It was a little over a month ago that the listing for the bank owned 246 2nd Street #1302 was touting “By far, the best value in soma!” and “Priced $80K Below Last Sales Comp in Building!” And while it’s still advertising “the best value in soma!”, the price has been reduced $42,000 (5%) and it’s now “Priced $120K Below Last Sales Comp in Building!” That’s not likely to be a neighbor(hood) pleaser.
And while that’s the current view from the condo above, plugged-in people know what’s happening in the market (and can plan accordingly): “When I first saw the listing I assumed that the owner saw the proposed building at 222 Second Street (see virtual view from 555 Mission posted here last week) and decided to sell before the “commanding view of downtown” became a commanding view of some dude’s office.”
∙ Listing: 246 2nd Street #1302 (2/2) 1,049 sqft – $802,900 [246-2nd.com]
∙ Something Tells Us That “By Far” Wasn’t By Accident [SocketSite]
∙ The Things You Can See From Those Virtual Views (222 2nd Street) [SocketSite]
If Zillow is to be believed, this unit sold (when new I guess) in 2000 for $751,500, implying a compound annual return of <1%, and that’s before commission. Hopefully, the owner HELOC’ed it out before he threw the keys on the roof, or this wouldn’t have been such a smart investment…..
Now, if you really want to giggle, I wonder how the owners of 1402 are feeling now?? Again, according to Zillow, these 1402 owners paid $805K for their apartment in March 2005, about THREE YEARS AGO. Perhaps being one floor higher will negate the 1302 comp.
Well, in any event, the 1402 people are feeling better than the 902 people, who just bought this past June for $900,000!
Good thing, SF real estate has been such a great investment these past few years. Otherwise, there would be some unhappy owners out there….
“Hopefully, the owner HELOC’ed it out before he threw the keys on the roof … ”
You really should read “Fiat Money Inflation France” sometime. One of the most pernicious things about such a monetary system is that it makes anyone who does actual productive work and saves into a chump. The big winners are anyone who gets first dibs on the printed up money. This leads to a general decline in honesty and honor in society.
“Just as dependent on the law of cause and effect was the _moral_ development. Out of the inflation of prices grew a speculating class; and, in the complete uncertainty as to the future, all business became a game of chance, and all business men, gamblers. In city centers
came a quick growth of stock-jobbers and speculators; and these set a debasing fashion in business which spread to the remotest parts of the country. Instead of satisfaction with legitimate profits, came a passion for inordinate gains. Then, too, as values became more and more uncertain, there was no longer any motive for care or economy, but every motive for immediate expenditure and present enjoyment. So
came upon the nation the _obliteration of thrift_. In this mania for yielding to present enjoyment rather than providing for future comfort were the seeds of new growths of wretchedness: luxury, senseless and extravagant, set in: this, too, spread as a fashion. To feed it, there came cheatery in the nation at large and corruption among officials and persons holding trusts. While men set such fashions in
private and official business, women set fashions of extravagance in dress and living that added to the incentives to corruption. Faith in moral considerations, or even in good impulses, yielded to general distrust. National honor was thought a fiction cherished only by hypocrites. Patriotism was eaten out by cynicism.”
http://www.gutenberg.org/dirs/etext04/fiatm10.txt
Jimmy’s comment reminded me of a true story from a few years ago. I’ve been on the sidelines for 4 years. In 2003,I was seeing a therapist for some of the usual relationship/life issues. When I came in for an update appointment in 2005, he asked me if I was still sitting on the sidelines in buying a home and then literally made a frowny face, chuckled and said “worried about a bubble, right?”. ” You just have to get in, it only goes up.”
I think an experience like that merits a little schadenfreude.
diemos,
I will definitely read that! And, as you wrote:
“One of the most pernicious things about such a monetary system is that it makes anyone who does actual productive work and saves into a chump. The big winners are anyone who gets first dibs on the printed up money. This leads to a general decline in honesty and honor in society.”
You’ve just described the American economy EXACTLY for the last decade (some would say since the late 1980s – but I think that’s stretching a little too far). My fascination with bubbles is how – contrary to popular opinion it seems – they DESTROY wealth, not create it. The most succinct description of this phenomenon (I”m sure you must have seen it somewhere):
“You may think that since it was all a delusion on the profit side, the loss also must have been imaginary; that if nothing was added to the wealth of the country, neither was anything taken away. But that is not the way of it. First there was the direct loss of diverting that credit from all the possible uses of production to the unproductive use of speculation. Secondly, a great deal of it was consumed by two to three million speculators, large and small, who, with that rich feeling upon them, borrowed money on their paper profits and spent it. In this refinement of procedure what happens is that imaginary wealth is exchanged for real wealth; and real wealth is consumed by those who have produced nothing in place of it. Thirdly-and this was the terrific loss-the shock from the headlong fall of this pyramid caused all the sensitive sources and streams and waters of credit to contract in fear. The more they contracted the more fear there was, the more fear the more contraction, effect acting upon cause. The sequel was abominable pain.”
Garet Garrett, A Bubble That Broke The World
IMO, it literally could have been written yesterday, or – more accurately and ominously – in a few years from now.
Hey, Google’s SF office is not too far away. Maybe one of their new people will buy this place with their underwater stock options (down more than 27 points today alone). D’oh!
Apple? (Down 10% in the last three days) D’oh!
Haas MBAs? Foreigners? Anyone? Bueller?
I guess the bank “must have overpaid”.
Hey Satchel –
Why are you such a dick?
These are people that you’re “giggling” about.
Anyone who knows this building knows that pricing has always been all over the place. In addition, the units vary greatly in quality. Many orginal owners upgraded significantly, while others bought as strictly investments. I have had two friends rent in the building and their units were vastly different. With that in mind, $802k is way too high. That unit looks to be very standard, without any upgrades and is probably more like $699k.
Interior photos of #902:
http://www.skyboxrealty.com/246_2nd_902.html
Looks no better than #1302.
I visited #1302 and I concur with toni that it looks virtually the same as the photos of #902.
Is there any surprise that SOMA would be spotty with all the construction?
What a dichotomy between here and the north end of SF where prices seem to continue defying gravity. There’s no where to hide though, as the equity market is getting crushed. Pretty disheartening start for 2008 🙁
Cash i guess
If GOOG and AAPL are crushed, even the nice parts of SF will not be immune to major price drops.
This building was new to the market and sold out just before the peak of the dot.com boom so prior sales stats have been on the high side for some time.
It will be interesting to see what Blu brings to the table since it will provide the nearest close to direct comps over the long-term. The developers of new construction have thus far not been willing to compromise on their price expectations and appear very willing to sit on unsold inventory (Arterra comes to mind), so some day in the not too distant future, prices like these at 246 2nd could look like a real bargain compared with the rest of the neighborhood. 199 New Montgomery also sold out during a very strong market = high cost per square, and lots of those units don’t have parking — their leased parking is much more costly than 246 2nd — $57 a month for parking is a steal! Only the HOA seems a bit on the high side given the relative lack of amenities. Anyone have any insight on that potential sticking point? [You know the drill by now, if I don’t temper what could be construed as mostly positive comments with some potential downside, then clearly I MUST be an agent!]
Come on, goog is down 28 _dollars_ today because there was news that a lot real estate agents recently lost their jobs, surprise!
Do you think cheap advertising grinds to a halt in a recession? The answer is no and the ‘goobers’ are going to continue to take their oversized paychecks home and buy iMacs, Timbuktu bags, and maybe a nice new condo by the train station.
“Do you think cheap advertising grinds to a halt in a recession? ”
Yes.. Google is not cheap anymore that’s why large companies are looking else where (Hint: Time warner).
Also a large chunk of Google’s revenues come from the mortgage industry and small mom and pop operations. You can bet that those streams are drying up.
Yes, the poster above is correct. If GOOG has any HINT of a slowdown in earnings or horror of negative yoy earnings, the stock will get cut by at least 2/3. Calculate how many billions of net worth loss that is and you’ll get an idea of why bay area real estate will be impacted.
Not to mention, they will start to lay people off as well as the other big net names given that environment.
@ amused – don’t worry, satchel is always that way. He thinks it’s all very funny and anyone who owns or has purchased a place in San Francisco over the past few years is really stupid.
Time Warner? goog has a 5% stake in AOL; forget the fact that when people think of AOL they think of dialup and ‘keywords’ so I certainly wouldnt be advertising there.
Sure goog stock is overvalued and is vulnerable to a correction (although 2/3 is a bit much I think) but they are sitting on a ton of cash; lots of other places have weathered hard times without mass layoffs, Sun comes to mind.
So I guess the real question is how much does their market cap have to do with local real estate? I would argue that the real profits have already been taken by the employees that were hired over two years ago and cashed out. The steady paychecks will remain.
So, the place was purchased for 751K in 2000 and now is sitting at 800K. So, adjusted for inflation, SoMa is now UNDER 2000 prices and falling fast. Wow.
As for Satchel’s giggling about the others who paid more, Satchel, you’ve COMPLETELY missed the point of the market from 2004-2007.
The point of the market was to get the bank to give you huge sums of money that you didn’t really have to pay back. The entrance fee for this scam was procuring a residence. Any residence. It didn’t matter that another unit’s owner paid sky high prices: they were paying an entrance fee to a scam, or competing with those who were. A residence gave you the right to live in a home no landlord would ever rent to you, and you could then hire an “appraiser” whose job it was to justify to the bank that giving you even more money on which they were going to make tremendous profits was a good idea. And in the end, you didn’t really have to pay any of it back.
For an analogy, imagine the most handsome man or woman you’ve ever seen walks up to you and tells you you can have them for the night if you’ll just buy a box of q-tips. But it’s midnight. Now there is an all night store open that has one box left and you walk in just as someone with a newborn looking for q-tips walks in. They grab the q-tips and are standing at the counter while the clerk is ringing them up. You rush up to the clerk and tell him you’ll give him $100 for the box. He looks at you and says, “sure” and you get the box of q-tips. You have a great time that night. Does it matter how much you paid for the box of q-tips?
The person who was buying the box of q-tips drives across town to another all night store. They really need the q-tips. But as luck would have it, the same thing happens to them by another lucky person.
By the third store, the new parent just walks up to the clerk and says “I’ll give you $100 for the q-tips, just ring them up OK?”
That’s what happened in 2004-2007. If you needed q-tips, you had to compete with people who had ulterior motives for buying them. You had to pay a LOT more, but it wasn’t like q-tips suddenly got more valuable.
And neither did residences. But they were the entrance fee for participating in the scam and so if you weren’t in on the scam, you got royally screwed because you were competing with people who didn’t care what they paid.
Residences didn’t get any more valuable than q-tips. In fact, they built so many residences when the prices zoomed up, that no one has noticed that residences are, in fact, *less* valuable than they were when this whole scam started.
But 2008 will be the year of the great awakening. To buy a residence for less what the owner paid in 2000 after adjusting for inflation is amazing. When it drops further, and it will, that will be the reward for not participating in the scam or trying to compete with those who were. Of course, whether there is much of an economy left for you to enjoy will be another issue.
There was a scam going on, but there was also a generalized mania as well. I know of at least one crazy rich person who owned a great home in the clear, but found it necessary to move up to a mega-mansion because of the social pressure from other high achievers he hung out with. As the bubble deflates and his kids become adults the mega-mansion will get reevaluated and in time will likely be sold off at what amounts to something between a bold loss and a long stagnant period.
As far as there not being any economy left, that is absurd. Housing is a big player and has dominated growth because of this bubble, but the economy includes huge amounts of people buying energy and paying through the nose for medical care that they don’t actually need. Real estate is nifty, but it is a basic thing that everyone must have. As yet uncurable diseases will be overcome with biotech and drug development, next generation air travel will used exotic material that haven’t been invented yet, and above all alse people will be using energy and paying attention to where it comes from and how much it costs.
tipster,
Thanks for the great q-tip analogy – with your permission, I might use that sometime! You’re right, but I think the scam began a little earlier in SF (more like 2002) – but that’s just quibbling.
A corollary to your analogy about the surplus of q-tips will be that rents will fall, not rise, on a real – or equilibrium – basis, although there may be some wiggles as some potential Bay Area buyers become fearful about buying and decide to rent before the pent-up bubble supply fully unleashes. (Isn’t it a laugh when realtors on this and other boards talk about how eventually buyers will be forced to buy, while sellers can afford to wait it out? I mean no one HAS to buy – everyone is living somewhere, more or less – but as these REOs are beginning to show us, there are always some who HAVE to sell…)
About my not getting it, I guess I haven’t always been clear – I TOTALLY get it. That’s why I’ve posted a number of times Satchel’s First Law of Bubble: Always Use 100% Other People’s Money. (Only applicable when you are buying in a credit inflation bubble – a large hint that you are in fact buying in a credit inflation bubble will be that you CAN buy with 100% OPM.)
But I would add, though, that some nice people have been caught up in this frenzy. Perhaps “giggle” is the wrong word to use. My wife and I know a number of people (generally in the tech and retail fields) who have put down large down payments (essentially their entire net worth) on bubble properties, which is a shame for many of them. The banks and the powers that be are counting on people who have at least some “equity” in their homes to absorb the coming losses and moderate the pace of housing declines. That’s one of the main reasons that the bailout plans to date are only available to those who basically do NOT have any equity in their homes. They know that those are the ones who will walk.
And @movingback and amused, about my being a “dick” (haven’t heard that one since 6th grade I think), spare me…. Although I can’t say that I haven’t used the term “stupid”, I generally like the term “foolish” when describing the bubble hopes and the malinvestment that has gone on. Early on in some post, I wrote that it had nothing to do with intelligence – even Sir Isaac Newton fell hard for a bubble and lost a good deal. I was then schooled by people on these boards in no uncertain terms about how smart and wealthy everyone is in the Bay Area. I was also told that it was MY failure to explain pricing trends that lead me to label the SF Bay Area a bubble (you see, my pea brain couldn’t comprehend that “real demand” to live in such a gorgeous and wealthy place caused prices to zoom up). I am also told repeatedly that prices are going UP in every district, except perhaps parts of 3 or 10, and that SF is completely different from what is going on just about everywhere else in the rest of the country or even in California. So now, I am taking all this “schooling” to heart, and I am assuming that everyone here has plenty of cash to lose, that their employment prospects are incredibly rosy (GOOG and AAPL are here, after all), and that minor speed bumps (like losing an entire down payment or ruining one’s credit by throwing the keys out the window) are extraordinary exceptions in the ascent of the Bay Area into stratospheric nirvana.
So, in light of the above (and of the costs that this credit inflation fiasco is imposing on our society generally), movingback and amused, you will perhaps allow me some small measure of schadenfreude as I continue to see people having their a$$ets handed to them in “can’t lose” SF real estate?
dude are you bitter or just angry ? it’s a board, you don’t need to spend hours writing about every little detail or responding to every post with a 500 word essay.
Snafu, some of us appreciate this site because it allows for interesting comments such as Satchel’s, and because usually on this site you respond to the arguments being made without throwing insults at the person writing them. How exactly are you responding to his points about the current trends in real estate pricing in the city?
I don’t think Satchel is bitter or angry.
A much more likely explanation is that he’s able to “be” someone online that he really isn’t in the real world. His online persona is brilliant, prescient, wealthy, and verging on omniscient.
I imagine that the delta between the long-winded economic genius we see here and the person you might meet (in the analog way) is quite vast.
My reason for coming here is (still) seeing interesting properties, with a pronounced bias toward design and architecture. Increasingly (and unfortunately), the site and its five most frequent and voluminous posters are simply repeating themselves. The site has become a bore.
As for the Q-tip analogy? Horrifyingly bad.
snafu/amused,
In case you guys missed, this site is about SF real estate. Please stay on topic. Psycho-analysing and making personal comments about other posters that are on topic doesn’t add any value.
Chuck –
Thanks tons. Really.
diemos,
You really should read “Fiat Money Inflation France” sometime. One of the most pernicious things about such a monetary system is that it makes anyone who does actual productive work and saves into a chump. The big winners are anyone who gets first dibs on the printed up money. This leads to a general decline in honesty and honor in society.
I thought about this recommendation today (I read the book a while ago) in connection with what looks to be the mack daddy of all ponzi schemes, the $50 BILLION hedge fund fraud that caused the market to take a dump today:
““It’s all just one big lie,” Madoff told his employees on Dec. 10, according to the government. The firm, Madoff allegedly said to them, is “basically, a giant Ponzi scheme.”
http://bloomberg.com/apps/news?pid=20601087&sid=anWXzISP4XCg&refer=home
ROFL. Those NYC and Palm Beach wealthy families that invested in scams like this are about the dumbest money you ever have to deal with when you are in the hedge fund world, second only to the wealthy European families. Easy come, easy go. Poof. What was it Mann said in Buddenbrooks about the third generation squandering the fortune of the industrious founders…. ?
You nailed it with your observation. When you have a giant ponzi scam being run at the highest levels by the government and the Fed for more than 20 years, is it really any wonder that our economy has come to this? I guess the difference is that the fraudsters running the show at USG and Fed get more power, and poor Madoff gets the big house. No big deal in the larger scheme of things, I’m sure the early ponzi investors were paid off hugely, that those investors are all Madoff’s friends and family, and that the money is long gone, existing as chalets in Europe and 400 oz. bricks of periodic table element 79 somewhere way off the “grid”.
Going back and rereading all the comments in this thread is sort of funny in a sad way, as well.
Cool! LMRiM (= Satchel) comments on a thread where he also comments earlier as Satchel!
Definitely a bottom — I’m going to lever up right now (probably by charging something on a credit card) 😉
P.S. “periodic table element 79”? Seriously?? 🙂
LMRiM,
It’s like you set out to do a little cosmetic work on the house and you’re horrified to find out that you have termites. You start opening up more and more areas and get that sinking feeling as you start to tote up how much it’s going to cost to exterminate them and do repairs. Then you realize that the house is gone, and it’s only the termites that are holding the shell together.
“Fiat Money Inflation France” is a great read. I consider it prophetic and it’s the reason that I’m fully expecting to see a repeat of the “Forced Loan” to come along. As well as the death penalty for holding or trading in gold.
(Government Official: Them terrorists use gold to fund their activities don’t you know. So anybody who has gold must be a terrorist.)