We don’t necessarily disagree with the overall sentiment: a growing number of recent Bay Area homebuyers are accumulating negative equity on their “investment.” But using Zillow for an accurate analysis? That’s a different matter altogether.
That being said, keep in mind that the Chronicle’s graphic represents the percentage of homes purchased in 2006 (versus the percentage of all homes) which are considered to be worth less today (once again, according to Zillow).
And the real question for San Francisco becomes, how – and how quickly – will those colors bleed? And of course, how long before they fade?
∙ Homeowners get that drowning feeling [SFGate]
overall, I wouldn’t be surprised if significant numbers of people who bought post 2005 are underwater on their homes throughout the bay area.
however, using Zillow is dicey. I just question its accuracy.
that said, zillow can/does/will change market sentiment.
I know a lot of San Franciscans who Zillow their house quite often to see how much it’s appreciated. their behavior may change if/when they start seeing that pretty graph going down…
I wish there was a Case Shiller for ONLY SF county itself. that would be instructive.
What I don’t get is how come the Chronicle has no data for most of areas seven and eight? If it exists for the rest of the City, then surely it exists for Pac Heights and Russian Hill.
M.R.
Thank god only 0-10% of all the homes on Angel Island State Park have negative equity, according to the chart. This pretty much sums up how accurate Zillow is, though this chart will sell newspapers. I would look at square footage figures on Zillow as the only somwehat accurate data point.
What gives with Sausalito/southern Marin? That’s the last area I’d expect to get the negative equity disease.
There are actually a few ranger houses on angel island state park (one of the perks of being an AI ranger). I guess the state owns them, but they are probably in the same real estate database all other houses are (I haven’t checked).
It’s fun to bash zillow, but what is your alternative? This reporter is on a deadline, and must report on every “me too” story out there. Two years ago, I bet this same reporter wrote pro-real estate stories.
The data is actually telling us what we already know. *So far*, the “good places” are holding up. Is this controversial?
dub dub:
there is no other alternative. the SF MLS itself is also poor at tracking what’s going on in RE. this is the problem.
I only was highlighting that one must know the pros/cons of the data so that one can accurately interpret that data.
this is why I am rooting for either zillow or Trulia or some 3rd party to go to the next level and improve accuracy and add inputs for more accurate RE information.
in my opinion, the more transparent the SF market, the better.
unfortunately, there are forces that work against transparency in the marketplace in order to exploit “inefficiencies”
What’s interesting to me about this is what look like some unexpected “negative equity” situations in Palo Alto/Atherton, Marin, and the Oakland Hills/Orrinda/Piedmont.
All areas that should be holding up well, IMO.
The forces at work against transparency are not working in concert. The forces at work against transparency are merely typical bureaucratic cogs doing their jobs in American bureaucratic cog fashion. Ever spent a day at City Hall in the Assessor-Recorder office? It’s enlightening.
The Center for Economic and Policy Research (CEPR) has recently published a report on this same issue available here:
http://www.cepr.net/index.php/publications/reports/the-cost-of-maintaining-ownership-in-the-current-crisis/
In short they project a LOSS of ~$350,000 in home equity for San Francisco over the next 4 years.
Zillow can look at the the comparable historical sales and estimate the price for a home. I don’t see they have a mechanism to price in the market sentiment. In a rising market they will tend to underprice and in a falling market they will tend to overprice. No?
Peter, thank you for the link. If the prediction is correct the 350K loss will bring this city to its knees. I actually think the loss will be much higher because the houses are getting old and many are in need of major repair. Why would the value of the home built 100 years ago double makes no sense to me.
[Peter], thanks for the link- very helpful info
I doubt that “losing” $350k in imagined wealth will have any real impact on property owners in SF since most of them earn at least that in a single year. Its just a blip on the radar for most buyers & owners.
And since 70% of the city rents, it doesn’t affect them at all either.
simple: the value is the land. I just got a reassessment from the sf accessirors office andmy house is worth 1/2 what the land my SFR sits on.
I just read through the entire CEPR report that Peter posted above.
There are some major problems with this report:
1. It is using data as old as 2004 in some cases
2. It is looking at the Bay Area as a whole and not by smaller areas.
3. In the way it calculates “Cost of Homeownership”, it does not take into account the sizable tax savings that a large mortgage gives you.
4. Lastly, the report puts the cost of renting in SF at $1500 per month… maybe in the Tenderloin.
Jimmy // I doubt that “losing” $350k in imagined wealth will have any real impact on property owners in SF since most of them earn at least that in a single year.//
Most San Franciscan’s (even home owners) earn $350K or more per year? Not even close.
Yeah well I had the opposite happen. I actually had the city slap me with a valuation of 5% more than I bought my property for. That was this past fall.
Fluj what do you think of all the nice red? I think we should rename this shade to “Fluj Red”
That CEPR study is bunk (and authored by an activist organization for low income housing).
They determine the $350k loss number by assuming that the value of a property is only equal to 15 times the “Fair Market Rent” (40th percentile base rent compiled by HUD) of the area. They thus figure that a 2-bedroom unit should rent for $1,592.
Searching Craigslist for a 2-bedrom in all of San Francisco finds 1,315 currently listed – and a whopping 33 of them are below $1,592. And those almost all appear to be illegal “in-law” units!
These folks also conveniently calculate a 6% agent fee as part of the lost value on a property, so they don’t acknowledge the concept of refinancing to get to your equity.
I told you what happened, to me. It kind of sucked too. Since you asked I think the graphic’s choice of red is very lovely. I’m no web designer, mind.
I don’t buy the report. It does not make sense to me that a $500k (low end) home would leave it’s owner with $347K in negative equity after 4 years. Does that mean that it would be worth $153K? No way! Maybe I’m simple, but to me equity is the difference between the values of your liability and your asset. Everything else is the cost of a particular lifestyle.
It also mentions that bubble markets(SF) should create more affordable housing to help these owners transition into housing when they can no longer afford to be in the hole the report predicts. This is just a self-fulfiling argument for affordable housing. Which in itself should be part of the strategy regardless of the report to assist with “housing” in general as opposed to help those about to suffer equity losses. However, the advocates in this town are their own worse enemy.
Fluj:
Doesn’t Prop 13 stop such valuation increases? Just asking, as I am no expert, but we constantly hear about how Prop 13 here so I am curious as to its applicability…
TheRobin, there are lot of places with 1500$ rent for one bedroom. And thank god for rent controls, many in SF pay way less than market rate.
Fluj,
I’m just as confused as Tom. Did you refi? Or was it an appeal that backfired?
“The forces at work against transparency are not working in concert.”
on this I agree. Notice fluj: I didn’t say “Realtors are working against transparency”. I simply said there are “forces at work”
among them:
-Realtors with their oft-manipulated MLS
-builders/developers who do not list all their inventory on MLS or even on their own websites
-owners who don’t list their homes for sale
-govt who has long time lag about reporting sales, and some sales don’t have to be reported at all
-sellers/buyers who do not fully disclose other items that are folded into the home loan.
and so on.
they all have different desires, but the end result is an opaque SF market. That opacity leads to price inefficiencies as it is hard for consumers to know the state of the market and the clearance prices for sold properties.
SF’s market is considerably more opaque than other markets.
thus, we’re relegated to using zillow because they have “data”.
which is why I wish there were an SF wide real estate data corporation that captured most of the sales and reported them in a timely fashion.
I just noticed the data is as of Dec 31 07, and much has changed even since then!
Oh wait — this data is completely filtered, sensationalist and bogus! It is only counting homes purchased *in 2006* which have “neg equity” on 12/31/07.
But if I had house equity in 2006 (quite possible), and bought a new house in 2006, public data might suggest I had “negative equity” in this new house on 12/31/07, although my “retained equity” is quite positive — if I hadn’t moved, I would not even show up in the data.
And there’s no indication *anywhere* of the percentage of available properties being used to “paint a whole region red”.
I don’t see any explanation of methodology, and I can’t actually find this chart on zillow’s site (but I didn’t look hard). All that red is designed *specifically* to scare people and to tell a story (and it fooled me on a casual glance, as intended).
Bad Bad Bad. This is why I don’t read newspapers anymore 😉
I agree with ex SF-er; the market here is opaque, and that’s putting it kindly.
Look no further than what is going on over at ORH right now: The building has a no re-sale clause (for two years), but they will let you transfer ownership of 99% of your unit to another party. The buzz is that the developer is allowing this to happen because in many cases the units are no longer worth what they are in contract for. If the banks won’t lend, then the whole project comes down like a house of cards. And don’t say it can’t happen in SF. Those Playland Condos were sold at auction.
M.R.
I don’t really know. I would think Prop 13 would block it too. All I know is that I got something from the city stating that theyhad assessed the property for more than I bought it for.
Funny to see the Realtor crowd do the usual “blame the thermometer” dance.
So the official stance at the NAR is still “the media created the crash” and “soooo much negativity in the press” and other “bad news sell” and such and such.
How predictable these guys are… Rehearsing their 1-4PM Sunday anti-crash pep talk for the marks.
Aaaaaaaaaaaaaaay! Save it, Fonzarelli. More than a few people with generally divergent opninions took exception to the research behind this graphic. “The Realtor crowd.” riiiiiight.
I’m a huge fan of numbers and stats, but even I have to admit this “research” is basically rubbish. Recall the “mark to model” accounting that financial players have been chided for; this is “mark to Zillow” accounting for homes.
I completely agree that most folks who bought in the past few years are now likely underwater, and would lose money if they had to sell. Recent examples on SocketSite prove this – even the homes that appreciated forced the sellers to write a check at closing. But Zillow is an unreliable source and neither proves nor disproves anything.
Dude,
I fully agree. This research is horrendous. Perhaps better than nothing, lots of homes are underwater from 2006, but do tyr to do this on an area by area basis, is complete nonsense when Zillow is the source.
Better research today at DQnews.com, though not regarding the bay area. LA and Orange county medians are down over 20% from last year, when they were generally rising YOY until the end of this year. I can understand orange county, but the size of the LA drops are surprising given the great weather and strong jobs situation there.
In almost every area in So Cal, you are assured of a big loss if you bought recently, though the mix can be skewed down in LA the same way it has been skewing up in SF.
The Zillow/Realtors/Pricing estimate debate reeks of conflict of interest:
Conflict of Interest #1:
Realtors are counsels to their clients. They use the best data available and their own judgement and experience to come up with a proper valuation for a property.
That’s all nice and groooovy.
Problem is: a Realtor is paid in proportion to the sale price. That’s gotta skew the valuations somehow… “Hey, buy it for 40% less and cut my commission so that I can make YOU richer!” LOL. That’s never gonna happen.
Point 2:
Zillow (and Redfin by proxy) take the area’s information, use some savant algorithms and come up with property valuations. They can be off by 20% on a property, often much more (I’ve seen a house offered in Daly for less than 400K that was valued at 550+ on Zillow, and it’s still not selling, but maybe the “right up a slowly receding sand cliff” location was a factor and Zillow is oblivious of these details…)
But Zillow gives valuations based on actual data. Which means that on average a neighbourhood is properly valued as it is the reflection of the actual sales.
Now, just consider the fact that Zillow is providing a service… for free. A service that Realtors are selling for quite a lot (their market expertise is priced into the 3-6% along with the financing/legal expertise).
No Realtor has any interest in backing Zillow. It’s just like an auto welder in 1982 supporting robots. Who would kill the goose that lays the golden eggs?
Again, I’m not supporting “Individual” valuations from Zillow, just their “Overall” statistics.
Zillow can be a huge mess. I’m sure they do the best with what they’ve got, but the data coming from it is just totally unreliable. I agree with ex sfer here. I’ve said this before on another blog, but sometime last summer my home’s “z-value” plunged randomly about $600k regardless of other sales in the neighborhood. Ultimately, my house was just deleted altogether. Also, there have been multiple sales on my block since then. Some for 70% more than the most recent sales in the 00-05 period. But off market sales and undisclosed sale prices keep the “z-value” at almost pre-2000 price levels. And this is only one block in SF.
Fonzi,
Your anti realtor point doesn’t work. Hate on realtors if you like, just at least use an argument that isn’t completely specious. Because “buy it for 40% less” is not an option. Buy it for 25K-50 less, maybe. And 25K or 50K less on a 1.25M property doesn’t affect the realtor’s bottom line.
For the sake of argument, even if 40% less existed in this market, don’t you think the buyers would be happy? Don’t you think they would sing the realtor’s praises? Referrals are a very large part of every realtor’s business.
As for Zillow, it is not very good at all. You know what this graphic looks like, really? It looks like Zillow stretching itself. And they are thin to begin with. Hey it might get better. But it has been terrible and unreliable for some time at this point. They are too dependent upon information that is not going to be timely any time soon.
An observation/question.
I’ve been looking at the redc and other foreclosure auctions for a while. The initial ones last year had a lot of interest. More recently, the interest has shifted to the more ‘prime’ areas, and the edge hoods like Richmond (and most of contra costa), Vallejo, Oakland has dropped quite a bit.
In researching, I found that redfin ‘recent sales’ appears to be completely populated by properties sold back to the bank at the loan amount. Do these sales get counted in the median sales statistics, zillow comps, etc.? In some of these areas I would say that 90+% of the sales appear to be revert to bank types. If this is the case, it is prolonging the reset effect in the reported numbers, and may be a good foreshadowing of what is to come in some of the east bay, san jose, and less desireable areas of SF,etc.
One thing is for sure, it makes it nearly impossible to understand where the market is in these areas, so the only meaningfull valuation is 100x monthly rent. On the rent topic, anyone know a good source to guage supply/demand levels for rentals in a submarket?
I like to use http://www.zilpy.com for looking at various rent statistics.
Does anyone have the numbers for the Mega Millions lottery? Jackpot is $48 million today.
Figuring out what is going to happen to SF’s real estate market ain’t much different right now. Except, we will know the winning lottery numbers sooner.
Great link Peter.
Zilpy (http://www.zilpy.com/US/California/San_Francisco_County/San_Francisco) specifically shows the fundamental error in the CEPR study. The CEPR study calculates property value based on rents, but they use the Section 8 rental rate to arrive at their number which says that we will have a loss of $350k. Zilpy highlights the logic problem here by showing that the Median 2-bedroom rents for $2,561 versus a Median 2-bedroom Section 8 rent of $1,551. A convenient discrepancy which allows for a ~40% difference in price.
Yet another example of an “affordable housing” lobbyist trying to manipulate government officials through false information. Sigh.
HaHaHa….people fighting over who is right? Both are(and were) wrong….
Atleast Zillow is objective (they are not making money by giving you wrong statistics) compared to Realtors(again financial interests).
If you take an analogy to financial markets….Do you take an advice from an independent analyst(who may be right or wrong) or a financial advisor, who is getting paid by the company whose stock he/she is recommending…???
The way you frame it isn’t particularly valid either, SFwatcher.
Fluj is probably right that chaos and good old bureaucratic inertia make market information opaque. But SFAR should not be left off the hook on this one.
The sfarmls.com web site could easily deliver a richer set of information via their public site. Certainly there is a legitimate case for masking certain types of info like realtor comments and the names of the owners, but the rest of the info could be made public with no loss of privacy.
In fact SFAR put effort into the public access end of the sfarmls.com site to make it more opaque. It would have been cheaper and easier to make it more transparent.
On the Angel Island question : I don’t think that this is an indication of bad data. Although Angel Island has no homes for sale, it is part of some RE jurisdiction in Marin that does have houses for sale. The person who made the graphic probably just plugged in numbers per jurisdiction and let the plotting software generate the map.
Did you know that the Farallon Islands, 20 miles off the coast, are part of the City of San Francisco ? So if you for example looked at a graphic showing that the number of murders on the Farallons increased 20% that doesn’t mean that more people are being killed on the Farallons. Or that anyone was killed there. Or that anyone even lives there.
gh,
According to the chart below, Angel Island, along with Belvedere, are in the 94920 zip code.
http://www.hellosanfrancisco.com/zip/Belvedere_California_zip_code_94920.cfm