According to the San Francisco Association of Realtors (and via the SFCAHomes Blog), sales volume for listed single-family homes in San Francisco was down 27.9% on a year-over-year basis in December.
The largest declines in sales (not “prices”) occurred in districts 9 (down 62.5%), 5 (down 50%), and 4 (down 27.8%). The much maligned district 10 was down 11.9%. And only district 7 recorded an increase in sales activity: up 100% (from 3 to 6 sales).
And before anybody starts touting increases in median sales price as proof of appreciation, do keep in mind that the “median selling price” in district 7 increased from $1,850,000 in December of 2006 to $4,005,000 in December of 2007 (an increase of 116%). Nope, there’s definitely no “mix” in these numbers.
∙ Single Family Homes Market Wrap December 2007 San Francisco [SFCAHomes Blog]
The next six months are going to be very tough for potential buyers who’ve exerted patience and discipline to stay out of the housing bubble. Prices are starting to look enticing, but there’s still a lot more downside here, it seems.
Is this report for SFHs or condos? The report itself says condos.
[Editor’s Note: Although the SFCAHomes report is titled “Condominium Sales,” the data is actually for single-family homes.]
I agree (as has been hashed out many times here) that the median figures are pretty meaningless. For those who want to read anything into them, the numbers I’ve seen show that for SF SFRs in December the median sales price was $797k — way down. But there is something in the numbers for just about anyone to assert just about any position on the trends.
Gosh, Foolio just hit the nail right on the head for me. I’ve been looking at a few condos and have found one that I really like, and I’m actually thinking about writing an offer. BUT … at the same time, I can’t help but think … well, what if I can get it for even less in a few months? Yeah, there’s a serious hole burning in my pocket, and it IS getting harder and harder for me to wait.
SO … all you SocketSite checkers, readers, analysts, fence sitters: What do you think? Should I bite the bullet and go for it? Or … wait some more? 🙂
One often overlooked fact about District 10 is that one could buy a home in District 10 for 100 to 120K seven or eight years ago. By 2005-2006, it got all the way up to like 550K+ to get in. So yeah, of all the parts of the city it actually saw the most appreciation, to the tune of 600% at times. A precipitous 100 to 150K dropoff is occurring there. But compared to 99K or 120K for a home? We’re still talking about a 400 % increase.
And by the way, 3 versus 6? 13 versus 26? What happened to the subset needing to be 30 or higher in order to be valid? Oh yeah it’s socketsite logic.
(-) + (-) + (-) = trend
(+) + (+) + (+) = three anecdotes
Last, District 5 had 15 sales according to the MLS. Look for that to increase a bit as agents get around to updating. And I know of at least two others that aren’t in the MLS yet, and there appears to be about three or four overdue pendings.
so what you are saying is that to buy in district 10 in 2005 was an extremely bad idea, and now it is just a very bad idea?
S&S it all depends on your objectives. I have always gone for a home (accent on home, not on investment) I want to live in–one that has the attributes I need and the location I want to be in, not for whether it will be more expensive or cheaper in six or 12 months. So if you are in this kind of mindset, and have found the right condo for you it seems to me the best thing to do is make the offer. You could be looking six months from now and kicking yourself for not having bought the condo you really wanted. He who hesitates is lost … or at least in a fog.
No. That would be, er, what YOU are saying. I showed numbers. It was you who derived a conclusion.
I’m not saying that at all. Look at what’s happening in Bayview. The city wants it to gentrify, badly. Does anyone believe that buying there for a longterm hold (think 10 years) would be a losing proposition? All I’m saying that the calamitous dropoff was preceeded by an even larger runup that was unprecedented anywhere else. Maybe even in the country? 120K to 600K, in six or seven years?
Last, District 5 had 15 sales according to the MLS. Look for that to increase a bit as agents get around to updating. And I know of at least two others that aren’t in the MLS yet, and there appears to be about three or four overdue pendings.
This is the problem with the MLS in my opinion. It is simply not accurate enough. There are many homes for sale not on the MLS, some that I feel are misrepresented (like “new” listings, DOM, etc). The agents often play games with the MLS for various purposes.
The MLS is owned by the real estate profession, so they have the right to do whatever they want with it.
but I wish there were a place where one could see ALL listings, ALL sales in an accurate manner.
Fluj:
I agree partially with you that many (not all) posters currently use this formula:
(-) + (-) + (-) = trend
(+) + (+) + (+) = three anecdotes
However, you obviously know that Real Estate (and many financial markets) is 1 part economic, many parts emotional.
The psychology of buyers is clearly changing.
Up until early 2007, all I heard was “SF Real Estate can’t go down”. And the formula used was the mirror of the one you presented.
Over the last year, psychology is changing.
The numbers out of SoCal are horrible. If I recall, San Diego is down 15% in just a year. Imagine that… that’s around $75,000 loss in just a year.
SF is special, but how much more special than San Diego? SD is a beautiful city with PERFECT weather. a worldwide destination.. etc.
After a while, people start hearing “stories” of people losing money. This changes the equation in terms of buying.
Up until last year, people seemed to be willing to pay 2-3x what they pay in rent in order to “own” and they put themselves at serious financial risk to do so (e.g. buy at 10x annual income). The rationale was that RE only goes up, so there is no risk. Are those days still with us?
Your argument is essentially accurate… it’s not “fair” that a bunch of negative stories is called a trend, when a bunch of positive stories are dismissed as anecdotal. But there’s a reason for that IMO.
ex-SFer, I agree with you 100 percent. There has been a shift in perception and that’s got to be what’s fueling a lot of this. I agree, other than your point about San Diego being a beautiful city. It’s sort of an ugly city in a beautiful region.
@ex-SFer
“but I wish there were a place where one could see ALL listings, ALL sales in an accurate manner.”
Even so, there still wouldn’t be a standard for square footage or a record for the contingencies, hold backs or other factors modifying the recorded “sale price”.
S&S, if you are going to be there for a long time and this is THE perfect place, go for it. How do you know the same property will even be on the market in the next 12 months?
Anyway, December numbers are pretty meaningless. I’m waiting to see Feb and Mar.
“Does anyone believe that buying there [Bayview] for a longterm hold (think 10 years) would be a losing proposition?”
Fluj, I can’t answer that and neither can anyone. But I can say this would be an extremely risky move. As you note, prices in that area have gone to bubble levels in spades and they very well could fall by half again over the next 2-3 years. That would then require a repeat of the last decade’s enormous run-up to keep the purchase from becoming a losing proposition. You may be right, but a buyer today would be equally likely 10 years from now to be sitting on property that is still worth less than today’s inflated prices. Trying to time the market may be a fool’s errand, but buying at what is broadly recognized to be a peak (or not far from it yet) is more a leap of faith than a sound financial move.
S&S, the product available now is much better than it used to be so even if you had the money before, you still could not find the product that justified the expense, in most cases. That does not mean that it is great now. If you have found something that you really like and would like to live in it, then by all means write an offer. Maybe reduce what you were thinking by 10% and see if that is accepted, it can’t hurt. And you may end up with a home that you will be happy with and still feel like you got a good deal for the market at that time. Good luck!
S&S,
I say go for it.
The price of the home should be less of a concern than making your payments. Because once you buy it, the market value matters little, but making your payments means everything.
Trip, it’s no longer peak. Far from it. Bayview is down 20 % from peak. And it’s firmly in the path of city initiative. For a certain type of buyer, say, a 1031 exchanger who plans on a longterm hold, I would probably include a 3rd street corridor Bayview apartment building in a list of SF R.E. investment options.
S&S, I am in the same boat. I even went by a house last night that was recently listed in my car and sat there thinking about it. But, in reading all of the news coming out this morning I have decided to postpone any real estate purchases for another 5 months. I just don’t think we are anywhere near the bottom yet.
So besides the MLS and Sylvain’s car, where else are we to find houses being listed?
S&S:
here’s what I did (not saying “I’m a genius” only this worked for me)
I calculated what it would cost to rent the EXACT home I wanted to live in, or BUY the same home. (I figured in taxes and all that)
Initially, my home cost a lot more to buy than to rent (this was during the late 90’s tech bubble time). SO I rented a place that I LOVED.
Then the tech bubble burst, and I found that cost to own came down significantly, but rents didn’t move too much. Thus, suddenly it was very close in monthly costs to buy vs rent (on 30 year fixed) so I bought. (again a house I loved)
For me, it locked in my “rent” (now mortgage payments) for 30 years not including tax and insurance costs…
Too many people choose between buying a pretty nice house for tons of money or renting a horrible apartment. Why live poorly just because you rent? Doing this makes you miserable, so you want to buy just to get out of a hellish apartment! That doesn’t make any sense! Instead, rent a great place, that way you’re not in a rush to buy.
If you find that you’re spending 2-3x monthly costs to buy vs to rent the SAME place… then simply rent. And then when rents start rising or buying starts getting cheaper then you can “lock in” your monthly payments.
Obviously, there is no reason to stretch. I would recommend maximum 3x annual salary, or perhaps about 38% of take home pay, DEPENDING ON YOUR OTHER FINANCIAL GOALS. (kids, private school, college, marriage, husband/wife at home, etc)
If you have to “stretch” to get in, then perhaps you really can’t afford to buy.
For those of you who say “yeah, but I hate the transience of renting”… try to find a place where you can get a longer term lease. I know people who have signed 3-5 year lease contracts. who needs more stability than that?
all my opinion of course.
“A precipitous 100 to 150K dropoff is occurring there. But compared to 99K or 120K for a home? We’re still talking about a 400 % increase.”
Indeed. And this is why I suspect that areas like this are in for further significant price decreases over the next one to two years.
“Nope, there’s definitely no “mix” in these numbers.
Here we go with mix again, and nothing but anecdotal supporting data. That $4M sale price was for one district… and one that obviously didn’t have many units that sold. Does it really impact the city total that much? How do we know that “mix” wasn’t negatively impacting the other districts bringing the median price down?
The mix argument has been going on for a year now, and it’s all conjecture at this point. At what point, does mix start working the other way? It seems like it would have already happened with the loss of easy money.
S&S,
Well, you asked for advice, so you’re getting it. A lot of folks seem quite willing to spend your money… 😉
My 2 cents, for what it’s worth: Don’t try to time the bottom, because it’s hard, and you’ll probably get it wrong. Time the 15% rise *after* we hit the bottom. And no, IMO, we’re not anywhere close to that. Wait for the prices and mania to start up again, that’s when you’ll know we’re through the woods.
Foolio : How can one tell the difference between a 15% rise after the absolute bottom was hit from a 15% dead cat bounce ?
“ex SF-er” says SF is special, but how much more special than San Diego? SD is a beautiful city with PERFECT weather.
What evidence is there that good weather contributes to choice of location? Does good weather explain New York City? DC? Chicago? Boston? Freaking Toronto?! The San Francisco Bay Area is so packed with creatives and thinkers that it is like living in the social equivalent of a nuclear reaction chamber. By contrast San Diego is merely pretty–pretty vacant.
Has anyone actually been to the Bayview? I have worked here for 10 years.
In 2007, on my street alone, we had about 20 car windows smashed, two muggings, one stabbing, one car jacking, one prostitute using the back of a car as her bed, countless needles on the pavement,several people using the sidewalk as a toilet, at least 10 burnt out cars, and a steady stream of cracked out lunatics stumbling along the road mumbling and screaming.
Other than the stabbing none of these events warranted calling the police. They are part of everyday life in the Bayview.
$90K to $120K is a realistic price for the Bayview. Anything more is a result of cheap plentiful credit, speculation, and desperation about being priced out of SF completely.
Milkshake — you’re right that one cannot discern with absolute certainly the difference between the start of a recovery and a dead cat bounce. But I think Foolio’s advice is still sound. We are in uncharted territory here with prices going through a significant decline, and this is before the recession which is now (likely) just beginning. And that recession is largely spawned by the housing declines themselves and the resulting lending crunch (which is, of course, causing further declines)! It is impossible to predict how long and how far down prices will continue to fall in these unprecedented times. However, when we start to see things tick back up for a few straight months (maybe 6 months from now, maybe several years), the risk of further significant declines is much lower even if not zero. It’s much easier to say “looks like that was the bottom” than “looks like this is the bottom.”
So, Trip, by that logic if prices start to tick back up in SF this spring or summer can we say that for the most part there really was no appreciable downturn whatsoever? Minus a southeast areas?
Fluj,
Until prices come in line with fundamentals, there’s no market correction. You can call that “no appreciable downturn,” others call it a “bubble.”
I don’t think so — there already has been an appreciable downturn beyond the southeast area. But I agree that if prices are seen trending upward for several straight months this spring or summer (or later than that), then one might be able to say with some confidence that we’re coming off the bottom. The recent patterns certainly do not indicate we’re anywhere near seeing that, but I can’t predict the future.
About buying at the bottom. In the securities investing world, one signal that lots of investors like to see is increasing volumes of sales, with only slightly declining or stable prices. Usually a sign that the “strong hands” are accumulating. We’re nowhere near that point in housing.
@ S&S, here is some advice from someone who is used to leveraged investing/trading. Perhaps not completely applicable to housing decisions, but relevant.
First, try to get a feel for the underlying value to you. Rental equivalent is the measure here, but the multiple is up to you. FWIW, I think the multiple depends upon the desirability of the property as a place for you to LIVE for the NEXT 10 YEARS. For a condo-type unit in which I could not envision myself with my family for such a period of time, I would not pay more than 125 times the monthly equivalent rent. Period. For a NICE SFH, I would go as high as 250 times monthly equivalent rent. Don’t think about low interest rates, and all the other silliness that people talk about. Mortgages by design contain an embedded option allowing refinance. In high interest rate environments, prices are likely to be lower, but so is the value of that embedded option that you are being given through the mortgage. You have an option on the rate, in effect, but once you agree a price, you are locked in on the principal. Many people are discovering this right now.
Second, and last, quantify the potential downside. I would urge you to think carefully about what your financial life would look like (and your living arrangements) if the condo you buy today is worth 30% less in 10 YEARS. I’m not predicting that, I am just saying that that is the metric I would use. Many people will tell you that such a decline is impossible. It is VERY possible, although perhaps not probable.
If at the end of this admittedly hazy sort of valuation exercise, you think that the purchase makes sense, then by all means go for it!
I saw some figures for San Diego during the early ’90’s decline. Despite the fact that prices declined year over year for almost 5 years, prices actually increased each and every spring selling season, before declining to lower lows later in the year. Seasonality is another factor that makes calling a “bottom” extremely difficult for real estate cycles.
Satchel,
Interesting comments. But do you really mean to say that you think that the underlying value of a condo that rents for $3,000 per month is $375k? Wow.
Satchel,
I like the last part of your advice–evaluate the downside risk. As someone in his mid 30s–my peers and I have really only known huge Bull markets–especially in real estate. Many have not done a good risk analysis because the worst case scenario seemed implausible to them. Risk was not properly factored in when a lot of people my age leveraged themselves silly to buy a home.
In the last year we have finally started seeing people realize that they face huge, decades-long, life-time setbacks if their real estate investments go bad. I don’t know how many people this will eventually happen to but I think that most homeowners and potential buyers now are at least aware of this possibility.
I also think people will soon realize that the relative risk between owning and renting is way out of kilter right now. There is not much risk if you rent right now but there is huge risk if you own. If you rent, you “risk” the opportunity costs of a rapid appreciation in real estate (which is looking less and less likely) which you would lose out on as a renter. Another risk is that you may be forced to move at the end of your lease term. But, on the positive side, there is no risk of losing huge amounts of money as would happen if you leveraged the heck out of your income to buy a home.
In my mind, the relative safety of renting is the conservative, safe, way to to go–risk-wise. I think people will start to factor this in.
Just to follow up on the Hawk’s comments…one additional “risk” with owning is getting financially tied to a home that doesn’t fit with one’s future life/family.
Thanks, everyone, for your 2 cents. I’ve got a lot to think about.
Satchel, you make good points, and it’s the very possibility of the downside risk that has me dipping my toes in and out of the RE pool for the past several years. You are right about being locked into the principal once the price has been agreed upon.
I also like View lover’s idea of “reduce what you were thinking by 10% and see if that is accepted.” I was even thinking 15%. You can always work your way up, but you can never come back down. And it certainly can’t hurt. 🙂
I intend to occupy this second home (condo) for as long term and I could possibly “intend,” but who knows what life may bring, right?
I’m going to try to wait at least until the end of March, after the One Rincon closings (or not) to kind of gauge condo-buyer (perhaps local market) sentiment.
I love SocketSite and value the input from the posters here. There are a lot of very interesting and often intelligent input even though we don’t always all agree.
Thanks again, guys!
SFHawkguy, look at the numbers coming out of Wall Street these days. Failure to appreciate risk has been quite widespread . . .
I concede I’m more bearish than many on the state of things, but I saw lots of friends go through this in 1989-90 when we were just getting out of undergrad. They all bought houses at the last peak because “prices only go up; they’re not making any more land, etc.” In fact the only reason I didn’t was because my income was too uneven to qualify for a loan. It is true that about 8-9 years later, they all came out fine financially. But since prices plummeted around 1991 and then stayed low, they were stuck in not-so-great houses for all those years because they could not afford to take the loss, and they saw far nicer homes on the market for far less than they had paid a few years earlier. It was devastating — they had assumed they could trade up from the crummy 1 or 2 bedroom places soon enough but ended up stuck in them for a decade — it affected relationships, decisions about children, job decisions, etc.
This bubble is far more inflated than the one in the late ’80s. Unless you’re financially set so that you really won’t be affected if prices drop by 20% or more, why make the leap now when there are so many signs of continuing trouble all around?
OK, Trip. I’ll try to wait as long as I can. Just … all you Socket readers … tell me when the time is RIGHT, OK? 😉
Of course there’s no “risk” in renting. There’s also no potential for gain. “But I will invest my money elsewhere” doesn’t count as far as that goes. Not in a housing prism. Many homeowners can invest their money elsewhere too. They aren’t mutually exclusive.
That’s interesting Trip. I too am seeing some people I know go through the stress of being underwater on their real estate. And I think your experience will be repeated with some “late bloomers” actually timing their careers perfectly. 🙂 The difference between a young family buying their first home in 2005 will differ drastically from the family that did so in 2000 or 2010. For those that bought in 2005–some will be able to weather the financial and personal storm. They will not be in the poor house and will eventually be o.k. They may not be able to retire as early or buy a fancy car, etc. But a lot will not make it out o.k. A bunch will make a Herculean effort to weather the storm. In the end, some will not only lose their home and credit rating, but will be on the hook personally for huge amounts (and will not be able to discharge in BK–thanks to the new BK laws).
Fluj, with rents in most places almost 1/2 of the monthly cost of buying a house the argument that homeowners can invest too falls flat. Renters will have more to invest elsewhere. Where as homeowners lose big if housing depreciates. If the economy is in the dumps rent prices have a higher chance of going lower than a homeowner being able to refi to a lower mortgage, especially if the house is underwater.
Sure. Rich renters. What percentage of renters are rich?
Based purely upon housing I take your point. But also based purely within the prims of housing, rent is an absolute irrevecable loss month in and month out.
The point many make on here isn’t valid. That point is renters have more money for other investments. The simple fact, especially post lending shakeup, is that most homeowners just have more money.
Fluj,
You’re right, the converse of risk is reward. And no doubt, millions of people reaped huge rewards the last decade. I see it. But how much reward is there for a buyer right now? And I’m not talking about a professional real estate investor–I’m talking about the average person. The chances of a big reward look pretty slim to me. Especially now that we have just come off of what appears to be a huge bubble.
Haven’t you ratcheted down your estimation of the potential reward?
“But also based purely within the prims of housing, rent is an absolute irrevecable loss month in and month out.”
So is Mortgage interest if the mortgage payment is mostly interest and 2x rent. You literally dump the equivalent of the rent into the bank’s pockets and take on a huge risk.
Yeah, I made the point before that one should never bet on appreciation. Bet on living somewhere that you, and your family, will enjoy. I look for opportunities where value can be added. Those still exist in SF. The city is too full of small neglected houses for that well to ever completely dry up.
“The simple fact, especially post lending shakeup, is that most homeowners just have more money.”
I doubt this will be true in the coming years. Many if not homeowners will most likely lose all of their initial down payment, if not more.
With financial institutions still writing off billions from last years shake up and march 2008 is the peak of the subrpime resets, there are more write offs to come. More the losses the banks and lenders take the tighter lending becomes. House prices are determined by the borrowing capacity of the future buyer not the current owner.
Mortgage interest is tax deductible. This is going to be a cyclical argument so I’m stopping here. I have already written too much today anyway.
“The simple fact, especially post lending shakeup, is that most homeowners just have more money.”
Fluj, this is obviously true, but it tells us nothing and only obscures. We’re talking about people considering buying right now. S&S, in considering purchasing a home, is already part of the “more money” class.
By your quote, are you implying that homeowners have more money because they have homes? I’m sure not. It’s the opposite. They have homes because they have more money.
So, S&S is already in that camp. Now, from being in that camp, should he buy now or wait? He won’t have more money if he buys. He’ll have less. If he doesn’t, the money he would use as a down payment and the monthly savings he has from cheaper rent could be invested elsewhere.
So the point stands: If you’re considering buying, it makes a lot of sense to consider what else could be done with the money you save from not buying as part of your decision.
I don’t think you’d say, “people who have ferraris have more money, so go buy a ferrari,” so let’s not go there with a house either.
fluj,
Lets take an example here.
A 3+ bed 3 bath SFR in pacific heights rents for $9000. Laguna at sacramento ( search craigslist)
2170 Pacific is the closest comp I could find and is a condo with a HOA of $280. It is $3.5 mil.
Mortgage interest alone for 2.9mil (assumed 20% down) @ 6.46% ( 30 yr jumbo rate) is $15600. With the 1.1 mil limit for mortgage tax deductions you would be dumping down the drain more than the rent per month in interest payments alone.
What evidence is there that good weather contributes to choice of location? Does good weather explain New York City? DC? Chicago? Boston? Freaking Toronto?! The San Francisco Bay Area is so packed with creatives and thinkers that it is like living in the social equivalent of a nuclear reaction chamber. By contrast San Diego is merely pretty–pretty vacant.
Mole man: you miss the point of my statement. I was only talking about how psychology can change, and change quickly (in reference to Fluj’s gripe).
It wasn’t to say that SD is better/worse than SF. Only that SD is considered by many to be a VERY sought after area. It’s a place that shared the “everybody wants to live here” mentality. It’s the Californian city that many attribute to starting the “boom” in California RE. And the reason often given: it is the only place in the country with “perfect” weather.
and now it lost 15% in just a year. You couldn’t have found one person who would have thought that possible in 2003, when RE was going up 1-2+% PER MONTH. (I remember the front page of the Union Tribune where they would write about how SD real estate was going up “1,000 dollars a day” in summer 2003) During that time, there were TONS of SF transplants down in SD. I ran into them all the time.
so I only bring up SD to show that SF being “special” isn’t enough to keep it’s real estate lofty. that said, we have SF history ourselves that taught us that anyway…
Indeed, being special wasn’t enough in the late 80’s/early 90’s why would it be enough now?
ex-SF-er – Good point. And if you visit any other housing blog (LA,Seattle,San Diego, New York,etc.), everybody thinks their city is “special.”
The market trend is determined by the change of people’s perceptions, not by people’s perception.
It doesn’t matter whether people think a place is special. What matters is whether more or less people think that way. If more and more people think a place is special, the market appreciates. (same applies to stocks)
Fluj,
I am a millionaire with a huge income and I WOULD NOT BUY NOW simply because I am financially savvy and know that there are MUCH better investments to be made right now than housing. I can only deduct the first $1million and so living where I want to live in SF, your mortgage interest deduction argument goes out the window. Furthermore, to akrosdabay’s example, I can think of better things to do with 15k+ a month then spend it on a place to live. When I look at the facts, buying right now in SF is throwing money down the drain. There is NO VALUE until we see much a further price correction.