CFAH

San Francisco County Housing Profile (Image Source: cbp.org)
The conclusion from the California Budget Project’s ominously titled “Locked Out 2008: The Housing Boom and Beyond” report:

California’s home sales and prices boomed in recent years, driven in part by loosened mortgage underwriting standards and the promotion of loans with risky features – such as ARMs with short-term teaser rates – that allowed many Californians to buy a piece of the “American Dream.” As teaser rates have expired, mortgage payments have jumped to unaffordable levels for many homeowners, helping to trigger a rising wave of foreclosures that could exacerbate the state’s current economic slowdown. Although the housing downturn has been dramatic, other characteristics of California’s housing market – such as lack of affordability and high rates of overcrowding – have remained relatively constant.

And setting the stage for the upcoming DataQuick sales report for Nothern California:

Analysts point to two key reasons that the median home price continued to increase during 2006 and early 2007 as sales declined. First, home prices “tend to be ‘sticky’ on the downside” of a housing-market cycle, because some sellers take their homes off the market if they cannot sell for their preferred price, which initially keeps home prices from falling. Second, the composition of home sales had changed. The downturn in sales was most apparent in neighborhoods with lower-priced homes, in part due to rising foreclosures, tightened underwriting standards, and the decline of investment funds for subprime loans. Meanwhile, sales of higher-priced homes remained steadier as Californians with higher incomes continued to purchase homes. As a result, higher-priced homes made up a larger share of sales, thereby boosting the statewide median home price even as overall sales declined.

Or as we often write in far fewer words, “think mix.”
Locked Out 2008: The Housing Boom and Beyond (pdf) [California Budget Project]
Locked Out 2008: Profile of California Counties (pdf) [California Budget Project]

Comments from Plugged-In Readers

  1. Posted by Lance

    Nice – I get to get my rebuttals in on this one early. It’s an interesting story, but it’s got some pretty big loopholes in it. First of all, this story states that a larger portion of renters are paying 30% or more of their income on housing than buyers are(i.e. – they’re more cash-strapped than buyers are). This would suggest that San Francisco is relatively just as expensive for both groups.
    Secondly, these average rental price numbers are very questionable….or at the very least comparing them to median home prices is a poor comparison. According to Metro Rent, the average 2BR in San Francisco is now approaching $3K per month to rent. That’s also what most people I know that rent are paying these days. Also, if this includes rent conrolled units (which MIGHT help explain the low rental price listed), then you can’t compare it to the going rate on a median priced home. There are many people who paid alot less than $800K for their home years ago, and they are effectively rent-controlled as well. A comparison of the going price for apartments to the going median home price would net very different results.

    Finally, I think you’ll see in the Dataquick numbers that mix is working the other way at this point. I have said this for the last couple of months now, but few people are willing to acknowledge it. If it is increasingly difficult to get non-conforming financing, this will obviously cause things to mix into more low end homes. Prices are actually less negative than they appear when you adjust for mix.
    Dataquick said just that yesterday with their release for SoCal (which is looking particularly bad these days btw).

  2. Posted by ex SF-er

    Add doctors to the list of people who can’t afford a home in SF, unless they’re a high paid specialist like interventional radiology or cardiac surgery or something. or lawyers unless they are working for a big private group. or PHD’s or engineers or barely anybody.
    It’s time that people realize that nosebleed RE valuations are NOT good for an area, only for people who were lucky enough to be able to purchase a home prior to the boom.
    even the wealthy would be better off with cheaper RE. IT would allow them to pay less for RE, and then more to invest in other areas… their investment in other areas could help the economy much more than simply paying off an overpriced mortgage.
    there is an obvious solution to SF’s problem. Relax the strict zoning rules and allow more to be built. This is how many major cities remain affordable. Paris as example, which is over 4x more dense than SF, and which has much cheaper RE as a consequence…
    instead of course, few areas are allowed to develop… we heare the rediculous line “there’s no more land in SF” (even though there are hundreds of cities more dense than SF) so instead we have onerous and odd development rules that sprout up with the intended purpuse: restrict building keeping RE valuations high so those born earlier can keep their asset levels high and those born later can pay the high prices of it.
    and then those born earlier can be smug and say “well it was expensive when I bought too but I just saved and made it happen”. They of course neglect that when they bought it was nowhere near the price to income levels that it is now.
    The credit boom worsened all of this, by allowing any idiot with a deathwish to take out the most suicide of loan. the choice was clear: compete with deathwish idiots, or rent. So the prudent of course chose to rent or leave SF.
    now of course, it’s all coming crashing down… and Congress et al now wants us to feel sorry for the idiots who bought too much house (raising prices for us prudent) and now the bailouts begin.
    ugh.

  3. Posted by Lance

    There are a lot of people in SF who make much more than $200K. In fact, the survey that socketsite did last year said the average reader on this site made $200K+. There is definetly a big income distribution here, but MANY households fall on the right side of $200K. I’m thinking of the company where I work as an example, and the average exempt employee makes close to $100K. If you multiply that by two (a couple), then you’ve got your average home.

  4. Posted by Satchel

    Lance,
    You’ve just got to be a realtor (with apologies to the many smart realtors and agents out there like fluj and FSBO) because the statements are becoming more crazy by the day as this bubble begins its long awaited deflation.
    The 2000 census data shows that only 6.14% of the households in SF have income over $200K. It’s probably slightly higher today, but not by too much.
    http://www.demographia.com/db-sfbay$$.htm

  5. Posted by Craig

    Those rents look ridiculously low.
    BTW, the going rate for a brand spanking new lawyer in this city is 160K/year (at least at big firms). Put 2 together and you have more than enough to afford a home in SF. My doc friends are not hurting either.
    Not sure of the point ex-SFer. Those professions are doing fine from my experience “on the ground”.

  6. Posted by anon

    The income “how muuch does it take / who can afford” section is pretty worthless since it assumes everyone lives by themselves.
    Obviously DINK couples would be tough to beat in this category.

  7. Posted by badlydrawnbear

    And there are a lot of retail workers in SF making 25k put two of them together and you don’t get nearly enough to afford a place to live in SF and they are hurting.
    What part of only 6.14% of HOUSEHOLDS make +200k isn’t clear?

  8. Posted by Bear Hunter

    If you can’t afford to live in a certain place on your current salary – MOVE somewhere that you can. Don’t bellyache that it costs too much and ask others for bailouts.
    If all of these retail workers starting leaving because they don’t make enough, guess what? Wages would rise.

  9. Posted by ex SF-er

    BTW, the going rate for a brand spanking new lawyer in this city is 160K/year (at least at big firms). Put 2 together and you have more than enough to afford a home in SF. My doc friends are not hurting either.”
    uh… craig… read my note.
    I SPECIFICALLY stated “lawyers unless they’re working for a big private group”
    and as for doctors: let’s just say I’m WELL aware of a doctor’s earning potential in San Francisco… I myself have significant subspecialty training and worked in SF for years both as a primary care person and as a “super sub-specialist”
    Here is my point, since you can’t see it:
    whenever people discuss “affordability” they always talk about nurses and firefighters and teachers such as in the above chart. and those are important jobs and services to the community.
    However, even people traditionally touted as “rich” like doctors and lawyers have a hard time making it in SF if they choose to buy. and thus SF risks not only losing good teachers and firefighters, but also losing good doctors and lawyers and scientists and engineers.
    Sure, a primary care doctor may make $165k/year. That’s certainly not enough to buy a million dollar home, which is the sort of home a doc would like to buy after YEARS of working his/her butt off at some the best institutions in the world (Stanford and UCSF).
    Perhaps they are married, and two docs make $325k/year or whatever… but that’s a big “if”. (and still not enough to afford what most docs think they “deserve” to afford)
    So you can bust your butt for 12 years and make $165k and live in a small condo. Or you can bust your butt for 10 years and be a PhD and rent, or be an engineer and maybe stretch into a mortgage.
    This is not good for a community.
    I used to try to attract the BEST talent in the country to come to my old practice in SF. a lot of the BEST talent comes from cheaper COL markets. (places like the Mayo Clinic and Cleveland Clinic and Washington University in St. Louis and Yale and Johns Hopkins and so on).
    but you know what, they wouldn’t come. why? they looked at what they would make (less) and the COL (way way way more) in SF and chose to not come.
    and then finally one day I looked around and thought… “geez, why am I here?”
    so I left. My income went up 2x what it was in SF. and my COL dropped dramatically.
    Now I know you would say ‘who cares’. But I will tell you that me leaving SF was not a good thing for SF. My research is in a field that very few people can do. (I learned it at UCSF). so I took my knowledge and helped a new program in a different city. Competition for SF if you will. And now the non-SF program is starting to be recognized as “the” program in the country for what it does, not UCSF any longer. (I am not affiliated with either program now).
    Since I left, I pulled 3 other amazing physicians out of SF. And I will pull more and more and more.
    One of them is a person who knows how to do a procedure that only 3 people on EARTH know how to do. he was set to move to SF until I convinced him otherwise. believe me, it is a loss for SF.
    It is great having UCSF and Stanford in the Bay Area. They are phenomenal institutions. But it is even BETTER when you get cross pollenation. You want doctors from ALL of the great areas to be in your institution. to cross teach and to cross-challenge.
    This is why Johns Hopkins and the Mayo Clinic are always at the top of almost every list in medicine. They pull from EVERYWHERE. If a program has too much “inbreeding” and not enough transplants from outside, then it drops dramatically in terms of it’s ability to innovate.
    The high COL has harmed the medical field in SF IMO.

  10. Posted by zzzzzzzzz

    I was struck by the 39.3% estimate for homeowners in SF – I was under the impression that the figure was closer to 35% or so. Has the percentage of homeowners risen in recent years (perhaps due to TIC/condo conversions and OMI’s, as well as new construction)?

  11. Posted by fred

    To those who say – just leave if you can’t afford it: What if this is, like, your “home”, and your family and friends are here?

  12. Posted by badlydrawnbear

    I was just pointing out that the ‘two lawyer’ scenario was nothing but a strawman argument not supported by the fact that only 6% of SF households make more then 200k

  13. Posted by Trip

    This just helps explain why prices are falling throughout SF, the Bay Area, California, and the entire nation. Housing prices at recent (and current) bubble levels are too high for people to afford. Places sold at these inflated levels in recent years because (a) lenders were willing to provide lots of cheap money to people to buy places they could not afford — lenders no longer do this; and (b) buyers were willing to buy places they could not afford because they thought homes would appreciate so they could sell at a profit at any time — no reasonable person thinks this anymore. Thus, would-be buyers are not buying. Look at the sales volume figures — they are at 20-year lows. (a) and (b) will not return for a long, long time, if ever. So buyers are not going to jump back in (in fact they CAN’T do so) until prices fall back to affordable levels. The move in that direct has just recently started, although it is now accelerating. Adding to this is the fact that even those who can afford to buy are staying out because, high-earners generally (not always) being on the brighter side, they can see quite clearly that the sound financial move is to wait for the lower prices that are on the near- and long-term horizon.
    The real estate industry can try to pretend it is still 2005, but that doesn’t make it so. Their financial interests will be served when prices finally drop far enough that volume picks up.

  14. Posted by Satchel

    Excellent post, ex SF’er. As I’ve said before, average home prices will fall in SF, and fall fairly dramatically in most areas, or you will simply cease to have a functioning city. People buying “for the long term” at these prices are going to be in for a large surprise.
    On a related note, NAR reported today that median home prices in the West of the US for Q4 2007 have fallen 8.7% since Q4 2006. These are unreal numbers, and I don’t think that we even saw declines of this magnitude during the Great Depression.

  15. Posted by Bear Hunter

    To those who say – just leave if you can’t afford it: What if this is, like, your “home”, and your family and friends are here?
    Then there are two likely scenarios:
    1. You and your family and friends bought here years and years ago for 10% of what your home is worth now and with the help of prop 13, your costs to live here are miniscule.
    2. You and your family and friends starting renting here years ago in a rent-controlled apartment and your costs to live here are miniscule.
    Listen, I’m all for eliminating rent control and prop 13, which I feel would help drastically lower the costs of new folks living in the city, but the fact is – if you’ve been here for awhile, you’re probably not hurting, which is why I don’t buy the “this is my home” argument.

  16. Posted by anon

    The 2000 census data shows that only 6.14% of the households in SF have income over $200K.
    Wow, that seems like a really low percentage. Who’s buying all these expensive condos, then? Me and my SO have average jobs (high tech and healthcare) and we make 200K, it’s not all that hard with two full-time incomes.

  17. Posted by eddy

    Thank goodness there is a report to validate our long standing opinions. Housing reverts to the mean as does everything eventually. We are currently above the mean. All this banter is fun to read but if you argue your point harder it will have no impact on what the future holds for SF RE.

  18. Posted by Jim D

    On a related note, NAR reported today that median home prices in the West of the US for Q4 2007 have fallen 8.7% since Q4 2006. These are unreal numbers, and I don’t think that we even saw declines of this magnitude during the Great Depression.
    You’re right – in the Great Depression (actually for years before the Great Depression, housing prices fell much, much more.
    The world doesn’t work the way most people think it does. As a group, we’re in for a big surprise.

  19. Posted by Lance

    Haha…. I was expecting the “realtor” tag to come my way at some point or the other. Satchel, you are way off on that one. For the record – I work in Finance for a Fortune 500 company, and I have been for the past ten years since I moved to SF. Around a year and a half ago, I decided to buy a place after “waiting for the correction” like many of you. In the time that I waited, I lost out on hundreds of thousands of dollars of equity while my friends either sold and moved out of the area or upgraded to bigger places. During that same 10 years, I rented two different mediocre apartments and shelled out over $180K in cash for rent. A few years ago, I finally got married and my wife and I decided to purchase our own home. It’s MUCH nicer than the places that I leased for close to $200Kr, and it provides us with a much greater sense of pride. When we purchased, we put down a sizeable down payment, and we don’t have any issues paying the mortgage each month. We spend around 20% of our gross income on housing, and we are around average income compared to our circle of friends (i.e. – we’re not affluent by any means).

    Most of the time, I read these posting on Socketsite that the sky is falling and I just ignore them. Over the past few months however, there have been increasingly more of the negative post though, and it annoys me. Sometimes I have the free time and the desire to post my own comments, and I’ll throw in my two cents. My two cents are almost always counter to or at least less negative than yours. My only motivation in posting here is to 1) challenge anecdotal stories about huge drops in value here, 2) offer a few facts that might actually help people make a choice on when/if to buy, and 3) provide some sense of balance to an otherwise one-side argument. My belief is that home values in SF will stay flatish (+/-5% for the next several years). I also don’t think values will drop more than 10-15% in any one stretch of time here; they never have. And honestly – I will be fine if my home loses 20% off it’s value or if it appreciates 20%. Obviously, I prefer the later, but I won’t end up bankrupt regardless of which one happens.

    So, that’s a little about me Satchel. What’s your story, and why do you spend so much time arguing that the Armageddon is here?

  20. Posted by anon

    Food for thought. Maybe there WAS no housing bubble and prices are going to establish a new equilibrium:
    http://www.marginalrevolution.com/marginalrevolution/2008/02/was-there-a-hou.html

  21. Posted by Jim D

    Maybe there WAS no housing bubble and prices are going to establish a new equilibrium
    Yeah, yeah, and the jury’s still out on evolution, right? And global warming’s a myth. Sure, sure.
    The reason why prices reached a new equilibrium post-WWII was the introduction of the 30-year fixed, backed by GSEs.
    What’s the new paradigm that supports these newly insane prices again? The triumph of the Option ARM? Sorry to say, that’s the kind of mortgage that the 30 year fixed REPLACED.
    Try again.

  22. Posted by Satchel

    Hey Lance,
    Sorry to tag you with the realtor label – I stand corrected!
    Most people on this board know my story. Retired ex-hedge fund proprietary trader. My interest in housing is mostly as an asset class. Sorry to hear that you weren’t able to secure rental housing – it hasn’t been hard for my wife and me to find an excellent place in Western SF for about 1/3rd to 1/2 the cost it would have been to buy it. The house would not have appreciated much – if at all – since we began to rent it in mid-2002. I’m fairly certain of this, as nearly identical houses have sold within 4 or 5 houses on my block multiple times over the past few years, and just as we were arriving. It’s a very nice part of Western SF BTW, but of course not the best.
    I’m not arguing Armageddon is here. But a large drop in average prices is coming. In some areas, it has already begun to arrive (check out the foreclosure pricing for some of the SOMA condos or Sunnyside SFHs that have been featured on SS). Truthfully, I’ve said that an average 30% drop will be no big deal for SF. It might be a big deal, though, for some small percentage of its population, who will “wash out”.
    Best of luck to you with your home valuation! I suspect 20% down is MUCH more likely than 20% up. Perhaps you are sincere and really know yourself when you say that you would be ok with a 20% drop in value. If that’s true, you’ll be fine, and you may even be fine if we get that 30% drop that I am expecting (peak to trough, and it sounds like you bought at the peak). Like I always say, different neighborhoods should go down different percentages, just as the bubble inflated at different rates.
    As to why I spend so much time on SS? Well, I have been spending too much time, and I guess that will wind down a bit. Maybe it’s just narcissism, but I do try to inject some hard analysis and talk in some finance concepts that are well-known to people who think in terms of risk versus reward. As a practical matter, I have been stuck in front of a screen delta hedging very large options positions for the past 4 or 5 months. I fully caught this downturn in equities, and this year (and last, although less so) have been VERY profitable for me. I hope YOU had the “deflation” trade on. If there was a way for me to get short SF real estate in a sensibly efficient way, I’d put my money where my mouth is there too! Unfortunately, there isn’t (the Case Shiller futures are very inefficient and imperfect for a variety of reasons), so I have to content myself with renting a nice SFH in the meantime. I figure that each month I rent, I am accumulating approximately $4-6K in wealth versus what my wealth would be had I bought it (which BTW I could have done for cash – no mortgage needed in the Satchel bunker…)
    BTW, I’m not always a bear. It’s all a game to me. After getting out of equities completely in Fall 1999, I started averaging back in starting in mid-2002. A bit early, and 2002 was my ONLY losing year in the last 12 years. I got out of all equities again (where it was tax efficient) starting in March 2007, and I was out 100% by July. Where not tax efficient, I hedged and went outright short using options. I’m still biased short. So that’s my story.

  23. Posted by Dude

    “I also don’t think values will drop more than 10-15% in any one stretch of time here; they never have.”
    Actually, Lance, I believe they did during the downturn of the early 90s, and it took a few years to play out. How do you explain the mounting number of foreclosures here selling for 20-30% less than previous price? Haven’t those properties already fallen more than 10 or 15%? And they’re not all in Bayview.
    @ anon at 9:45AM: Fine, there was no bubble. Please write your Congressman and urge them to a) stop lowering rates; b) undo the GSE limit increase; and c) cancel all of the Hope Now / Lifeline programs. If there never was a bubble, clearly none of these are really necessary in our new paradigm economy. Thanks.

  24. Posted by Mystery Realtor

    A few comments from a card carrying member of the National Association of Realtors and the SF Association of Realtors:
    Technically, prices are rising in San Francisco. This may or may not be true as there a lot of condominiums that are being “soft marketed” (not in the MLS).
    Newsflash to bitter renters: Owning property in California has been and will continue to be a one-way bet over the long term. Instead of taking that European vacation every summer, why not save that money for a down payment?
    I am sorry that there are folks working in retail for $25K a year and cannot afford to to buy. My advice to them would be to do what I did which was to put myself through college to get the knowledge needed to get a better job.
    The Socket Site poll of it’s reader’s income was not a census it was a survey.
    It seems that there are two types of readers on this site: Property Owners who have good things to share and renters who are bitter and angry about their lot in life.
    M.R.

  25. Posted by Foolio

    Just a note on all those $160k-making, newly-minted big firm lawyers. They’re likely to have $160k or so in college/law school debt as well.

  26. Posted by badlydrawnbear

    and the straw continues to fly ….

  27. Posted by eddy

    Good realtors can flourish in any market. Bandwagon realtors will insult the largest population of potential buyers: Renters.

  28. Posted by Dude

    “Technically, prices are rising in San Francisco.”
    I might buy that. But before I do, please provide specific examples of unimproved properties that are selling for more today than they did in 2007 or 2006.
    Because I’m seeing frequent examples of “bitter homedebtors” who bought at/near the peak and are now “priced in forever.” Or getting foreclosed.

  29. Posted by dissent

    ex-SFer I hear you. You are right, these prices are bad for the city.
    However I think it’s possible the ‘better’ neighborhoods won’t see large declines, while Ingleside, Excelsior, Bay View, etc are hammered. Homes in those areas should max out at the high end at 400K IMO, and quite possibly lower.
    I think the technology industry here is so powerful and so golden that prices for really nice places (and SF is truly special at the high end) will see enough competition to stay unaffordable.

  30. Posted by vsquare

    “My advice to them would be to do what I did which was to put myself through college to get the knowledge needed to get a better job.”
    Note to Mystery Realtor: you may have not realized it yet, but you don’t actually need to go through college to become a realtor – I got my license after reading a few books during lunch. Sorry.

  31. Posted by Brutus

    San Francisco will cease to function as a real city
    San Francisco hasn’t been a real city in decades. Oakland isn’t a real city. San Jose isn’t a real city. Cupertino isn’t a real city. Ditto Fremont, Daly City, Tracy, or Vallejo.
    In the early to middle part of the 20th century, “cities” in America ceased to exist, being replaced by metro areas that are comprised of hundreds of different “political in name only” cities. Does anyone here honestly think any of those cities above would be able to function alone? Distribution facilities are regional, as well as many other things – including housing. It is a VERY large problem that Bay Area housing costs are high – but it IS NOT a SF only problem OR something that SF should try to conquer alone – look at what the past attempts of SF-only housing planning has gotten us – rent control, ridiculous tenant protection laws, and ridiculous low-density limits in some areas close to one of the largest job clusters in the metro.
    I’m sure I’m not alone in knowing more people who live in the city and commute out to work – AND – I know more people at my office that live out of the city and commute in. Clearly, we’re not functioning as a city, but as a group of neighborhoods that are part of the larger Bay Area.

  32. Posted by David

    Hey Satchel, drop me an email. I too have been net short for awhile and am up 13.2% YTD.
    One thing that hasn’t been pointed out explicitly is that the only group where home ownership went up was the older crowd, i.e. aging Boomers who bought 20+ years ago. This is going to exert a long-term pressure as more and more of them cash out of SF and retire in real luxury just about anywhere else.
    David

  33. Posted by DavidQ

    Mystery Realtor:
    Are you just inflammatory for the sake of being an anonymous toad on the internet, or are you just clueless? If your three person household earns $5000/month, as mine does, you can’t afford a mortgage even with a down payment. We have more than $150k in the bank, but that’s been immaterial. If we can find a decent house for $450K before my daughter turns two, we can stay in town. Otherwise, I’ll take my family and my biotechnology expertise back Minneapolis where I can buy a beautiful house for that money.
    I’m not complaining; I knew what the story was before I moved back here.

  34. Posted by Lance

    Dude – you are incorrect.

    Prices (in aggregate) dropped 10% between 1989 and 1994. The high point was $362K and the low point was $328K. Yes, I know that some homes in Bayview are currently selling for 30% off of their peak. I also know that some homes in the northern part of the city are selling for 20% higher than they were a couple of years ago. A few random houses don’t make a market.

    I stick by my original comment that we have never seen a drop of more than 10-15% in any single stretch… at least in the 30 years of data that I could get my hands on. That also doesn’t surprise me considering that real estate is historically a very non-volatile asset class. You statistically have a much higher probably of losing 10% on stocks over a five year stretch than you do in Real Estate.

  35. Posted by Dude

    “I also know that some homes in the northern part of the city are selling for 20% higher than they were a couple of years ago.”
    Really? Which ones? Please show me specific examples of non-renovated, unchanged properties which have sold recently for 20% more than they sold for in 2007 or 2006. Not trying to be facetious, I’m seriously asking.

  36. Posted by Satchel

    Lance,
    “You statistically have a much higher probably of losing 10% on stocks over a five year stretch than you do in Real Estate.”
    As a finance guy you should know this. You buy a particular asset. You don’t buy the median. Even if you bought EVERY house in the aggregate, you still wouldn’t earn the “median” or average return, because of survivorship biases. INDIVIDUAL properties have gone down more than 10-15% on numerous occassions, and for extended periods of time. I wouldn’t take much comfort from median price change trends. Moreover, I wouldn’t place too much faith in the past 30 years’ data. Unfortunately, that period in the United States corresponds almost perfectly with the most extreme period of credit/debt inflation we have ever seen. For more relevant data concerning the risks going forward, I’d suggest you consider longer time periods when thinking about the data – like, say, what happened from 1880-1890 in Los Angeles, 1925-1930 in Florida, or 1925-1950 in the US generally (numerous other examples).
    I’ve posted this a number of times, but in case you haven’t seen it, and with regard to the credit inflation “problem” that we are going to have to unwind, here is the debt/gdp chart once again (but I promise all that I will NOT respond to any comments on it in this thread :)):
    http://comstockfunds.com/files/NLPP00000%5C292.pdf

  37. Posted by PacHeights Renter

    Lance (who bought at the top and is sad as values drop wrote):
    “We spend around 20% of our gross income on housing, and we are around average income compared to our circle of friends (i.e. – we’re not affluent by any means).”
    If bought a decent home in SF in the last year and only spend 20% of your gross income each month you may not feel affluent, but you make more than 99% of the households in the US.
    Back in the early 90’s many nice homes in Pacific Heights, Hillsborough and Atherton were selling for more than 30% less than they sold for in the late 80’s.
    The drop this time will be a lot bigger due to the crazy loans. I’m planning to buy again in Pac Heights in about 2011 for 30-40% off the prices at the peak…

  38. Posted by Mole Man

    Paris is not an example of a solution because of the problems in the suburbs. In this modern era we have metro areas to consider and everything is interconnected regionally.

    Telling people to move if they can’t afford it simply advances the corruption. The reason prices are so high has to do with a mania that included rampant fraud. Take away the toxic lending and bogus appraisals and prices will fall and people won’t need to move.

    I have seen this bubble interfere with the tech economy where a constant flow of talented young people and various specializations are a requirement. Although I am a long term owner, this still makes my work more difficult than it should be and portends poorly for the future.

    The realtor who posts here is an awful example of the kind of person who has done well during this boom for no reason. He was well positioned for this and still can’t figure out why, so anyone arguing against him his just bitter. At least he hasn’t emailed me any threats recently.

  39. Posted by Lance

    Dude – I’m not going to get that specific with you, but our friends just made 20% appreciation on their place after owning it for less than 3 years. Yes – this is admittedly useless data, but it’s no more useless than the random comments about a 30% loss on a fixer in Bayview.

    “PacHeights Renter” – I’m not affluent, and I’m certainly not sad. That’s actually pretty funny 😉
    As for your comment about some random houses in Hillsborough and Pac Heights in the ‘90s, I put those right up there with the Bayview fixer rants. They are pretty useless. Look up the numbers — home prices dropped 10% during the early 90’s “crash” that you keep talking about. Of course, I’m affluent and depressed, so what do I know.

  40. Posted by David

    You forgot to mention that while R.E. is a less volatile asset class than stocks, you also don’t buy stocks with 5X and above leverage. A 10% drop on your house can wipe out 50% or more of your equity. A 10% drop in stocks can wipe out 20% of my equity at the most (if I’m margined at the maximum allowed 50%). Owning R.E. is more like owning a long-dated option in terms of leverage.

  41. Posted by Late Nights

    “BTW, the going rate for a brand spanking new lawyer in this city is 160K/year (at least at big firms). Put 2 together and you have more than enough to afford a home in SF. My doc friends are not hurting either.”
    LOL!!! Thanks Craig. That made laugh. If you work at one of the big firms paying that, you’re working late most of the time (there’s always some big deal going on or some big case). Putting two of us together would be a challenge. And that doesn’t take into account the type of personality that usually makes it into big law. You never know, it could happen. However, I see a lot of either singles or lawyers with stay-at-home spouses around here.

  42. Posted by spencer

    according to this report, you can buy a median priced home/condo for $809,000 or rent a 2brm apt for $1592/mo
    seems like a no brainer.
    Also, 39% of households now own, but only 6% of households make enough to purchase a home now. That is very telling.
    Ina addition to the numerous jobs they listed, most mid level managers, physicians, engineers, attorneys cannot afford to buy. to counter the impending argument about DINKs, most of the adults in the city are not married.

  43. Posted by Rillion

    Spencer, you are all over the place with bad info. You say “only 6% of households make enough to purchase a home now,” but that assumes that there are no homes for sale that cost LESS then the median priced home. My understanding of the way median pricing works would suggest that it is impossible to have no homes for less then median. It would seem that the proper statement should be that only 6% of the households earn enough to buy the 50% of the houses priced above the median.
    Also the statement “to counter the impending argument about DINKs, most of the adults in the city are not married,” I don’t see a “M” in DINK’s that indicates “married” fits into DINK. I happen to know many DINK’s that are not married and in fact can’t get married (myself included). Two people can live together, have two incomes and no kids and still also not be married.
    Finally, good luck trying to find a lot of 2bd apartments to rent under $1600. In my quick survey, I see that there is an average of about 1 2bd apartment a day listed on Craiglist for under $1,600 while there is a page & half of apartments listed each day for more then $1,600.

  44. Posted by DavidQ

    Fair market rent is what the government lets landlords ask for Section 8 housing. It is not relevant for renters who are not on government assistance, except through secondary effects on the market.
    Half of the homes surveyed cost more than the median; half cost less. Rillion’s point that there are many houses below this point is true, but without more information about the distribution of housing costs below the median you can’t really argue this point. This is why the median by itself is basically useless as a measure.

  45. Posted by Brad

    These numbers are crazy.
    5% down on $809k and the minimum income is $196878?
    $768k mortgage at 6.7% (Jumbo rate) = $4960 per month
    taxes = $775 per month
    HOA = $400 per month
    PMI = $300 per month
    total = $6435 per month which is approx. 40% of the GROSS monthly income!
    40% for housing, 15% for savings, 25% for taxes…
    That is 80% of your gross income gone, with no food, clothing, transportation, insurance, etc.
    40% of gross income for a house is not sustainable.
    After 1 year in SF, I have learned that a $200k household income means that you can rent a really, really nice place, save 15-20% of your income (for future home purchase/ retirement), enjoy what the city has to offer, as well as some nice travel. But you do not pay an $800k mortgage on $200k a year. There are many cities in the country where we could own a nice home, but none of them afforded both of us the career opportunities or lifestyle of the bay area. We’ll buy a loft when we can afford one, or when we move somewhere else.
    By the way, one PhD in Biotech/Nanotech, and one professor at UCSF.

  46. Posted by anon1

    I saw a 2 bedroom listed for $1700 on Craigslist. I called the house two days later and was told that 30 people had called before me. The manager asked me whom I worked for and what I do for a living, and after sounding disinterested she said she’d take down my number. I doubt she’ll ever call back.
    The situation is bad out there for renters.

  47. Posted by viewlover

    20% of $200,000 is $40,000 plus there is no adjustmet for the interest and property tax deductions, which easily add $1,000 extra per month of income after the first year.
    That leaves income of $52k per year for the other items. And that includes substantial saving per year. Why this is not enough is a puzzle to me.
    If a person or couple really want to buy a house, it can be done, but not without sacrifice. At least not in San Francisco. It is a matter of priorities. If however, one wants to eat out often, vacation, do the symphony and ballet, drive a BMW, well yeah, done that and I prefer to have a beautiful home done to my taste.

  48. Posted by anony

    Lance – your posts are SO detached from reality and your information is incorrect (or, more likely, you aren’t old enough to remember the 90s and certainly didn’t own here then. Much of SF real estate saw 20, 30, even 35% drops in value in the early 90s. And I second the comment about you making 99% more than all other Americans. Add 99.9% of humans on the planet. Hold on for a few decades, the sting of buying at the top will go away eventually.
    Not only is SF “home” for many people, but even the SFers who have profited from all this have to accept that their kids are never going to afford to live here. People I’ve spoken to are sad that this has robbed their children of growing up in SF. Facts are clear – this is the first time EVER in the history of the world where a 30 y.o. man today makes less salary then his father did when his father was 30. Just read that the other day.
    Mystery Realtor – thought I’d let you know that I went to the most affluent preparatory school in the country and an Ivy and I make about $60k/year. I know a number of people that went back to school in the last few years, a bunch to Columbia and 2 to Harvard. They’ve just returned to the SF job force at between $51-55k/year (Until polygamy is made legal, I don’t think they are buying). AND they all have almost $200k in student loans to pay off. I also caught a glimpse of a client’s W40 the other day – she’s a doctor at Kaiser – income was $155k.
    But more importantly, if all those poor $25k/yr salespeople quit The Gap, who would you yell at for not bringing you the correct size khakis???
    Sit and talk with any mature person and they’ll tell you the craziness of this all. My elderly grandfather shoke his head and told me – these schemes have all happened before, but this time we are really screwed up. People never learn.

  49. Posted by David

    Viewlover,
    Why would anyone “sacrifice” to own a house in SF? I know plenty of people making $200K (ok, battle of the anecdotes) who rent. Why? It’s SF–you have draconian rent control, so it’s very easy to compare the money you’re “throwing away” on rent versus the money you’re throwing away on taxes, interest and insurance, and you don’t even have to factor in rent increases or multiple moves because of all the tenant protections here.
    It’s far easier to rent a nice place, have a TON of money left over (no sacrificing here, baby), and heck, I’ll buy a vacation condo in Miami or a retirement house in a nice college town (rent to students for 15 more years, have them pay off the mortgage and then move with all the money I saved in the interim by renting).
    People who are that high income usually have options (and the savvy) to consider that, and do.
    Until SF homebuying doesn’t require sacrificing 40% of a high earner’s income, prices will keep dropping. As the other post put it–40% of income, along with 40% taxes (let’s be real, you’re in the higher brackets, even with the deductions) doesn’t leave a whole heck of a lot for food, travel, retirement savings etc.

  50. Posted by view lover

    David,
    From the example I referenced and the same post you reference, $52K a year for the “other” things is not enough? Do you realize that is more than most of the occupations listed on the table???? You may just happen to be spoiled in more ways than one.
    In general, home ownership has always been difficult in this City, it has always been expensive. Before these 5% down loans, people were required to have 20%, and that was it. Even when homes were $300,000, you needed at least $60,000 to put down and that was a stretch and still is for most people unless mommy and daddy pitch in. So even back 10 years ago, housing was not affordable for most, after all, home ownership has increased to 39% which means it was lower before.
    The fact that prices are high is nothing new. The fact that they are falling is also something that is not new, but overall it has been out of reach for many people. And the only way to afford a nice place has required some form of adjustments in ones’ lifestyle.
    People can moan and b’t%h about prices but they are high and a correction won’t really change that much. Hoping that the entire system crashes in order to afford a house is pretty selfish, but that still will not make housing “affordable”. If prices drop 30%, you still need to make over $150,000 minimum and your payment will still be high. And that’s if the interest rates stay low which is unlikely in a financial disaster.
    If you or your friends that are making $200,000 and are happy renting, good for you and them! Maybe you are young and have a zest for life that is more now than the feeling of wanting to settle down.
    The reality is that you have to make alot of money to cover housing and it will take more than 40% in most cases. It may not be right, but that’s just how it is. The one silver lining is that mortgages may be less expensive as interest rates are dropped combined with falling prices may make it more affordable, but still salaries need to be on the high side.
    Everything else is just academic. Grow up, there used to be a time when things did not come for free or without sacrifice, they required alot blood, sweat and tears. Maybe things have not changed that much afterall, regardless if the “entitlement” mentality has set in on some people.
    Just my opinion.

  51. Posted by David

    People who make $200,000/year (I’m not quite one of them) usually do like to spend more than $50,000/year because they work hard and like to have some nice things.
    Also, $50,000 is nothing when *heaven forbid* the couple you might be talking about has kids. Of course there are plenty of couples who don’t have or want kids, but you have to admit that this does cut out a disproportionate segment of the population that would *want* to buy a house. (young single guys don’t care, single women do buy occasionally, and then married/gay couples without kids or who are planning not to have them are all you have left to buy).
    $50,000 less private school tuition (and face it, if you’re making $200,000, you’re quite likely to feel the need to send your kid to a private school) and now you’re down to $35,000/year just for one kid. $3,000/month is barely enough to cover car/transportation, food, insurance (life, health, auto) and leave any for an occasional night out. Trust me. I’ll send you my budget sometime. It’s not a horrible life, but again, here’s the fundamental question:
    If you’re making $200,000/year, why buy when that WILL put you in a lower middle class lifestyle? If you rent, you live a lifestyle more in sync with your income and your colleagues. If I want to live a lower middle class lifestyle, hell, a REAL middle middle class lifestyle, I’ll quit, move to Milwaukee and manage a Burger King. I’ll own a house and 2 cars and a boat and go out to eat more often than I could here if I bought a house.
    If you think owning a piece of land and some lumber on a faultline is worth 30 years of sacrifice (plus what is likely an additional 4-10 years of education/professional training), then fine, enjoy living in a less opulent manner than a GM assembly worker in Janesville. Since I worked to get my PhD etc, I’d rather see a return on that investment, and rent just as nice of a house for as long as it makes sense. In the meantime, I’m on track to retire in 15 years (just about 19 years of work experience; I really want to squeeze in under 20;) as long as I’m not stupid enough to retire in California.

  52. Posted by view lover

    David, I don’t disagree with what you are saying, but, it still is about choices. You state that someone making $200,000 a year would feel the need to have their kid in private school, it is a want however and not a need. There is nothing wrong with you plan, it’s just not for everyone.
    And you are correct about who is left to buy in SF, but guess what, that’s who is probably buying.
    As I said before, it is expensive here, and the chart points that out. There are many other places people can live quite well for a lot less, but not here or New York City. If you want to live here and buy your million dollar condo, you have to be pretty well off, or make the sacrifice, or you can buy it for a year and lose it later. But anyway you slice it, a million dollars is still a million dollars and still alot of money and beyond the reach of most people.
    And given the table, both renters and owners are feeling the pinch. Is it worth paying so much more to live here? That depends on who you ask, to me it is worth it. And all of those in my situation probably feel the same way or we would not be here.
    My problem is with the notion that one should not spend more than a certain amount of ones income on housing. That’s like saying women should not buy those Prada heels unless they’re rich. Those are pretty general guidelines and don’t apply to everyone, and in SF, if you go by the guidelines, you more than likely should not live here.
    Perhaps not so far in the future things will be a little better for some, but it will be at the expense of those who currently own as they see the value of their property decline. But it is a crap shoot all the way around, just live to make yourself as content as possible, and that’s all we can really do imho. Spend on what you WANT or keep wanting it all.

  53. Posted by David

    I’m fine if property declines, and it will suck for the current owners. As you point out, and I heartily agree, it’s a choice. It’s my choice to buy and sell stocks and options. No one pities me when I lose money on a trade. Why the h*** should I care if some rich person, ossified Boomer, or landed heir “loses” money on the house he or she owns? Gee that’s tough. I lost money on a stock trade. I’ll bail you out if you bail me out.
    The thing is too, those “general guidelines” are actually pretty good guidelines. There’s a reason they’ve been around for years. If you start paying more than 40% of your income on housing, you really don’t have much left for savings (retirement), never mind taxes (which are only going up, even if McCain wins), food (which isn’t getting cheaper), gas (ditto), insurance (double ditto), school (triple ditto) etc. Heck, if you’re spending that much just on your PITI payments, how are you going to fix your roof? you have no margin of safety. (of course that explains why the general housing stock around here is of pitifully low quality; no one has money left over to maintain his own house)
    Finally, California actually used to be pretty cheap. There’s really no fundamental reason why it’s so expensive now, even accounting for land use restrictions and Prop 13. Since there’s no fundamental reason for Bay Area housing to be over 9X household income, it will revert (30 year average, so even post Prop 13 is closer to 5-6X income, etc). Unsustainable trends, by definition end.
    Cheers
    David

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