October S&P/Case-Shiller: San Francisco MSA Down Across The Board

It is starting. Finally. Prices coming back down to reality. You’ve already seen it in the Infinity, One Rincon and Soma Grand. But, when will the Millennium come back down to earth? I heard they might converting some of the building into rentals. Can anyone confirm? At $1,600/sq ft asking price, they have to do something different. Or, perhaps, sitting on an empty building for a few years is a better strategy?

which 3 lines on which graph and why?

Thanks, Noseeum for the heads up about the Millenium rumors. We have been eyeballing the property for months and have been expecting at some point they would modify their prices. I would be VERY worried about buying if they started to convert some of the units to rentals.

When they cross again! First cross, then cross again, then again. I think that when the lines create a perfect replica of bull DNA it will be time to buy; conservatively in 2024.

“In other words, the intersection of the lines is basically meaningless.”
I disagree. They track fairly well right up until 01. If they had done the normalization in 06 then I would agree that the crossing would be meaningless.

diemos,
Do you still think 110 on the index is a fair estimate of the bottom? The runup in SF MSA in 1996-2000 looks to be larger than for any other MSA in the Composite-20. (For instance, compare index levels for all MSAs at 1/96, 1/97, 1/98, 1/99, all at index=100 at 1/00.)
Obviously, a lot of that had to do with the tech bubble (compare, e.g., SF MSA vs. NYC at those dates – also, the condo index graph above makes a nice visual). Only a portion of that increase in value I think will prove to be “durable”, as tech becomes even more commoditized and dependent on broader macro trends (gov spending and priorities, consumer spending impact on ad revenues, etc.).
I’m guessing that the SF MSA will go under 100. Perhaps by not too much. 1999 pricing (on average). All in nominal terms of course.
Anyway, what a great time it has been to be a renter these past few years (actually, more than a few)!

Nothing to worry about. Just a minor bump in the road. Just ask Flujie.

@LRIM,
110 seems a bit harsh, I think that things will hold around 130-140. Don’t be surprised if there is a pricing plateau a few months after the October plunge, as interest rates go down and deal seekers rush in.
Please remember that even though SF has gone up more than most MSA’s, it has experienced an economic shift over the last decade that few others can match. This is the mecca for an entire sector (Tech)… one that has taken a tiny short-term hit, but is inevitably going to expand once again.
Anyone who suggests that the Tech sector is seeing permanent or irreversible damage is full of BS. There is no industry more dependable and worthy of investment than the ‘Knowledge’ industry.
Over the coming decades, hundreds of thousands of immigrants from top universities around the world will flock to the SF MSA, as will young college grads who are looking for the ‘next big thing.’
The SF MSA has gone up more than Chicago, but there’s a reason for that. The Innovation industry will always be strong. Meat Packing and Chewing Gum sectors continues to remain unchanged.

@LRIM,
110 seems a bit harsh, I think that things will hold around 130-140. Don’t be surprised if there is a pricing plateau a few months after the October plunge, as interest rates go down and deal seekers rush in.
Please remember that even though SF has gone up more than most MSA’s, it has experienced an economic shift over the last decade that few others can match. This is the mecca for an entire sector (Tech)… one that has taken a tiny short-term hit, but is inevitably going to expand once again.
Anyone who suggests that the Tech sector is seeing permanent or irreversible damage is full of BS. There is no industry more dependable and worthy of investment than the ‘Knowledge’ industry.
Over the coming decades, hundreds of thousands of immigrants from top universities around the world will flock to the SF MSA, as will young college grads who are looking for the ‘next big thing.’
The SF MSA has gone up more than Chicago, but there’s a reason for that. The Innovation industry will always be strong. Meat Packing and Chewing Gum sectors continues to remain unchanged.

“The lines would have fluctuated and crossed several times in the last 21 years.”
Yes, and if we were in an equilibrium situation I wouldn’t pay much attention to it. However, we’ve never seen divergences this large in the post-war period. I’ve expected the outlying area to lead the way down in price declines. I expect they will stabilize first and the lines will converge again.
You will note that I didn’t say that would be the bottom. I just said it would be safe to get back in the market. Most of the declines will be over by then.

Wonder if we’ll overshoot on the downside the way we did on the upside.

I spoke to a mortgage broker this past wkend and they reiterated that MOST lenders are requiring 20% down on EXISTING homes while you can secure a loan with only 10% down on a NEW condo. This doesnt take into consideration the price of the home or income. She said this as a a GENERAL requirement lenders are using. Any truth to this? or should i be speaking to someone else? Yes this doesn’t really make a whole lot of sense in some respect. If this is true, no wonder single family homes have dropped faster than the condo price market. For a $600k-$800k house, i dnot think many people would have 120k-160k cash on hand to fork over.

Just because I like to be honest, I am calling out my terrifically awful forecast from last July. I thought the bottoming might be around 150, but of course that was long before the September/October financial market events.
https://socketsite.com/archives/2008/07/has_our_cathartic_event_come_and_gone_or_are_we_late_bl.html
Whoops.
With all the job losses just starting, there’s no telling where this is going to wind up now. Based on the increased sales in the hinterlands at current foreclosure prices, I’m thinking we might bottom around 120 and stay there for 3-4 years, but that’s just a guess at this point. I wouldn’t be surprised to see 110. I think 100 is stretching it.

Here is what is interesting. Historically, housing prices are slow to give back gains. The give back here in such a short period of time is pretty unbelievable IMO.
In terms of long term ranges I don’t think that it is unreasonable to assume that there is a strong correlation to housing prices and affordability such that average income and average home prices should have a fundamental link. Bottom line is that until someone with 400k annual salary can afford to purchase a normal Single Family Home in Prime SF you’re still above average in terms of Prime SF. We’re a long ways away here by these terms.
The bubble has burst and recent sales are reflecting this fact. There is still a lot of pain to come as anyone that purchased in the last 5 years comes to terms with their real loss in value/wealth.

How do I know we are going under 100? Simple. The mid tier hit just over 200 in 2006. Now, from Socketsite [My comments in brackets]:
The California Association of Realtors (C.A.R.) published the summary results of their 2006 Annual Housing Market Survey (“The State of the California Housing Market”) today. A couple of tidbits that caught our attention:
∙ The share of buyers who used a second mortgage climbed from 38 percent in 2005 to 43 percent in 2006, more than triple the percentage since 2001 and the highest percentage since 1982. The use of alternative loan products also registered a sharp increase.
[^^43 percent of buyers are gone.]
∙ The typical first-time buyer had a median age of 35, earned an annual household income of $80,000, and purchased a home with a historically high median price of $450,000.
[^^That was nearly 6X income. You only get 3X income now. I wonder what the number would have been if you actually had to DOCUMENT your income!]
So loan amounts are going to be HALF what they were before and a good chunk of the market is simply GONE! And we’ve said nothing about reserves or DOCUMENTATION of income. And people are being laid off, which wasn’t the case back then.
That 200 graph from CS is heading to cross 100. We’re about halfway there.
You all are forgetting how crazy it got.
Here is the link to the SS post of Feb 2007:
https://socketsite.com/archives/2007/02/cars_state_of_the_california_housing_market.html

these graphs do not exist in a vacume. along with these drops there are predictions of store closings in the 140,000 range for 2009. All of you economic buffs should really be concerned about the bigger picture and not just the price of a house. The money multiplier or the rate that currency goes through the system, (wealth creation) is going to slow down significantly. So what if real estate prices are down 40% or whatever the number is, being able to have dollars to spend is going to be the bigger issue. During the depression, rents were $1.00 a month, but very few had one dollar. Not only owners are losers here.

LMIM, I hope your kids are as smart and heartless as you are, but you know sometimes it skips a generation. They may not be able to survive the hardships that you are wanting to “bring it on”. It’s not just about money, the spill over will be in crime and all other social issues. It must be nice to do math all day without ever having to put a face on the misery. In the end things work themselves out but not for everyone, and what you have today you may not have tomorrow. Just saying, but certainly the best to everyone.

LMRIM: “After this credit ponzi scheme unravels, I hope the larger entitlements (social security, medicare, government-funded schools, etc.) wash out too!”
Yeah because the public will be rushing to the voting booth to reward whichever politicans eliminate all the entitlement programs during a depression, just as the voters in the Great Depression rewarded FDR with their votes over and over again for cutting government down to size. Nothing causes a government to shrink like voters angry about losing their jobs…
Do you actually think this recession is going to lead to a smaller government? You say you fear it will lead to a bigger government yet then propose that somehow (magic?!?) this crash will lead to your children being living in a US that is free from big government.
Seems to me that the worse this recession is the bigger government will get: the more it will regulate markets to try to prevent any future crazy credit ponzi schemes, the bigger share of GDP the government will consume, and more and more people will turn to government for help.
So when I see more bad housing news I see the economy getting worse, I see the government expanding more and more. So that is why I cringe when I see you guys cheering it on, unless by “bring it on” you mean bring on bigger government.

“Over the coming decades, hundreds of thousands of immigrants from top universities around the world will flock to the SF MSA, as will young college grads who are looking for the ‘next big thing.'”
NewBuyer : are you sure about that ? 100,000s of highly skilled immigrants ? While I too have faith that tech will recover, I’m less convinced that SF will be the prime beneficiary of the recovery.
If you look closely at the evolution of tech, you’ll see that at first there was a concentration in Silicon Valley from the other USA tech centers (Boston, NJ, Florida, even LA). Now that expertise is being flung back outwards in part due to the high cost of living here. Flung beyond the USA borders to emerging nations where you can hire a dozen PhDs for less than the bar tab at the annual holiday party.
To take on example, a decade ago tech work in India was mostly confined to the less glamorous work : testing and product verification. Now India R&D offices can support the entire life cycle of of a high tech product : design, implementation, field support, everything. Exactly as the visionaries from the 1970s had imagined, India is becoming a high tech superpower.
If you were in charge of Intel and needed to produce the next generation of CPU, why would you fund a single project for $250M in Santa Clara when you could fund two projects, one for $30M in India and another for $40M in China just in case India didn’t deliver ?
Yeah, tech is going to continue to be part of the SF bay area economy. But until new college hires here are paid similar to those in Shanghai, we’re not going to see much job growth here.
The only realistic savior that I can see for SF real estate values is in becoming a high end retirement village for the wealthy. Monte Carlo of the Western Hemishpere.

To Satchel- dude you actually think social security is going to be axed cuz of this? usuaully in times like this govt share of gdp and entitlements goes way way up. thats what happened in the great depression.. why would the opposite occur now.
peter shiff has some analysis out that says the dollar is going to devlaue thru the year which will cause hyperinfaltion in the us. he’s been right before but that sure isn’t happening now. looks like continued moderate deflation with the fed working like a rabid dog to inflate assets to be paid off. one day the gears will hit, but not today.

Do you actually think this recession is going to lead to a smaller government? You say you fear it will lead to a bigger government yet then propose that somehow (magic?!?) this crash will lead to your children being living in a US that is free from big government.
Good points, Rillion, and as I sort of halfway implied, I agree with you. Of course, government grows bigger during the depression. That has been one of the themes I have always touched on over the last year on SS. (Most people instinctively align their interests with government’s interests and assume that the government will do all it can to prevent the average person from feeling pain. Just the opposite! Government could care less, and in fact if the pain is great (as in a Depression) government is better off! For the short run anyway…. In any event, the voters have no power, and precious little understanding anyway, so their preferences are just an annoyance to the policymakers, except when it is advantageous to take advantage of the population’s ignorance and fear.)
But, I really believe that the government is a massively incompetent manager of the economy. As it grows in influence, it will hasten the day of collapse of the system. Just as in the Soviet Union 1989. I think the entitlements crisis – combined with the slower growth/misallocated/less productive economy that is going to follow from all the nonsense that the USG and Fed are doing now – will hasten that reckoning. A lot can happen in 20 or 30 years! Just think of what happened in the 30 years following 1929 if you happened to live in most parts of the “first” world! My kids might have to wait until they are 30 or 40 I guess 🙂
A reasonable question is if this collapse is as inevitable as I seem to think it is, why doesn’t government reverse course and do some things that people like me would think is sensible? Surely, there must be some in the institution that share this view? Well, the only answer I can come up with is that no organism relinquishes control and power voluntarily. As long as there is still wealth to steal from the population, the politicians will enact policies to do it. And the population will cheer its own demise. It’s happened so many times in history, I guess it’s just the natural order of things.
Anyway, even if from my point of view the sequence is inevitable, surely you can see why I would prefer that it get started ASAP rather than when my kids are entering adulthood, as opposed to toddlerhood and boyhood as now.

” As it grows in influence, it will hasten the day of collapse of the system. Just as in the Soviet Union 1989″
No analogy can be drawn there, surely.
“I think the entitlements crisis – combined with the slower growth/misallocated/less productive economy that is going to follow from all the nonsense that the USG and Fed are doing now – will hasten that reckoning. ”
The entitlements crisis has been on the horizon since well before the mortgage crisis.

LMRIM – Be careful what you wish for, one reason Putin is still in charge in Russia is because enough of the population of Russia looked back fondly at the Soviet times over the decade of ‘freedom’ that followed the collapse of the government.
If the US government collapses under its own weight after this housing lead economic crash, I do not like the odds that what replaces it will be better, I certainly don’t like those odds enough to bet my future kid’s future on it.

“Just to point out the obvious, Monte Carlo is already in the Western Hemisphere 😉 …”
Just to point out the obvious, factcheck needs a geography lesson.

Satchel–
The soviet union collapsed because oil prices dropped throghh the floor and they don’t make anything. the US does.
The US is not going to collapse and split off into 5 pieces. if you are going to make a case for an outcome worse than the great depression, back it up with something other than hyperbole and excessive verbeage.
social programs are not going to be bashed away–this is a time where the state is going to increase. the dollar is going to be just fine because there is simply nothing even close that can replace it. the yen is worse then the dollar in terms of debt. the france has horrrible swiss banks. and thd eu has a host of other problems.
the US can thus inflate its way out of this debt and the price of paying it all back will be spread worldwide in little pennies from heaven. it sucks but that’s what the world’s reserve currency can do. you get one get out of jail free card every 75 years.
good lord.

Chad,
It’s because the least expensive neighborhoods have bottomed out by 20% or more from peak and they account for nearly 1/3 of all sales over the past few months. Take that, and couple it with SOMA condos price reductions. Together you have the price drop story for SF. That’s the extent of the shift that people on here talked about for a year and a half or so that has actually occurred, mid September’s shift.
What you’re seeing in your sphere is what a lot of people are seeing. It’s what I’m seeing too. Things aren’t really selling. The sellers want their prices. And the buyers? They want the great deals they read about here and elsewhere! So consequently nothing happens, and volume is down. But price? Neither side is budging and the market is pretty stagnant.
This is not to say that things might not change further. People on here like to point to any number of things. Tech is about to implode. The ARMs and ALT-A’s will spell doom. Just wait and see. (Again, they’re still saying just wait and see even though they’ve been predicting armageddon for 18 months or more.) But right now? Almost everyting anybody who posts on here would actually want to purchase, in a perfect world, costs the same as it did last year.

Diemos, please. You know very well that CS numbers are being taken by bears and used as if they tell the SF story, in this very thread. Where was your innumeracy scolding correction earlier?

Fluj – I think your take on SF is pretty accurate. We’ll see what happens in March when we get more inventory and hopefully more transactions that can shed light on where we are post-stock market correction.
I’ve got my eye on district 5 like a lot of people. I can also tell you that I know a good number of people who are a pink slip away from being “motivated sellers”. Even without that pink slip, many are resetting expectations and second guessing their leverage situation.

One thing is for certain. The Marina is primed for a big fall this year.

@GH The house at 2219 Pacific is prob the best example. Sold for $4.25 last year and is on the market for $3.5 presently. It’s also not yet sold, and had extensive demolition. This is probably at least a 25% hit and could be worse if it sells for under asking which it appears to be headed for….
https://socketsite.com/archives/2008/12/from_beautifully_remodeled_to_totally_gutted_and_asking.html

LMIM really makes people think. I don’t like his style but respect his intelect. (1 or 2 l’?) All this time I’ve been seeing this from the small person point of view. Looking at it from the mult-billionaire point of view this is big time fxxckery.
I have to say BRING IT ON too.

I see how, when viewed through the distorted lens of one’s own personal opinion, LMRIM can be either loved or hated.
Regardless, he is a smart investor. If one were to follow his advice over the past year they would certainly beat the market – in some cases soundly! It will be interesting to see if the same holds true during the next RE bull run.

In my occupation as an Engineer, where I have worked with other Engineers in both China and India, it has been my experience that both lack creativity and the ability to innovate (I am speaking in extremely broad generalizations and there are, of course, many contradictory examples). They can produce a good quality product if given extremely detailed documentation, but the level of detail they require is higher than that which would be required if the product were to be manufactured anywhere in the U.S. Their classes consist of memorization rather than creative exercises. They can design a widget for you if you give them a competitor’s product to reverse engineer and reproduce… but if you tack on a couple of extra requirements they will fall short.
This is why I have often said that I fear that the only thing “we” (the U.S.) have going for us in terms of global competitiveness is our ability to innovate. If we are able to prevent China or India from “taking over the world”, it will be by maintaining this creativity gap. I am not so sure we can do that for long.

With all the gloom and doom, what do you think will happen to all these new developments that are just being released in the market? The Infinity, The Blu etc. The release of the second tower of the Infinity is coming on the market and they suggested that the second tower was going to be more expensive than the first tower. I went to a new development and they seem to have the confidence that the market is stable and that they will have no trouble moving so many condo units in SOMA. When I say I want to put an offer for approximately 10-20% less they laugh and want to give me 1-2 years HOA dues instead including some discounts from their upgrades. Any suggestions on how to deal with these new developments while getting a deal on a unit that is not facing a wall, alley or is just plain undesirable? A novice in dealing with San Francisco realtors…..

Oh god, Paul. You should be paying for that advertisement. To Bob, the sales offices are smoking crack. Get a preapproval letter from the bank and walk yourself to the sales office. Put an offer in at 25 – 35% below what they are asking. The sales people have zero power. The developer (especially at the Infinity) is struggling. They will look at (and likely accept) your offer. If they don’t tell them your offer will be lower in 3 months.

the moment the real estate agents hijack comments for advertising is the moment socketsite dies.
I, for one, would never hire PH, or anyone who uses irritation and passive aggression as a self-marketing tactic.

rr,
Bob asked why he wasn’t getting good results and asked for help to improve his performance.
I provided a solution.
Can’t we all just get along?

I’m pretty sure U of C has produced more Nobel Laureates than the entire state of California…
U of C Nobel Laureates

I am pretty sure Caltech alone has produced more Nobel Laureates than U of C.
You don’t get to count someone as a Nobel Laureate if they once did some graduate assistant work at the school, as they try to do with this list.
How many were actually faculty at U of C when they either did their work that led to the prize, or when they actually received the prize?

@Everyone
1. U of C has had a ton of Nobel laureates, perhaps the most of any university, depending on your counting method. It’s an amazing university. Chicago has great schools, but that’s not the point. Bay Area universities are a huge catalyst for us being the Innovation Mecca, but they are only one reason. Don’t get me wrong, Chicago is a great city, and fairly diversified in its industries, but it is not the center of innovation. We are.
2. People flock to their Meccas. Aspiring bankers flock to New York and London. That won’t change even after this crisis. If my future son wants to do finance, I guarantee he will go to New York. That will not change. If my daughter wants to be an actress, she will go to Los Angeles. Period. That will not change. If I have a great idea for a company, I will go to San Francisco. Period. That’s how shit works. Deal with it. It’s not going to change… not because of this crisis… not because Bangalore is on our heels (lol)… not because some guys on SocketSite say so.
3. The Bay Area, and San Francisco in particular, are quite small. Our entire MSA does not crack the Top 5 in the United States. The city of San Francisco does not crack the Top 10 largest cities in this nation. It’s brand value eclipses its size more so than any city on the planet, other than maybe Venice.
4. Now, given that San Francisco has so much industry built around it, and given that it is amazing culturally (great restaurants, opera, theater, nearby vineyards, skiing etc.), and given that young people want to live here, and given its access to two of the world’s five finest universities, and given the natural beauty, and given that people in Asia and Europe alike hold San Fran with greater esteem than just about any other US city…
5. … it seems like a pretty safe place to own property, especially if you live in “real” San Francisco, and not the suburbs (aka Noe Valley) or the bland dime-a-dozen part of town (aka Soma).
I think this puts four or five discussion chains to rest.

given its access to two of the world’s five finest universities
two of the world’s five finest? seems a bit of hyperbole? Stanford may count as one. what’s the second? Berkeley? that would be a stretch. I’d MAYBE put Berkeley in the top 20. and that’s just of the US.
not to knock Berkeley, it’s a FANTASTIC school. but top 5 US schools would be generally thought of as:
Harvard
Yale
Princeton
MIT
Stanford.
Other schools that also have a higher rep than Berkely (some also have legitimate top 5 creds):
Cal Tech
UPenn
UofChicago
Columbia
Washington University in St Louis
Johns Hopkins.
IF you look worldwide, there is even more competition:
Oxford
Cambridge
Ecole Normale Superieure
U of Tokyo
Australian National University
McGill.
Suiss Inst. Technology.
UofHong Kong
Uof british col.
I would personally put Stanford in top 10 worldwide, and Berkeley top 25-50. You could easily claim that Stanford should be top 5 worldwide and I wouldn’t argue. It would be a leap of faith to put Berkely there.

Getting back on topic, the fact that C/S data is only broken down for the MSA does provide an indication of pricing in cities all over the MSA, because some people can and will switch from one city in the MSA to another.
For example, if homes in Walnut Creek could be had for $1, many people looking at a Mission Bay condo for $750,000 would switch out to Walnut Creek. Not all of them, but some of them, and, after a while, that would cause condo prices in Mission Bay to drop. If Mission Bay condos drop, someone looking at a Financial District condo would switch to Mission Bay, and after a while, Fi Di condo prices would drop. That would ultimately spill into District 7, not right away, but ultimately.
So these numbers DO affect SF, even though I am sure that a large percentage of the biggest drops have started outside of SF.
But not all of these price drops are outside of the city or even district 7. Anything that isn’t in move in condition is way down in SF. The reason those numbers are not in the stats is that many people who own them are told either to fix them up or not bother selling right now.
Chad never sees them because the Realtors discourage people from even listing them before they are fixed up. I’m noticing a lot of listings that appear to be very recently fixed up, for example, with new Kitchen cabinets (usually white, paneled) and new countertops and some bath work done. You can tell that it isn’t a complete renovation that would have been done by a flipper, it was just the minimum to keep the buyers from being turned off. That tells me the Realtor probably told the seller, either put $40K into it or don’t bother.
Another example, there were several 2 unit buildings in District 7 that sold for about $660 psf in 2006. Very similar buildings are now listed for $500 psf, a drop of 30%. These buildings were typically well maintained, but very outdated buildings that needed everything cosmetically to be replaced inside. And they have one other feature: the owners typically need to sell because they are elderly and likely moving into a retirement home and they need the money.
In that situation, the price drops are pretty astounding: 30% is no small drop, and you can get a pretty good renovation for the difference in price (something that went for $2.3M can now be had for $1.75M, and $550K, 275K per unit, gets you a lot of work). That means that if you are willing to suffer through the renovation or do it before you move in and pay 3-4 months of double payments, you can end up with a renovated 2 unit building today for about what you could get an un-renovated two unit building for two years ago. That’s in the Marina, on a quiet street near the Palace of Fine Arts. Not my cup of tea, but price drops are out there if you are willing to find them.
So, although these price drops in C/S stats may be more reflective of Vallejo than SF right now, that process is working its way here and in some cases, has already arrived.
And now that the financial crisis has become an economic crisis, there is definitely more to come. The stimulus is being directed at middle class jobs. It isn’t going to save $3M homes in Pac Heights.

Great points, tipster.
IMO you’ve highlighted one of the difficult statistical aspects of real estate sales data: selection bias.
In addition to the issues of “renovation” and prime properties (relative to the pricepoint) being the ones that sell, there is an even more subtle effect that occurs for all data periods other than the longest (distortions in data tend to be washed out over long periods because all assets eventually change hands). It is related to seller “loss aversion” and the uniqueness of real estate (especially in a very heterogeneous housing stock city like SF – obviously less of a concern in new subdivisions in Stockton, e.g.).
Because it is very difficult to value unique assets, and that valuation is by definition going to be highly influenced by subjective factors, we can expect that an individual purchaser might “overpay” or “underpay”, depending upon the specific dynamics at play in any single purchase/sale transaction. In each case, over- or under-pay is relative to the “objective” price that, say, and average of serious purchasers over a reasonable time period surrounding the sale would pay. Obviously, under certain market and/or credit conditions, “overpaying” or “underpaying” might predominate, but under any market condition there will be examples of each (fast “distress” sales, or “buy now today ther are 7 offers ahead of you!!!”, etc).
Additionally, exogenous factors often intervene in the period following a sale. For instance, a new fancy restaurant might get built, and all the lemmings go gaga over it and continually mention how a few restaurants change the neighborhood, etc. Or, the market climate changes, and people suddenly realize that a gas station on the corner means that the property is no longer as valuable as it used to be even though the gas station was always there (e.g., 214 Arguello), or that a backyard cliff that was always there suddenly explains why a property in a hot neighborhood like Miraloma Park doesn’t seem to be so hot (835 Foerster, e.g.).
The point is that because sellers are loss averse, they often pull these potential sales either because they won’t take a loss or the offers do not accord with the value they imagine.
On the other hand, exogenous value shocks that are positive or previous purchases that in hindsight have now turned out to be “underpayments” result in positive surprises for potential sellers, and these result in sales.
The result is that there is a systematic bias in the sales data in which over short and medium time periods, actual sales prices result in higher observed appreciation that for the general group of assets if they were all to be sold. Obviously, this phenonemon (well known to the finance world when examining valuation of heterogeneous asset sets over time – often observed in the mutual fund world as “survivor” and “selection” biases) is just a factor in what is going on, and augments the renovation/prime property factor you identified.
The clue in dealing with these sorts of distortions is to look at volume figures. As sales volume declines, given heterogeneous asset classes, one can be fairly confident that these sorts of “beauty pageant” effects are going on. Even C-S cannot account for these issues, because it can only look at the universe of ACTUAL purchase-sale transactions. Although there is clearly a granularity issue regarding SF values by district/property type versus C-S MSA aggregate data (or tercile data), if we leave that aside, C-S data likely understates the unrealized losses being suffered by most homeowners in all but the most distresed neighborhoods (in very distressed neighborhoods, we can imagine that the prevalence of force sales is leading to some objective “underpayment”).

What I learned from this thread:
Embarcadero — Realtors are cockroaches. Food is better in Chicago than San Francisco.
Ex-SFer — Wasington U in St. Louis has a better reputation than Cal Berkeley.
Tipster — several anonymous examples support a 30% drop theory, a drop that is already here!/ fixers in desirable neighborhoods are way cheaper than they used to be

fluj,
You forgot one. You should have also learned from Embarcadero that financial activities are dead in SF and the city is mostly a commuter town now – in spite of a daily weekday population increase of 300,000+. Those are all tourists.

@ f.h.,
“You forgot one. You should have also learned from Embarcadero that financial activities are dead in SF and the city is mostly a commuter town now – in spite of a daily weekday population increase of 300,000+. Those are all tourists.”
I learnt these items a long time ago on here. Google “Socketsite” + “Colonial Williamsburg” for past lessons.

“What I’ve learned from Fluj:
There is an endless supply of horsesh*t in the universe. Also, cheerleading is hard work, especially once the game is over.
Poor fluj. Didn’t you give up on this site?
”
Did I offend you by repeating what you said, verbatim? My bad.
I think you taught yourselves those lessons. Perhaps in night school at the University of Phoenix, Chicago. After a delicious deep dish pizza pie !

It seems as though there are two parallel discussions being merged. This oft-debated issue of how wonderful SF is, and how said wonderfulness will support housing prices, is confusing current bubble pricing with prices relative to other places (whether Chicago or Bangalore).
I understand why others may choose to live somewhere else (and not just because they can’t afford to live here – that is silly!). I, like some, happen to love living here (warts and all) and pay a hefty premium to do so. There are many lifestyle advantages to being here combined with scarcity (“no more land”), and high wages (those innovative tech workers) which I think everyone can agree explains why housing costs more than, say, Des Moines. And despite some of Embarcardero’s concerns, I doubt that differential will dramatically change in the near/medium future.
But that is separate from whether or not bubble prices here can be sustained. LMRiM and a few others aside :), there has been wealth destruction here just like everywhere else (including a few locals caught up in Madoff….). Tech layoffs are just starting and those who remain will not be getting raises. Stock option gains – um, not so much anytime soon. Investment bankers (the ones with the income to buy those “real SF” houses) – either out of a job with not much on the horizon, or looking at no bonus. Buyout/hedge fund guys – there are a few who still have more money than God, but lots who don’t. I know plenty of families in all the above categories who are on the “groceries and gas” spending plans.
And then there’s credit. Those of you who think that those rich folks buying $2mm+ “real sf” homes aren’t affected by the credit squeeze have no idea. Some really did and will continue to have boatloads of cash to buy and maintain multi-million dollar property. But lots used leverage and/or based ongoing expenses on historical “bubble” income.
And the bubble prices are built on the “old” model, with easy credit and high income. You don’t need all of that to go away, just some of it, and the market must adjust.
Will SF remain a great place to live? I sure hope so. Will SV remain an innovator and high-wage-generator? Probably. But that just means that wages will be higher than in Bangalore or Shanghai, or perhaps even Chicago.
But that is a very different argument than saying that said advantages can support our own bubble – we may be special, but we’re not that special….

I love how the folks who crow about SF as Tech Mecca gloss over the fact that Palo Alto and Mountain View are an 1:15 in brutal, hair-pulling traffic from SF.

“I love how the folks who crow about SF as Tech Mecca gloss over the fact that Palo Alto and Mountain View are an 1:15 in brutal, hair-pulling traffic from SF”
Do ya? Do ya just LOVE it? Foolio, you are a snark machine par excellence. Don’t go changin’. (Alternate handles on other websites notwithstanding.) Your LOVE of freeway commutes does nothing to change the fact that SF has indeed become an area full of high paid tech workers who will indeed deal with lousy commutes south.
Dude,
I’d argue that 2002 is only a date that’s about four or five years into what has amounted to a 10 year paradigm shift for the SF workforce. The ensuing 20 months after 2002 saw little to no change in SF r.e. values, but then late 2004 and on to 2007 saw a steep climb. Where did tech workforce buying power end, and credit bubble begin? Late 2004? Those values are not that far off current values, if at all.
I’d also argue that strict rent to own calculations do not accunt for human behavior. Premiums for housing will continute to be expected in premier areas. I’m positing let’s say 60% of SF as a premier area comparitively.

SF is a nice town. It has a lot to do for such a small town. Chicago is a real city. It has actual mass transit, horrendous traffic, great restaurants, real theater and art that extends beyond 1,000,000 ways to say “Bush sucks.” more rich people than you can imagine (Cook County has more millionaires than any other county in the USA, except LA County). SF has a pale imitation of mass transit, worse-than-it-should have traffic due to suburban sprawl, no theater (as posted above, and that’s a point of fact–if you don’t buy it, take a quick tour of, say Steppenwolf in Chicago), and again no art. It does have pretty good food though, although I will maintain it’s debatable which city has better food, I will admit that Chicago exhibits more variability, whereas in SF, it’s almost impossible to get a bad meal.
Yeah, I’m counting the MSA, because as posted above, if Walnut Creek dropped to $200K, you better believe there’d be an exodus from SF (think especially those freezing in the Sunset). The condo market is BS–practically the only housing in SF is condo, where in Chicago you have a large number of SFR’s, and two-flats. Chicago condos, unlike SF, have traditionally been much cheaper than SFR’s in Chicago on a $/sq ft basis. So it’s appropriate in my view to use the MSA. With both cities, it includes old-school ‘burbs, newer sections, ghettoes, and glittering downtown condos. And when you do that, your “investment” in Chicago housing has done better than SF.
As to Chicago’s economy, it’s more diversified than it’s ever been, and I really doubt “advertising, insurance and banking” will go out of style. I also doubt all of a sudden railroads will stop shipping through Chicago. Tech, however, just might relocate to cheaper locales as it gets increasingly commoditized. In any case, what is Apple, but a marketing/design company (manufacturing is all in China)? Google? Excuse me?
As for weather, I’ve always maintained that you must hate winter more than you like summer to prefer the weather out here. If that’s your deal, then ok, but why aren’t you living in LA if weather is so important? Or San Diego? Or Florida?
Anyway, I’ve noticed that people who live here think they like “city living” but in reality they prefer a small/mid-sized town that has a “lot to do” for its size. Which is why a lot of people realize that and eventually move to Austin or Boston or Nashville or Denver or Seattle, as those are all medium-sized cities with a relatively lot to do but for 20-60% less money. They don’t move to Chicago or NYC because deep down they actually don’t like a true city life.

As someone who went to Cal, is from Chicago, lives in the Bay Area now, and works in tech, I think I can throw in my 2 cents.
1) Don’t use the US News & World Report rankings as some kind of gospel, Berkeley has a phenomenal world wide reputation that outstrips Wash U and Johns Hopkins by a landslide. Those rankings factor in many things that have nothing to do with academics or reputation, it mostly has to do with money, hence no public universities in the top 20. Plus, in growth fields for jobs like bio-tech and electrical engineering research, it is one of the best in the world that attracts talent here from all over the world.
2) Chicago is a real city, SF is more provincial and much smaller in comparison. I like it that way, but it is hard to compare the two, and if you have been to Chicago recently, you will see, there is a lot of money there these days. Our job base here is comparable to theirs, I don’t see some great advantage there that makes SF so much different. In fact, i think Chicago is far more vibrant for arts and creativity than SF.
3)Tech is slowing down, but from my knowledge from working in the industry and knowing many, many others who do, there does not appear to be a cliff coming up that spells disaster. There will be some layoffs for sure, but as of now, it does not look catastrophic, that could change, however, but the biggest companies (and employers) are doing relatively well.
I also reject the notion that SF is different and people will always flock here for all the great jobs. Did people flock here in 1958? No, they flocked to Detroit. Did all the top grads of Ivy league schools flock here as they did in the late 90’s during the last 5 years? No, they flocked to NY to join investment banks (most of which no longer exist). If the next new thing grows up around a different area, that is where people (and money) will go. We have a good chance to have that happen here, but to think it will just because recent history proves it has is wishful thinking.

Wah, Carnegie-Mellon-heads never seem to get mention on best of schools lists even though we call all the shots from the shadows behind the curtains. Discretion, valor, and all that rot.
Instead of pouting, here is a positive summary that many here might agree with. San Francisco is a desirable city full of compelling properties and experienced housing unit sales people. One should always shop, and now that buyers with cash are driving it might be a good time to offer what you think a listed property is worth.

David,
You started using “city” and “town” interchangeably there at the end and I wound up not understanding what you were saying. Seattle is a medium size city, but SF a large town? Anybody who spends an appreciable amount of time in Seattle versus SF will realize SF is quite a bit more urban in feel and literally in density.
Also, Chicago always gets a pass on here for approximately half of the city really, really sucking.
Side note: Why is it always “Chicago versus SF” on here? They couldn’t be more dissimilar. SF versus Seattle, OK. SF versus LA, understandable due to regionality. Chicago versus Houston? Chicago versus NYC? Understandable. Chicago versus SF?
Socketsite happens to have a lot of once, current and future Chicagoland residents. THat’s all.

David – why would Cook County not have the second most millionaires for a county after LA County? It is, afterall, the second largest county in the US. If it didn’t have the second largest number then it would show that Cook County is relatively poorer than other counties. I ask you – which county has more millionaires per capita? Cook is a LOOOOOOOONG way down the list, after Marin, SF, San Mateo, Santa Clara, and Alameda – as well as LA.

“As for weather, I’ve always maintained that you must hate winter more than you like summer to prefer the weather out here. If that’s your deal, then ok, but why aren’t you living in LA if weather is so important? Or San Diego? Or Florida?”
I’ve only been to Chicago in the summer and I know I would never want to live there. ARGH, it was horrible. I don’t hate winter or summer, I just hate inescapable extremes of weather. Give me a nice temperate climate that rarely gets too hot or too cold. Give me a place where if I want to experience winter I can drive a few hours and go skiing or if I want to experience summer I can drive inland a few hours and spend a day at lake or river where it is 90+ degrees. Meanwhile I can live in a place that doesn’t need air conditioning and where I might turn on the heat a few times a year.
I never want to live in a place where for two months in the summer and/or two months in the winter it is inhospitable outside.
I grew up in Southern California and it is too hot there in the summer and skiing sucks. Same for Florida. At least in those places though the winters are nice, unlike Chicago which has nasty winters and nasty summers.

@ Dude
“Home prices, on average, are still around 40% higher than they were in ’02. Is our weather 40% better today? Do we have 40% more people competing for the same housing? Are there 40% more jobs in the Innovation Mecca? Did everyone get 40% raises?”
FWIW, the “renter’s renter”, the tourist, thinks so. Since 2002, SF tourism revenue is up 37%.

it seems I riled feathers with my Berkeley comments.
I actually agree with many of you: the rankings are highly arbitrary and there is no good scientific way of deciding. moreso, it depends highly on field as well.
even the scientific post linked to above evidently had issues:
“A 2007 paper published in the journal Scientometrics found that the results from the Shanghai rankings could not be reproduced from raw data using the method described by Liu and Cheng.[5]”
—
thus, I simply typed out “top universities” off the top of my head. I didn’t look it up anywhere.
my only point was that I find it doubtful that MOST people would put Berkely in the top 5 in the world. doesn’t mean they can’t be there.

It’s amazing how some here are blinded by our region’s past accomplishments and assume that will continue onward forever. I have no doubt that the SF area will maintain its place as a favorable place to live and work. I just doubt that growth will continue at the rate that real estate values imply.
Look at the trends. India didn’t start cobbling its higher education in the sciences until the 1950s. Mao’s Great Leap Forward didn’t exactly do great favors to their university system but the Chinese leadership began correcting that in a big way in the 1980s.
We’ve had a huge head start in the USA but that doesn’t mean that no-one else wants to join the race.
Look at the trends : the emerging nations went from exporting grad students to importing menial work and are now moving into importing entire R&D projects. What’s next ? Creation of new companies ? Creation of new centers of excellence ?
But don’t let me dissuade you from thinking that those other places can only produce uninspired uncreative salarymen. Go ahead and continue in believing that there is a magical force field around the SF bay area that keeps all of the world’s creativity and innovation confined to our expensive real estate. And “globalization” is just a word on some ivory tower chalkboard.

Speaking as a 3yr SF resident who spent last year looking for homes in both SF and the East Bay, I would find it interesting if the bulls on this site (Fluj, Debunkr, et al) would argue that SF as a city is on an upward trend and, if so, what those arguments might be.
I ask this because my wife and I have the money to buy, but after looking in a serious fashion last year we are finding it even harder to envision ourselves forking over a large downpayment in light of certain factors. These include:
1) SF’s economy is not becoming substantially heartier or more diversified and seems likely to take hard hits over the near term
2) SF’s infrastructure (incl. roads, public transportation, etc.) is mediocre and no major fixes are on the horizon
3) State and local government budgets are among the most severely strained in the nation, with little indication that they will improve in the near-term
4) Crime and other quality of life measurements (e.g. traffic congestion) are heading in the wrong direction, with little indication they will turn around quickly.
Even granting the notion that SF currently reigns supreme among US cities, are those who are bullish able to make a consistent case for why SF is poised to out-perform other areas of the country in spite of the severe challenges in front of it?
I’m hoping for specific ways that SF is going to improve in the next 3-10 years, not boilerplate answers involving vague notions of a “knowledge economy” or “innovation.” No one denies that SF’s blessings are offset to some degree by large ailments. Is there reason to hope that these are closer to being fixed now than 10 years ago? Are SF public schools going to improve dramatically? Is our rich-poor income gap (currently the worst in the nation) going to shrink? Is the SF city government going to find the money to make wide-ranging infrastructure investments?
Thanks for any input.

David,
I happen to like Chicago very much. I’m from the Midwest. I can see myself living there someday. The unfounded SF narcissism you mention often strikes me as just that too. There has grown a sense of entitlement in this town, as the town has gotten wealthier, that I’m not too crazy about at all. This was a different place in the mid 90s. LA supports local music. Why don’t we? Don’t get me started on that whole thing. SF aint perfect, nor do I really respect the “SF is perfect” baloney.
But the South Side of Chicago is larger than San Francisco. Let’s not compare ghettoes. Chicago loses badly there and it isn’t really debatable.

I will say this–I’ve lived in Northern Virginia and SFO. VA has a tax rate of 5%. CA 10%.
CA-infrastructure, ecuation, public schools, general services is FAR INFERIOR to Virignia. Also inferior to pretty much anywhere else except maybe New Orleans after the flood. Rent control and socialism has turned San Francisco from a World Premier city to a friggen banana republic.
People talkimg about how SFO has all this great infrastructure and educated people therefore its going to not suffer are delusional.

The power of the internet for people to spew nonsense…
David,
You claim Chicago has “actual mass-transit” SF has “a pale imitation.”
Then why is mass transit ridership higher in SF than in Chicago? And tell me how many Chicago vs SF suburbs you see on this list?
http://en.wikipedia.org/wiki/List_of_U.S._cities_with_high_transit_ridership
“SF has no art.” What does that even mean?
And I’ve lived in Denver and there’s absolutely no comparison to SF – it’s a vastly inferior urban living experience in every way (except for affordability and proximity to good skiing).

someone asked why SF is constantly compared to Chicago. it’s an interesting question. perhaps a few reasons for the comparison:
-first, there are a fair amount of posters who hail from Chicagoland
-but moreso, I think it’s because many SF’ers really think of SF as one of the major cities. thus they compare it to NYC, Paris, London, LA, etc. when really it should be compared to like-sized metros… like Boston, DC, Atlanta, Boston, Philadelphia. worldwide comparisons might be more like Amsterdam or Madrid or Barcelona or Milan or perhaps Rome
when you compare SF to like-sized metros, it actually fares very well IMO.
but it is nearly impossible to really compare SF to Chicago, as Chicago is so much bigger, and such a different style of city. Really only Chicago, LA, and NYC can be compared to each other… and even then those 3 are very different areas.
Yes, Chicago gets “a pass” on it’s south side. but Chicagoland is 200 square miles. SF only 49 sq miles. the “good” parts of Chicago are bigger than the entire city of SF!!!!
And SF metro area gets “a pass” on it’s bad parts as well:
Bayview, much of SE part of city, Richmond city, much of oakland, etc.
overall, I think SF is just great.
however it, like most everywhere in the country (even world), became quite overvalued these last 10 years or so. and thus its Real Estate will likely lose REAL (not nominal) values just like everywhere else, depending on governmental intervention.
and I’m quite sure it will do better than some areas, and worse than others.
but overall, I’d never really compare SF to Chicago. I really compare it to places like Boston and DC and Atlanta.

Dude,
Here’s a few links. The growth is from ’02-’07. Obviously ’08 isn’t in the can but here there are some clues suggesting it’s been a good year in this sector (see below).
I can’t recall when local restaurants didn’t have a high mortality rate. Likely, this is a tougher year.
Interestingly, a lot of the SF tourists aren’t foreigners. They are firstly, neighbors coming in for a day trip (our B&T crowd), secondly people from elsewhere in CA and the West, thirdly, Americans at large, and then, foreigners.
As I posted earlier, I think of these people as the renter’s renter, not buyers. Indirectly, their revenue and tax $$ do contribute to an unusual degree to the SF economy.
Some interesting stats on muni, air traffic and cable cars for ’07-’08:
http://www.sfmta.com/cms/apress/MuniRidershipandRevenueIncreasefromFY2007toFY2008.htm
Hotel occupancy up 1.3%, Rates up 6.4%, Revenue per available room up 7.8% through end of October ‘08:
http://www.allbusiness.com/travel-hospitality-tourism/lodging-lodging-industry/11711994-1.html
’02: $5.9B in spending: http://www.sfvisitor.org/memberinfo/html/AboutBureau.html
’06: $7.37B in spending: http://en.epochtimes.com/news/6-5-18/41683.html
’07: $8.20 B in spending (compared to ’06 link above, estimates ’06 spending at $7.72B): http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/05/30/MNQ51106T1.DTL&hw=tourism+dollars&sn=004&sc=434

FWIW:
it’s not like SF has a lock on “intellects” or “innovation” or “liberalism” either.
Boston is quite a liberal intelletual place. Don’t think so? Just ask any of the legally married gay Harvard or MIT grads.

Cooper – You keep making dumb comments and our dumb assumptions won’t be far behind. That I can guarantee.

All this business of whether San Francisco is “special” and comparing it to Chicago is irrelevant to the question of whether home prices got ahead of themselves in the past several years.
I was born in San Francisco and have lived here nearly all of my life. I like it here. That said, there is no reason to believe that the world will all-of-a-sudden realize how great this place is and decide that macro forces pushing down home prices don’t matter here.
As someone already pointed out, San Francisco *is* special and the world already knows that and has factored that into housing prices.
Interest rates matter. Down payments matter. Household incomes matter. The relationship between prices and rents matter. The perception of future price appreciation matters.
Long-term, I think “Real SF” has a lot going for it. But it’s expensive right now if you want to buy a home. I recall the early-1990s when people were moving away due to lack of jobs and home prices/rents were dropping. At least one newspaper article at the time noted that it was cheaper to do a one-way U-Haul rental into the city than away from the city.

First it was Paul Hwang’s trolling for business in this thread. Now Flujie’s having an emotional breakdown and spewing his invective at the “nonbelievers”. Even when prices reach the bottom, I don’t think I’ll have the stomach to deal with a local agent for 2 months while searching for a home. Thanks for confirming the stereotypes, guys.

Cooper,
Did you see the link?
http://en.wikipedia.org/wiki/List_of_U.S._cities_with_high_transit_ridership
I judge mass transit largely based on the extent to which it serves people who live there. SF has among the highest ridership rates in the country.
The ridership rate is 4x higher than Denver. I lived in the urban core of Denver for 3 years and knew only 1 person who had ever taken the bus. Most of my friends in SF don’t own cars.
Yes, I have taken the subway in NYC. I was born in NYC. Yes, it blows away SF Muni. But NYC is 10x the size of SF and just b/c it’s mass transit is better than SF doesn’t make SF mass transit bad.
Try living without a car in any city between SF and Philadelphia (Chicago excluded) and then get back to me about SF mass transit being among the worst in the country.

I’ve lived here for a long time. I always saw this place as the land of opportunity for educated, but not well connected, tech people like myself.
I’m not here for the restaurants – I can cook better than what I get in most restaurants, certainly not the art – what we have is a joke compared to other major cities, even Detroit, nor am I here for the events – they have them everywhere and most non-retired people rarely have the time. I’m here for the opportunity. And wow what opportunity there was.
But I haven’t seen many tech millionaires minted lately, and the young people tend to leave the area after they work for my company, so I’m beginning to wonder if the opportunity is there any more.
Especially while we’re getting near daily calls telling us to stop everything because our (local) client is out of money.
I realize that many of you have put down roots and need to rationalize your decision to stay, so you talk about how great it is here, but realistically, I’m seeing so many young people leave the area that I’m beginning to wonder if I’m living out the opening scene from “Being There” when Chauncy Gardener walks out of his mansion in the perfect world he’s been maintaining to realize that the area has declined while he wasn’t looking, and he’s been living in the middle of a ghetto. Not that SF is a ghetto, but I think it’s changed in ways that those of us living here for a long time don’t see, like the young people do. And they don’t stay when they have no roots here.
I really appreciate this conversation. It’s really opened my eyes.

“I was an idiot and to go back to texas.”
Never said it. You said that I did, but I didn’t. I get lumped in with a lot of stuff on here and it sort of sucks.
Like this Jorge guy. Somehow I reinforced the stereotype of the sensitive realtor. Didn’t realize there was one. I thought it was battleaxe “always a good time to buy” “up up up” lady or red nosed finger shooting big late model mercedes driving slickster. Sensitive realtor? Hey. Guilty as charged of not enjoying being called a cockroach, full of horse doodoo, or a cheerleader. Feel free to never search me out if and when you decide to buy tho, Jorge.
“SFO” still grates tho, Cooper. That’s the airport’s name. Not the city. Not the region. The airport.

Wow…a lot of vitriol on here today. Must be the holidays – they tend to bring out the best in people!

you guys are crazy with this whole stuck up about saying San Francisco instead of SFO.
It’s just so much easier for me to type it then spell the city out. The reason they pick airport abbreviations like that is because they are logical and easy to identify intuitively.
So I use it instead of saying the name.
I can do SF from now on if you like. but i’ve always traveled quite a bit and its just easier for me.
and yeah fluj i know you were not the one who said that. but you get lumped in with paco and all the others unfairly or not just like i get lumped in with other real estate bears.

You know what Embarcadero, tho “identified” and “took objection to” are not synonymous, I misread that. You used “realtors” in the plural but not as a general dismissal, there. So as I look at it again, “Die cockroach die” was actually a lovely sentiment the way you used it. Please accept my apology.
However, you called a long post in which I broke down what I think the devaluation trend in SF so far has been, “horses***,” mentioned cheerleading, and here you are again with the cheerleader thing.
And you did all that after I puzzled at your Chicago having better food than SF comment.
Coincidence?
Happy new year, Embarcadero.

Mark – I think several people have mentioned on here several times before that it would be nice to have a mini-dictator like Daley for several years here. Despite the incredible amount of corruption surrounding Daley, he generally has the best interests of Chicago (as a whole) in mind – something we’re clearly lacking here, as every politician is beholden to their own interest groups. If we could just have a mayor that could push aside pesky regulations and do things in the middle of the night like Daley, SF would likely be a better place for it.

I’ll try to answer that question, Mark. I think the short answer is that I am by nature an optimistic person. So I tend to believe in this area, because I believe that the body politic is an intelligent one that has displayed a willingness to levy taxes upon itself. So the potential for improvement is always there. However, this very liberal attitude goes hand in hand with repeated election of backwards looking socialists who have no business running a city. And if you’re asking whether the public schools will be better in the short term? I think the answer is clearly no. Will violent crime coincide with a downward looking economy in a city that is so starkly divided socioeconomically? yes, it will. (This is probably true of many cities.)
But your phrasing, calling the last couple decades heady days of improvement, I’d also disagree with. There weren’t as many jobs here in the 80s and early 90s. The city has changed A LOT in the last 10 years and it’s mostly due to tech. Just look at the skyline. Or the bandshell area in the park. Or South Beach. But unfortunately, tho they are lesser than during the free money handout days of Jordan or Brown, homelessness is still a huge problem. We’re losing diversity. It’s hard to get things done because City Council is so atrocious. So we’ve seen change for the worse, and change for the better.
I do agree that it’s all cyclical. Where it lands next I cannot say. But the potential is always there, because this town will tax itself. If we elect smart AND effective governance, then hey, we can get some things done. That’s a big “if.”

Fluj, the point about willingness to pay taxes is a good one. Of course, issues like prop 13, falling real estate prices, and living in an already high-tax state does make this a complicated subject.
I’m always appreciate of the Socketsite posts that deal with proposals for city improvement: Transbay Tower, Chinatown subway, South Beach development, etc. I live near Van Ness Ave. and have been heartened by the development along part of that stretch. I see SF infrastructure conditions (by which I mean everything from public schools to sewer systems) as another challenge suddenly snapping into focus with the demise of the beer-goggle effect of rising property prices. Just as home buyers are no longer overlooking house defects once masked by the promise of rapid appreciation, I suspect that many of the urban quality of life issues (ranging from potholes to graffiti to panhandling) are suddenly about to take on increased importance, at least for those considering a purchase. In other words, SF has the benefit of a great location, but it may be in need of a makeover if it wants to sell at a premium price.

SF/Chi argument is moot.
Bottom line, people vote with their feet.
If the prices of SF real estate suddenly dropped to Chicago averages, there would be a hoard of buyers lined up to statch them all up all the deals.
If the prices of Chicago real estate suddenly increased to SF averages, almost everyone from there would sell or leave, because it’s just not worth it.

If the prices of Chicago real estate suddenly increased to SF averages, almost everyone from there would sell or leave, because it’s just not worth it.
ROFL. you gotta be kiddin me!
again, I really think that Chi-town/SF comparisons are very very very poor. Chicago is one of the biggest metro areas around. SF is considerably smaller.
SF really compares to Boston. both cities are great. both cities are liberal. both cities are educated and innovative. they both have their plusses, they both have their minuses.
they are both known worldwide despite their relatively small size.
they are both beautiful.
they of course also have their differences as well.
comparing SF with Chicago is like comparing SF to Austin. just can’t do it. the sizes are just too disparate.
but again, there really is no reason to compare SF to anywhere else. As we’ve already discussed, there was no major “new major thing” about SF in 2007 that was different in 2000. The population was about the same. The innovation was better in 2000 than it was in 2007. Incomes were about the same in both years. SF was just as prestigious in 2000 as ’07. and on and on.
the ONLY difference between SF in 00 and SF in 07 was that SF in 07 was boosted by the worldwide credit bubble.
we’ve already established that SF is awesome in innumerous ways. Thus, it should hold “awesome” pricing, which was established in 2000 (when SF was equally awesome). unless someone can think of something that would make SF “worth” more today? I certainly can’t.

Epic thread! And for what it’s worth, South Side is Chicago’s Oakland, so there’s that.
As for the S-C index again, it is supposed to correct for mecca values. Factors like income and even income distribution through segmentation of market analysis into top, middle, and bottom thirds are taken into account. What it measures is how housing is doing relative to all of that, so being a mecca does not necessarily make a difference to the index. The key issue with that is that creative meccas have intense housing pressure and tend to expell any middle class residents. There is no simple way to correct for that kind of skew which may distort the S-C index over time.

The public schools in SF are actually getting better by quite a few different measures, as I have pointed out numerous times.
Here is a pretty good story about a friend and neighbor of mine and her experiences navigating the SF public school lottery system:
http://www.sanfranmag.com/story/post-post-private-school-city
I personally think that the Chicago comparisons are interesting and apt, because the two metropolitan areas are pretty similar in size. The Bay Area has 7M people and the Chicago area about 10M. I think Chicago is the third largest metropolitan area in the country and the Bay Area fifth. It certainly makes more sense than trying to compare SF with a national capital like Paris, or the largest metropolitan area in the world.
Chicago has been around a lot longer and has had more time to develop its infrastructure, so it should shine a bit there, and I am sure there are things we can learn from them (and visa versa) so I find the discussion interesting.
I still haven’t been to visit like I promised, so I remain mostly ignorant, though I did some research when a few regular posters (ex SF-er, mostly) reported on the area with such glowing reports.
I found that crime is much higher there, so I really couldn’t figure out what he was talking about, then I discovered that Chicago is the most segregated city in the country. While that is one way to make a place “safe”, it is not one that I personally favor. My impression is that Chicago seems to have pushed all the poor into one part of the city and then starved that region for public services, instead choosing to lavish resources on the wealthier, almost entirely white part of town. If I am wrong here, I am happy to be corrected.

Mark – people have been saying San Francisco (or SFO if you prefer) was better a decade ago since the first boat landed in Yerba Buena.
Muni has always been broken. The roads have always had potholes. There’s always been a low level of petty crime. The city government has always been a zoo. The residents have always been crackpots. And yet people have always liked living here.
The only thing that has truly changed is how inflated housing prices have become.

Embarcadero,
I can’t argue with your kind of logic.
Hopefully you have an even better 2009, than 2008.
Happy New Year!

Jorge,
Bob asked why he wasn’t getting good results and asked for help to improve his performance.
I don’t have the problems Bob described, so perhaps I have useful knowledge.
In answer to his queerie, I provided a solution.
Good luck in 2009 and happy new year!

I wrote:
the ONLY difference between SF in 00 and SF in 07 was that SF in 07 was boosted by the worldwide credit bubble.
NVJ wrote:
This was true all over the nation, even in Chicago, if I am not mistaken
My response:
exactly. That’s why I wrote “worldwide” credit bubble. Almost every major metro and even most minor areas are overvalued right now. including SF and Chicago and farmland in Iowa.
===
You are just blind to the fact that the Internet has totally transformed the media landscape
actually, I’m not. I’ve often discussed that tech in SF is often more about advertising than tech. Advertising traditionally fares poorly in recessions/depressions. Thus tech firms that are really advertising firms (Google, Yahoo, etc) will likely fare poorly.
internet/tech is great. But it’s a 10+ year old story. Tech was more innovating and had more promise in the 1990’s than it does now.

Well, I’ve been reading this thread and can’t resist the urge to add my own impressions after living here in SF for 8 years.
First, I was born and raised in Boston but also spent a great deal of time in Phoenix growing up – we were lucky enough to have a house there. In fact, I’ve also had my own place there for some time now. I love the sun and desert though don’t think I would want to live there year round. But we also had family in SF and Marin and have been coming here for a long time.
For urban areas I have lived in Boston, New York, DC, and spent most of the 90’s in Paris. Less urban areas have been Denver and Dallas. We also have family in London so I’ve spent a fair amount of time there too. Yes it’s a big family. Catholic – so think the rhythm method for birth control – a kid a year. (no offense intended to any practicing Catholics out there!)
One of the things I have learned with all this moving around is that I can be truly, genuinely happy pretty much anywhere (at least of the places I’ve lived). They would certainly not all be my first choice but there have been some great people and very positive things about them all.
And SF is pretty nice and has some very fine points too. Much has been said about the positive things SF has to offer – and we are happy here. I do not think of it as a particularly metropolitan city though – even compared to Boston. There’s the little downtown area but by far, most of it to me is more accurately described as somewhat denser than normal suburb. I agree totally with all that has been said about theatre, art and the inadequacy of the public transportation system. BART, as far as it goes, is very well run and dependable I think. Muni (trains and buses) is a scandal. And WAY too much of the city is covered only by buses.
The weather certainly is an attraction, as are the views, if you are fortunate enough to have one. But in terms of pure appearance, absent the weather and the views, I think most of SF leaves a lot to be desired compared to many other cities. Huge sections with nary a tree or anything green or blooming. Wires, wires everywhere. Row upon row of very plain homes. Sure there’s some huge park land but it’s very concentrated and you have to seek it out. The pittance of other ‘park’ areas in the few sections of the city that I find attractive are often made undesirable for other reasons. The Mission? Glen Park? Bernal Heights? North Beach (off the beaten track)? Sunset? Richmond? Portrero Hill? Dogpatch? South Beach (at least it has the water)? Noe Valley? Western Addition? Bayview? Hunters Point? You call any of this a city? Might as well be SSF or Daly City only with higher prices. And little of it is aesthetically pleasing to me.
I realize as I write that this must sound harsh and make it sound like I dislike the city when that is not true at all. However, this has long been my impression based solely on what the eye sees – not other things some of the city offers. And all cities have large areas that are not particularly pleasant. Maybe it seems exaggerated to me because there’s so much of it and yet there seems to be so much talk about the beauty of the city. In my opinion, for most of the city, that beauty applies more to blue sky and water views than to the structure of the city itself and what one is actually surrounded by.
I also agree that more SFers (than in other cities) tend to have an inordinately inflated impression of the city and themselves. In my experience, only Parisians have a similarly skewed view of the world. I know folks born and raised in the few square miles of that city who believe absolutely that it is the only place on earth worth living in. Some have never left France or seen other major cities because – after all – why would they want to? In my opinion, that undercurrent tends to run stronger here than in other American cities. And this is nothing new. I remember being aware of it as a teen. I don’t get it and don’t feel it is justified.
One little story. I was invited to a party at a French friend’s apartment in Paris back in the 90’s. A long-time friend of my family’s, an older man from Dallas (well he was probably only in his 50’s and now that I am 46 I guess he wasn’t so old), was visiting and staying with the host. Another French attendee brought a 30ish man from San Francisco who was on his first trip out of the US. At one point the attendee with the SF friend came up and the host, taking pleasure at being able to introduce one American to another, said of the family friend “This is Mr. XXX who is from Dallas, Texas.” The SF guy extended his hand, put an exaggeratedly pained expression on his face and said with all the sympathy he could muster “Oh, I’m SO sorry.” There was some awkward silence, many sidelong glances and SF meandered off to entertain others with his wit. There are jerks everywhere of course, but where does the underlying thinking for a comment like that even come from? Just for some added info from the perspective of Mr. XXX at the time – he loves Dallas and lives in a fabulous home in a gorgeous, lush part of that town little more than a stone’s throw from where Shrub will be moving. He also has an apartment in NYC (or is it JFK?) where he has to spend a lot of time for work. No slouch and my goodness, he could live in SF if he wanted to.
I don’t think SF has anything intellectually on Boston or DC. And this talk about innovation – not sure what’s gonna happen there over the next decade. I am an engineer and have worked in the industry in all the places I have lived. Many non-tech people think of the web when they think tech but really it is literally everywhere in everything. MANY companies have opened large campuses across the US (to say nothing of offshore) and that will continue. We have a much smaller presence in the BA than we did 10 years ago. It is also true that some companies will continue to do well. We will. But we are also cutting 10-20% in increments over the year. We are cutting outsourcing (on and offshore) by 30%. And I can tell you that several large companies are rethinking the kinds and importance of projects they are sending to India given the geo-political-religious strife there. In general I agree with the earlier comments about some cultures’ creative and innovative tendencies but I think that is just a blip in time and will change rapidly.
As for RE prices (oh yeah, this blog!), I was and am in full agreement with comments that Ex-SFer has made a number of times that SF is just a couple of years behind the San Diego curve. Shining jewel and beacon to the rest of the world that it may be, this has just started in ‘the real Bay Area’.

I am sure you are familiar with the recent article in the Chicago Tribune, declaring “Chicago, America’s most segregated big city.”
http://www.chicagotribune.com/news/local/chi-segregation-26-dec26,0,976255.story
Chicago is to be commended for having a public discussion about the issue. San Franciscans and Californians in general don’t seem to want to talk about race at all, except in the proxy argument about “illegal aliens.” You would never find a story like the one in the Tribune in a local paper. There has been some noise about the declining black population, but that has been it.
Your points about Richmond and Oakland are astute and I agree in general with you that blacks are very segregated in The Bay Area. One thing that is probably different here is that with the presence of so many Asians and Latinos, whites are *not* as segregated.

Embarkadero,
I am not a cockroach.
In the event I do go bankrupt in 2009, I am glad that it will have some positive impact for someone (i.e. You seem like you would be pleased / amused if this happened.).
I’m sorry if you do not like my advertising, is there any suggestions you may have?
Paul

andyc,
The Paris SF guy was a jerk.
City-centric we are, but NYC has us beat by a mile on that front, and deservedly so.
SF is denser than Boston.
Your SF is seemingly north of Geary between the Presidio and Polk or something. Hey, nice area. I agree that North Beach is tough to get to. But if you think the Mission or Bernal feels like the ‘burbs I’m not sure why that is.
Innovation-wise? Nothing on Boston or DC? Well, in some respects I hope to god we have nothing on DC. But I think we as Americans simply have short attention spans. Because the Bay Area has come up with more things to change the world in the last decade and a half than any other locus, anywhere on the face of the planet. San Francisco is the city nearest the hub of that, and for better or for worse, and I love Seattle, the West Coast’s best, proper, “city.”

Those of us who are actually in tech, and I mean deep in it, with a broad view of what’s in the pipeline always find these sorts of conversations amusing when people who were marginally and formerly in, or not in, the tech industry try to tell us that this thing or that thing will be hot.
I remember when the dot com bust happened, everyone said optical networking would be next. Man did a lot of very stupid people lose a lot of money on that! Everyone I knew who had no clue about technology jumped in with both feet and lost everything.
The fact is that advertising is a good business for a few players. Between Google, MS and Yahoo, there was barely enough room for Yahoo. So it has some business, but little potential that hasn’t already been tapped. VMWare just isn’t going to be big enough to make a difference and convergence? I remember selling that in the 80s when we had nothing in our playbook. usually everyone around here claims biotech will be the savior when things are dead, but convergence? That’s scraping the very bottom of the barrel. Maybe the underside of the barrel. Cisco stock is where it was BEFORE the internet boom started, so that should tell you something about where the networking space is headed – nowhere.
Will something happen next? Certainly. Will it happen here? Probably. But it might take 5 years.
I think it’s the wrong message for the realtors to be promoting, that everything good is right around the corner. People are buying like mad in CoCo county and no one thinks anything is heading anywhere but flat to a little down over there.
What happened there was sellers got the message from all the foreclosures to cut their prices. That has helped realtors’ bottom lines more than anything. That should be the message by the realtors here, and it’s the same on the way up as it is on the way down: the world has changed and those who change with it will do well and those who don’t won’t.
I don’t wish any Realtor anything but success in 2009. Realtors worked the system in the past 5 years, they didn’t create it. I don’t blame them – I blame the public for listening to a single word. I the rest of us had to suffer while idiots overpaid, it was the Realtors job to make it happen and if they didn’t another one would have. So this wasn’t their fault and no one should wish them anything but increasing volumes, which will come about if they convince the sellers that the world has changed.
And wow, what a change we just went through! The next 6 months will be particularly bad, and then we’ll have a better idea of how the world will align. Everyone is going on hope right now: if what’s up next doesn’t work, life is going to get very, very bad, because this will be a string of ideas from two administrations, all of which didn’t work. I’m sure it will be a wild ride!

Fluj, I think I may have strung too much into a few consecutive sentences and not phrased it very well. What I meant to say was that intellectually, in a broad sense, I don’t find SF or the bay area to be superior to Boston or DC (or NYC for that matter). Sometimes it seems to me people argue for that superiority. But I did not mean to imply it was inferior either.
As for tech innovation, I agree with you. And while I would love that position and influence to continue here, I am just not as convinced as some that that will be the case over the next decade. Don’t mean to say it will disappear but I think the prominence of other parts of the world and other areas of the US in that regard will grow…enabled interestingly enough partly by what that innovation has made possible.

Cisco stock is where it was BEFORE the internet boom started, so that should tell you something about where the networking space is headed – nowhere.
Cisco’s revenue is four times what it was in 1999. Its profits are over eight times. Those are the numbers you should be focusing on, not the stock price.
The share of online advertising is less than 10% of all overall advertising spending. That could easily go up to 30% in the next decade, since already people spend much more time online than they do watching television. Not all of this money will be made here, but some of it certainly will be.

I’ve spent many years each in NYC, Boston, and SF. They all have their plusses and minuses, as ex-SF has pointed out quite accurately I think (keep it coming ex-SFr and LMRIM, love the commentary and analysis). It’s funny how strongly the residents of each area feel that their town (interchangeable with “city” to me) is “all that”. Yes, Cal and Stanford are good schools. But so too are MIT, Harvard, Yale, Princeton, Columbia, Penn, Cornell, Columbia, Amherst, Williams, Dartmouth, etc and the list goes on (and they’re all relatively close, if not in or near Boston and NYC). SF has a lot going for it. But in my opinion, much of it is in the access to outdoor activities and its relatively milder weather, and also it’s focus on tech and its liberal politics; however, if you think this doesn’t exist in NYC and Boston you’re sorely mistaken. While many compare SF to Boston, they are two very different cities, socially. As far as food and education goes, they’re pretty similar, though honestly Boston wins hands down when it comes to universities, sorry SF. NYC? Way different than Boston and SF. It’s a global city, not a local city. It’s hard to compare the two. Finance? Boston and NYC win hands down, SF not even close. Tech? You’re a fool if you think it doesn’t exist outside SF. Truth is, SF is not immune to what’s going on right now in credit markets. Neither is NYC, or Boston, or Chicago, or St. Louis, or Denver, or whatever city you think is special. As someone with kids, I’d have to say the school situation and the crime in the SF area is a serious deterrent to living here.

Being ‘deep’ in the industry as you claim, are you saying that you see _no_ new technologies that look interesting? I find all of that hard to believe.
Of course that’s not what I am saying. There are lots of incremental technologies that will do just great. Nothing that’s going to create another SV gold rush is in the pipeline now, but there are plenty of technologies that are worthwhile. For example, inexpensive hi def video cameras:

wingsuit base jumping from Ali on Vimeo.

fluj:
perhaps my point wasn’t very clearly worded.
I’m not saying that Tech has no more innovation. I’m saying the big economic BANG of SF-centered tech was 10 years ago. when it comes to RE, I speak of tech only in terms of how will it affect RE values… and it can only do that through salaries and bonuses/options, etc.
sure, there are still some hefty unrealized economic gains that will surely come from tech. but will it eclipse the heady days of 1998-1999 when every day there was another big splash and tech raked money in??? seems doubtful.
SF really transformed in the 1990’s, due to the then-new innovation in SF style tech. Today is just a continuation of that. from an economic standpoint, the tech of today is a lesser version than that of the late 1990’s.
in other words, tech was already priced into SF RE valuations in 2000-1.

As someone who has lived in SF and Boston, let me provide some additional facts that aren’t being discussed on this thread:
– Boston is one of the more racist towns I’ve ever lived in. The racial segregation is pretty bad, which is interesting considering that some of their teams which most Bostonites are rabid about are populated with African Americans. These people would never be caught in Roxbury.
– 4-6 months of winter. Ever chisel your car out of frozen snow? Multiple times in a season? Granted, SF’s schizo summers aren’t much better, but if you move 30 min outside the city, you get California weather – which is a true treasure.
– Massholes: Get to know them!
– Faux Blue-Bloods: I remember going to a party in the Back Bay where a 20-something had a “Choate” banner on the wall. Seriously, a high school banner on the wall? Apparently, it was a big deal out there.
Now that being said, there are some things that I miss about Boston:
– Fall. The fall season in Boston almost makes up for the winter. Almost. Trips into Vermont, NH and Maine for the changing of the colors are magnificent.
– Live music. Better music scene in Boston (at least in the early 90’s). I think this dynamic has changed a bit recently. (The Mighty Mighty Bosstones took a very bad commercial turn at the end.)
One reason that Boston is not better than SF:
– The “T”. An anachronistic transportation system that left me drenched in sweat during the summer far too many times. Not pleasant.
Although the comparisons between SF and Boston are very appropriate. As much as I disliked the racial tension, SF has a similar issue with Oakland. They both have barely adequate transportation systems (T v. BART & Caltrains & Muni) that should be retired. They both have quaint European-influenced tourist areas (Ferry Building v. Faneuil Hall, North End v. North Beach (both Italian micro-hoods)). They both reside next to water. Lastly, they both have world-class universities that pump out ignorant MBAs hell-bent on destroying everything good about America.
But in the final calculation, SF’s weather, proximity to more outdoor sporting locales, opportunity for economic advancement and general good-naturedness wins out for me.

On tech and innovation, I think we need to dichotomize between the stuff that’s intellectual/academic vs. pragmatic.
I’m often amazed at how the tech and VC crowd gets excited and giddy about the latest breakthrough or “app” or whatever. A lot of this stuff is cutting edge, revolutional, ingenious…..and nearly useless. Or useful but just not marketable to the masses.
In other words, inventing the better mousetrap works as long as people still have mice to trap. Or are willing to pay to trap them a new way.
I’m sure the innovation will continue unabated. But that doesn’t mean that all, or even most, of the new ideas can be developed profitably. The bay area can retain its status as Innovation Mecca, but the local economy may suffer anyway, especially as VC funding dries up and consumer spending remains low.
A lot of this innovation, from what I’ve seen, is basically entertainment or conspicuous consumption. Internet video is great when it’s free. I’d never pay for it. My long-winded point is that continued tech innovation is not antonymous with recession, layoffs, and falling home prices. Google isn’t going bankrupt. But I doubt they’re eager to pay another $1.65 billion for the next superfluous idea.

vox says tourism has grown strongly since 2002. It is almost as if somethign happened in late 2001 which temporarily reduced tourism.
Then we forget that there are downturns. There was great opportunity in the late 1980s, but then during the early 1990s there were not many new millionaires made. That means SF died and it was time to just move on, right? Then came the dot com boom which generated much opportunity and many millionaires. Look carefully and one can see work during the downturn is what lead to the boom later on. SF may wither one day when people here stop developing new products, technologies, and business models. Until then an ongoing cycle of booms and busts should be expected.
Some ideas about how cities come out on top are bizarre. Big changes come slowly to metropolitan areas. Silicon Valley does not step down just because India and China have started to get serious. Saying that positive opinions about SF can only be stretched owners rationalizing their position is ignoring the reality of the situation. The creative economy has been measured and there is an index for the contributors that puts SF on the top. Can you come up with a better model of the economy and how creativity contributes to it?
Saying that SF is Detroit all over again ignores almost every possible measure. Detroit was about mass production as it is no longer done even in the auto industry. We have robots now. Creativity matters more and that has been more of an Ann Arbor thing. Universities are a bigger and better integrated part of the SF Bay Area. Anyone who has ever studied economic growth knows that universities are critical.
Many seem to think that infrastructure is everything and that building some big roads and subways makes an urban area more productive. The truth is the exact opposite. The most productive, high growth areas on the planet are the most dense and congested. Taking the Embarcadero freeway down after the Loma Prieta quake improved the area greatly, and that alone pretty much eliminates the argument that big road infrastructure is good for productive development.
Thinking that pinpointing key sites where the future is being developed is just warm fuzzies is stupid. There has been a major transition away from traditional production to creativity. Producing the best media content and technologies is now the biggest test, and that has a strong effect on urban composition. How many high performing creatives you can squeeze together is now the most important economic feature.
As far as comparisons go, it is worth calling out some prominent differences quickly. Cape Town? Incredible crime rates. DC? Urban density without urban culture, but with an extra helping of poverty and crime. NoVa? All of the poverty and crime, but without the urbanism and with an extra helping of cultural backwardness. Chicago? Great incubator and the high performers will likely make their way to the west coast. Boston? Ivory tower academics play an important role in all of this, but they have trouble dealing with the realities of developing products for popular markets.

(Sorta)NewBuyer said: 110 seems a bit harsh, I think that things will hold around 130-140.
I would like to think that LMRiM (or diemos) sold these SF C/S Home Price Index futures and (Sorta)NewBuyer bought them. Looks like SF Nov. 09 futures just changed hands at 116. Which way we are going? Place your bets!
…And everyone know San Francisco is abbreviated Ess Eff…

“This thread is a great read but has gotten a bit off course. Let’s accept the fluj premise for the sake of argument — tech (or something else) has somehow permanently turned this area into some sort of mecca attracting smart movers-and-shakers and that will prop up real estate.
But the SF MSA is down 31% YOY (I have not heard anyone credibly question CS’s methodology) — ”
Broad paraphrase there, Trip, stretching my words, inserting a zinger or two as usual. Did I say that tech will”Prop up real estate” or that we’re largely tech based, and tech is a relative economic strongsuit? I think I said the latter. And you’re talking MSA. Meanwhile I stayed talking SF proper. It isn’t particularly debatable that SF has to a greater extent than before become a bedroom community for tech workers, Trip. Or for that matter, that cities have become more desirable over the last decade.

Having seen every other city mentioned herein criticized as a bad comp., it’s time to give Mecca its due: Innovation Mecca and Tech Mecca are oxymorons. Mecca is more likely to engender pseudoscientific special pleading to bolster the conclusions of its native revelation than to foster innovation and technology.
You may all trample me now.

“It isn’t particularly debatable that SF has to a greater extent than before become a bedroom community for tech workers”
The South Bay, San Jose and the East Bay have always been bedroom communities for tech workers, and their home prices are getting clobbered right now. Trip’s point is that tech is undergoing a downsizing and dependence on Tech is not saving any of those other cities in the MSA, so it’s doubtful it will save SF.
I suspect that the reason that the other parts of the MSA are getting hit first is that people used the easy money to buy cheap houses they thought they’d rent for awhile. They bought in Tracy, Stockton, Sacramento, and they bought condos in So Ma and rented them, figuring they would sell them at a profit. These people are bailing out now because it’s easy for them to do it. When the lease is up, they sell. The rent vs buy was too far out of line in SF, and rent control probably scared most of them off, so you just didn’t have many of these outside of SoMa, which was excluded from rent control because it was built after ’79.
You also have subprime people bailing now. The resets on sub prime were short and so they got hit with a big one, realized they were underwater when they went to refinance, and bailed. Again, WAY more of these in Tracy, the east bay and south bay than in SF.
But the next wave will be people who are struggling to make the minimum payments on an Option Arm. When they go to refinance, they’ll realize from the appraisal that they are way underwater and will walk. They can’t refinance now if they try. I’d bet there are just as many of these in SF as out.
At the same time, you’ll have job losses and such, and those people will also sell. They won’t do it right away, but they will if they can’t find anything. It’s starting now and by mid next year, that will hit full force.
So SF wasn’t spared because it had tech, the whole MSA has tech. And gee whiz: most suburbanites have no desire to live in the city. SF was spared the early problems because the rent vs. buy was out of whack, people were afraid of rent control, and there was little sub prime. So the first wave hit other areas first.
If the local economy turns around before the middle of next year (fat chance!), SF will likely not drop as much as the outlying areas. Otherwise, it will, just later in the game.

Shot your “SF has tech so it’s immune” theory right to hell, did Trip, I and others, fluj?

Chicago? Great incubator and the high performers will likely make their way to the west coast
ROFL. I know that you are clearly joking here, but still it makes me snort out of my nose. Yes, only the select few of us can make our way to San Francisco, but only after we’ve been “incubated”. And the only ones who leave are those who can’t hack it.
Is San Francisco Mecca, or Fight Club?
Ivory tower academics play an important role in all of this, but they have trouble dealing with the realities of developing products for popular markets.
so let me get this straight: Boston’s academicians are Ivy Tower Rapunzels completely unable to market a product, whereas only San Francisco has the knowledge to create and innovate? I just want to make sure that I’m hearing this right. at first I was going to outline the many many profitable endeavors that come out of Harvard and MIT, but you can just look them up. Those two are juggernauts both academically and also commercially, often through their technology transfer programs.
again, SF is a great place. and few would argue that it’s infinity-times better than Stockton or Boise or Detroit or Talahassee. but it is minimally if at all “more special” than places like Boston and DC. it’s just “differently special”.
which is why the “we’re special here” arguments don’t really work well, because everywhere is special in its own way. that doesn’t mean that RE valuations will necessarily be at a premium
and we’ve already discussed that SF was just as special and just as innovative and just as everything back in 2000, and yet RE was significantly cheaper back then DURING a major bull market/stock bubble/tech bubble. Yes, SF “transformed” from 1980-2000. but from 2000-2008?
did Stanford and Berkeley move closer to SF since 2000? Did the hills get higher? did the weather change? was there a new internet revolution that I missed?
what exactly is changed from 2000? and if nothing has changed, then why should SF RE of 2008 (and 2010) be at a premium to 2000? (after adjusting for inflation)
I’m comparing SF to SF.

I gotta say, regardless of anything else, the credit tightening due to higher qualifications for a loan are going to hit home and stay there, with a long term affect across all housing areas and tiers.
I bought a ‘luxury’ condo a few years ago because the premium was fairly small over what I perceived to be a much lower quality place. When I applied for a loan, I pretty much got automatic approval with a very good rate, with no documentation, and the lender did a zero-investigation assessment.
Now I’m refinancing with the same bank because I can reduce my rate by 1.25%…I need to provide tax and pay stub records, and prove that I’ve got assets. And the lender actually sent a person to our condo to measure, take pictures, and such to make sure that the place was worth the bank’s investment if it should stop being mine. They shoulda done this all along, btw.
If all was right in the universe a few years ago, the price of the ‘standard’ condos might have been at a significant discount to my ‘luxury’ condo, and I (and the class I represent) would have bought that instead, thus driving down the demand for the higher end. In fact, when I purchased, I figured a 50% chance of a 30% decline…maybe it’s happened, but it’s got me maybe back to even. Wish I could say the same for the stock market, eh?

“and we’ve already discussed that SF was just as special and just as innovative and just as everything back in 2000, and yet RE was significantly cheaper back then DURING a major bull market/stock bubble/tech bubble.
Yes, SF “transformed” from 1980-2000. but from 2000-2008?”
This is interesting to me because only recently I was remembering a segment 60 Minutes once did on house prices in the bay area. I was still in DC so I think it must have been 1999 but it could also have been early 2000.
The gist of it was how stratospheric house prices had become in the Bay Area relative to the national median. I may be somewhat off on all these numbers but at the time, I think the national median price was about 120-130K.
The part of the program I was thinking about was an interview with a newly arrived young engineer from India who had been bidding on numerous 1950-60’s style 3bd ranches with 1-2 bths in Fremont (I think) in so-so neighborhoods with very small yards. I believe asking prices were around 350K but that he expected to pay into the 400K’s or >3X the national average! There was lots of 60 Minutes-style tsk-ing about the shock and awe of it all. Could it last? He was asked questions about affordability, if the commute to SJ was too much, whether he thought it was all worth it etc. And he related all the reasons we’ve read over a gazillion times on this and other sites over the years. And this was almost 10 years ago!
Now I don’t know what these kinds of homes in Fremont were going for at the peak, but it looks like there is no shortage of them on the market now in the 599K range. So I gotta think they were 700-800K a couple of years ago. Based on what some colleagues have said, I don’t think Fremont has fallen as much as other parts of Alameda and Coco counties. If he stayed in his and didn’t take a lot of cash out he is actually probably still doing pretty well. It seems to me that values could fall another 20% and he would STILL have some pretty decent appreciation.
And I have friends who bought a new construction condo just south of Market in 1997 for 400K. They sold it 4 years later at pretty much double the price. While part of me wishes that could happen again so I could participate in it, it was probably a once in a lifetime event. I guess my point is, by 2000/01 things had already exploded here.
The reason I had been thinking about it was in the context of people’s perceptions about bay area real estate. For quite a number of years now, it seems like RE has been foremost in people’s minds. I’ve never experienced anything like it anyway. Over the years I have been urged countless times to ‘jump on the train’ or ‘just hold my nose and dive in’ because the foundational belief, rock solid, was that no matter what happens in the short term, in the end it was going to pay off big time.
The thing is, even in this downturn, unprecedented in so many ways, I don’t have a sense that this perception has changed all that much in the bay area. Many of those that bought in the last 4-5 years are viewing (hoping?) this as a short-term blip. Those that got in over their heads or cannot pay for whatever reason are becoming renters again. And most that did not buy are eagerly awaiting the time to finally jump on that train because it seems to me the foundational perception has not changed – the train may have stopped to pick up passengers but it’ll be heading out of the station again soon. I’m not saying there is no fear nor that people are not suffering. But for most of the people I know, the perception is still that buying here is a must and that they will be rewarded for doing so. In fact, sometimes I think I’m one of them. And maybe they’re right. Maybe if enough people truly believe this, can afford it somehow and act on it, then it will self-fulfill.
But what if it doesn’t? What if the underlying perception really, really changes? Could worldwide economic conditions, years of down/flat prices, ever increasing numbers of people being underwater with relatively large payments, financing difficulties and who knows how many other factors, slowly change that rock solid perception so that many or most people believe with certainty that real estate is a bad investment?
I have no idea if that is possible and honestly I’m not even sure what I’m trying to say. Maybe I’m wondering if a RE equivalent of the massive fear we have sometimes seen in the stock market is actually possible. Or, like some feel with regard to the stock market, even inevitable before things can turn around for a long-haul. If there is any validity to it at all, maybe it implies waves of rises as the process bottoms. Maybe I’m just getting paranoid or it’s just wishful thinking that we will overshoot the trend line on the way down and I will be able to buy that 1300sf unit in the Infinity for 179K. (OK, just kidding there.)
People talk about location, location, location. To my way of thinking, perception, perception, perception is a big factor.
Sorry if this is a ramble.

“But what if it doesn’t? What if the underlying perception really, really changes?”
It probably will, for a while. Once burned, twice shy.
But housing always has intrinsic value as a place to live regardless of it’s performance as an investment. Paying rent to the bank for 30 years and then having the place rent free for the rest of your life has an intrinsic attraction compared to paying rent forever. Especially if you expect not to have income during your later years.
But I expect the speculative premiums that have built up over the years to be wiped out and houses to return to their basic value as shelter.
This process is not over yet in SF.

Fluj,
Any predictions on 2009 for the middle and upper thirds? Come on, I need some laughs.
I find it quite interesting that you no longer work in tech with your expertise. I remember a lot of people of your ilk who left the techie game after the first bubble. It’s not all too surprising to find out where you ended up.

Wow, heated thread.
The realtor-hate is a bit tiring though. They’re just like anyone else – they do what they can to make money given the rules that the government and society set forth. I don’t see anyone here talking about how evil “investment advisers” are for convincing people to buy pets.com stock in the 90’s (tossing a bone to tipster’s favorite stock from the late 90’s ;)) or invest in Bernie Madoff’s fund over the last few years.
Give flujie a break! He’s just offering his opinions like everyone else here, and his choice of occupation may have nothing to do with “failure”. I’m guessing that he did quite well over the past few years – perhaps now that he’s “failed” he’ll move on to the next lucrative job out there?

@BernalDweller
As if anyone is confused as where this market is going. We’re a bit past that point by now…

You guys are so snippy with your quickie summations, Jorge the mystery disser, Embarcadero. I was doing real estate simultaneous to a career in tech the entire time. The next lucrative career will be the same lucrative career. If and when the new standard gets here, the one that you erroneously stand upon and THINK you dismiss my (varied, and that’s what’s funny) opinions from, you don’t think there will be opportunities for realtors? There will be lots of buying. Look at CoCo and Sac. Realtors are making a lot of money out there right now. That’s one fact you guys always pointedly avoid when you come at me sideways with your asinine little mean spiritedness. Like you’d say any of that crap to someone in real life! Have some decorum.
Embarcadero, at least you offered up an opinion that last post. If you had better r.e. advice you may not have had that opinion. I tell people to walk away constantly. I also NEVER tell people “up up up.” I’m in this for the long term. Referrals are everything. “Up up up” is for birds.

Fluj,
Funny you mention CoCo and Sac. Why do you think those properties are moving? Why aren’t SF properties moving at the same rate? I know these are tough concepts for you, but it’s pretty simple, no? Also, many posters have mentioned the CoCo/Sac sales phenomenon as a positive side effect of the correction many months back. If you weren’t so busy selling your fairy tale and spending more time reading what others have to say, this would have already been evident.
As for calling out people out on their bullshit “in person”, I happily do it when needed and without second thought. Not sure what your point was by that comment anyway, but you may want to tread carefully there…
Fluj, you only present small micro data points on this board and try to paint a prettier macro picture. You may not directly say “up, up, up”, but that’s exactly the scenario you’ve been trying to paint here for the past few years. I’m not sure if you actually believe the tripe you sell on this site or if you’ve finally deluded yourself into believing the prepackaged propaganda sent by the CAR and NAR.

“macro” — pretty much the antithesis of anything I’ve ever said on here. And you are so MAD about it.
I will try to steer clear of you, Jorge. For the betterment of this site. I don’t respect anything you say, or the hackneyed way you express yourself, in the slightest, and obviously the feeling is mutual.

“and prices are a reflection of the income of the immediate demographic.”
Truer words were never spoken. And the income of the SF demographic has not gone up a factor of two during this bubble.

Personal attacks are making this site crap to read.

jorge and embarcadero,
you guys sure do seem angry. and you seem hellbent on taking that anger out on re brokers.
i’ve got a little life lesson for you that may help; if you want to buy or sell something you should take responsibility for investigating the market.
a big boy takes personal responsibility for his actions. a whiny boy blames others for his mistakes.

Paco,
No mistakes over here. Mostly cash, lost a little on a small number of foreign stocks. I’ve probably only seen a net drop of 5% in my net assets this year. Probably saved over $150,000 by holding off on any RE purchase just this. I’d love to hear to hear how some of your recent clients are doing 🙂

First happy New Year to all.
I see a few usual suspects didn’t take a break. Sad sad sad. There’s a life outside SS, only to have actually something to say on SS! No surprise from the Realtor bullpen with the low activity, but from the bears? It’s time to enjoy deflation and the fruits of those past few years of frugal living!
I just come back from London. RE is falling there like everywhere else. I thought London was more immune but it’s not. Spending New Year’s eve with old/new friends all the talk was about how some of them bought these past 3 years and were basically screwed. There’s also talk about stalling business and job losses in the City coming closer and closer (first friends, then husbands). Holiday sales were dismal and the Pound has lost 35%+ in 6 months over the Euro and USD. Great shopping opportunity by the way, London is actually an affordable city for food and clothing at last.
Did I mention Paris was falling too?
Hey, but SF(O) is so special!

@Trip: “Surely this mecca impact would affect the entire MSA more or less equally, not just SF proper. Wealth-creating tech geniuses do not insist on living in the 49 square miles of SF any more than anyone else who likes the Bay Area. As I’ve said before, there is nothing distinguishing SF from its neighboring counties from a relevant market standpoint.”
Are you serious with this tripe? Do you really believe that Antioch and Stockton are on-par with San Francisco, Palo Alto, Atherton or Hillsborough? It’s the faux-reasoned crap in these comments that cries out to be belittled. Seriously, you should hire a dominatrix to take you into her dungeon and make you realize the depth of your mental capacities.

Paco/Brutus,
My comments were about the game, not the players. Sorry you both managed to misread. I’m guessing you’re both RE brokers?
I would love to see the game change.
FWIW, I have never used an investment advisor or an estate agent, and can’t ever imagine doing so. I have no idea if they make a lot or a little money – though I imagine both might be true. That they add no value – this is obvious.
No mistakes made here.
Has any of you actually lived anywhere things were done differently? I am trying to understand the defensive attitude.

“you can see that a majority of posters have an overwhelming negative view of The City and its inhabitants.”
I once heard a definition for friend as someone who knows you but likes you anyway.
We can love the city without being blind to it’s issues.

I think calling Paul a cockroach is going too far, have you met the guy ? all he said was that he knew the SOMA area, which is true, he knows that area and every condo that’s for sale and how much they are asking.
You can argue that agents are useless but the original poster was clearly asking for help and as far as agents in SMOA go Paul is one of the best ones you can get.
All he did was respond to the query, how did he spam the board ? do you even know the definition of spam ? he’s answering a question if you don’t like his answer say so but don’t throw around random accusations.

Good call, SS. A bit of moderation wouldn’t hurt the debate, on the contrary.
Just because the bears’ theories are being proven more and more true doesn’t mean we have to insult the bulls (or people perceived as such). There are enough pointless cockfights already on this site to add hate speech to that. Insults can be a major turn-off and they tend to eat up all the space. Hate speech is what killed the Yahoo News Message Boards a few years back.

“It’s time to drop the name calling and blanket bashing or get dropped from the site”
It is getting excessive. But I have to think it’s partially the editors’ fault: this is what happens when you leave us unsupervised. Say the babysitter goes out back to call her boyfriend or smoke a j or whatever, and little Bobby sets the dog on fire. Can you really blame poor Bobby?
Anyway, the comment by andyc last Friday is spot-on and something I’ve alluded to myself. Bay area real estate went beyond shelter or even investment, it turned into a religion over the past few years. People had more faith in perpetual appreciation of their homes than they did in their jobs, spouses, families, anything. It became an unwavering tenet.
Even today, despite so much macro and micro evidence to the contrary, I’m still amazed at the level of zealotry among some folks (not here on SS, talking about in SF generally). So many people I talk to seem to think the worst is behind us, and that this blip or minor aberration will be over in a few months, Obama will fix everything, home prices going up soon, etc.
Real estate, to me, has never been more than shelter + inflation hedge, but we’ll see what 2009 brings.

Bay area real estate went beyond shelter or even investment, it turned into a religion over the past few years.
Dude, did you spend any time in Miami, Vegas, or Phoenix over the last five years? In spite of the craziness that went on here, at least there is and was other stuff going on here. Certainly not enough to justify the increases that came, butsome of the trips I took to Vegas and Miami were just baffling.
I met a guy on the plane to Vegas once who had moved there from New York (because “real estate in New York is pretty much maxed out because big time population growth has stopped. We’re still on the ground floor here – prices are one third or one quarter what they are in NYC”). This guy (this was in late 05) owned a couple dozen houses in brand new developments and had never bothered to rent any of them out. (“Not really worth my time. I buy into the development a year before buildout, so I’ve usually got a hundo large in equity by the time I actually take ownership. If it takes me four months to sell them all, I can eat that. Not worth dealing with tenants over small potatoes.”)
I never saw or heard anything in this area remotely on the same level (except for late 90’s tech startups, of course – that was OUR religion).

OK,
I’ll try to keep the spam down. oops.
Paul