortisation of payments)
    Option ARMs and IO ARMs should be mainly used by those who really understand them… they have instead been mainstreamed and marketed as “a way to get onto the RE ladder”.
    I believe (this is off of memory) that IO/Option ARMS have gone from 5% of the SF market in the 1990’s to over 65% today. Clearly, 65% is too high.

  38. Posted by rillion

    Also just because you used an interest only loan (or two intesert only loans for that matter) does not mean you can’t pay extra and start working that principal balance down. Serves two good purposes, when the rate does reset you are already used to paying more and it will be easier to refinance because you owe less. I do agree that you shouldn’t buy more house then you can afford and that particularly in this market that you make sure you understand and can afford the worst case scenario if you can’t refi.
    Also, the condo I bought earlier this year was from someone that had bought it in Nov 2005 and as the selling broker admitted “was taking a bath” after all the costs were factored in. They did at least get an annualized 4.2% appreciation (before costs) but it was a 2bd/1ba with deeded parking.

  39. Posted by ex SF-er

    “Ex-SFer It is very eye-opening when you pull the loan info. from Property Shark.”
    -Yes it is. It really argues AGAINST the idea that people in high COL areas can really afford their homes, when more and more people are using ARMs in such a short period of time.
    “Even in prime areas, people are using ARMs. It is rampant. ”
    -Yes it is.
    “What will happen when the lending standards tighten and exotic loans disappear? I’m guessing SF has got to be affected in some way.”
    Yes it will. IF/WHEN lending standards tighten people will not be able to borrow as much money. thus, they won’t be able to bid up Real estate. Thus, RE must fall in order to become “affordable” again.
    Lending standards have rarely, if ever, been this loose before. traditional lending standards were:
    -20% down (no piggyback mortgages)
    -Your monthly mortgage payment — including principal, interest, real estate taxes and homeowners insurance — should not be more than 28 percent of your gross monthly income (before taxes).
    -Your total monthly debt obligation should not be more than 36 percent of your gross income. Total debt includes the mortgage payment plus other obligations such as car loans, child support and alimony, credit card bills, student loans, condominium association fees.
    Using this guideline: if you wanted to buy an $800,000 condo in One Rincon Hill, you would need:
    -$160,000 cash down payment
    -annual salary of $235,000
    how many people do you know who own $800,000 condos who make $235,000/year and put down $160,000????
    This is the insanity of RE these days.

  40. Posted by anon

    -Your monthly mortgage payment — including principal, interest, real estate taxes and homeowners insurance — should not be more than 28 percent of your gross monthly income (before taxes).
    These were the standards typically used in the US, where it also has been common for us to spend upwards of 20% on transportation. In Europe and the most of the rest of the world, housing has always accounted for more and transportation less – perhaps we’re seeing a shift in the making? Markets change – I would happily spend 40% of my income on housing, but I would NEVER consider spending more than 3-4% on transportation (vacations excluded)

  41. Posted by Henry

    (sigh)
    Just because someone is using an ARM doesn’t mean they can’t afford a 30 year fixed.
    If I remember correctly, the average length someone lives in a place is a bit over 7 years (7.2?) — so why get a 30 year fixed when you might not be there that long?

  42. Posted by jeccat

    Thanks Henry. Just because someone has an ARM does NOT mean they couldn’t qualify for a fixed loan. Many ARMs are 10 year fixed– how many of you plan to spend that long in your homes?

  43. Posted by Gdog

    “I believe (this is off of memory) that IO/Option ARMS have gone from 5% of the SF market in the 1990’s to over 65% today. Clearly, 65% is too high.”
    Ex SF-er,
    I definitely agree because Americans generally are terrible savers, but as Henry says:
    “(sigh) Just because someone is using an ARM doesn’t mean they can’t afford a 30 year fixed.”
    I’ve been saving at least 20% of my salary every year since graduating from college over a decade ago, I put 25% down and I qualified for a 30 year fixed before deciding on a 10/1 IO. Over the next decade I’ll have much more control over my money, and more of it will be growing in stocks which generally appreciate at a higher rate than real estate, even after taking taxes into consideration. If I sell or refinance before 10 years I will likely win big with the IO (vs. non-IO), if I need emergency money in the next 10 years I’m in better shape, and assuming my investments beat 5-6% over the next decade I still win when the principal payments and rate reset kick in. For disciplined people a long term IO is a great product.

  44. Posted by anonN

    “I would happily spend 40% of my income on housing, but I would NEVER consider spending more than 3-4% on transportation (vacations excluded”
    Good point anon,
    Our extensive and highly subsidized public transportation system is one of the reasons why we can afford to spend more for housing in the Bay Area. As a point of reference, I live 16 miles from work, take casual carpool in the a.m. and BART in the p.m. This enables me to commute from Orinda to SF Financial District for far less than 1% of my income. And when I move back to the South Beach/Rincon Hill border, my costs will be zero as I’ll walk to work.

  45. Posted by anon

    Many have raised the very good point that IO or ARM loans can be a good move even for those with solid credit who could qualify for a traditional fixed loan. But the point that must not be lost is that many, many buyers of all types of places at all income levels have bought in SF in recent years only because of the wide availability of IO and ARM loans. They could not have afforded the place they bought otherwise. This significant pool of buyers is now gone (or, they no longer can buy at the same price level they could have a year ago). Also gone are flippers because nobody in their right mind thinks prices will rise appreciably in the near future. Reduce the demand side like this and prices fall in real terms. That is exactly what we are seeing.

  46. Posted by anon

    Also gone are flippers because nobody in their right mind thinks prices will rise appreciably in the near future.
    Except for the crowds of investors buying at Symphony Plaza – but you’re right, that was a long time ago – Oh wait! That was yesterday! Doh!

  47. Posted by anon

    anon 5:52 You said it yourself. Investors/flippers…. all part of the artificial demand of this market.

  48. Posted by anon

    You said it yourself. Investors/flippers…. all part of the artificial demand of this market.
    You said they (investors) were gone – clearly they are not gone yet.

  49. Posted by anon

    There are a lot of anonymous (anon) comments here. I think you (anon 6:26)are getting confused with who is posting.
    anon from 6:19
    p.s. I am not the same person who posted at 5:41

  50. Posted by ex SF-er

    I am not saying that IN THE RIGHT HANDS option ARMs and IO ARMs are a bad thing. I am merely stating that they are inappropriate for the large number of people using them.
    That is unless I have somehow missed legions of new financially savvy millionaires who have suddenly moved to San Francisco and who are able to purchase using 30 year fixed loans but choose instead to use IO ARMs and Option ARMs. (end sarcasm)
    I would argue that the vast numbers of people choosing these products in the high cost-of-living areas are NOT these financially savvy people. (again, the numbers are showing a DRASTIC increase in option/IO ARMs in the high cost of living areas since 2000/2001)
    San Francisco hasn’t changed much in the last 5-10 years.
    -It hasn’t gained that many people (some census figures show it losing population)
    -the tech sector NEVER recovered to the extent of pre-internet bubble levels
    -the public transportation hasn’t become that much more world class
    -it hasn’t become “more” touristy, or “more” beautiful, or “more” anything.
    yet somehow we went from a 5% share of “exotic” mortgages to 65%+.
    something has suddenly come to San Francisco… either:
    a) financially savvy individuals who are using Option/IO ARMs in order to intelligently arbitrage investment vehicles
    or
    b) bubble mentality, causing people to rationalize irrational behaviour, specifically to overleverage themselves using these mortgage products.

  51. Posted by anon

    Anyone who went to an open house in San Francisco in the last 2-3 years knows about the financing options being peddled by the sellers’ brokers: flyers showing your monthly payment for different financial products.
    This has nothing to do with smart, financially educated buyers and everything with a market gone mad. Let’s see what happens when all these mortgages reset.

  52. Posted by Henry

    I’m not sure if this discussion is comparing apples-to-apples here.
    What constitutes an “exotic” mortgage? All ARM/Options? Or just the Interest-Only ones? 65%+ is from what basis?
    I would agree that IOs/options are not a good idea, but I completely disagree that 5/1s and 10/1s are not. Going back to the average time someone spends in a single place (~7 years), 5/1 and 10/1 ARMs bracket the average quite nicely.
    And by the way, there is indeed another tech run going on. It’s just that the exits aren’t IPOs this time — it’s being acquired by Google or Yahoo. The Starbucks lines are getting slow again.

  53. Posted by anon

    And to add to what Henry said – there have been MAJOR demographic changes in SF over the last five years. Yes, our population will probably be down – because loaded dual-income couples and retired singles/couples with boatloads of equity from selling homes in Santa Clara and San Mateo Counties are pushing out families, even more so than happened during the 90’s. When someone can sell their home in Redwood City or San Mateo or Cupertino for 800k or more after living there for decades – that’s a lot of money to toss into a new place.
    I know of several retired couples who put 75-80% down, then used an I/O to make payments as low as possible in order to live comfortably off their pension. Even if they lose equity, there’s plenty in there to refinance if need be. It’s about quality of life for the last 10-20 years of their life, not investments at this point in time.

  54. Posted by tipster

    Ha ha, you guys are killing me!!
    1% Gain? Where did you figure that? You are assuming the seller didn’t pay 2 years of HOA and closing costs. My guess is that when you toss in the extras, this person lost money on an absolute basis. And they probably took out a two year ARM with a prepayment penalty.
    And those people saying you shouldn’t buy a home as an investment? What planet have you been living on? Homes have been an investment AND a cash machine. People who bought homes in 2005 were assuming they could find TWO greater fools: one to refinance it and another one to buy it.
    Anyone who thinks you shouldn’t buy a home as an investment is really saying that you should rent. People who have been buying NEEDED the prices to go way up and for lending standards to stay low just to afford the payments and to justify the prices they paid. If any of them had thought they’d have to pay out $50K in fees and incentives just to sell it for what they paid for it plus 13K, they couldn’t have justified the purchase price.
    And as stories like this become commonplace, current buyers won’t be able to justify their purchase prices either.

  55. Posted by anon

    And as stories like this become commonplace, current buyers won’t be able to justify their purchase prices either.
    Perhaps, but I think we still have quite a bit of time before that happens – when the same day that we hear that one place in Pac Heights is selling for only slightly more than a year ago, we hear that Symphony has lines out the door with people looking to buy – many of which are investors.
    The sky isn’t falling yet no matter how many times you tell us it is.

  56. Posted by ex SF-er

    “What constitutes an “exotic” mortgage? All ARM/Options? Or just the Interest-Only ones? 65%+ is from what basis?”
    The 5% to 65% jump of “exotic” loans only inlcudes INTEREST ONLY and OPTION ARMs. It does not include 5/1, 7/1 or 10/1 ARMs. (only IO and Option ARMs are considered exotic)
    I will try to find the link to the data… but I posted it on Socketsite a while back on a different thread I THINK. it was 5% share in 2000 and 65% share in 2006
    I cannot remember of the 5 to 65% jump was for SF only or for the entire bay area or for SF+Marin…

  57. Posted by ex SF-er

    Sorry… I cannot pull the actual study, it is a pay-for study…
    They’ve listed the 5% to 65% on SFGate and Chronicle before as well… sigh…
    Here is an article that will show my point though, from the Federal Reserve Bank of San Francisco:
    http://www.frbsf.org/publications/economics/letter/2006/el2006-38.html
    I point you towards this line:
    “According to LoanPerformance (2006), about 25% of the origination in 2006:Q2 pooled into private-label MBS consisted of interest-only loans, and about 7% allowed for negative amortization.”
    That’s for the US as a whole, and includes all loans including conforming loans. Conforming loans have no “exotics” and the upper size limit was $359,000 until this year and now is $419,000… (how many people get mortgages that low in SF?).
    the percentage of IO and option ARMs is higher (by definition) in the non-conforming category… and SF is a non-conforming market simply due to it’s median home values…
    sorry… don’t always have the exact study on hand…
    (oh, and “negative amortisation adjustable rate loan” means “option ARM”)

  58. Posted by tipster

    Man are you going to go to the well as many times as you can about “lines out the door at Symphony”
    Look at the volumes of Cisco stock as it was going DOWN after the bubble. There were lines of investors EVERY DAY as it headed down. What are there, like twenty investors for that place in that photo. Cisco had twenty thousand every day and it still sunk like a rock. Nice try.

  59. Posted by anon

    tipster,
    The difference is – the prices AREN’T dropping yet. You may believe that this is the beginning of the end, but Cisco’s price was actually FALLING then – prices aren’t doing that yet. There were people predicting the end in 1998 – were those people smart because they saw it coming? Or stupid, because they missed out on the best appreciation?
    Again, just repeating over and over that you know what’s happening and all of these people are stupid doesn’t mean that you’re right.

  60. Posted by 94114

    It’s clear that people are lining up for new construction and paying top dollar but look at the prices on the resales of buildings a few years old like the Watermark and the Metropolitan and you can see prices dropping. You don’t think that’s going to happen on these brand new buildings in a year or two?

  61. Posted by Michael

    All this new construction is going to hurt those that bought over the previous couple years and drive down the per sq ft cost overall. Some new construction is good but with som much can it have an adverse effect? Its nice everyone can own but with the look of the new construction we’ll be living with the Jetson’s before we know it and as in the sububs – not know our neighbors and the cookie keeps on crumbling ?

  62. Posted by Amen Corner

    Remember that people are not actually “buying” all this new construction, they’re placing bets in the form of 3% and 5% deposits. What will be interesting is when large numbers of these bets have to be converted into actual purchases in the next year or so.

  63. Posted by anon

    “You don’t think that’s going to happen on these brand new buildings in a year or two?”
    It probably will. My point was that Mr. Tipster always states that prices are already FALLING, which isn’t true.

  64. Posted by anono

    How is new construction going to drive DOWN the price per square foot costs? Have you seen the price per square foot on all of the new construction? Construction costs have been increasing 10% a year for the last five years with no letup in sight. Building costs alone dictate that newer projects will cost more or they won’t get built. Not everyone who bought in the last two years paid $800+/sq. ft. (I paid $600, for instance) but it looks like it will be difficult for anyone buying new construction in the next few years to pay much less than that unless the units are not built as “luxury.”
    Even SOMA Grand, which is in a truly awful location, is charging a pretty high price per sq. foot.

  65. Posted by Dude

    Tipster is right, just ahead of his time. Hasn’t anybody noticed the mentality change in the past year or so? Bubbles live and die by psychology. Let me refresh your memories:
    2001: home prices are going up quickly given the tech bubble just popped. This can’t last long. After all, real estate isn’t a great investment.
    2002: Wow. Prices are still rising. Real estate is a good investment – may not make 20%/year, but you never lose money on real estate.
    2003: Real estate is a great investment – just look at all the books coming out about it. And rates are so low. Wish I’d thought of this earlier.
    2004: I’ve owned my place for 12 minutes and have made $150K in equity already. Buy now or be priced out forever. Are you still renting?
    2005: They called it a bubble last year and were obviously wrong. It’s a new paradigm. Prices will not fall.
    2006: Lending standards are tightening? What, me worry? The rest of the country doesn’t matter. This is San Francisco. Prices are flat but won’t fall here.
    2007: Prices are only falling in outer regions that were overbuilt, or for undesirable properties. The mortgage mess is inconsequential, because there are enough wealthy people here to keep this market going without crazy financing. Besides, look at the stock market. Prices won’t fall materially across the board, maybe only in certain parts of town.
    Please feel free to interpolate what 2008 may bring.

  66. Posted by anon

    Ok Dude, here goes:
    2008: Prices start to fall in January in some established neighborhoods. The dollar also continues its plunge. Developers start exclusively advertising their properties in Europe and Asia (as has happened with many developments in NYC). Europeans and Asians flood the market with cash because “we can buy seven times as much property here as we can in . Also, this is one of the few American cities that we love to visit, because of the beauty, weather, and political views.” Some properties in outer neighborhoods continue to fall, but price increases continue in the desirable neighborhoods, as well as the new luxury high rises.

  67. Posted by Curious

    Just curious, but have any of you bubble sayers actually gone to look or place offers on desirable properties?

  68. Posted by Kabs

    Curious, Exactly. Condos and SFRs (w/ parking) are still tough to come by in better or more central areas of the city without some form of competition bidding the price up. My spouse and I lost 3 bids on condos in “Nopa”, one bid in Potrero Hill, and one bid in Inner Sunset (all usually went for >100K and sometimes >200K above asking) before finally experiencing what it feels like to actually win once.

  69. Posted by Dude

    So your end-game is that you want to live in a hollow city owned by rich absentee foreigners? I guess traffic will improve. Anything to preserve our equity, right?
    I’m sure people in Vegas and Phoenix are currently saying, “Prices aren’t going to fall farther because rich Californians will keep buying here. They can buy 7x as much here as they can in the Bay Area or LA.” We’ll see how that one plays out.
    Coincidentally, Europe is having similar issues right now. Spain’s bubble is teetering, mortgage delinquencies are spiking in the UK. I wouldn’t look for any bailouts from Europe…but there’s always the rich Asian investors, right?
    http://wharton.universia.net/index.cfm?fa=viewArticle&id=800&language=english&specialId=78
    To answer the other question, I go into nearly every open house I see out of sheer curiosity. I have not put in offers since fall of 2005. That was when I became convinced this was unsustainable and pulled myself out of the market.

  70. Posted by cb650

    I guess I can understand trying to time the market. But if you’re planning on living somewhere for a long time (10+ or 20+ years), I can’t see why anyone would want to rent. In the short term of course prices may be volatile.
    But I guarantee in 30 years prices will be many multiples of what they are now. So over such a long time the purchase price is pretty insignificant. No one who bought a nice house in a good neighborhood in CA in the 1970s and still holds that property cares much about what they paid for the property. They paid probably less than a hundred K and the place is now worth millions. So if they bought in a lull and paid $70k or they bought at a peak and paid $80k. It doesn’t matter!

  71. Posted by anon

    So your end-game is that you want to live in a hollow city owned by rich absentee foreigners? I guess traffic will improve. Anything to preserve our equity, right?
    I didn’t say that I wanted it to happen – I proposed what I think might happen.
    I’m sure people in Vegas and Phoenix are currently saying, “Prices aren’t going to fall farther because rich Californians will keep buying here. They can buy 7x as much here as they can in the Bay Area or LA.” We’ll see how that one plays out.
    People from California aren’t seeing their currency strengthen every day in comparison to the currency of Nevada. People from Europe aren’t any richer than here – but they are quickly being made able to BUY more here because of our currency slipping into the toilet.
    Coincidentally, Europe is having similar issues right now. Spain’s bubble is teetering, mortgage delinquencies are spiking in the UK. I wouldn’t look for any bailouts from Europe…but there’s always the rich Asian investors, right?
    The UK is having problems. Most of the problems in Spain were caused by investors from the UK. Europe has dozens of other countries experiencing no major problems in their housing markets.

  72. Posted by SFSal

    Kabs – you could have lost out on 100 properties that “sold for over asking” but that’s not evidence that prices are up over the past couple of years. It’s simply evidence that you’re attracted to properties that have been under priced in order to generate a bidding war.

  73. Posted by cb650

    Anon 8:10, I’m pretty sure anyone who bought at the metropolitan when the sales office opened made a decent return….maybe 20%, based on my looking at current units for sale and remembering what prices were when they first started selling.
    Watermark was priced very high (no low-priced initial releases)….but they are on the water and I see prices rising in the long term since 95% of all new construction is in less desirable areas, e.g. soma grand, radiance mission bay, etc. and some of these locations are charging $1,000 a foot for an undisputably lesser quality product.

  74. Posted by Dude

    True, but simplistic.
    Let’s use your example. Someone bought at either $70K or $80K, a difference of 12.5%. So if I buy now for $800K and prices fall 12.5% in the next few years, I’ve lost $100,000. That’s a lot of money, and a bigger % of median income than $10K was in the 1970s. So yes, it’s a cycle, but the oscillation is MUCH larger this time, on both an absolute and relative basis.
    Besides, people in the ’70s were buying using conventional mortgages at 12% interest, and were still able to make the payments and repay the debt. Today rates are near historical lows, and people still need adjustable loans and 0 down/teaser rates just to get in the door.

  75. Posted by Pac Heights Renter

    CB650 wrote:
    “I guess I can understand trying to time the market. But if you’re planning on living somewhere for a long time (10+ or 20+ years), I can’t see why anyone would want to rent. In the short term of course prices may be volatile.”
    How about if I can “rent” a place in SF in a nice part of town for less than the cost of property taxes and HOA dues that the “owners” are paying in the same building?

  76. Posted by anono

    Over the long haul, the only way renters can live in a building for less than owners is strict rent control. If a renter pays 30% less today, which is possible, that gap will narrow over time as a fixed mortgage and Prop 13 ensure that costs of owning don’t rise much over time. However, if rents are restricted to 2% or less increases the renter will do better for many, many years (not accounting for appreciation of course)
    So, really, it’s rent control that makes it a wise decision- if it is a wise decision at all- to rent. Rent control distorts economic fundamentals and is a huge caveat when discussing rent vs. buy as a purely economic issue. Pac Heights is full of apartments whose rents would reset substantially higher if the rent controlled tenants moved out.
    In newer construction without rent control, I don’t think renters do better for very long if at all. I am in year two in new(ish) construction and I could make money renting my place now when the tax advantages of rental property are taken into account. Rents are so high, and rental property is so tax favored as an investment vehicle, that as long as you are free to raise rents to reflect the market, it doesn’t take long to start generating money.

  77. Posted by anon

    First of all, rent control will never go away in San Francisco. Second, San Francisco is very pro-tenant. Third, has anyone tried buying a tenant occupied building? Try evicting them. It is near impossible unless you pay them off with a large sum of money.

  78. Posted by cb650

    Dude, if you already have or can find a low-priced rental that you love, and are meticulous about saving excess cash, that is awesome. Good for you. All I can say is that for most people it is tough to save…the average household savings rate in the US is now at, what, negative 1%!
    RE: rent control – It seems like new expensive construction units (e.g. Infinity when it goes live) with with stratospheric rent prices, like $5k a month and up, would be a good business proposition for an investor. The units would be effectively free from rent control – I’d bet tenants don’t stay in those places for more than a few years tops. Obviously tenants with that kind of cashflow could buy a place whenever they wanted to and wouldn’t want to rent forever.

  79. Posted by anon

    cb650, new places would not just be “effectively” free of rent control, they ARE free of rent control. And so is every other place built after 1979 (with just a couple exceptions – some of Trinity’s new place will have rent control still in place for the renters that now live in the craphole that is there now)

  80. Posted by Usually Named

    We thought about buying in South of Market as a rental, and guess what — the numbers don’t work. With the price units are going and the HOAs in a number of buildings, there’s no way you can cover your mortgage+property tax+HOA+misc expenses, even at $5K/month unless you put a lot of cash down.
    The only thing you can hope for in that scenario is for appreciation, which is anyone’s guess for South of Market.

  81. Posted by cb650

    anon 5:29, wow, I had no idea that rent control was prohibited by the state of CA on post-1979 construction. And yes, for sure it doesn’t make much sense to rent out a property if you’re putting little down.
    But if you live in a property for, say, 10 years and pay off a big chunk of principal, it probably makes sense. And even if you’re something like $1k out of pocket each month an can afford that, wow, that would be a sweet deal to build equity in additional property. And I am amazed how many more deductions there are for a rental property vs. an owner-occupied property: HOA, Depreciation, travel expenses, etc.
    [Editor’s Note: Rent Control In San Francisco: The Real Rules (SocketSite)]

  82. Posted by Trip

    The post-1979 exemption from rent control is in SF’s rent control ordinance, not state law. With an overwhelming majority of renters in SF’s voting ranks, don’t be so certain that rent control won’t be extended to all these new places. It was extended to 2-unit places about 10 years ago.
    Note also that the tax break for depreciation (the most significant break for a rental property owner) goes away altogether if your income is over $150k and phases-out at $100k (most people in SF buying income property — same limit for joint filers) and even if you earn little enough to qualify, you have to “recapture” all that depreciation when you sell, with a whopping tax bill. RE agents commonly misrepresent the availability of this deduction.

  83. Posted by cb650

    Trip –
    Thanks for the info about depreciation.
    But I’m pretty sure about the state law taking precedence for these 1979+ units. Just do some reading. Here’s what the SF tenant’s union says about rent control exemption as a state law:
    “Rent Control Coverage
    If you live in San Francisco, you are covered by rent control unless you fall into one of these major exceptions:
    1. You live in a building constructed after June of 1979. This “new construction exemption” is the biggest exemption in SF and can not be changed locally because it is mandated by state law.”

  84. Posted by Trip

    I stand corrected on the rent control point. The Tenants Union does not have it quite right, but state law does prohibit bringing new buildings built after 1995 under rent control. It also frees all SFRs and condos from rent control. So anyone buyong these new places should be able to rent them out free from that burden.

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