While we don’t buy into Zillow’s analytics as accurate measures of any reality (or realty), we can’t argue with the results of their surveys on perception. A recap of their second-quarter 2008 survey of homeowners in the West:
My Home’s Value Has Increased Over Past Year: 28%
My Home’s Value Has Decreased Over Past Year: 56%
My Home’s Value Has Stayed the Same Over Past Year: 16%
And from the fourth-quarter:
My Home’s Value Has Increased Over Past Year: 19% (-9% from Q2)
My Home’s Value Has Decreased Over Past Year: 70% (+14% from Q2)
My Home’s Value Has Stayed the Same Over Past Year: 11% (-5% from Q2)
∙ Perhaps An Apple A Day Would Keep Their Delusions Away… [SocketSite]
∙ Zillow Homeowner Confidence Survey: Q4 2008 [Zillow]
∙ Luckily The Sellers Weren’t Looking At Their “Zestimate” [SocketSite]
My experience with this market leads me to two conclusions. Stay away…the sellers are delusional and the people that are buying at this stage, at these prices are living in a fantasy world. We’re in the worst recession this country has ever seen. GM just announced 10,000 more “white collar” layoffs. Bankers are currently viewed as pariahs and we’re headed towards socialism where the gov’t dictates executive compensation caps. Silicon Valley is still in denial about what’s happening. Private Equity is changed for the foreseeable future and hedge funds have HUGE holes to dig out of. What homeowners think their houses are WORTH what they were even last year, let alone 5 years ago? And what buyers are bidding at or above asking prices? Is anyone really nieve enough to get into a bidding war during the worst recession since 1933? This is not what is known as “smart money”. Sooner or later…everything reverts to the mean. Especially those of avg. talent in exceptional situations.
I second Hmmm’s thoughts but modified a bit. If you find a place you love, can readily afford it, don’t mind if it is worth substantially less a couple years from now, and won’t be materially affected if you have to move because of a job change, illness, divorce, etc. (i.e. you can afford the hit), then by all means go ahead and buy a place. But if any one of these factors gives you pause, I’d stay away for a while. If a belief that we are anywhere close to the bottom is a factor in your decision, then stay away because we are years off from the bottom and longer still before seeing any appreciation.
Look at web sites on other areas that were slammed earlier than SF — Sacramento, Las Vegas, Miami. There are lots of stories from those who got a “great deal” a year ago when prices had fallen 40% and are now way under water as the decline has continued. We are following the same path and have a long way to go, and even those locales are not yet done with the declines.
even those locales are not yet done with the declines.
Yeah, I am particularily interested in the Miami Beach market. The upper crust of the MB market for instance has a similar “will not happen here” stance as SF and are still sometimes asking 600/sf for very average condos when the new norm hovers around the 200s. Reality still hasn’t settled in for those that think they could “wait it out” and are getting poorer by the day.
Also very true about “knife catchers”. When there are no buyers, patience might be the best course of (in)action and you could save a lot just doing nothing and waiting. A stalemate cannot last forever and this one is clearly on the buyer’s side with the naive pool dried out.
Don’t look now, but they just pulled the $15,000 credit out of the bill.
“Working to accommodate the new, lower overall limit of the bill, negotiators effectively wiped out a Senate-passed provision for a new $15,000 tax credit to defray the cost of buying a home, these officials said.”
http://news.yahoo.com/s/ap/20090211/ap_on_go_co/congress_stimulus
Can the future look any worse for housing? Next quarter’s Zillow survey will probably look even worse.
Is there any survey for popular expectations on the recession and re market direction?
My wife and I are looking for buying our first house at SF. We saved our 20% down. We can afford 7-800k house. We want some kinds new house, but not 100 years ghost house.
Trip talked about the general principle that I agree. But our family probably is not very popular here, we want live here with a 2-3 kids. Thus, five years later the 700k condos at SOMA is definitely not enough for us. So if we buy now we realy need to buy it when the market is closed to the bottom. We can’t wait 5-10 years to get back our down.
I read this site and feel it is very informed. Get me lots help to understand the market here. But people here responded so two-poles. Some think it won’t recover forever like 10-20 years. Some think it’s getting better.
I know it’s impossible to predict the future. But my question is “is there any survey to show what’s people’s expections of this recession and the re market?” Now I know the individual oppenions about it here, But how about popular oppenions?
Thanks for the editors and every contributors here.
Here is a more local measure of “delusion”
http://blog.redfin.com/sfbay/2009/02/biggest_discounts_february_update.html
It appears that sellers in the more expensive cities of Alamo, Pleasanton and Los Altos are more delusional than their brethren in cheaper cities like Daly City, Newark and East Palo Alto.
This is a random musing based on what Hmmm said, but:
The country as a whole is in recession, but San Francisco has been hit less hard (yet, anyway) compared to say, Indiana (where Caterpillar cut a bunch of jobs).
Buyers are approaching the market with the mindset of the national economy. Sellers, being ever hopeful about prices are selling from the perspective of their own personal economy. I think once San Francisco starts to be hit hard by the recession, the increase in people forced to sell combined with the gloominess that comes from seeing many of your friends laid off will bring prices down in line.
I’ve been told housing prices are usually a lagging indicator of the economy. Things got inverted recently due to housing driving the economy, but once the bubble froth goes away, I suspect over corrections in housing prices due to the recessionary economy will lag the recession and not lead it.
The removal of the housing credit is funny, since it based by a unanimous voice vote in the Senate. It’s hardly controversial.
If you knew how little most owners actually think in any detail about the value of their homes then you might not pay so much attention to their value estimates. If you want to make an offer that would work for you, then go for it. The worst that can happen is that they refuse, but one low offer is often all it takes to adjust owner expectations.
As far as calling socialism goes, that is way off. capitalism is how global markets are structured. People should have realized that there might be complications when they asked for and received operating capital from the government. What is happening now is called dancing with those that brought you, and it is only the fault of those involved if their feet get stepped on. None of this would have happened if some reasonable level of regulation had been imposed, but free market idealogues don’t have any self discipline.
One other thing that no one is mentioning is that prices are slow to come down in part because they CAN’T come down. Here’s an example:
I looked at a condo a few weeks ago that I liked and was even considering making an offer on, but by my estimation it’s about $75k overpriced and was going to offer accordingly. However after having a discussion with the agent at the open house (who was not the list agent), he said that they were aware it was still overpriced but simply couldn’t reduce the price anymore because the asking price is equal to the outstanding value on the seller’s mortgage (they bought it a few years ago for $75k above the current asking). In other words, they’re stuck and can’t move; anything less than they’re asking and it’s in short sale territory, so they’re just trying to net some offers so they can go to the bank and make a case for a short sale.
Since this revelation, I’ve started digging around and found most of the properties I’ve been looking at (<$600k condos) are in the same situation: last sold within the last few years, all worth less than they were purchased for and likely with outstanding mortgages close to the asking price. In other words, much of San Francisco is “stuck” until we get hit with a massive wave of foreclosures and short sales.
And it should be coming in 3-6 months, especially as the layoffs started at the end of the year and those people are going to start needing to sell.
Gavin – Interesting that those stats only include the last list price, not the original list price, as the baseline. There are so many homes that list for 1.5MM, sit for a few months, get pulled down and re-list at $1.3MM, then take another 1-2 price cuts from there to eventually sell at $1.1MM, so they are way underestimating the real % drop with some of these homes. I would say these nicer towns are probably getting 12%, maybe 15% or so under asking on average.
Mole Man, your comments are right on regarding “socialism”. In the context of a massive taxpayer investment in a company, made at the request of that company’s executives, charges by those same executives that the government is meddling in their affairs seem a little misplaced.
Good lord, I am SO sick of hearing about all this Socialism crap!!! After all, most of you on this site and the rest of the idiots in this country voted for this communist in the first place. Wait till he puts welfare back into place, and you can all quit our jobs and continue to freeload shamelessly. Again — you got exactly what you wanted and EVERYTHING that you deserve. If you don’t like what you see now, you ain’t seen nutthin’ yet. The best is yet to come! Got your down payment saved up? Good for you! Now, open up your wallet and prepare to share your wealth. The best is yet to come! I’m SO excited I could wet my pants!
wait a minute, should I apply the “NOT!!!” to the whole rant, or not? If so that means the double negative at the beginning = a positive ?
Confused by internet sarcasm! Not!
Managing into the Abyss …Economic upheaval… leery buyers… hesitant sellers. Confusion abounds. Demoralizing? Yes…. That’s ‘the elephant’ we need to grapple with, understand, talk about and , ultimately use to guide our decisions.. So..here’s the obvious: we’re all concerned about the state of the local real estate market . And no matter what the pundits say, none of us know if things are really as bad as the reports will have us believe. I will say that after I read the WSJ or The Economist I am sometimes more confused than before! So that just leaves us with the present, and choosing to believe in a future, good or bad. At our company we’ve decided to take a hard, realistic and often scary look at the present. But as for the future? We have dared to be cautiously optimistic. This is because of what history has taught us. We know the San Francisco Bay Area real estate market moves up and down in what are typically 5-year cycles. We know the market has core strengths, like limited size, relatively low unemployment, and a destination for global thought leaders. We personally know owners who purchased less than 10 years ago and, even in today’s market, are still looking at 100% appreciation. Will these history lessons repeat? We sure hope so. When? It’s anybody’s guess. But here’s my litmus test: if you only had $100,000 to invest , where would you put your money? Stocks? Under your mattress? Other commodities like Gold? Or Real Estate. Heck, even my Blue Chip Stocks are way down and to compound my problem I don’t understand them nor do I have any control of their future..there’s not a thing I can do to change their performance… so “stocks” are out for me… my answer is Real Estate . I understand it, I can see it, kick it, alter it’s ‘bricks & morter’, etc. It’s ultimate performance can be affected by me.. I am more in control of it’s destiny. In the meantime, we hope you gather your own information and form your own “guesstimate” that makes you comfortable. Because really, that’s all any of us have.
Jason at 11:21 – thanks for the wisdom. I’m in a somewhat similar position, and I need reminders that there are reasons why sellers aren’t seeing the writing on the wall and lowering prices. This is also more evidence that inventories are going to increase.
I wondered why places that were listed for as much as $899,000 4 months ago won’t consider offers in the $650,000 range – but perhaps I should wait to purchase from a bank.
“if you only had $100,000 to invest , where would you put your money?”
Cash.
The “investment advisors” have done a wonderful job of denigrating a cash position since they don’t earn a commission on cash positions but cash is a perfectly fine position if you expect deflation.
what diemos said
The likely reversion to historical mean of 4.0 to 4.5x median income to median home prices in SF is still in the works. That would imply that a >30% correction is still to come in SF even after recent declines.
http://www.newgeography.com/content/00567-housing-prices-will-continue-fall-especially-california
Bottom line – be patient.
If $100K is all you have to invest, you don’t want to put it in real estate!! Cash is just fine for now IMO.
However, if you’ve got substantial assets and/or earning ability (and willingness to live below your means), 100% cash is not a very efficient portfolio. I’d want at least 5-10% precious metals, increasing exposure to Asian equities and currencies as time goes by, some small US junk bond index exposure, but still a good helping of cold hard cash.
There are going to be lots of opportunities for the patient investor as the implosion of this bubble continues on its natural and inevitable course, and it’s best to keep some significant cash reserves for that eventuality. The downturn in most parts of SF that people on here seem to care about is not even 25% complete IMO.
Perhaps if the delusional homeowners checked out this list of 1M+ properties that are either REO or in NOD, many of which are in “prime” nabes of SF, they may come down to reality:
http://realestate.yahoo.com/California/San_Francisco/foreclosures?typeBak=realestate&p=San+Francisco%2C+CA&type=foreclosure&priceLow=&priceHigh=&bedrooms=&bathrooms=&search=Search
I remember you were touting TLT as a good hedge against deflation a few months ago Satchel, I hope you got out before the big drop.
I see you are not advocating some gold – are you starting to move into the inflation camp?
NVJ,
I hope you got out before the big drop.
I bet you do 🙂
I could look up the posts, but you’ll see that I posted when I got out of my long treasury positions (scaled out during the late Fall 08). I only held TLT in retirement accounts, using treasury direct in main accounts for cash holdings of long treasuries. If you check the archives, you’ll see I advocated a trailing stop on the retiremement account positions (6% below last closing high), and so, yes, I got out of TLT in the $122ish range. Nice all in return last year on my long treasury positions of about 25% (TLT combined with the cash positions, most of which I exited a little earlier). So, not only did I get out in time, but I tried to signal to SS readers when I thought the risk/reward no longer made sense, which in hindsight was a good call.
On gold, I have long advocated a small net worth position, and gold of course does not correlate well with what you term “inflation”. It’s more a hedge against monetary disaster situations and long term loss of purchasing power, both of which conditions are increasingly likely given the incompetence of the policymakers. I don’t really trade gold actively, but I did liquidate a small portion yesterday (at spot around $940) and bought a new car for my wife with the (virtual) proceeds (all money is fungible – but I sometimes fall into the behavioral finance fallacy of “bucketing” income/wealth sources).
I think we’re likely to get continued credit deflation for a long while, which will continue to smash asset prices. This dynamic will continue even after price inflation kicks in,the timing of which is uncertain IMO, but I do think it’s still more than a year off. There is too much “event risk” risk, however, with long treasury interest rates. The Obama economic team is incompetent, and there is no telling exactly how this plays out on the quantitative easing front. At 3% yields in the middle of the curve, I don’t think the risk/reward pans out here.
I prefer small diversified junk bond exposure (another position I posted a few months ago), which has performed very well the last two months or so. Diversified junk is a reasonable equity substitute in a well constructed portfolio in my view.
The last few years have not been difficult ones in which to make some modest scratch in markets, so long as one approached them with the understanding that the credit bubble was going to unravel (which became clear in February 2007 and screamingly obvious by Summer 2007). The next ones shouldn’t be too hard either.