Listed at $899,000 three weeks ago, 525 Gough #203 first sold in June of 2005 for $849,000. A sale at the current asking would represent an average annual appreciation of 2.7% over the past two years for this contemporary condo in the Hayes Valley (with Citizen Cake across the street and Blue Bottle just down the block). Yes, it’s just one more apple. And yes, we promise to keep you posted (and plugged in).
∙ Listing: 525 Gough #203 (3/2) – $899,000 [MLS]
∙ More Apples In Hayes Valley (525 Gough) [SocketSite]
I don’t think this exercise is that useful, although I have been guilty of doing it myself… Given the number of sellers who play tricks with asking prices, it’s possible that this thing sells in two weeks with five offers over asking. Or, they could have just way overpaid two years ago. We won’t know until after it sells. That comparison will be useful but this one is not. Now, are we in a different world than we were in two years ago? No question. Back then, you just added 20% every year and somebody paid it. Those days are behind us.
In other words, with the commission and inflation, a decline in value and a money loser.
Maybe the owner is selling for personal reasons, before the property has appreciated enough for a profit.
I just went out onto the E-trade web site to run the mortgage numbers on this, and assuming a buyer can come up with 20% down, monthly P&I on a 30 year fixed mortgage is going to be $5089. (1.75 points) 5 Year I/O monthly payment will be $4568. (2.25 points)
Ouch! Unless interest rates decline this condo will be lucky to sell for the original June 2005 purchase price. The seller is not being realistic. If you really have to sell, and your in a financial position to do so, take the hit and move on.
I don’t mean to be all doom and gloom, but he better hope for a fast sale before the $1 trillion reset tsunami hits in Oct.
Because once that wave comes ashore everyone is going to be running for the high ground as financial institution’s, hedge funds, credit markets, and many home owner’s are dragged out to sea.
You could also see Oct as the event horizon of a financial singularity. A point at which all known models break down and predicting events beyond that point is impossible.
I know this is all a ‘bit’ of hyperbole, but if you feel things are deteriorating and painful now well … in a few months it is going to be a whole lot worse (just in time for the holiday shopping season)
let’s just hope we don’t have another black Monday in october.
I found the NAR forecast today to be pretty interesting:
============
Despite the continued drop, NAR’s senior economist, Lawrence Yun called the results, “encouraging.” 97 of the 149 metro areas surveyed recorded year-over-year price increases.
“Although home prices are relatively flat, more metro areas are showing price gains with general improvement since bottoming-out in the fourth quarter of 2006,” he said. “Recent mortgage disruptions will hold back sales temporarily, but the fundamental momentum clearly suggests stabilizing price trends in many local markets.”
Looking ahead, Yun’s forecast is one of the most optimistic among economists. He predicts home prices will turn slightly positive again by spring of 2008 and rise about 2 percent that year. He said prices will pick up more in 2009.
When has NAR ever been completely on target?
http://davidlereahwatch.blogspot.com/
I wouldn’t even try selling anything now unless I HAD to.. Why not try turning this into a rental instead?
Ahhh … FunYun is always good for a laugh.
I stand by what I said. After Oct 2007 there is no financial model (that I am aware of) to predict what will happen.
The tsunami of resets is an unprecedented event. The impact on the housing market, the credit market, consumer spending (2/3rds of the economy) are all unknowns.
This isn’t the end of the downside, it isn’t even the middle, it is just the beginning.
“Maybe the owner is selling for personal reasons, before the property has appreciated enough for a profit.”
There is an implicit and not-very-hidden assumption in gdw’s posting that could cost him and others who act on the basis of the same implicit assumption a lot of money….
“There is an implicit and not-very-hidden assumption in gfw’s posting that could cost him and others who act on the basis of the same implicit assumption a lot of money….”
You’re right that condo prices are going to be flat or fall in the short run (and that, therefore, following an assumption of rising prices in the short run would cost you a lot of money). Despite the current market, however, there is no indication that long term real estate prices won’t appreciate over, say, an 8+ year period.
So, just to clarify my post, perhaps the owner was planning to camp out in this condo for a long enough period of time to make money on the property, but that something interrupted those plans.
“… but that something interrupted those plans.”
Yes. His 2/28 ARM reset in June.
It is not cost-free to just “wait it out” until home prices eventually climb back up. I agree that in some future period, home prices will climb to levels even above those in ’05 and ’06 at the recent peak, at least in non-inflation-adjusted terms. In the early ’90s, I think it took about 7 years to reach the peak levels again. But it costs a lot of money to just sit on an asset for years and years. First, the owner has to continue to make sizable mortgage, property tax, and HO insurance payments. Second, there are inevitable maintenance costs. All these costs are avoided by selling now rather than sitting on it. Lastly, assuming the owner has any equity after a sale, he/she loses the investment value in that sum by not selling.
This owner is likely making a smart financial move by cutting his/her losses now, even if this sale ends up being for less than the purchase price (I have no idea about the specific numbers on this seller, so am just using reasonable assumptions). Those who think you’re always better off waiting for years until prices rebound are neglecting to factor in all the costs of waiting.
“Yes. His 2/28 ARM reset in June.”
More than likely. lol.
It’ll be interesting to see how many homes in SF will be affected by the resets. According to Dataquick 6000 homes and condos were sold in SF in 2006 (unless I’m reading the data wrong). If this is an average, we are looking at, what, 18,000 + SFHs and condos sold in the last 3 years? I wonder what percentage of these properties will come back on the market?
“I don’t mean to be all doom and gloom, but he better hope for a fast sale before the $1 trillion reset tsunami hits in Oct.”
. . . and then again, the “reset tsunami” could turn out to be a Y2K-like non-event. Surely some substantial number of people holding those mortgages won’t be blind-sided by the reset payment. I have two ARM’s (and a 30-year fixed) with resets years away but I can tell you when they reset and what the worst case scenario looks like.
Some of the October and beyond reset properties are on the market today; others are held by people who planned for the low initial rate followed by a reset and are prepared to make the higher payments. Still others are “owned” by the clueless that will make the mistake of listing shortly after the reset when they should probably hold on with all they’ve got until the tide goes out. But only time will tell acurately the relative size of these slices of the current population of ARM mortgage holders with near-term pending resets.
Don’t forget the additional many, many more existing homeowners who refinanced in recent years with ARMs. Tsunami may be overstating it, but there COULD be a flood of these places hitting the market when these ARMs reset. Then again, the Fed may step in and cut rates enough so that the resets aren’t so painful.
“Then again, the Fed may step in and cut rates enough so that the resets aren’t so painful”
The Fed does not set long term interest rates. There is nothing the Fed can do now. The market sets long term interest rates and will take care of the situation. Just watch the publicly traded mortgage lenders go out of business one by one. The last to fall will be home prices themselves – and fall they will.
Most ARM interest rates are tied to LIBOR-USD which the FED doesn’t directly control although it is highly correlated to the Fed Funds rate.
Anon 2:04, anyone’s mortgage that has transitioned from fixed rate to floating would be helped by lower interest rates. ARM rates are typically based on one-year treasury or LIBOR, and are _NOT_ related to long-term rates.
So lowering short-term interest rates has a huge impact to those people whose rates are reset annally.
With 25% down, I got a $750K IO 5-year ARM at 4.1% in early 2004. I’ve since made enough moolah to pay it all off. I’m currently arbitraging the money with 5.4% 1 year CDs. The house has increased in value by ~40% since then.
My reset in 2009 will be a non-event and the interest rate is capped to 9.1% anyway. Either I’ll pay it all off at once, or I’ll refi in the unlikely event that rates have somehow dropped again.
What I don’t know is how many of us planned ahead like this. From the get-go, I *knew* I was going to being able to pay at least half of this off so the IO was just hunky dorey for me. Anyone else in a similar situation?
Sorry I meant Doemos rather than anon 2:04 in the previous post
“With 25% down, I got a $750K IO 5-year ARM at 4.1% in early 2004. I’ve since made enough moolah to pay it all off. I’m currently arbitraging the money with 5.4% 1 year CDs. The house has increased in value by ~40% since then.”
Most likely your house will be worth in 2009 what you paid for it in 2004. So be careful about your 40% appreciation number.
I concur that 2009 prices should be roughly equivalent to 2005 prices after the correction, so i don’t think you can expect 40% appreciation
According to Case Schiller, an SF home purchased in early ’04 is worth about 27% more now, not 40% more (and we don’t yet have any numbers to reflect the current maelstrom). That is great that you planned ahead and will not get hurt by any downturn. But don’t count on any equity that is likely not there now and is quite likely to further erode.
regarding the Gough condo, who in their rgiht mind is going to pay 900K for a condo within 1 block of housing projects. I mean, this is western addition.
I thought it was interesting the way this place was described “contemporary condo in the Hayes Valley (with Citizen Cake across the street and Blue Bottle just down the block”
I would have descibed it differently. “sanitized condo in Western addition, 1 block from housing projects, 2 blocks from Jefferson Square park (largest homeless park in SF), and 3 blocks from the Tenderloin
“According to Case Schiller, an SF home purchased in early ’04 is worth about 27% more now, not 40% more (and we don’t yet have any numbers to reflect the current maelstrom). That is great that you planned ahead and will not get hurt by any downturn. But don’t count on any equity that is likely not there now and is quite likely to further erode.”
I know I’m not going to rely on short term market performance to predict the future. The situation right now is insane. I brought my planning up not so much to brag, but rather to provide a datapoint about the kind of person with an IO ARM destined to reset. The souls in the SFGate article weren’t putting 20% down when the financing went belly up. I would have been far more concerned if they were. If the Jumbo holders are like me, then we’re all panicking over nothing. If they’re a pack of Casey Serin clones, head for the hills.
For the current situation may be even more insane than we already know. The rumor I heard recently is that foreclosure sales are going for $50-$100K below asking, but the sales prices are not getting reported at all so as to help keep the music playing long enough for the banks to dump their inventory. I gather that this is illegal.
As for the long-term value of my house. Well, you’d have to see the place, it’s, um, quite a uniquely desirable house. I still get letters from people (not realtors. I get those every week or two) offering to buy it from me every month or so and until that behavior disappears, just remember that all real estate is local. And no, I’m not selling it any time soon unless I decide to punt and move to Portland or somewhere far, far from here.
For the short term, I’m with the guy that suggested that October is kind of like an event horizon. It’s more or less impossible to predict what comes next. I can construct all sorts of scenarios of all colors by the end of 2008. I have little confidence in any of them. It all comes down to what kind of people are holding these loans.
“According to Case Schiller, an SF home purchased in early ’04 is worth about 27% more now, not 40% more”
Thought I read that the avg annual appreciation of a place in SF is app 4%/year (over a long period, something like 50+ years). Doing the math here, the 27% gain cited above is not THAT FAR out of whack with what it should be, in historical terms anyway.
Strictly from a SF perspective, the 2/28 and 3/27 mortgages resetting over the nexr year is a non-event. Jumbo loans of that vintage typically had a 5, 7 or 10 year fixed period, which covers over 80% of SF properties.
From a regional and national perspective, yeah, there will be considerable hurt which will trickle down to SF. I think the Credit Suisse report that everyone is citing as gospel tracked only loan originations, and did not deduct out for refi’s during the period. If so, it won’t be quite as grim as the forecasts.
I recently sold my home for about 35% more than what I paid for it in 03. That, I assume, represents roughly 8% appreciation per year. It’s also in an A location. Things are obviously quite different now than they were two weeks ago, still, just another data point.
“It’s more or less impossible to predict what comes next. I can construct all sorts of scenarios of all colors by the end of 2008.”
It is very much possible to predict what is going to happen: just look at the charts. There is no reason – none whatsoever – why an asset that appreciated by 20% annually over an extended period of several years cannot also fall significantly. That is common sense 101 and does not require a PhD in economics. The only question was: when will the unraveling begin? And that question is now answered.
“It is very much possible to predict what is going to happen: just look at the charts. There is no reason – none whatsoever – why an asset that appreciated by 20% annually over an extended period of several years cannot also fall significantly. That is common sense 101 and does not require a PhD in economics. The only question was: when will the unraveling begin? And that question is now answered.”
It’s still cheaper by far than Europe around here. We could go either way in the long-term. A prediction is just that. There are too many ingredients in this big messy recipe to figure out what the pie will ultimately taste like.
But I do agree that 20% appreciation can’t go on forever. Where I disagree is that I don’t know if prices will plummet (unlikely more than 10-15% IMO) or a different supply of buyers (namely foreign speculators) will enter the game once prices drop a bit.
I’m sitting this one out – I like my home – the only way I’ll get back in the game is if the dramatic plunge actually happens and then I’ll pick up a rental that’s either new enough to not be subject to rent control or out on the peninsula where they don’t do silly sh!+ like that.
What is this obsession with comparison to European cities? We are not like London, Paris, or Moscow. Have you been to any of these cities?
“What is this obsession with comparison to European cities? We are not like London, Paris, or Moscow. Have you been to any of these cities?”
2 out of 3, yes, and I love London and Paris. I also love SF. Is that a problem? I imagine I’d dig NYC and Chicago just as much if I spent more time there, but if I had to pick a climate, San Francisco wins, fog and all.
On a rumor specifically related to 525 Gough St., I have heard that this place is besieged by poor construction. I have heard a lawsuit may be forthcoming. I would check with other owners before buying, that is for sure. Here is a review of 525 Gough from 1/30/2007 (from insiderpages.com I think but you can find it easily with Google):
“I am not sure whether Brown and Company was venturing into uncharted territory joint developing a project with JPS builders but the results have been a disaster. I am one of 21 owners in a new construction project that Brown and Co oversaw that is at their wits end. The M.O. seemed to be to get the buyer to say yes, sign on the dotted line, and Tim Brown will never speak to you again. It is a year and half after all units have settled and to this day we are still waiting for the facade of the building to be completed, occupancy permits to be granted, and issues with poor construction to be resolved. Tim Brown and John Sullivan who reaped the profits of this project are unreachable at all times and do not return phone calls. They have set their employees up to effectively establish a perimeter in which the 2 people with authority to fix problems are never available. It is evident that they used the cheapest sub-contractors available when constructing the property and the work reflects this. To this day when there is a issue resulting from poor construction the contractors employed by Brown refuse to come back and complete a job. This results in another sub-par crew being hired. My advise would be to avoid business with Tim Brown and Brown & Company along with JPS Builders. If you need more reasons than those above I am sure I can provide 20 others (occupants of this project) to back my opinions. Unless of course you are a seller and by all means they will get the job done.”
“. . . and then again, the “reset tsunami” could turn out to be a Y2K-like non-event.”
For everyone who’s too ignorant to know, the y2k “non-event” took thousands of people *years* to fix. (Many fix-it projects started in 1996!) And that’s with an engineering problem, where pretty much all the variables are known.
This, on the other hand, is a problem that falls squarely into the voodoo realm of economics. So, yeah, might be nothing. Or, as is much more likely, this might come to be the sort of thing that my grandparents used to talk about. I’m putting my money into betting on the latter.