The Chronicle quote with regard to Bay Area home price appreciation:

One of the few standouts was the 94114 ZIP in San Francisco, home of Noe Valley, where houses go for well over a million dollars, designer strollers clog the sidewalks, posh shops peddle handmade ethnic tchotchkes, and the Google bus regularly cruises the streets.

But even that ZIP didn’t enjoy the double-digit appreciation that became de rigueur during the real estate boom. Instead Noe Valley prices were up 6.8 percent year over year, from $893 a square foot [in 2007] to $954 [in 2008].

The problem: In a market like Noe where we’ve seen an increase in high-end renovations, sales and even some new construction, an increase in average sales price should not be confused with market “appreciation.” Once again, think mix. And yes, even on a square foot basis.
The reality: Noe Valley apples (i.e., same home sales) paint a different – and we’d be willing to bet more accurate – picture of what’s happening with actual home values in Noe Valley these days. And up 6.8% year over year isn’t it.
Home prices down in 90% of Bay Area ZIP codes [SFGate]

65 thoughts on “Don’t Confuse Average Prices And Appreciation: Look To The Apples”
  1. So if I live on a street where a few high end renovations nearby affected my value positively, this isn’t appreciation? Who care about “classic” or not, appreciation is appreciation… take it however you can get it.

  2. Good question Foolio, but perhaps with the dramatic slowdown in renovations, a new version of “updated” will take that much longer to take hold. That might mean an updated kitchen and bath circa 2007 won’t seem quite as dated as it typically would in 2012. ( a stretch, I know).
    Saw this Chronicle article and thought to myself: Good grief, no wonder there is so much inconsistency in what people believe is the truth about the current state of SF real estate.

  3. Agree that this one blurb in SF Chron is probably wrong.
    Good point mktwatcher on the renovations – I do think they’ll slow down quite a bit and then, you’re probably right, that the new ‘new’ will take a bit longer to show up.

  4. If you take a $600/sf property and throw $300/sf to make it a $900/sf property, this is not appreciation but simple transfer of capital from cash into real estate.
    Of course I oversimplify. Maybe the property gained square footage, or maybe the place became a 800/sf or 1000/sf property. Often it switches market segments and appeals to a wealthier type of buyer (that’s precisely the idea from what I have seen in upper Noe).
    My point is you’re throwing money at a property and you cannot use this 100% as a comp because of mix issues.

  5. Thank you, SocketSite, for explaining why average prices can go up in a particular neighborhood, while prices for the exact same house depreciate simultaneously. Seems counter-intuitive, until you dig a little deeper, and many of us buyers, sellers and renters don’t have access to this level of data.
    I was touring a new listing yesterday in Noe and the seller’s agent was only too glad to tell me that neighborhood prices were going up, up, up–citing this exact article. I just smiled, knowing better.
    There’s a link in this article that gives price changes per square foot by Bay Area zip:
    Interestingly, also in San Francisco, 94118 is up 30.4%. Whoa! It’s like the tech bubble all over again…
    But what does this mean? This zip includes the Richmond district, Jordon Park, Laurel Heights, and Presidio Heights–very different hoods. My best guess, without seeing specific sales data, is that homes in prime Presidio Heights are still selling (if you’re buying a $4 million home, you probably don’t need a mortgage), whereas sales in less expensive areas are slowing down. A mix shift, like Noe. This could happen even if apple prices held steady, or declined slightly.
    In other words, one needs more info before saying anything intelligent about the 30.4% price increase in zip 94118.
    The Chronicle article’s data is for homes that closed escrow during a three month period ending 10/15/08. It doesn’t include homes that fell out of escrow due to the global economic meltdown (layoffs, stock crash, credit squeeze, the “R” word officially announced).
    The real question now is how does one come up with comps? I don’t think anybody is foolish enough to use comps from 3 or 6 months ago. Or, dog forbid, 2007!
    Very little will sell until buyers and sellers can agree on comps.
    I’m ready to buy–but not until prices come down further. I’ve heard reports from reliable sources that home prices won’t bottom out until 2010 or 2011, even with foreclosure assistance from Obama.
    Again, thank you SocketSite. Several of my friends follow your site, and we are all grateful for your intelligent, seemingly objective analysis (that our agents are unlikely to provide).

  6. This is just bad data. It’s terrible — CRAZY OFF.
    I punched in my zip, 94109, and this is what it says:
    July 15-Oct. 15 median price/sqft (2007) $1,228
    July 15-Oct. 15 median price/sqft (2008) $1,403
    Year-over-year change 14.3%
    July 15-Oct. 15 median price (2008) $3,894,750
    I love my hood but the median price is not $3.9 million!

  7. Anybody who joined Google in the last three years is now under water on all of their options. People who were gratned 1000 options three years ago have seen their paper gains go from 400K to zero.
    If Google wealth was responsible for driving up prices in Noe over the past couple of years…what happens now?

  8. I love analytical, objective reporting. Why can’t you people just admit that Noe is WHITE HOT!! It’s like a solar flare out there.
    You bitter renters should stop whining about your station in life and do something about it. Like get a job at Goodwill and buy a $1.5 million house in Noe.

  9. BayDog –
    “forclosure assistance” will likely cause home prices to remain artificially high for the foreseeable future. Lenders are now allowing interest rate reductions, but rarely principal balance reductions. Instead, missed payments and deferred principal are added as a baloon payment. The net effect is that the homeowner is able to stay in the home, at least temporarily, but a house that would otherwise be on the market remains unavailable.
    Unless “foreclosure assistance” allows principal balance reducitons for a large number of homeowners the problem is just extended a few years.
    This puts homeowners in a very difficult situation: Is it better to excercise your legal right to walk away from a bad asset and get the clock ticking on credit repair (and take the current tax break that may or may not expire in the future). Or do you hang on in the hope that prices will somehow recover to the extent that it makes financial sense to hire an RE agent and sell the property. I suspect many will choose the latter, to their detriment.
    Many Alt-A loans are due to reset in the next two years. It will be intersting to see the effect of any legislation to keep people in their homes and if these resets will affect home prices as much as some are predicting.

  10. I just wonder what data the Chron is looking at.
    Redfin (no idea if it is reliable) indicates that the 94114 zip code numbers are far below the Chron’s numbers. 94114 is not just Noe, by the way. Redfin indicates there was indeed a bump in $/sf from early ’07 to early ’08, but it has now come down considerably and was never anywhere near the Chron’s numbers. $/sf figures for the last 90 days are: $756 (SFRs), $640 (condos), $661 (overall).
    Once again shows the value of SS apples.

  11. my Alt-A loan is now at 4.9%, and the monthly minimum has gone down to a point where interest only in not an option because it is below what the minimum was set at. Meaning Alt-A borrowers are paying off there loans and that reset is already put off.

  12. is it ever a good time to buy?
    Of course there are good times to buy. When it’s a buyer’s market (duh) i.e. when there are more places for sale than serious buyers and when prices are low. The current stalemate (low demand and high asking prices) does not apply as a buyer’s market as price discovery hasn’t happened yet.
    should i always be skeptical and nervous?
    As opposed to always cheering and overbidding like everything will appreciate 20% a year? come one, there has to be a middle ground: like looking at a house for what it is: a place where people will live, not where they build riches overnight.

  13. sparky-
    Fixed? Or is it a pay-option arm (or otherwise adjustable)? There are a number of differnt Alt-A products that are due to reset in next two years. Primarily, 3 and 5 year I/O arms.
    At any rate, you illustrate my point. Your monthly payment will remain at an amount you can afford. But the principal amount remains the same (for now). So houses remain unavailable that would otherwise be on the market.
    When you decide to sell you are still facing the same calculus with regard to whether it is better to walk away or sell the home. It has only delayed the issue.
    Of course, there will be debate on how long you will have to wait to see enough real appreciation on a purchase made from 2004 to 2007 to be worth selling.

  14. Publius —
    All good points. Another question is whether San Francisco home owners facing foreclosure will receive any assistance, given all the pent up demand at the right price. Why not use that money to help cities that are really hurting, like in Ohio?
    I heard people who over-extended with credit cards are also getting help. Banks are writing down as much as 40% of the amount owed on delinquent accounts. They’d rather receive some repayment than none at all. Oh, and the best part is the lender doesn’t have to claim the write down on their taxes. Nice gift!
    Shesh, even if I go on “Price is Right” and win a new Cadillac Escalade, 70-inch plasma TV or fabulous trip for two to Vegas, I have to pay taxes, right?

  15. Correction:
    “Oh, and the best part is the BORROWER doesn’t have to claim the write down on their taxes.” (I meant borrower, not lender)
    And, the borrowers get to keep the goodies they bought! Tragic.

  16. Publius,
    It is adjustable. But, like I said the I/O at creation is now under the minimum pay price. So the principle is getting paid down. Not at the rate of a 30 year, it would take longer.
    I am just illistrating what that minimum option is, this is not what I am paying. I, like many other people, have long ago switched to the full payment.

  17. “Publius —
    All good points. Another question is whether San Francisco home owners facing foreclosure will receive any assistance, given all the pent up demand at the right price. Why not use that money to help cities that are really hurting, like in Ohio?”
    Personally I don’t think any homeowner with a home valued over $300K or so should be helped out. If they want to help out the majority of americans, they can do it below that price range.

  18. “is it ever a good time to buy? …”
    Absolutely, but you have to wait for a time when properties are not overvalued as we have experienced in the last 5 or so years. Incidentally that timespan roughly coincides with SocketSite’s life here on the internet. So although some like to characterize SocketSite as a pessimistic bear site, I simply see this site as reflecting the reality of the current times.
    There will be a time to buy, just not now. I’m really looking forward to see how the tone changes here when the buyer’s market arrives. Longtime bears will switch to bulls. Die hard pessimists will start accusing SS of being a cheerleader for the RE market. Gonna be fun.

  19. Speaking about averages in Noe being pulled up by shiny remodels in Noe, whatever happened to the $6M firehouse? With google stock price looking to go into the $200s (just downgraded today BTW by some analysts – where were those clowns when the stock was at $700 less than 1 year ago?), did the firehouse developers miss their opportunity to pull up the averages?

  20. is it ever a good time to buy? should i always be skeptical and nervous?
    IMO one should always be skeptical and nervous when spending hundreds of thousands of dollars (or more) on something. I doubt you can be too skeptical or too nervous.
    as for whether or not it’s ever a good time to buy. of course!
    i buy in a heartbeat if:
    -the cost to own is comparable or less than the cost to rent after all factors are considered
    -I plan on living in the home for some time (7 years or more).
    -I can easily afford the home even if there were a job loss or other unforeseen emergency (I like spending no more than 20% of gross salary on a home myself, although I’d consider stretching that to 33% of gross if I really really loved the property and was thinking it would be “the last home”).
    -I can justify buying the home EVEN IF I expect to make nothing on the home.
    My current home fit that category. (I own my house and have no plans on selling even though I foresaw this downturn years ago).
    -Mortgage is about 6% of our household monthly pre-tax check.
    -entire house (current valuation) is 1x salary.
    -mortgage is somewhere near 70% of 1 year’s salary
    -we’ve lived here for 5.5 years, and plan on living here for quite some more time.
    -I EXPECT my house to lose at least 30% of it’s value over the next 4 years. However, I can pay my home off in cash today if I chose, so it is not a big deal
    -Comparable rent would cost MORE than my mortgage.
    It is also why I would never buy in SF right now, as several of my “rules” are broken:
    -I’d never be happy in a home I could afford on 20-33% of my gross salary.
    -I’d never feel comfortable if my SF valued home fell 30%
    -SF rent is so much cheaper than buying.
    -I doubt I’d be happy owning a home that we could afford on ONE of our salaries. so there’d always be that stress.

  21. @Binnings: “Who care about “classic” or not, appreciation is appreciation”
    The guy who’s deciding how much to buy your home for cares.
    @mktwatcher: “perhaps with the dramatic slowdown in renovations, a new version of “updated” will take that much longer to take hold.”
    That assumes our ideas of style and design are based on renovations, rather than the other way around.

  22. “is it ever a good time to buy? should i always be skeptical and nervous?”
    I don’t know, Garrett. You’re the expert. You tell us. 😉
    P.S. In all seriousness, I *do* think that one should be skeptical and nervous before making such a large decision. That doesn’t, of course, mean that you don’t ever buy RE. But it does mean that you think about all possible financial impacts to your decision.
    Buying for emotional reasons is fraught with peril, whether it is a $180 pair of shoes or a $2.5M house.

  23. Publius —
    Here’s more info on credit cards forgiving 40% of bad debt, currently in proposal stage:
    I agree with your earlier point that foreclosure assistance will keep prices artificially high, at least for a while. It will take longer to reach bottom. But not even the US government is big enough to hold up the country’s entire housing market. Nor should it. Nor will it. Knowing this, many buyers will wait.
    I agree with Spencer–why bailout one $2 million dollar home owner in San Francisco when you can bailout twenty $100,000 home owners in the heartland?
    Let’s hope we’re not headed for a “lost decade” (Japan) where real estate prices tumbled 67%. But if we are, wouldn’t distressed owners be better off selling in the first year of the lost decade, and not the last?

  24. “Let’s hope we’re not headed for a “lost decade” (Japan) where real estate prices tumbled 67%. But if we are, wouldn’t distressed owners be better off selling in the first year of the lost decade, and not the last?”
    Because you don’t know you are in the lost decade until well into the decade.

  25. you know, all you number crunchers and analytical types just dont get it.
    You live in SF cause you love it here. simple.
    You live in Noe Valley cause you love it there. simple.
    If you treat a house as an investment, then you never will really be settled or happy.

  26. “is it ever a good time to buy? should i always be skeptical and nervous?”
    We’re in a buyers’s market. It’s a great time to buy right now.
    Besides, where else are you going to put your money? In the stock market? Oil?
    Living in a rental is boring and pathetic. Especially in SF, where they can’t raise your rents or kick you out.
    Prices in sf never go down… well, not in real SF. All that the ‘apples’ (I hate apples.) show is that some idiots (against the expert advice of real estate professionals) overpay when they buy and end up selling lower. What do you expect when they haven’t even updated the property?
    It’s all very micro.
    When there is volatility, there are great opportunities.

  27. American Express was just made a bank holding company.
    Just thought I’d mention that, while we are haggling about RE appreciation…

  28. I find all this talk about credit card companies charging off bad debts very interesting. I added up the unspent limit of all my credit cards (I have many — about 30) and its about $250k. If I were to charge those up all at once, preferably to purchase liquid and valuable assets (or stuff I need for my startup business), how much would I have to pay back? $25k?
    b/c my company (that I own) could really use some cash right now to buy materials and such … and it is impossible to get money from banks or VCs (as usual).

  29. “If you treat a house as an investment, then you never will really be settled or happy.”
    You know, that’s all fine and well until the enormous sales prices of said houses are only justifiable as an an “investment” that will continue to appreciate over time.
    In that case, you’re better either moving to a cheaper area or treating your rental as where you’re “settled.”

  30. “Prices in sf never go down… well, not in real SF. All that the ‘apples’ (I hate apples.) show is that some idiots (against the expert advice of real estate professionals) overpay when they buy and end up selling lower. ”
    Prices never go down in the real SF? Really?
    What about after the 1989 quake?
    What about after the tech bust and 9/11?
    I don’t think it’s nice to call buyers who overpaid “idiots,” especially when pretty much every real estate professional I’ve ever met encourages their clients to pay more, not less.
    Real estate agents are the eternal optimists, unless of course you’re trying to sell…

  31. Boy, the editor sure has a hard on for Noe Valley, doesn’t he? But I agree that prices are not going up anymore here, certainly not this month. These numbers are always going to be a bit backward looking, but even September to September is flat at best. I think prices have been flat in Noe Valley for a couple of years.
    I have an automatic search set up to find 3/2’s in a certain price range and I used to almost never get any hits. Now I see half a dozen, so something sure has changed. We are having number two next year and my wife is taking some time off work, or I would probably make a bid on 4036 26th St. This is a nice place, recently remodeled, in a very good location and it is only $700/sq ft.
    Very little, if anything is selling for $950/sq foot anymore.

  32. Anybody that thinks the San Francisco housing market will rise in the face of America’s economic meltdown is delusional.
    Yes, there are a handful of well-heeled people out there who will be just fine, and they will pour money into making the ultimate bachelor pads or party homes worthy of a magazine spread.
    But for the majority of people in this city who could barely afford a $500K home in good times, there is no way they’ll be able to afford a home in a deteriorating job market and hostile home loan environment. SF is not immune to the housing meltdown.

  33. You home-debtors just wait a few more weeks as VC funding dries up completely and this valley gets wiped out. Months later is will cascade in layoffs and will dominate SF Chronicle and Mercy News.
    Noe Valley -which is quite middle class will once again be middle class -within the new economic order.
    all of this false wealth is gone already. All it takes is a mark to market and this will occur very soon.
    Mark my words.

  34. As VC funding dries up completely? Um, dude, it already has. Funding is basically limited to keeping alive the companies the VCs already funded, and most of them are telling their companies to lay off everyone but a skeleton crew.
    And in the meantime, Google stock is starting to approach the 200 range. The goog lazy indicator is not doing well. Off nearly 50% in 6 months.

  35. real estate markets are sticky. Patience. Prime and Alt-A resets still coming. Forced sales really help clear a market.

  36. Stocks are liquid, RE is not.
    What happens in hours or days for stocks happens in weeks or months in RE. 1 – There are no real margin calls in RE. 2 – RE buyers are only paying mortgage and very often they budgeted this expense. 3 – It takes months to buy and sell.
    The effects of the bear market on WS are not yet known for RE, but my bet is the funny money will be less plentiful and when it is people will spend it more sparingly (because it does not grow back as fast as before).

  37. For the record, GOOG is down 58% at present from its 52-week high. So yes, Noe real estate has held up better than that (so far).

  38. Tech is still the life blood of San Francisco wealth, right?
    GOOG -54% YOY
    AAPL -44% YOY
    YHOO -56% YOY
    EBAY -60% YOY
    VMW -72% YOY
    Just checking.

  39. I agree that tech is the lifeblood of San Francisco, yes. Do I agree that stock prices in this tumultuous market climate can reliably extrapolated to real estate? Do you? Why? And further, why snark my snark like that? Read the above comments. It’s all “Google, Google, Google, and furthermore, Google.” Jeez.
    I’m kidding. But I agree that if and when wholescale tech layoffs occur, real estate is likely to by and large re-price in a wider scale than we have seen. Strategic tech layoffs here and there tho? We’ll see if that will be enough. The world is a different place than it was during the last downturns. The Bay Area’s workforce creates a needed commodity.
    Again, we’ll see.

  40. My patented lazy google indicator predicts the real SF is at 2005 prices. It does not matter if google were off 99.999%, it matters where it is relative to where now-vested options were granted to employees.
    My lazy theory was this money, along with loose credit, fueled the booms in the real SF since 2004.
    The indicator was never designed to function after an unprecedented financial catastrophe — as I’ve said elsewhere, I’m surprised anything closes right now. As “models” go, it’s doing pretty well, I guess, and it’s fun to talk about it 🙂
    Tipster’s point is good — we have had institutional destruction, and have not seen the VC closures yet. The exit mechanisms are gone, the funding mechanisms (LP’s) are under stress, and next year the third- and second- tier VC institutions themselves will start to close.
    If the last 15 years of the tech bubble really was caused (somehow) by loose credit, anyone in tech under 40 or so is in for a rude awakening. It’s hard to imagine how this will change the city, but at least we have a front-row seat.

  41. I agree with fluj that the hiring freezes/layoffs I see so far in tech around my friends in the Valley are strategic. Either trimming down after the huge binge of M&As (1+1=1.9) or doing a small trimming for the next season. I also see very good people under-employed at their current jobs as business stays sluggish.
    On the other hand, everyone’s 401(k)s are down and there’s definitely a “reverse wealth effect” for people who lost $100,000s of paper wealth,m especially for those in their 50s. Buying a home is the least of their priorities.

  42. “Buying a home is the least of their priorities.”
    But selling an overvalued one in SF that they no longer really need just might be!
    Look out below when boomers realize their only large “safe” asset is not so safe….

  43. The baby boomer house selling spree…really? I have sold to 4 boomers in the last few years. If memory serves me they put $1M down, $1.5M down, all cash, and all cash.

  44. There’s a funny (and somewhat relevant for this thread) article on GOOG today, “Google ‘Crushed’: But Why is Wall Street Piling On”. Excerpts:
    “This is getting ugly with a capital “U.” As in “underwater.” Think about it: Google’s been hiring better than 1,000 workers a quarter since that October 2005 low, hiring the vast majority of its new employees between January 2007 and the beginning of this year. Shares hit $500, $600, even $700 toward the end of last year. Now, headed under $300, that loud gurgling you hear are thousands of Google workers and their portfolios trying to crack the water’s surface once again….
    In the meantime, if you know someone at Google, head to Starbucks and buy them a treat. They could use the smile and Starbucks can use the business.”

  45. I have sold to 4 boomers in the last few years.
    I have sold 3 of my places to daughters of boomers. Lots of assets, very liquid, the fathers were very emotional in helping their struggling children into buying into such an expensive market…
    Did I mention this was 2005-2006?

  46. “Why salivate at the misfortune of others?”
    Life, after all, is made up of eating and sleeping, of meeting and saying good-bye to friends, of reunions and farewell parties, of tears and laughter, of having a haircut once in two weeks, of watering a potted flower and watching one’s neighbour falling off his roof.

  47. @SFS: I predict Google’s price will fluctuate 🙂
    One last thing — google lets employees sell options for time value (like real options), so the underwater comments should be viewed in that context.

  48. “Why salivate at the misfortune of others?”
    If these others are yesterday’s reckless who are now begging for a bail out, I’ll say we deserve some entertainment for our tax money.

  49. sparky the bear: you need to learn to spell right.
    your last comment: “there” should be “their”.
    I mean, seriously. that’s pretty basic stuff.

  50. dub dub,
    That’s official, GOOG just crossed the $300 line.
    Not that it matters that much now anyway. Most of GOOG’s recent hirees have been under water for a while.

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