Bay Area Notices of Default: Q2 2007 (
We’re just going to pretty much parrot what we wrote three months ago: While a 102.4% year-over-year increase in San Francisco Q2 “Notice of Default” activity sounds quite dramatic, in absolute terms it still represents relatively few properties (257). Within the greater Bay Area, however, Contra Costa hit a record level of Q2 default activity (2,316 notices, up 219.4% year-over-year) as did Sacramento (3,840 notices, up 184.0% year-over-year). And Alameda isn’t too far behind (1,612 notices, up 148.4%).
According to DataQuick, “[m]ost of the loans that went into default last quarter were originated between July 2005 and August 2006. The median age was 16 months. Loan originations peaked in August 2005. The use of adjustable-rate mortgages for primary purchase home loans peaked at 77.8% in May 2005 and has since fallen.”
Bay Area Foreclosures: Q2 2007 (
And while the actual number of foreclosed upon homes in San Francisco jumped a whopping 444.4% last quarter (on a year-over-year basis), that represents a total of 49 properties (versus 9 in the second quarter of 2006). In Contra Costa, however, 778 homes were foreclosed upon last quarter (versus 62 in the second quarter of 2006).
Keep in mind that long-term interest rates remain near historic lows, and according to most, the Bay Area economy and stock market remain strong (and incomes are up).
UPDATE: As a reader notes below, some great perspective from the Chronicle with regard to the relative number of Bay Area defaults/foreclosures over the past twenty (or so) years. In summary: we’ve already surpassed the early 90’s.
Bay Area “Notices Of Default” Heading North? (So To Speak) [SocketSite]
California Foreclosure Activity Continues to Rise [DQNews]

101 thoughts on “San Francisco Notices Of Default/Foreclosures Are Way Up (Sort Of)”
  1. I agree with your point on the misleading nature of the percentage increase in NODs and Foreclosures. The percentage makes it seem more sensational than the true increase actually is.
    moreso, the increase we are seeing is coming off of historic low foreclosure/NOD rates. We’re going from historic low to “average” NOD/foreclosure rates, and the increase looks spectacular, when in and of itself it is not as intersting as it first appears
    there are still many ominous signs with the data coming out of DataQuick and LoanPerformance as well as S&P Reasearch and Moody’s
    1. “[m]ost of the loans that went into default last quarter were originated between July 2005 and August 2006. The median age was 16 months”
    -These are NEW loans. to get a NOD, you must be at least 3 months behind (usually more) on your loan. Thus, people are falling months behind on their loans in the first YEAR of having the property!!!! These people are even falling behind before the loan is RESETTING!
    (I’ve already discussed this before)
    2. “Keep in mind that long-term interest rates remain near historic lows,”
    -this is not a good thing, it is a BAD thing! People are foreclosing/defaulting even when interest rates are LOW! This is a horrible sign, and very different from past housing downturns. Typically, mortgage rates start out high in a housing correction, and the market can be “saved” by lowering mortgage rates. Today, we already have low rates, so the Fed dropping rates won’t help! See how horrible this is? Not only that, with all the losses the lenders are taking on Residential Mortgage Backed Securities, it is likely mortgage rates will RAISE not lower.
    3. ” the Bay Area economy and stock market remain strong (and incomes are up).
    -another HORRIBLE sign. We’re going through a housing contraction when incomes are up and the economy is doing well? ouch. what do you think will happen when our next recession hits (be it this year or next or in 5 years?) Also, 40% of jobs in the US were created by the housing machine from 2002-2005 (less so in SF itself though). as housing tanks, it’s taking all the homebuilders, Home depot, retailers, and financials (Wells Fargo, BofA, Bear Stearns) with it. we are seeing CLEAR signs of economic slowdown, and could see actual recession in the next few quarters.

  2. Last ominous sign (and perhaps more important)
    This data is showing that homes are NOT appreciating as fast anymore.
    Last year, if a mortgage-holder got into trouble they simply sold the home for a profit, since RE was appreciating so fast.
    This year, when the mortgage-holder gets into trouble they are unable to sell the property and cover the mortgage and the RE transaction fees, so they go into foreclosure.
    This same pattern happened in other “desireable” places such as Boston, San Diego, Miami, Las Vegas, and Phoenix off the top of my head.
    It is also the reason why newer home loans are going into foreclosure compared to older… because people with older mortgages were able to get a cushion of equity underneath them due to recent appreciation whereas the newer homes were not…

  3. But it again highlights the problem with Bay Area RE… people are “buying” houses they cannot afford.
    This is why I strongly suggest to those of you thinking of buying:
    Buy very CONSERVATIVELY. Do not go anywhere near the limits your lender says you qualify for… you cannot really afford that… use the OLD lending guidelines
    -20% down
    -qualify yourself based on 30 year fixed (even if you use another loan product, qualify based on 30 year fixed)
    –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.
    -you should have cash in the bank to cover at LEAST 3 (and 6 is better) months of expenses, in case of job loss, medical issues, etc.
    **I’ve taken a lot of flack for my suggestions, but I stand by them. Unless you are TRULY financially VERY savvy, this is a safer way to purchase real estate.
    Even if you ARE financially savvy, if you choose not to use a 20% downpayment you should have 20% of your mortgage in CASH or CASH EQUIVALENT LIQUID investments like CDs etc… not in equities which are unstable.
    This way, if you run into financial distress, you have enough liquidity to sell your house.
    “But I can’t do that and buy in SF” you say? then don’t buy in SF. don’t follow the herd to slaughter just because “everybody’s doing it”.

  4. I guess I just must hang with different people, because I know dozens of people who have bought in the last few years in SF, and while many of them used more exotic mortgage types, none of them really had to. They all have several hundred thousand in liquid savings, as well as good chunks in IRAs and the like. I’m renting at the moment, but am able to save about 60% of my gross income each month, and I hope to buy something within a year – I’d like to see some price declines, but I’m just not sure that any of the places that I might want to buy will see it.

  5. Sure absolute numbers of NODs and Foreclosures for June are low, so is SF Inventory and Number of Sales.
    There are only 1100 properties on the market, according to Socket Sites CII. Only 633 homes sold, according to DQ, in the month of June.
    Maybe these are meaningless numbers but …
    Those 257 NOD represent 23.3% of Inventory and 40.6% of Sales.
    Those 49 Foreclosures represent 4.5% of Inventory and 7.7% of Sales.
    Considering that the market analysts expect NOD’s and Foreclosures to rise in the near term and we can expect these items to make up more and more of Inventory and Sales putting additional pressure on prices in SF.

  6. It’s only natural for SF to have lagged the rest of the state, but this is really just the first sign that SF is not “special”.
    You can’t have marked price declines in all counties surrounding SF without it having an impact here too. My guess is this is just the beginning.
    The pricing pressure’s have taken longer to become obvious within the City, but the signs are getting stronger every week. I’ve just decided to stay on the sidelines, build my savings, keep researching, and keep going to open houses every week. No matter how you feel about prices, the sense of urgency to get in before the next 20% rise in values is gone.
    Take your time, find a place you love, and plan on living there for AT LEAST five years, preferably ten. If buyers had done this for the past six years, we’d never have been in this mess in the first place.

  7. “no matter how you feel about prices, the sense of urgency to get in before the next 20% rise in values is gone.?
    The new game about to start is “getting out before the next 20% drop in value” This should be a lot more fun to watch.

  8. The trend cannot reasonably be denied. You don’t see increasing numbers of foreclosures in a market with rising prices because the owner could just sell and avoid foreclosure. You only see this in a market with flat or declining prices. And the MLS indicates fully 1 in 4 listings in SF are with a reduction in asking price (same 1 in 4 for SFRs). We might debate the duration and extent of the current downturn in prices, but the debate over whether it is currently in a downturn is settled. My guess (and it is just a guess, but an educated one) is that we will see declining prices for at least a couple of years. Buyers are becoming more scarce with tightened lending standards, and sellers can only hold off so long. They will sell for the same reasons people have always sold, and many more will be forced to sell because they bought way more than they can afford.

  9. Only a matter of time before some of the condos coming online spend more to advertise in Europe and Asia than here in the US. Plummeting dollar to the rescue!

  10. anon 6:48-
    You indeed must hang with a different crowd. While I can speculate as to my friends’ incomes and assets based on their professions and patterns of conspicuous consumption, I really have no idea how what their financial situations actually are. Chatting openly about your money is still considered unremittingly boorish in most circles I’ve been in.

  11. ex-SFer
    Agree with many of your observations. What is also potentially worrisome are all the older vintage loans that were originated in mid-2004 at historically low rates that will be resetting. I personally know several people that locked in 4.25% rates for the first five years. When these reset at 6.5+% rates (while still historically low rates) the PI jumps from $4600 to $6500. And while yes they can re-finance again to potentially a shorter fixed/floating structure or interest only, the point is that we haven’t seen the potential full impact on defaults etc.

  12. Interesting that foreclosures are so low in Napa and yet prices are dropping there. Sonoma also has a relatively low level of defaults and has suffered a big price drop as well.

  13. keller, yes we must hang with different crowds. In my group of friends, we kind of consider it our duty to make sure that each of the others is not making bad financial decisions and going in over their heads. So…when someone is looking to buy somewhere, the first questions we ask are – what’s it going to cost you? How much you got in the bank? Etc, etc.

  14. anon: although I do not doubt that there are people who can purchase with a 30 year fixed but instead choose ARMs or exotics to arbitrage risk/return, I also doubt that it is common.
    Again, across the country we’re seeing more distress than ever, especially in high COL areas.
    Countrywide is the largest Mortgage Lender in the USA.
    In the last year, Countrywide executives (including their CEO) have SOLD $406,196,220 of their stock.
    And they’ve bought $0.
    (most of this is the CEO himself)
    Q: what do executives of profitable mortgage companies tend to do with their stock?
    A: buy more (since they anticipate higher earnings and thus higher future stock price)
    Q: what do executives of failing mortgage companies tend to do with their stock?
    A: sell (since lower earnings will cause lower future stock price)
    Thus: clearly, the executives at Countrywide anticipate a HORRIBLE future for mortgage lending.
    Now I go back to this again:
    -what will happen to RE in San Francisco if mortgages are harder to procure?
    -what is the likelihood that a Mortgage company will continue to be lenient with their mortgage products when they are bleeding cash, the stock price is falling, and the executives are bailing out?

  15. ex SF-er,
    We appreciate the (constant) reminders, but sometimes I just wonder if you need to the world all this information again to justify your move out of SF?

  16. ex SF-er, I agree things are getting bad in the mortgage market and will continue to get worse. As I stated in another thread, this is what I expect to happen in SF proper:
    Sales will stagnate and prices in all areas begin to fall slightly. Condo developments, as well as realty firms dealing in desirable neighborhoods will begin heavily advertising in Europe and Asia. Europeans and Asians will see the prices, and in conjunction with the plummeting dollar, see places that are pennies on the dollar to vacation places in their areas. The market will begin to flood with euros (and other currencies) which will stop price declines in all but the least desirable areas.
    In two years, prices in SF will be significantly higher than SM and SC counties (which are about the same as SF now) because those counties don’t have the same international appeal that SF does. SF will become more and more a place for rich young dual incomers, retired seniors, and foreign tourists looking for a vacation home.

  17. Just got my MBA from Haas, and based on the job offers and average starting salaries, I’m resonably assured that people can afford $1,000/sqft condos. Check out what those investment banking associates working in the Financial District are making for a first year bonus — enough for a down payment for a nice pad anywhere. Nice work if you can get it.
    By the way, according to the Countrywide report, most of the mortgage problems they see are tied to the 2nd loans, lines of credit, etc. These things start floating right after the loan is signed, and with rates jumping on LIBOR indexed HELOCs from 4% to 8% in two years, payment can double in no time. Hence early defaults. . .

  18. From a supply/demand perspective, the delinquencies and the like will never have an impact on the Bay Area. The numbers will ALWAYS be too low to matter.
    However, when it comes to impacting loan originations, that’s a different matter entirely. It doesn’t matter that the absolute numbers are low. The percentage of loans going bad was priced into the loans. People assumed X% would go bad and that’s how the loans get priced.
    If the percentage of loans going bad rises above what people were estimating them to be, investors realize several things:
    1. Some people are going to lose a lot of money.
    2. Their prediction models don’t work.
    And that my friends is a recipe for investors who head for the exits. If you can’t identify an appropriate price, you don’t buy. What this news means is investors (the people who fund loans) will continue to head for the exits.
    So now you have to ask yourself if prices doubling in the last ten years were more a function of A) supply and demand or B) easy loans. If they were driven by supply and demand, a few defaults just isn’t going to matter. But if they were driven by investors who were willing to loan almost any amount of money to anyone with a pulse, the game started ending yesterday, and within 3 months, the effects will become readily apparent.
    And if the price rises were for the reason B, as prices drop further, it will get worse for people who are in over their heads, making the problem start to “snowball” as defaults rise further, causing fewer investors to be found, and round and round we go.
    All I can say is, wow, that’s an awful lot of cranes in the air above residential buildings being completed.

  19. mc4b – First, there are about roughly 220 kids that graduate from Haas every year. I’m assuming Stanford has the same number of graduates. I really don’t think these MBAs are going to prop up the entire market. Second, about 20% of Haas graduates are hired by the financial sector. Not a huge number. Third, graduate school is not cheap. Unless you’ve got a ton of money saved up, chances are you will be paying off school loans for a while. Tuition alone is already $27k/year. If you include living expenses, that’s going to run you $100k for the entire 2 year program.

  20. $27k is for Haas. I’m assuming Stanford’s got to be much higher. Also, I can’t imagine that every MBA graduate will remain in the Bay Area.

  21. For the anonymous poster who has so much inside scoop on all of their friends’ financial status (6:48 and 9:32)… a couple of things:
    1. You state you’re saving 60% of your gross income currently. How can that be true? If you make a reasonable sum, your minimum aggregate Federal and State taxation is going to be well north of 30% of gross, and potentially north of 40%. Do you have $0 in monthly expenses? If you do, you’re truly amazing.
    2. Your assertion that you and your friends (dozens, no less) share all of your financial data to keep each other from making bad decisions is absolutely bizarre. Especially if your friends are as liquid as you suggest. Exactly zero of my friends know the specifics of my financial situation, and I know exactly zero about theirs. Anything else would be unthinkable. That you know dozens of people with hundreds of thousands in liquid investments and they’re all willing to share the specifics with you…
    Not terribly credible, I’m afraid.

  22. with all the supply coming on the market in the next 5 years, i can’t help but think we are building the perfect storm style .com bubble for the price of these condo’s. maybe we’ll get all the affordable housing we need when it bursts. kinda scary.

  23. “We appreciate the (constant) reminders, but sometimes I just wonder if you need to the world all this information again to justify your move out of SF?”
    A fair criticism. which is one reason why I (sometimes) try to write a disclaimer about nobody knowing the future when it comes to RE or any other financial market…
    It is the other reason why I purposefully chose the moniker “ex SF-er” so that people would have more info about my stance when reading my posts. (People can read my post and then say “hmm… just another bitter post by someone who was pushed out of paradise”)
    Your comment forces me to attempt self-examination. Am I posting to get some sort of justification for moving from SF? I don’t think so, since my move wasn’t really RE related, it was job related (I make double the salary here than I could in SF)… although high COL is/was definitely a factor too.
    But perhaps subconsciously I post to justify my move away, or due to jealosy over those of you who live there? I can’t deny that possibility although I don’t believe it to be the case.
    why do I THINK I’m posting here?
    my goal is NOT for a RE crash (far from it) nor for people to move from SF, nor even for people to not buy housing in SF. I’m born/raised in SF and too many people I care about are there for me to wish a RE collapse on them.
    my goal I guess has been more to try to discuss how macroeconomic occurences can affect local SF real estate. to show that a hedge fund in NYC or a CEO of a mortgage company or the stock price of the Homebuilders influence SF’s local RE.
    this information (I think) is important to help people make what will be one of the most important financial decisions in their life. I don’t recall ever saying “don’t buy”, just “be careful and buy conservatively”
    Too often all you here is “SF is special” and “San Franciscans are rich” and “the Chinese will buy all of SF”. I guess I am trying to be a counterpoint to that.
    All that said, I would still argue that my comments are valid regardless if I’m justifying my move from SF or not.

  24. James – excellent point. In fact, a lot has been written about the fact that home builders are STILL building and simply adding to the inventory and putting even further pressure on prices.
    The market is experiencing record default and foreclosure numbers at all levels of mortgage products, including prime, builders are still building large numbers of homes, and sales have slowed in the double digits, percent wise, for the last two years, credit requirements are tightening and interest rates are rising.
    This is all happening during a ‘good’ economy with rates still historically low, unemployment low, and wages doing well.
    If things is the housing market are performing this poorly during a good economic cycle what will happen once the consumer spending pull back happens now that ‘the wealth effect’ is evaporating?

  25. Asians and Europeans (don’t have to be rich with the dollar sinking) aren’t going to save the housing market. But they will have a huge impact in SAN FRANCISCO. Parisians don’t care about a second home in San Jose or Pleasanton, let alone Tracy or Fairfield. But they might be tempted to own a second place in San Francisco that costs beans because of a worthless dollar.

  26. Builders are still building, but they are building with high costs that require prices based on 800-1000 bucks per sq ft. If they can’t sell for a profit at these prices they may just turn them into rentals, and the inventory vanishes from the market.
    Also, it should be noted that many areas of SF outside of SOMA have much lower prices per sq ft on average. In my quest to find a condo in an older bldg (think Victorian) the avg price per sq ft was $670 in the area (NOPA). Will an area with costs per sq ft so much lower than SOMA already be that negatively impacted by SOMA inventory?

  27. Agreed with Craig. There is no reason to assume that condo developers will simply “take a loss” on properties if they don’t sell. They’ll rent them for awhile until the market improves. With building prices continuing to surge upward, building sooner and renting for awhile could still be the financially prudent thing to do in a city that isn’t expanding its borders and will still be an “in-demand” city regardless of what happens in the short term.

  28. Ok, guys… here is the obvious question and request:
    What percentage is 257 to the total homeownership stock in San Francisco? This is the relevant comparison, and not compared to what’s currently available for sale! My goodness. A pie chart would be great.
    mcb4, you are spot on btw.

  29. anon@11:18
    SF is a great city to visit, but why in the world would a Parisian want to live here, if they can have a second home in London? Even if the dollar tanks, if I was already in Europe, I’d prefer a second home that was closer. I don’t want to take a 12+ hour flight to get to my destination.
    BTW, if you are looking for statistics…
    1.2M Brits own homes in France and the Iberian peninsula.
    Germans own 300,000 homes in Spain.
    French own 20,000 homes in Britain.
    Europeans like to buy in their neighborhood not across the ocean.
    stats from CNN money

  30. I like to buy in my own neighborhood as well, but if I noticed new advertisements for a place in Europe that were half what I would pay for a place here, I might consider it. Look at ORH/Infinity already – something like 25% foreigners with very little advertising in those places. Toss some adveritising in Sky Mall about places in SF going for less than a million euros and phones will begin to ring. Doesn’t have to be that many – the market in SF is so small that even 300 Europeans looking to buy would make a huge impact.

  31. If builders flood the market with rentals, rents will drop.
    When rents drop fewer people can justify buying.
    So sales prices fall in either scenario.

  32. If there are 3600+ condos coming down the pipeline, I really don’t think Europeans will have a huge impact. p.s. Where did you find the 25% no. from? link it please.

  33. “When rents drop fewer people can justify buying.”
    This line of reasoning does not currently apply to many people in SF. Only time will tell if it eventually will. Homeownership has an appeal that often defies monetary logic. Always has, always will.

  34. I hope most of you are right and wrong 🙂
    I’m a person who wants to buy a place to live here for the rest of my life. I’ll have enough for a $200,000 down payment in about a year, and want that to be around 25% – so I’m looking to spend $800,000. I want the market to fall, but not by enough that builders stop building.

  35. phil reminds me of an interesting theory i had. here in soma it seems that there might be an endless supply of buyers for whatever you build and price under 1 million. when you go above that, it’s a different story.
    oh, i drove by the radiance the other day. the neighborhood is still a [hole] and thats putting it nicely. they seem to be pricing that product as if it’s already been completely removed from the bayview/hp surrounding community and completely developed.
    i don’t think that’s going to work, personally.
    i’d wait 5 years to see if they can make that area livable and then buy one on the secondary market after the owner takes a loss.

  36. I’m sure there will be some distress for the million and under housing market. But for properties priced at say $1.5mil and up, second or third homes, puh-lease. These owners are not going to be affected in any way by this. It’s like saying that Lamborghini sales will fall because people are defaulting on Honda Civic payments. It is just further market bifurcation.

  37. Like many, I find the rich foreigner theory pretty entertaining. Regardless of the exchange rate, doesn’t your average European make the equivalent of like $40K/year? Median incomes in Asia are even lower. The richer European nations like the UK, France, and Germany have already invested in Spain’s bubble, and the Japanese have learned their lesson in real estate domestically.
    Besides, I’m pretty sure rich people read the papers and see the same articles we do, regardless of nationality. Why buy today when there’s a good chance prices (or the dollar) will be lower in a year?

  38. “Builders are still building, but they are building with high costs that require prices based on 800-1000 bucks per sq ft.”
    -Bull! Yeh, they’d love for you to believe that so you’ll spend that much, but when have you ever heard of a development that the developer DIDN’T make millions on??? While these costs (or more like $500/sf) may be true for a few developers buying up the most expensive land, this is FAR from the norm, especially outside of SF. Let’s remember people, that the national average per s.f. cost is under $100/s.f.! My relatives in the business build high-end for only slightly over that. Median American home price = $220k, median American home size = 2300 s.f. You do the math.

  39. In order to afford a $1M place on “traditional” terms of 20% down and 30 year fixed, you need a salary of about $200K a year (that works out to a monthly payment of 35% of gross). Only 6% of SF households make that kind of money. There is certainly a limit to the number of these places that can be sold.
    (income stats from here:$$.htm)

  40. Are the addresses (or at least zip codes) of SF foreclosures published anywhere? I’d be very interested to see if they’re concentrated in the lower cost neighborhoods or if they’re more evenly distributed geographically. If there are already some foreclosures showing up in new condos that would be quite telling.

  41. There are more than just households in SF who look at buying in SF. There are loads of peeps in Marin, San Mateo, Santa Clara, and even Alameda County to add to the 6% of SFers that can afford it. And remember, most people in the City rent.

  42. Dear Mr. Checker, again and again you try to go off on how the whole Bay Area is just waiting to move into “the city”. Well, I moved OUT of the city to Marin Co. and find that now that prices have come back down a little out here I am seeing more people from the city moving OUT. I live in an Eichler and this neighborhood is mostly people in their 40’s who have left the city because of high costs there. I purchased my home for about what a 2 bd. Soma condo USED to go for ($850,000).
    Just because incomes are higher here in Marin, does not give a justification for condo prices in San Francisco. Everyone in the Bay Area does not want to live in “the city.”

  43. “What percentage is 257 to the total homeownership stock in San Francisco? This is the relevant comparison, and not compared to what’s currently available for sale! My goodness. A pie chart would be great.”
    I disagree. What’s interesting is number of foreclosures versus _actual demand_ for houses, i.e. the number of sales. The total housing stock is rather uninteresting as regards the likely effect of a rising foreclosure rate on prices.

  44. sw checker,
    You are making a common error – assuming everyone wants to live in SF. If you look at that link I posted you will see that the concentration of wealthy households is actually higher in Marin, San Mateo and Santa Clara than it is in SF. Those that are well off are more likely to move to Palo Alto or Burlingame than to SOMA.

  45. I’m absolutely counting on selling my home to some bright MBA grad who is:
    A) Smart enough to get a real high paying salary; and
    B) Stupid and ignorant enough to ignore the mortgage meltdown now underway, or one who doesn’t realize that when mortgages are harder to get, prices will fall.
    Hopefully you can find such an MBA grad for me. Please?
    If not, maybe you can find a rich, but ignorant foreigner who will buy as currency rates fall. I was counting on one of those to buy my stock, but they never bought any, in spite of the fact that, not only was it getting cheaper for them in terms of currency, it also got cheaper by the minute in terms of absolute price.
    For some inexplicable reason, just because they could afford it, they didn’t buy it? Weird, huh?

  46. One needs only look at the people moving into ORH and Infinity to see my point – it’s loaded with retirees from Palo Alto and Burlingame. Sure, 40 year olds with kids may be leaving the city for Marin – but 65 year olds without kids (and more money) are moving back. That’s happening all over the country, not just here.

  47. sw checker,
    Do you have data to back up that claim? If its anecdotal, then I can anecdotally tell you that nobody I know in the area is moving to SF. Being a business owner in Menlo Park, I have contact with a lot of folks from this area. The ones that are leaving are taking the massive equity in their houses and buying in Sac or the foothills and living off the rest.

  48. Parisians take their vacations in August, when San Francisco is socked in with fog.
    The few Parisians I know like to vacation where it is sunny and warm. Go figure.

  49. Rich foreigners are unlikely to “save” San Francisco for the same reason that I am unlikely to “save” Cabo San Lucas. The exchange rate may be be nice, but a bad investment is a bad investment, no matter what language you translate it into.
    Why did today become the day of the irrational rich foreign investor? How many rich foreigners were at the Symphony Towers opening?
    There are many reasons why SF is special. However, this graph tells me that where the national market goes, so does SF:
    I would hazard a guess that the data indicates a trend over the past 20 years.
    Where are we on Kubler-Ross? I say it is still denial, but some may be bargaining here.

  50. If you think the dollar is going to continue to decline (a reasonable bet, imo) why would you invest in the US anyway?

  51. For those of you who want to rip on my MBA salary comment, I think you’re missing my point. Companies continue to hire at a breakneck pace, and salaries are higher than ever – that’s a fact for newly minted MBAs and other experienced professionals. As soon as the job market turns, and I’m not predicting a meltdown in the financial sector, than I’ll agree with all of you doomsday advocates.
    Homeseller – I hope you have an opportunity to take advantage of some ignorant MBA graduate or foreigner, as you stated (I happen to be in both minority groups). Contrary to your opinion, I recently had a very good experience selling my South Bay home to a Google employee. We sold it in less than one week at above asking. I would venture to say that this buyer is at least half as bright as you, and had plenty means to afford my house regardless of the dire state of the housing market as you see it.
    By the way, now that I’m a renter sitting on the sidelines, I would love to see condo prices plummet so I can swoop in a pick up that 30th floor 3br with a view at Infiniy for $800/sqft, but I’m not holding my breath.

  52. mc4b, the number of employees in San Francisco is still 12% lower than it was in the dotcom era. So whoever you think is hiring at breakneck pace, it’s not happening in SF.
    Good for you to get out while you could. Those that think there’s still room for prices to go up in SF, I haven’t seen much of a solid basis for it. What’s your reasoning that 100 years of history has changed in a measly six years? Why does the increase in foreclosures and inventory not concern you? How are houses not overvalued right now compared to rental prices and income? Something fundamental had to have changed in the marketplace for you to think there’s not a huge need for correction. What is it? I’d like to hear the bull side, but I haven’t seen any solid fact based posts for it yet in any of these threads.

  53. “However, this graph tells me that where the national market goes, so does SF:”
    That’s not a graph of SF, it’s a graph of the SF MSA. Contra Costa county alone swamps what’s happening in SF city/county.

  54. No one really knows where the housing market is headed, if you think you do, please tell me why the Dow just hit 14,000 amidst all the subprime mortgage fallout, concerns about retail spending, etc. I’ve been bearish on the housing market for the past year and finally put my money where my mouth was by cashing in. That said, the job market and financial markets are tearing ahead globally, and if you want to bet against that, go ahead and join those hedge fund managers that are getting pummeled by shorting the S+P.
    Fact of the matter is, as if anyone could ignore the daily articles in the press, we are are in a housing slowdown and yes that includes the San Francisco condo market. The billion dollar question is, as someone said earlier, how low will it go and how long will it last? My belief is that it will last quite a long time, maybe until 2009 as predicted by Countrywide, but I have my doubts that things will get just plain ugly like the dot-bomb days. Perhaps prices will be sideways to 20% down through the end of the decade. Big deal. We saw something like 80% of the market value of the Nasdaq get stomped out of investor’s wallets from 2000 to 2003. Now that was a bubble.

  55. Regardng “rich foreign investors”. Funny, I have been hearing the same thing both in the Newport Beach/Laguna Beach area, and down in the Palm Springs/Rancho Mirage/Palm Desert areas. These areas are FAR wealthier than most people in the Bay Area realize and everyone down there is hoping and even praying that a rich foreigner will land on their doorstep and buy their beach cottage or desert golf course home. BTW, If I were a rich foreigner, I would probably buy down there for the weather, and not a high rise condo in the fog. If you think San Francisco has good museums and restaurants, may I kindly ask you spend a week in Paris. I don’t think we are that “world class”.

  56. Just bought a book by Lonely Planet ranking the top 100 cities in the world.
    1. Paris
    2. New York
    3. London
    4. Barcelona
    5. San Francisco
    Just letting you guys know that it’s not only San Franciscans who believe that our city is “world class”.

  57. Oh well, if Lonely Planet says we are “special”, then I guess we are “different” and real estate will continue to increase in value at the same rate it has for the last 3 years. Thanks for clearing this up. I need to remember to consult my Lonely Planet whenever making a million dollar real estate purchase. Now, off to Barcelona….

  58. SF is world class — people from all over the world love coming here. They love it for the same reasons I love it — smart people, great culture, art, scenery, food, etc. But the notion that a weaker dollar is going to convince people to buy a second (or third) home here in numbers that will affect market prices is silly.

  59. Wait a minute! I have that Lonely Planet Book! I believe the top 5 are:
    1.Paris, 2. New York, 3. Syndey, 4. Barcelona, and 5. London.
    And what does this have to do with real estate in San Francisco?

  60. “SF is world class”
    World class tourist destination. Not much to offer in the way of business and culture compared to NY, Paris, London and Barcelona. Nice weather and not too far from LA. That’s pretty much it. What else is there? Please refresh my mind – I live in San Francisco.

  61. “Perhaps prices will be sideways to 20% down through the end of the decade. Big deal.”
    mc4b: 20% off the median price is like $150K, which is TWICE what the average San Franciscan makes annually. This is not a big deal? Not worth it to wait 3 more years to see what the market does?

  62. Someone wrote: “SF will become more and more a place for rich young dual incomers, retired seniors, and foreign tourists looking for a vacation home.”
    These people only want to live in 10% of SF, how will they impact prices in most of the city? I don’t think many Hong Kong IBs will be buying in the Richmond Dist, the Sunset Dist, or the Bayview.
    Mr. Haas (I couldn’t get in to a top 5 program) wrote how $1ksf/$1mm is no problem for most people should wait a few years since bonuses are not going to be as big in the next couple years and things will get ugly when an out of work recent MBA has a $10K/month mortgage and HOA payment…

  63. Keeping my fingers crossed the slowdown in housing and subprime/Alt-A mortgage issues remain contained …. at least oil backed off a little (for now). As long as we stay fully employed, the only folks who will get snagged bad are those who have to sell (job losses, divorcees, bigger payment than they can handle). Landlords should be happy to watch rents head up a bit .. or will folks just start finding more roommates? Hmm….

  64. . . . All these bitter people who didn’t buy a place a couple of years ago because they thought it was a bubble. Now they can’t afford to buy, so they have to tell themselves that waiting is the prudent thing to do. My advice to you — if you can’t afford to live in SF, stop whining to those who can. Sorry it had to said.

  65. Anon 5:02-
    Yours is a silly comment but I’ll help with a few cultural tips as a refresher:
    World class opera and ballet companies, as well as symphony orchestra. In residence. In a city of 850,000 people. Not many cities like that.
    ACT Theater- Tony Award for best regional theater.
    Magic Theater-Consistently one of the most influential off-Broadway houses. David Mamet debuted and directed his most recent play here, as did Sam Shepard. Shepard’s most important works were created here, including the Pulitzer Prize winning Buried Child.
    SF Jazz- Best annual jazz festival outside of New Orleans.
    Bay Area Cuisine- It’s tough to pinpoint food to a city so we’ll say the Bay Area has not only some finest food in world, it could be fairly argued that no region has been more influential in the way food is grown and menus prepared over the past 30 years.
    Asian Art Museum.
    The new De Young.
    Palace of The Legion of Honour.
    Stern Grove concerts (it’s free!).
    The Contemporary Jewish Museum (designed by Daniel Libeskind) to open next year.
    So anon,
    If you can’t find a decent job (business) and are bored by your surroundings (culture) why would you pay the tab to live here?

  66. I agree. Bunch of bitter people. And if you don’t like SF, move to Portland, Denver or Sacramento.

  67. Wow, I miss a few days and everyone gets all pissy.
    BTW – Vancouver is a great city! Prices are going through the roof up there though – if prices do fall at all here, Vancouver will pass SF in price for a decent place by next year.

  68. Nah, people here aren’t pissy, just scared. They bought at the top and now the market is clearly starting to dive and they’re terrified.
    We have the Palace of the Legion of Honor way off to one side and I go there every 5 years or so. But *every day* I step over homeless people’s waste and needles to try to get on a bus that I hope comes and isn’t so crowded I can’t get on, passing schools that are an embarrassment as we drive over potholes and past traffic lights that haven’t been updated since the 1940s. But hey, the Fulsom street fair does liven the place up. And it *does* make my life better due to “Shepard’s most important works were created here, including the Pulitzer Prize winning Buried Child” or at least I think it probably does.
    This is a great place to visit, but man is it a hideous place to live. Live in the east bay or on the peninsula and drive in for the Palace once every 5 years or a restaurant every month or two (psst – they have great restaurants all over now). You’ll be way better off.

  69. Please, grow up. Who’s whining? Many of us choose to live here, because our families, friends, and extended families are here. Our roots are here. It has nothing to do with whether the city is world class or not.

  70. Brutus, I for one am finding the constant posts about San Francisco’s ratings as a world class tourist destination that are inserted into discussions regarding the current conditions in the real estate market to be annoying to say the least. WHO CARES if we are #3 or #8 according to Lonely Planet or Travel and Leisure! Could we give the chamber of commerce rhetoric a rest for a while and let people discuss foreclosures, sub prime loans and current sales and prices without being reminded again and again and again that “everyone wants to live here” in the “best place on earth”. As someone who owns property in the city, but who also works out of state at times, Socketsite is a great resource for keeping up with what is going on in the city. If I wanted the latest reasons to visit San Francisco, I would go to a “Visit S.F.” website.

  71. Being fluent in French and having studied in Paris, I can assure you the French will never buy homes here in significant numbers. nor will most Europeans. If anybody foreign buys, it will be the Chinese and other Asian cultures.
    The reason: there is already a large asian culture in SF, and it is too far/too expensive for most Europeans to get to SF on a regular basis to make it worth buying.
    The Europeans (especially the English) like to buy in Manhattan and Miami. Manhattan becuase it is the most cultural city we have. Miami because it is hot hot hot.
    The Russians also may buy here due to their newfound wealth and the Russian heritage.
    SF is a great city, a fantastic tourist city, and even ‘world class’. However, this is nothing new. It’s not like SF recently was “discovered” or something! SF was all of those things in 1990 and also in 2000, yet home prices have skyrocketed since then. (and home prices fell in 1988 despite being a world class tourist city) thus, it is not a good reason why RE has risen so much.

  72. “. . . All these bitter people who didn’t buy a place a couple of years ago because they thought it was a bubble. Now they can’t afford to buy, so they have to tell themselves that waiting is the prudent thing to do. My advice to you — if you can’t afford to live in SF, stop whining to those who can. Sorry it had to said.”
    silliest post ever. what did it add?
    bitter or not, the posts are still valid. Argue the merit of the post, not the implied bitterness of the poster.
    I will speak for myself: I am a very high income DINK. I can “afford” most of the properties discussed on Socketsite (if I use the oh-so-loved ARM). I don’t think I could afford the penthouses of some of the condo towers though.
    I am also a homeowner, and I made oodles of money on my house over the last 7 years (my house has tripled in “value” since 1997)
    But as my name implies, I am not a resident of SF, but do reside PART TIME in Chicago, which is a world class city. We rent in Chicago though as we do not want to stay there forever. (**some of you may remember my first post was related to Chicago when socketsite did it’s chicago comparison)
    I do fly to SF whenever I want, which is often (next time is Labor Day). Luckily for me, due to my position, I usually am not limited to one world class city, since in addition to Chicago, I travel almost every year to SF (hometown), SD (family), Puerto Vallarta (beach), Paris (culture, friends), Cozumel (scuba).
    This year I was also fortunate to visit:
    Vancouver, Seattle, Portland (on one trip)
    Research Triangle in NC (wedding)
    Wichita Kansas (wedding)
    Sedona AZ (Thanksgiving)
    Am I allowed to post still? or am I still too bitter? 🙂

  73. anom, I have made one post on this topic, which you can read above – it was in relation to Vancouver.

  74. This just out. According to Forbes magazine, SF is the fourth riskiest housing market in the country. 70% of homes purchased over the last year used ARMS.

  75. “‘. . . All these bitter people who didn’t buy a place a couple of years ago because they thought it was a bubble. Now they can’t afford to buy, so they have to tell themselves that waiting is the prudent thing to do. My advice to you — if you can’t afford to live in SF, stop whining to those who can. Sorry it had to said.”
    silliest post ever. what did it add?'”
    I’ve held off on commenting on this thread because I felt that I would just be labeled a “whiner,” but I have to agree with ex SF-er. I am utterly appalled by the arrogance of some of these postings; lest anyone forget, San Francisco is predominately a middle-class city, filled with people like myself who make above the median income but below $100K a year, who provide most of the professional services within companies and the city itself. If we are upset about the housing situation it’s because we *are* being squeezed out of the city – no one I know, among my friends who are graphic designers, internet developers, social service providers, and other non-MBA, non-MD professionals, can afford to buy *anything* in the city, or even in Oakland, and we’re getting absolutely hammered on rents with a 98% occupency rate – essentially, rents for anything from a studio to two-bedroom reflect what we would ordinarily be paying for actual mortgages if there was *anything* available below $400K. Rents are being driven up, in short, because those who would normally be buying can’t afford anything, so instead they’re putting the same amount into rents. Of course, this trickles down so that people with entry-level salaries either have to get into share situations, or just give up and leave.
    The appreciation we’ve seen in the SF housing market since 2001 is essentially inflationary, driven by “easy money” and low interest rates. When that easy credit dries up, as is happening now, the money stops being poured into the system, and the inflation ends. Yes, I’d love to see prices come down at least 20% to correct for the inflationary bubble that has popped up over the past five to seven years, but that doesn’t make me a whiner or a johnny-come-lately, that makes me someone who loves living in the world class city of San Francisco but doesn’t want to feel that my desire to have quality housing that doesn’t devour my entire salary is essentially hopeless.

  76. Seriously a lot of venom on here recently…maybe because the weather has become gloomy?
    Not speaking for anyone but me, but I love this city and I love living here. The homeless, the weather, the crowded buses, the potholes, it’s all as much a part of the city as the museums, restaurants, and Marina mansions. If you don’t like the city, leave.
    If you’re angry that you overpaid for real estate and may lose money or your home, tough sh&t. You got caught up in a frenzy – hold on to it long enough and you’ll make out alright. If you can’t hold on to it, you shouldn’t have bought it in the first place.
    If you’re angry that you work hard and save and can’t afford anything, be patient. There’s a national real estate adjustment taking place, but it will take a few years. Maybe you don’t get that Millenium penthouse in 2010, but you buy a nice starter in the east bay for a good price, and move up over time.

  77. “If you can’t find a decent job (business) and are bored by your surroundings (culture) why would you pay the tab to live here?”
    I got stuck here job wise, and I’ll be out of here as soon as I can. Thanks for the cultural advice. Just enforces my point. Worldclass opera – LOL. Ever heard of Paris, Berlin, London, Vienna, Milan?

  78. someone brought up income and middle class. i’ve been saying for some time that unless you bring home more than 250k you are middle class in this town, looks like the rest of the country is catching up with that fact now. check this out:
    A household income of $40,000 puts a family at the bottom of the middle class.
    So says a new report by the Congressional Research Service. The Service calculates the dividing line between middle and upper classes at $250,000. And herein lies the dilemma: While Congress forever debates legislation designed to help the “middle class,” the Service report admits there is no consensus or government definition of what it actually means to be “middle class.”

  79. Sorry for joining late to the game.
    It’s very hard to predict what exactly will happen, especially on the economy overall. As far as SF goes I’m pretty sure that there enough demand to keep prices at the *desirable* parts of the city in good shape. If the economy tanks all bets are off.
    The key isn’t how many foreclosures but rather where!!'s_Sales
    The vast majority for a while was in 94114, 94124 & 94109.
    Things have started changing the past few weeks, but the numbers are so minuscule

  80. $250k is middle class? Please take a look at the original article and how the $250k is derived…
    The calculations were based on Census Burea data (reported as income ranges) and a Survey. Only the TOP 5% of households earn more than $166k. How did Congressional Research Service come up with the $250k middle income no.? They looked at the % distribution for each income range reported by the Census bureau and compared it to an OPINION POLL (e.g. 1% considered themselves upper class, 7% lower class, etc.) Based on these differences the upper limit of $250k was calculated.
    If you read the article in detail, you should note that they have a wide income range for defining middle class ($38k-$250k).
    I think this is the most important quote we should take away from the article….
    “What constitutes middle class is relative, subjective, and not easily defined. The midpoint in the distribution is the median and in 2005 median household income was $46,326.”
    Let’s not confuse $250k with the true median.

  81. Saying $250K/yr is middle class is completely ridiculous. Just look at the demographic info for the bay area, one of the wealthiest regions in the country. The most exclusive areas like Portola Valley and Hillsborough are barely pushing $200K for the median. Palo Alto is about $120K. It might not seem like $200K/yr is a whole lot when a decent house in a nice neighborhood is $1.5M, but that is because we are in the middle of the biggest financial bubble in the history of the world (to quote The Economist). Five years from now $200K will seem like a lot more money.

  82. i really don’t care about the rest of the world. i found the article so interesting since i live in the city and make that much money and it sure seems like i am still middle class. that’s all. 250k and still middle class. it’s amazing!
    we are becoming nyc. my friends joke there that you have people who make 100 million a year and then everyone else, just trying to survive. that’s exactly where san francisco is going.

  83. Why do you feel that you are middle class? Because you can’t afford a nice place in Pac Heights? My fiance and I combine to ~250K and I can say that we manage to live a lifestyle that I would definitely consider above middle class and still save thousands of dollars a month.
    What makes you feel middle class, other than real estate?

  84. what makes you think you aren’t middle class sw? do you own or rent? do you own or lease your car(s)? how many vacations do you take a year? how long? how old are your car(s)?

  85. I don’t want to make this a pissing match. “Middle class” means different things to different people. If you go purely on a monetary definition, I believe I am above middle class because my household income is higher than ~90% of the people around me. Some people consider class more of a cultural thing and those people would definitely consider me to be middle class. I grew up in a blue-collar, low-middle income family and some of my mannerisms and beliefs reflect that upbringing.
    My point was that at $250K a year, you can live very comfortably around here. One could certainly afford to drive a new Lexus, dress nicely, eat well, rent a nice place and take a couple of nice vacations every year. Hell, you could do all that and still afford to buy a pretty nice (although small) condo in South Beach or Noe.
    I think the mistake you are making is over estimating the lifestyle of middle income folk that aren’t up to their eyes in debt. Someone making the median of 70K and actually budgeting for savings and retirement simply can’t do most of the stuff I listed above. The thing is, it doesn’t seem that most middle income earners are actually saving. They go more and more into debt every year trying to live a lifestyle they can’t really afford.

  86. James – It sounds like you are confusing the 3 sentence Southwest article’s upper limit of $250k with median. Read the original research paper. What the congressional research report defines as middle class was based on survey. Perhaps it is YOUR opinion that middle class is $250k. But as the researchers said themselves, the definition is very subjective.

  87. agreed anon and sw. i think you are middle class by the way until you can afford to donate 10% of your salary to charity.

  88. Regarding “Middle Class”. I make around $200,000 a year BUT because I am a little older and my home is already paid for I am living O.K., the funny thing is I am not living nearly as well as I was living 15 years ago. Insurance, utilities, taxes, fuel costs, food have all gone sky high and we actually decided not to take the kind of vacation we used to last year to “save money” as I try to put 20% a year away for retirement. If I am having to watch how I spend my money, I cannot imagine what someone starting out in the Bay Area is going through? I remember when you could get a 1 bedroom apt. in a better neighborhood in the city and own a car all from only working as a waiter while in school. Those days are long gone around here.

  89. anoldtimer – I have an apartment in the Marina, with a car and parking spot, and am going to school with only my salary as a waiter. Not sure why you think those days are “long gone”.
    Costs to buy housing have cruised upward in the past decade faster than wages – but costs to rent? Not so much. I make twice as much here as a waiter than I did in San Jose – and rent is almost as much down there!

  90. Hmmmm, what exactly are you paying? I own a couple of income properties in the city and maybe I am charging too much for rents? A one bedroom with parking in the Marina in a property I have would be about $2100 a month.
    Still your point is valid, for that could be done on a good waiter salary. In fact, one of my tenants works at Boulevard and does very well imho.

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