“Many analysts have fingered easy lending as a contributor to the housing boom, but the Atlanta Fed paper may be the first to quantify its effect in a rigorous way. Using math-heavy econometric analysis, the authors conclude that the availability of new kinds of mortgages, mainly ones with low down payments, accounted for 56% to 70% of the decade-long increase in the U.S. homeownership rate, while demographic changes accounted for only 16% to 31% of the effect.” (A Troubled ‘Ownership Society’)

26 thoughts on “JustQuotes: Delving Into The Drivers Of Demand (Part I)”
  1. Weren’t these mortgage products supposed to make homeownership more affordable? Ken Harney said so, so it must have been true.

  2. Those are sobering findings for anybody in San Francisco who was convinced that it was wealthy baby boomers and immigrants that were responsible for driving up local demand rather than the availability of easy money. What happens if lenders continue to tighten lending standards?

  3. @SFSal:
    Right on-point. Figures published by Economy.com show employment in the San Francisco Metropolitan Area to be 978,000 as of 04/2007 vs. 1,082,100 in 2000. The office space occupancy stats that I’m looking at tell a similar story…office jobs lost from 2001-2003 were barely recovered from 2004-2007. Economy.com figures report the San Francisco Metro Area population at 1.73MM in 2000 and 1.71MM in 2007. Meanwhile, mortgage originations in the SF metro area increased from $17.9BB (2000) to their peak level of $73.3BB (2004) and their recent level of $37.6BB (2006).
    It paints a pretty inconsistent picture. What I’d like to know is how to quantify the effect on price…

  4. To continue the previous post…the price index for existing homes published quarterly by the Northern California Real Estate Report shows total appreciation of 60.5% from 2000-2006. Some percentage of that could be said to be attributable to mickey-mouse financing. Half?

  5. o, shudder! To think of all the crazy 20 percent down 30 year fixed loans these lunatics are getting around here now that lending practices have tightened somewhat. NUTS! Nuts I tell ya.

  6. Now how is the above relevant (fluj) to the discussion? Unless you can provide hard numbers to back up your statement, please refrain from making these comments. [Removed by Editor]

  7. Every listing agent is asking to see those type of loans on offer sheets these days. So, consequently, that’s what people are offering.
    [Removed by Editor]

  8. fluj – Your comments are hilarious! You do realize that they make you look very juvenile.
    ps. I have no landlord. 🙂 Again…you are speaking without knowing the true facts.

  9. How are insults such as at 7:42pm helpful? SFAnalyst posts some interesting figures, which I checked out and are correct, and what do we get? Insults. Fluj, as was posted earlier, either provide some numbers to back up your rants or at least try to be civil. Here is an example of someone who instead of being nasty, tried to contribute to the conversation…
    “Economy.com figures report the San Francisco Metro Area population at 1.73MM in 2000 and 1.71MM in 2007. Meanwhile, mortgage originations in the SF metro area increased from $17.9BB (2000) to their peak level of $73.3BB (2004) and their recent level of $37.6BB (2006).” (Thanks SFAnalyst btw)

  10. Sorry. The only way I can deal with all this macro applied to micro stuff is with humor. FAnnie Mae, Freddie Mac, new home construction –none of these things are particularly relevant to this marketplace. And they are the gist of the article.

  11. fluj – what you posted was not humorous, but rather, immature and offensive. Thank you Socketsite editor for removing it.

  12. fluj is classic SF denial, managing to redefine SF real estate into smaller micro climate markets as the bad news extends. Now, what happens in Mac, Mae and new home construction doesn’t apply here. We’re all flush with cash, looking only for old Victorians and Tudors.

  13. o, shudder! To think of all the crazy 20 percent down 30 year fixed loans these lunatics are getting around here now that lending practices have tightened somewhat.
    Every listing agent is asking to see those type of loans on offer sheets these days.

    Isn’t the point of the article that for the last several years people were not putting 20% down and getting 30yr fixed mortgages.
    Wasn’t the over use of ‘affordability products’ offered by mortgage brokers (not banks) who had a financial incentive to put people into more and more exotic loan packages, the lack of scrutiny of the loans by banks, and the selling of these mortgages on the secondary market to fuel more bad loans that caused the run up in prices?
    Please, let’s us return the Bay Area to the days of 20% down and 30 yr fixed mortgages.
    Of course we are just now seeing the effects of the credit crunch in the Data Quick numbers and it appears that the return to more traditional lending standards is having a material negative impact on ALL housing markets in California.

  14. You can’t even use Mac or Mae on TICs around here, and you haven’t been for some time. We don’t build new houses in this town. We build condos. Ugh.

  15. So, when is the stuff gonna hit the fan? Now all of you are saying oh-nine. Please. You only get to be wrong for three years and then, really, you’re the boy crying wolf. Aren’t you? Fannnie Mae and Freddie Mac. You could barely use conforming to buy a house in Bayview in ’03. No. You all grasp at millions of macro straws, and that’s what the discourse is around here.

  16. fluj, not sure if I understand your thesis here.
    Obviously home prices in many parts of the nation are falling dramatically. Also falling in most parts of California, including outer areas of San Francisco. We’ve established that.
    But your expert assertion is that home prices in northern San Francisco will not fall and will continue to rise through all of this. Is that correct?

  17. “continue to rise” — um, no. Once again, stop putting words in my mouth.
    Thesis — LOL. You guys really do fancy yourselves to be economic theorists on here.

  18. Oh, and by the way, I am a professional. None of you people are. But feel free to discount all my “anecdotal” (a k a actual experiences) with macro-straws while telling me not to speak and polite comments of that nature. And keep the spin coming. You know, new homes, Freddie Mac, Fannie Mae, all these oh so relevant factors to the SF marketplace.

  19. speaking of putting words in people’s mouths …

    Now all of you are saying oh-nine.
    You all grasp at millions of macro straws

  20. I’m not putting words in anyone’s mouth, I was asking a question. Just trying to determine what your point is, that’s all.
    So are you saying that policies at the GSEs, new home sales numbers, and stats for the greater California/Bay Area market have no impact on San Francisco? Again, just asking a clarifying question.

  21. @fluj 9:58 a.m.
    I believe the original post was about what creates demand. One of those things is non-traditional financing. The signs of an overheated market have been evident throughout California for several years now. Clearly, “things don’t matter until they matter”.
    The question is how the economic factors causing already visible effects in places like Sacramento and Stockton/Tracy will affect home prices in places like San Francisco and Marin. History suggests that we’re not all that “special” here.
    BTW, I don’t hold any claim to knowing what will happen, despite having earned a living in a real estate related profession in San Francisco for 17 years. Contrary to your comment, several other participants in this blog either participate in local real estate markets or observe them on a full-time basis. I am not questioning the validity of your opinions but you seem less willing than other commenters here to acknowledge other possibilities.
    Just saying…

  22. No, I’m more than willing to listen to intellingent discourse, and more than willing to concede well presented points. What I don’t go for is, “So you think prices are going to continue to climb, huh? Shut it.” And let’s face it, that article was not relevant to the SF marketplace.
    Because I never said that. I think we’re going to plateau and perhaps take a small hit. That’s what I think. But it is not happening yet.
    I also find it disingenuous that a number of posters here discount actual transactions and events while simultaneously taking empirical data as gospel trend indicators for a micro-market. What % of your clients put 20% down and stuff like that: ALL OF THEM. Everyone is writing offers like that right now, and it’s still competitive, and it’s people with large sums of money who are winning out right now.
    Bears on here think that us “bulls” can’t see the wood for the trees. Yet they take Atlanta articles which reference new homes (we don’t build them here), Fannie Mae (worthless for purchases in much of California, and Freddie Mac (ditto) as some sort of indicator. No.

  23. Thanks for clarifying – that’s all I was asking.
    For the record, the research was done by the Atlanta Fed, but was based on U.S. stats, not just Atlanta stats. The point made was that exotic financing allowed more people to buy property than before, driving prices up beyond fundamentals. I don’t question that current buyers are using 20% down amortizing loans. But exotic financing was prevalent in San Francisco for many years. In that respect, the article is relevant to our local market.

  24. Dude,
    I suspect that a lot of the new condo product sold in SOMA during the last several years involved something other than 20% down, 30-year fixed. And probably a lot of the multi-family units sold in the NOCA submarkets too.
    The residential downturn of the early-90s may serve as a template for what might happen. Recall that it was caused by a basic recession, as well as some out-migration from the Bay Area. There had been no extended rapid run-up in prices.
    The Northern California Real Estate Report time series data for existing home prices reports an average of $349,542 in San Francisco during 1990. The low point in San Francisco was reached in 1995 at $333,299 (down 4.6% from 1990). By 1997, prices in The City recovered to $349,087 (99.9% of the 1990 value).
    In contrast, the average price in the 9-county Bay Area was $252,239 in 1990. By 1995, it had increased to $264,328 (up 4.8% from 1990). The average sale price in 1997 was $282,749 (up 12.1%) from 1990.
    This surprised me, and it may surprise others to see that San Francisco held-up less well than the Bay Area overall from 1990 to 1997. From 1990 to 1995, only two other counties saw decreasing average prices of existing homes (Solano and Napa).

  25. Upon further reflection, I have to question the numbers that I quoted in my 5:02 comment. My recollection of the time was much larger price declines and a fair amount of foreclosure activity.
    Maybe those figures are reliable but I’m not sure.

Leave a Reply

Your email address will not be published. Required fields are marked *