On April 13, 2004 4174 26th Street in the heart of Noe Valley sold for $829,000. The buyer put 25% down. Two years later it sold for $995,000. The buyer put 5% down.
A few months later the property appears to have changed hands between family members, and in October of 2006 the property was refinanced with two loans totaling $1,029,750. It appears that the property was taken back by the bank two months ago, and three weeks ago it was sold to a couple of agents. It’s now on the market and asking $799,000.
There’s no doubt this property has its challenges (including a lack of parking). And perhaps this is the only house in Noe Valley that was purchased with 5% or less down (but we wouldn’t bet on it). Regardless, it was a legitimate comp for other sales in 2004 and 2006, all of which went on to become comps of their own. And so on. And so forth.
So what happens now if the imperfect comp upon which the values of other more perfect homes were based now sells for 20% less?
∙ Listing: 4174 26th Street (2/2) – $799,000 [MLS]
Propertyshark shows it sold for 685k in January. Why would I pay more than that now? The market hasn’t improved.
watch out for this clever one…not much of a floor plan. that charming exposed brick chimney in the kitchen is really a major seismic hazard…unreinforced masonry will completely collapse in a serious earthquake.
crappy kitchen and bath…
lack of parking is not easy to fix.
I think this place is worth about $600k..in it’s present condition. don’t hate me.
Why would I pay more than that now?
I’ve seen a couple of transactions like this in my “semi-real Berkeley” neighborhood. Basically the bank (or whoever forecloses on the property) gets “ripped off” as the property is underpriced and flipped by Relitters. There may, or may not, be nefarious intent in underpricing the property (or giving it limited market exposure — is that a listing in your pocket), but clearly the flippers benefit. The flipside (pun intended) is that the banks can overprice their offering and chase the market down. But really, how hard is it to lower your price by 2% every week until a “market rate” buyer is found?
I didn’t think that parking in Noe was a big issue. Is it?
compared to other parts of the city, Noe’s parking is easy. Only problem around this place, is, I think parking in the evening compenting with a nearby school that has night classes. But those classes are going to be moved to another campus soon so that’ll make things easier.
SFH on a pretty good street in Noe…seems like a very good price.
“Why would I pay more than that [685k] now?”
Obviously you’re paying an extra $114K for that top notch flip^H^H^H^H backyard re-landscaping.
Arrgh ! So how much was spent on that job ? $80 for a day laborer to clean up whatever was there before, a few hundred bucks on sod, wood chips, and more labor to install it. I haven’t seen this particular house but plenty other cases where the same sod and chip job was cheaply installed without any irrigation or the proper subsoil prep. In a few months you’ve got a back yard of dead sod. Hopefully the owners of this house spent a little more to get the job done right.
noearch – what is the seismic remedy for that exposed chimney ? Wrap it with a wood frame box and finish as a wall feature ? Today’s little jolt from the Calaveras fault is Ma Earth reminding us to have this stuff taken care of.
610 sq feet? Presumably before whatever remodelling, but I don’t see a new number.
I think it’s pretty gross otherwise. But it’s Noe, so let’s see 🙂
At the $799K listing price, this one is down exactly 25% from last “true” sale. It will be interesting to see where it closes.
Perhaps concidentally, it is almost exactly tracking the upper tier index of the Case Shiller SF MSA data, which (as of December 2008) was back to April 2004 prices. This one sold for $829K in April 2004.
As these “apples” pile up showing pretty large drops, I’m finding it tougher and tougher to wrap my head around the idea that prices in SF are only down 5-10% from peak (excluding D10, of course). I guess I just need to understand that every time we see a drop in excess of 5-10% (and, admittedly, it’s only a potential one here b/c it hasn’t sold yet), it’s because the buyer overpaid.
(BTW, the 2006 buyer was clearly foolish for paying $995K, but it looks like he wised up fast and quickly refi’d the entire downpayment out quickly, based on the facts given in the editor’s intro. Smart move, and nice trade!)
I went to the open house. It’s cute. Small, but nice. The main problem is that the master bedroom is connected to the rest of the house by a half flight of EXTERIOR stairs. It’s almost like a semi-detached cabin (with the tiniest non-airplane bathroom I can recall seeing).
I doubt this place is 610 sq ft.
There are 2 bedrooms, a small LR, DR and Kitchen, and a bath. No way to fit all that in 610 sq ft.
My guess is that that upstairs bedroom is “new” or something. it looks fairly big too.
regardless, this example shows how out of control RE pricing got. I rarely comment on RE pricing partly because I think San Franciscans have lost their mind spending so much $$$ on places like this.
clearly, the insanity is starting to break. SF is still lofty in terms of RE valuations… but I’m guessing more and more people will realize the very large risk of sinking so much money into one property, and the sacrifices that usually need to come in order to take that very high risk.
I have no idea if the latest owner “overpaid” or not, but they were certainly insane to have paid $1M for this. and just because the US all went insane and overpaid for RE across the country doesn’t make this particular buyer any more sane.
it’ll be interesting if this can sell for list price. If so, it shows that this property hasn’t appreciated at all in 5 years. if not, it means that it’s even longer duration of no appreciation.
Looks like my thoughts of possible regression to 2000 pricing isn’t so insane after all
Now this is what I’m talking about!
Take that exterior photo to Glendale, AZ and ask them what’s worth? You may hear 200k but never 800k. Crazy!
jessep,
That’s why they live in Glendale! (AZ, California Glendale residents probably wouldn’t be fazed)
The quality of the architecture isn’t the reason SF prices are high….
It is just so difficult for me to see what $800K gets you in San Francisco. I understand the appeal of living in “The City” since I spent over a decade in SF before starting a family took me reluctantly into the suburb seems like a life time ago. This house on 26th street is so small it is like living in a tiny two bedroom condo with a patch of dirt the seller calls a yard. You have to fight that claustrophobic uneasiness the narrow nature of the house creates. Of course, being dwarfed by the two much taller adjacent buildings doesn’t help. And there is the lack of parking…For that money, you can get a very nice brand new 3,000 sq ft home in a very nice city 40 minutes away with a real yard with real trees, real kitchen, family room with space for a large plasma TV, a pool and spots to park three cars. Okay, so that’s not everyone’s cup of tea but the argument is still the same. Already at $1000/sqft in this bad market, where is the potential for appreciation ?
I can’t believe this was ever a one million dollar house.
Wouldn’t the building code require a railing for those front stairs?
The quality of the architecture isn’t the reason SF prices are high….
Agreed — it’s the higher incomes. Unfortunately, our incomes are not triple or quadruple those of Glendale, AZ — median household income in Glendale is 45K (with lower taxes/fees), whereas in SF it is 65K. Now, before you start saying that “most people rent” in SF, if you think about it a little — only a little 🙂 — you’ll come to see that the underlying ownership structure doesn’t matter. What matters is that the long-run value of real estate, on average, is derived from the income of the community. That’s what determines the cash flows that a house costs (to live in) and generates (for the owner).
I know it is a common opinion that SF is a very wealthy and eternally growing city with only a bright future ahead of it, but in reality we are living in a bit of a run-down playground for the greater bay area. It is fun and a great place to be, but there are fewer millionaires here than you think, and most people are getting by on only about 20K more than in Glendale, AZ.
Robert…one thing that SF may have over Glendale is….a lot of people living off entitlements?
Just a thought, that may skew those median numbers and (in my experience) there’s a lot of rich boys here with papa’s money.
@ the milkshake:
there’s really no good “seismic remedy” for an old brick chimney. too much weight and mass.
remove it completely. I recently did that in my house; it was 35′ high..cost about $2500 to dismantle it and haul it away..opened up space in my kitchen for my new Sub-zero.
brick chimneys and brick foundations are a major seismic danger, and should be removed.
I actually contacted the company servicing the foreclosure, Kondaur Capital, prior to the recent January resale. It’s a tiny house on a larger than normal lot (30 x 114 or 3420 sqft) which is what interested me (as a tear down).
The property itself is forgettable and at the time I felt it was worth less than what the bank wanted or what they could get. I actually expected this to turn into something much bigger. Looks like someone decided a quick paint, landscape, and flip would make them some money.
The owners of this house (prior to the foreclosure) also owned 869 Alvarado which faced foreclosure last May. Since then it looks like they save one residence at the expense of the other. We’ll see how long they can keep the other one…
It’s a great yard, but a funky house. Not terrible though, and the parking shouldn’t be a big issue. It could be interesting for someone that wanted fairly separate space for an office or true mother-in-law
DanRH: The evening classes nearby at Lick are moving back to Everett (on Church Street in the Castro), so parking will be easier evenings in Noe.
The quality of the architecture isn’t the reason SF prices are high….
I know this. density and income are more important. it’s the same everywhere: the land is worth more than the property. and I think it’s insane that people are paying this much for land given the relatively low incomes (compared to RE valuations) that are in SF. Only 20,260 HOUSEHOLDS make more than $200k in SF, which is only 13.6% of the population. Let’s use a CONSERVATIVE 6x income (which is stretching but which many SFers do). that means only 13.6% of people can afford a $1.2M home in San Francisco. Of course, the top 13.6% of SFers often don’t live in $1.2M houses because $1.2M houses was low to mid range housing, and rich people making $200k+ per year don’t want to live in low to mid range housing. THus, they stretched more than 6x to get into those $1.5-3M housing. (the above $3M range is probably really “different” demographics, and often not wage slaves.)
To get what SF RE “should” cost when the bubble finally implodes, I would probably look at what the traditional price:income multiple has been over the last few decades. That will give you a place to start.
can’t just look at the last 10 years, because SF was specifically affected by one bubble (tech) and then generally affected by a second (credit bubble) over the last 15 years. so the last 10 year data only gives you RE valuations during bubble times.
anybody know what the price:income multiple was over the last 20-40 years?
lastly:
did you know that the largest proportion of Bay Area wealth is NOT in SF?
Marin, Santa Clara, and San Mateo counties hold a higher % of the affluent given their populations than does SF.
Just an odd factoid that the rich in the Bay Area don’t necessarily prefer to live in SF. they prefer Marin, Santa Clara, and San Mateo.
http://www.demographia.com/db-sfbay$$.htm
ex-SF-er wrote:
> Only 20,260 HOUSEHOLDS make more than
> $200k in SF, which is only 13.6% of
> the population.
But a huge percentage of the population have parents that make way more than $200K…
About 8 years ago (as the bubble was heating up) I was sitting around with a friend (who went to business school on the east coast) and talking about a bunch of other friends who recently bought homes, all with help from their parents.
At the time my friend and I could not think of a single person we knew that bought a Bay Area home in the past couple years without family help. A week later we met and he named two people (a Kauffman Fellow from Wharton and a Baker Scholar that made a ton of cash on Wall Street), I could only name one (a fraternity brother two years older than us who came back to work in VC after HBS).
Just last weekend I was at the Woodside home of some (~40 yr old) “kids” that not only got $2mm in cash to help them “buy” their home, but had their father/fil not only pay for the entire renovation, but act as the gc on the project…
I think the interesting part of this story is how the ’04 and ’06 sales were likely used as comps by appraisers to support other sales (likely for about 6 months, as comps expire fairly quickly). BUT, appraisers use a minimum of 3 comps to support value… not just 1. So if this property was an anomaly at the time, a competent appraisal would have exposed that pretty quickly. Problem is, not all appraisers share the same level of competence. One grossly overpriced sale can affect the surrounding market, rippling outward as more and more properties become overpriced. IMO, this is the “moral” of the Editor’s story.
“some (~40 yr old) “kids” that not only got $2mm in cash to help them “buy” their home”
Outstanding!
It warms my heart to know that there are people in the world for whom $2M is beer money that they can afford to throw away.
I shall make sure not to be standing in their path.
“opened up space in my kitchen for my new Sub-zero”
I hope you got the extended warranty! Those things look nice but are pieces of junk!
Noearch I have a question.
I have seen houses built in 1900, 1901, etc in bedrock area of Ashbury hts that have brick foundations. How dangerous are those foundations if these homes have survived the two big ones? Do they NEED to be removed, reinforced, or can they be left alone?
ex-SFer, I hope people making only $200k aren’t actually “buying” $1.2M homes. Assuming they put $200k down (which would take years to save if you’re only making $200k, but whatever), they’re looking at monthly payments of about $7k on a take-home income of about $10k. Utterly ridiculous. That also leaves no space to ever have a kid (market rate for a nanny is $3k/mo; preschool $1500/mo), making that 3rd bedroom completely unnecessary. You could barely afford to eat.
Our household income is around $450k/year and I feel that with our 2 kids, we’d be living above our means to buy anything over $800k. I can’t imagine even paying rent in this city on less than half our salaries. $200k is far from “rich.” I’d peg that as starting at around $800k/year.
I don’t think the prices here have much to do with income at all. People with relatively low incomes (i.e., below $500k) live in million or 2 million dollar homes because (1) their parents give them money and/or (2) they bought in 10 years ago and made a killing that allowed them to trade up multiple times (if you’ve got a $600k down payment, I could see you (barely) affording to live in a $1.2M home on just $200k/year).
@ex-SFer – I have tracked annual average cost and median household wage back to 1976 for SF (not MSA, just the city). These are rough (one’s an average, one’s median), but I’ve posted them before:
Year Average Home Median Income Ratio
1976 52.0 12.0 4.3
1980 110.0 16.0 6.9
1985 140.0 24.0 5.8
1990 288.0 30.0 9.6
1995 255.0 36.0 7.1
1997 270.0 41.0 6.6
2000 400.0 54.0 7.4
2005 670.0 62.0 10.8
2008 724.0 71.9 10.1
Median household income is very hard to pin down. HUD Census numbers for 2000 for SF City and County in 2000 showed 75.2, going to 89.6 in 2008, but I used city estimates to be consistent back to the 1970’s. The HUD estimates seem high to me.
anon at 10AM has a very odd idea of “rich” and “relatively low income”
@curmudgeon – anon @ 10AM is correct, though. If you took away daddy’s money, you’d have to make at least $500k to actually afford the “average” $1M home. So my guess is that average income, once you include parental contributions, is probably more like $500k/household. Meaning $800k = rich is actually a low estimate.
The point is that anon’s ideas only strike you as “odd” because the current housing market is a combination of completely irrational and based on family wealth (which isn’t included in reported income).
Robert,
(ref: your post at March 30, 2009 8:12 PM)
Sure SF’s median income is 20K more than Glendale, AZ.
But a valid point to justify somewhat higher prices is the entitlements explained by others.
Take this analogy: A lot of New Orleans is under sea level, but levees will artificially make it a sustainable living environment for many more decades if not centuries. You could look at a topographic map of the area and decree “Lake Pontchartrain is 10 feet higher than this area therefore it will be under water eventually”. But that won’t probably happen in our lifetime.
Rent Control and Prop 13 are the levees maintaining what appears as an unnatural situation. If they are kept in place, SF could stay in this paradoxical system with 3 very different classes: the uber-rich, house-poor mortgaged-to-the-gills upper middle class and happy protected lower middle/lower class.
So my guess is that average income, once you include parental contributions, is probably more like $500k/household. Meaning $800k = rich is actually a low estimate.
How much of this was leveraged contributions based on the parent’s ‘house’ value during the bubble? Home Equity withdrawal has gone negative since October. This could potentially have an even larger effect on markets dependent on ‘parental’ contributions. Not to mention non-RE portfolios getting gutted across the board.
BernalDweller @ 10:37am – Very interesting data… is there is a source from where you pulled that?
Taking that data, I would say that it is possible that we may be heading for a ratio of house prices to income for San Francisco is around 6-7. The reason I say this is that if we take the time points between the previous two house price bubbles, then that is where we land. The previous bubbles were (going backwards in time) 2002-2007, 1997-2000, late 80s, and late 70s. Apart from the 1997-2000 bubble which was bay area specific, the others were country-wide bubbles (look at: US house prices chart).
For the low point between the dot-com run up and the most recent bubble, we do not have the granularity of data to infer the house price to income ratio (plus the bunching up of two bubbles would skew the data), but for the other low points, the minimum ratio was hit around 1996-7 and 1984 which would translate to a ratio around 6-7.
Of course, this is a very rough inference from the little data available. As an aside, if we go back to a ratio of 7, and assuming that incomes remain reasonably flat over the next few years (a generous assumption given the economy?), we go down about 30-40% in house prices from the peak of this current bubble. Not very different from what a lot of the bears here are calling out. Of course government intervention etc makes things murkier…
But a huge percentage of the population have parents that make way more than $200K
doubtful.
the large majority of the population in SF stretches to buy a home. as time went on people stretched further and further to buy said homes.
of course there was economic assistance, including gifts from parents/relatives. I would GUESS that it’s a relatively small segment of society. and most of the time it’s probably more modest amounts ($50k or 100k or something, not $500k)
but thanks to Bernal Dweller for that data… it confirms what I’ve noted. people continue to stretch more and more.
ex-SFer, I hope people making only $200k aren’t actually “buying” $1.2M homes. Assuming they put $200k down (which would take years to save if you’re only making $200k, but whatever), they’re looking at monthly payments of about $7k on a take-home income of about $10k. Utterly ridiculous.
yes it is, isn’t it.
In general, the MANY people I know who bought homes in SF paid between 6-10x annual income.
And now you know why I’ve been calling SF Real Estate valuations unsustainable for some years now.
it IS insane. unless you believe (as many did) that RE only goes up. then the price doesn’t matter because you buy using an interest only loan, or a negative amortisation loan… and later sell for a big profit
but again, it comes back to my point: only 14% or so of SF households make $200k/year or more. and yet that only buys a crappy house in a good nabe.
even if you add in the handful of people with parents who really are giving major help (hundreds of thousands of bucks) to their kids, it’s still not enough.
un sus tain a ble.
My final point on this:
CLEARLY people are stretching more and more, and CLEARLY that is the dominant reason for increased RE valuations in SF. the obvious proof: the expolsion of Alt-A mortgages in SF, going from a tiny fraction to 70% of the market over the bubble years
People who get big gifts from grandpa don’t need an Option Arm or an Alt-A mortgage.
too long people believed the BS that it was a “cash flow” tool for the wealthy. we’re seeing that clearly was not the case. (given default rates)
well, as for brick foundations, whether on bedrock or not. they are not so much as “dangerous” but rather just very weak structurally, especially during lateral motion of an earthquake. they contain no reinforcing steel..they just crumble in a severe shake..
each owner should assess their own level of risk when it comes to brick foundations. for me, replacing brick with reinforced concrete is THE essential first step in any major renovation. it’s a good investment and just makes sense.
This conversation is strange.
Of course the highest price paid was too much. There was a bubble. Take half or so off of such peak figures, which is more or less where the market is headed, and it is much closer to being reasonable. That is still a high figure, but potentially explicable and sustainable.
Raw earnings figures are extremely deceptive. Many in the City are self employed or have some kind of side gig and in many cases not all of that income gets declared. The kind of work that is being done also matters. Many high paying jobs in and around the City are in finance or related to tech startups, both of which are noted for occasionally generating remarkably high levels of pay.
noearch, you know your stuff. Would it really be necessary to tear out the charming exposed brick chimney in the kitchen of this place? I have to say, that is about the only thing I like about this tiny dump of a place. Other than the hypothetical situation of bricks shaking loose and falling on you in a big quake if you happen to be standing very near it, what are the risks of a non-structural chimney like this?
“ex-SFer, I hope people making only $200k aren’t actually “buying” $1.2M homes. Assuming they put $200k down (which would take years to save if you’re only making $200k, but whatever), they’re looking at monthly payments of about $7k on a take-home income of about $10k. Utterly ridiculous. That also leaves no space to ever have a kid (market rate for a nanny is $3k/mo; preschool $1500/mo), making that 3rd bedroom completely unnecessary. You could barely afford to eat.
Our household income is around $450k/year and I feel that with our 2 kids, we’d be living above our means to buy anything over $800k. I can’t imagine even paying rent in this city on less than half our salaries. $200k is far from “rich.” I’d peg that as starting at around $800k/year.”
Really? That seems a little overstated. We have two kids, one nanny ($3000 a month), one pre-school, ($1400 a month). Combined income of around $280k to $300k. We get buy, max out our 401k’s, and could buy an 750k-800k home for around what we pay in rent.
What are you doing with the extra $150 grand before taxes?
Plus, this is as bad as it gets. Assuming public school, child care will go from $4500 a month to less than a $2000 once one child is in kindergarten and once both are in, you are looking at less that $750 a month for aftercare (assuming public school of course). Even private school is less than a nanny.
Once our oldest is in public school (in Marin most likely) and youngest in day care we should be very comfortable. That’s an extra $3000 in your pocket a month, or essentially a 650k mortgage.
ex-SFer, I hope people making only $200k aren’t actually “buying” $1.2M homes. Assuming they put $200k down (which would take years to save if you’re only making $200k, but whatever), they’re looking at monthly payments of about $7k on a take-home income of about $10k. Utterly ridiculous.
You are ignoring the tax deductions in your calculations, which are substantial, about 2-3k in this scenario. Spending 40-50% of your income on shelter is tough, but plenty of people do it and many of them aren’t left with $5k/month to live off of. You also save on transportation costs vs. buying in the suburbs.
I have to say that I would not do it, though. I am much too conservative financially to put myself in that situation. Perhaps if it was right at the beginning of my career and I was very sure that my income would be going up.
FAB, you “know” me right? My wife and I bought a house eight years ago without any parental contribution. In fact, it goes the other way around with us — I have to help my parents out financially. I know a bunch of people that bought homes without any parental help, but most of them worked for companies that went public, so they had some IPO money.
NoeValleyJim, keep in mind that those tax benefits are going away for anyone above a certain income (which would include me, and I certainly don’t feel “rich”) with the new legislation. And you don’t grandfather in either.
.For that money, you can get a very nice brand new 3,000 sq ft home in a very nice city 40 minutes away
No you can’t. The nearest suburban zip to SF that is selling at $200/sq ft is Concord and that is 1 hr and 10 minutes in traffic to downtown SF, at least according to maps.google.com, which is a much more reliable reporter of commute times than the suburbanites who post here. Where are you seeing these homes?
And I personally would much rather have my extra hour and half of time with my family every day than the extra 1800 sq ft, but each to their own. And I suspect those exurban McMansions are going to look like so many white elephants soon, when Peak Oil hits. Maybe we will find a cheap alternative way to power our cars before then, but it is not looking too likely. It will a rough adjustment for a lot of people.
“Peak Oil”: NVJ, you just identified the next narrative for SF realtors.
Ingredients of an asset bubble:
1. Notice an emerging narrative.
2. Let the credit flow (aka gasoline)
3. Instill a sense of urgency among the public
Concord to Powell Street is 45 minutes by BART, about the same as Noe to Googleplex on a good day. One could make the same argument about all the jobs in the South Bay/Peninsula.
I hope all the talk about “Peak Oil” turns out to be the same nonsense I heard as a gradeschooler in the early 1970s (even the nuns in a Catholic school were telling us that the world was going to run out of oil by the mid-1980s) b/c we just bought a new (and huge) SUV so we can fit in better in Marin 🙂 (It’s pretty funny to see all the Obama stickers up here on the back of Suburbans, Tahoes, Landcruisers, Sequoias, even a Hummer!, etc. – it seems like every family has an SUV, but at least one of the SUVs doesn’t have an Obama sticker ;))
We figured that the differential between renting our house and buying it is equivalent to the cost of a brand new $40K SUV every year.
Now add in your travel time to BART, the average wait for a train and your walk from Montgomery BART to your destination.
What are we looking at here, an hour and five minutes, ten minutes?
I agree with NVJ that gas and commuting expenses are going to revamp the urban/suburban landscape. But I think this is a very, very long-term development — over the next 30 years or so. I see little evidence that this will have a material effect on anything now or in the next several years — people still generally want big homes with big yards and good public schools. SF has none of those (except the first two are available for a very high price). And it is not so certain how a retreat to jobs centers will affect SF. The valley seems to be where the jobs are and are being created, and SF policies are horrible towards employers.
If SF becomes more employer-friendly and improves its schools, it may indeed benefit from these long-term trends. But it could just as easily be a victim of them. You don’t see a lot of people moving into Detroit’s or Cleveland’s “urban core.” I know, SF is not Detroit or Cleveland — just making the point that being “urban” is not enough. Bottom-line is I think these Peak Oil points are valid. I just don;t see them affecting anything for a long time (but if you make the right bet, you could do very well over that long-term — as long as you wait until this crash plays out before you place that bet).
@anotheranon:
My sources were DataQuick by county figures since 2000 for housing data, and a blend of various sources for median income. As I said, median household income is kinda hard to pin down, so I looked at various sources including the census bureau and related census based estimates, as well as city of SF planning figures. Prior to 2000 there was a guy at bluewealth.com who kept stats/graphs regarding real estate and wage data in the city – I don’t know what his source was, but if you look at the US Census and ACS data, it’s pretty consistent.
I believe we will never go back to any ratio under 6. It is my belief that data after the mid-70’s starts to reflect double-income families as the norm, whereas they were not the norm in the mid-seventies and before.
And in the interest of full disclosure, my own household ratio for my last purchase was 4.4, and I overpaid for my house looking back. But at least I didn’t stretch insanely to overpay, and we are a single-earner household, so I was pretty conservative when it came to that purchase.
Under normal commute conditions Noe to Google is 1 hour by 101 and the same for 280 (cutting through MV). There’s no carpool lanes until you pass Whipple on 101 south. Public transit from many parts of the city to South Bay is not an option.
Exurbs and suburbs with poor planning and KB home style developments, similar, or worse, are quickly becoming the slums of the very near future. You can see examples on TV nearly every night on the local newscasts.
@ trip:
I appreciate your comments and question, but you pretty much answered your own question re the brick chimney. You need to decide which to choose: “charm” over safety..? that cute brick chimney weighing 2-3 tons will come crashing down in a serious quake, injuring or killing anyone nearby, and probably pulling down more wood framing as well. simply put it’s a major hazard; if one believes that we are indeed in for a big earthquake not that far in the future. I do.
2-3 tons? OK, that’s a little more severe than a few bricks smacking into you . . .
So, there goes the only aspect of this crummy place that I liked.
@BernalDweller:
I tend to agree with you that we will likely not go below a ratio of 6, but low 7s may not be out of the question, particularly if housing prices undershoot and given the terrible economic conditions. Even so, we would be more than twice the ratio of the rest of the country and not cheap by any standards.
Also, I do not understand why going from a single-income to dual-income family would change anything in the underlying data you provided… after all it is household income and not individual income that is being considered. If anything, going to dual income increases childcare costs (which is not insignificant), hence the amount afforded for housing does not go up proportionately. Plus all the data you provided was 1976 and after.
NVJ: I beg to differ. South Walnut Creek next to 24 is much closer. Lafayette and Orinda may cost 200K more but even closer. All have exceptional K-12 schools. Living in a tiny house with two kids and a nanny and neighbor 10 feet away means ZERO privacy for you and the Mrs. Have you checked out quality of middle and high schools in San Francisco? $30-40K a year for private middle and high school for kids is insane. Where are your children going to play baseball, softball, soccer or learn to swim at three years of age ? Do you really think with two kids in tow you are going to enjoy the City life ? Also, what is your commute time from Noe Valley to your downtown office door to door. Unless you can beam yourself to the office, the net gain in time is not nearly as much. I love my gated community 4000 sq ft house with long driveway on 2/3 flat acre, 48″ Subzero, All Viking appliances, three fire places, 56″ TV in study, 600 sq ft master and local public high school good enough to send my child to Ivy League. All that for 1.5M and an extra half hour of driving. Try to beat that in SF.
@anotheranon:
I get your question re: dual income, but my assumption is that the second income in a dual income household is often “more disposable” for lack of a better term. In other words, many second incomes are specifically earmarked “so we can afford that house.” In the lowest income groups, perhaps two incomes are necessary just for subsistence living, but in medium to higher income groups the second income helps to do the “stretching” for the house, and therefore increases the ratio.
I wasn’t clear on the mid-seventies assumption, either. I think that dual income families were far more prevalent in the mid eighties and later than before.
“…I beg to differ. South Walnut Creek next to 24 is much closer.”
Outsider: But then you would actually have to live in South Walnut Creek…
I’m definitely not a city snob having lived a few years in Berkeley/Oakland but WC is far from appealing.
“Posted by: BernalDweller – I love my gated community”
Ahhhh the life of ‘privacy’ behind the gates. I’d rather reside in Presidio Heights with my front door accessible to anyone who walks down Cherry Street any day over Danville/Blackhawk (or any other gated community) with less than half or more space… It’s a mindset that City people bring to the table. A conversation that can be had with a real City person is 100% what you cannot have with most people from the burbs. The suburban mindset is a mental disease.
Sorry and good luck out-there,
Outsider – Just chiming in, but what you’re doing is putting a premium on a “quality of life” issue that differs from person to person. Personally, your living situation to me sounds like hell on earth.
I agree that rising fuel costs will cause the value of urban residential to rise compared to exurban (Tracy, Brentwood, etc.) However even surburban locations like Walnut Creek, Alameda Co., the peninsula corridor, and much of the south bay are already in a good position to offer cheap and fast transportation. Many of those municipalities are on a trajectory to increase density along key transit corridors.
SF will still be the queen of urbanity but will by no means be the only place in the bay area that delivers cheap and quick access to job markets.
(LMRiM – there’s no need to believe those superstitious nuns about peak oil. Rest assured that the core of the earth is full of industrious gnomes producing an unlimited supply of oil 🙂
I am totally baffled that anyone could afford to service the mortgage on a home that cost more than even 3x family income. 6x seems literally impossible. For us that would mean a nearly $3M house. The monthly payment on that would be literally 25% more than our monthly income. Even if we put down a million dollars as a down payment (which would take us over 10 years to save), we’d be spending our full take-home on the mortgage payment. And we are at too high an income level to get any tax deduction under the new tax plan (as is everyone else that could supposedly afford this place on the “conservative” 6x estimate). This makes absolutely no sense unless everyone is on IO loans (which of course make no sense in the non-bubble world).
@Chap:
Bernal is as far from a gated community as you can get! Your post should be directed to Outsider.
This makes absolutely no sense unless everyone is on IO loans
Bingo! You’re absolutely right that it is insane to take on a mortgage that is 6X income. But people did so in SF in spades not only through IO/neg-am loans, but more importantly, because they put nothing (or little) down. So savings did not have to be dumped in all at once as a down payment but are simply one of the sources of the insane monthly expenditure. This would actually make some sense in a world of rising values (if you don’t realize that no ponzi scheme can last).
You can’t use either of these “stretching” mechanisms anymore because they are not available from lenders — hence, transactions have dried up above about the $700k mark and all but disappeared above about $1.5M. And this is why the sh** is yet to really hit the fan in SF. At some point (through the next few years), those loans recast and people decide not to stop putting a portion of their life savings into an asset that is now worth far less than they owe (or their savings run out, they lose a job, private school tuition bills hit, etc.).
You are forgetting how competitive it was. The folks who actually bought a lot of the properties featured on here for example by and large had more money to put down and could therefore borrow more. Why sell to the 5% down guy? I’ll sell to the 20% to 30 % down guy who could finance more. Even 10 percent down was not regarded as a “strong” offer. This is one critical flaw in many of your “reset tsunami” scenarios for SF. The other has been government intervention.
Where is someone making ~$200k/year getting a $400k down payment for $1.2M home? Does not compute. Unless it’s coming from daddy, that’s like 10 years of savings on that income.
OTOH how many people reduced their down payment (%-wise) to increase their offer size over the more conservative buyer? One could argue that when credit is easy as it was during the bubble days, every offer was a strong offer. I bet most sellers took the money knowing that every loan was getting approved.
I don’t think so unearthly, because people still had a loan contingency in the offer. So, if they had a bigger dollar figure but less down the seller had to question if they were going to get the loan for sure. I’m sure I’ll hear about how there were all kinds of no contingency offers, but I never saw one on anyplace I sold. The one contingency was always loan contingency.
@ anon @ 4:04, Not sure. One can never be sure about such things without a knowledge of a family’s history, or an individual’s life story. Clearly, underestimating wealth, be it family wealth or otherwise, and attributing it purely to Web 2.0 options is de rigeur on here. Or you know, nowadays it’s the CW that highly successful people are all going the way of the dodo in San Francisco proper. I’m only a realtor who probably wrote 300 offers that came up short 2004 – 2009 though. Never mind about the dozen or so I didn’t get as a principal in 1996-2003 or so. Whenever my clients came up short I was informed that the winning bid had “more money down,” and then we were all able to see what the property sold for later. So what would I know from such “anecdotes.” The nuts and bolts of micro markets are so better judged from afar, in hindsight.
Unearthly, I’m sure that happened sometimes. But not when there were multiple bids in a blind bidding situation. It wasn’t the mentality. “Reducing” the money down? More like upping the down money in order to be able to afford more. And that’s from a 20 percent start. Also, the bidding was fast and furious.
To your point, a 10 percent down offer from say a Wells Fargo, not from a broker, but a lender, for 10% down? And no loan contingency? That would have been considered strong, sure. Not so much 5%. I don’t care from whom. Also, if there was any contingency it was appraisal or loan usually.
Think of it from the lenders perspective too. These folks are approved for 20% down. Oh wait. Now they want to put 10% down, but borrow more? I’m sure it happened from time to time. But it would have involved a mortgage broker scrambling to find a different program, or something.
Life style choice is clearly in play here. Remember I had to move out of San Francisco because of starting a family. If you are single or without children, that’s a completely different story. I am referring to raising a family in San Francisco. My wife and I wouldn’t have left SF without knowing we had kids coming. I do have to say the 10 years I lived in Pacific Heights, my cars were broken into 11 times and had both power outside mirrors of my 911 ripped out when I was at the Bay Club resulting in material and body damage of over $3000 in 1980 dollars. The 20+ years in the suburb – 0 times. Incidentally, we are buying a condo in San Francisco because we are now essentially empty-nesters. Life has come full circle…
@trip:
I’m curious, but what is so appealing about this “charming” exposed brick chimney to you? not trying to criticize, but nostalgia does seem to get a lot of buyers all warm and fuzzy.
so that brick chimney is the only aspect you liked?
explain if you could. thanks.
The price-to-income ratios shouldn’t be used to gauge the affordability of a particular house, or to extrapolate what people are doing. With a city that’s mostly renters, one has to figure out the median income of home buyers to do that (I’d guess it’s in the 70-80th percentile of income range).
The ratio is good for historical comparisons (unless the rent/own ratio changes), but it doesn’t reflect the actual price/income ratio of buyers.
Of course with investments down (impairing down payments and family assistance), an eventual rise in interest rates, and the crazy mortgages disappearing, the ratio may take an unprecedented drop. And unemployment will drop prices even if the price/income ratio holds.
An era of affordability might be on the horizon!
I think Outsider’s viewpoint is more the norm than the exception, which is why I don’t buy this “retreat to the urban core” at all — at least not in the near term. People like big houses, big yards, and good public schools. But I am raising two kids in SF and disagree with a lot of his specific points, but agree with others:
Living in a tiny house with two kids and a nanny and neighbor 10 feet away means ZERO privacy for you and the Mrs.
This is terribly exaggerated. There are lots of plenty large homes in SF. Ours is about 2400 sf — rather modest but perfectly big enough to provide ample privacy. We cannot hear a thing from our neighbors, and they can’t see in our place.
Have you checked out quality of middle and high schools in San Francisco? $30-40K a year for private middle and high school for kids is insane.
This is, IMHO, SF’s biggest social problem. The schools are horrible, especially the middle schools, and the assignment system is a nightmare. If you get into Lowell or SOTA, those are great at the HS level. SF needs to fix this to stanch the exodus of families (won’t happen — the lefties will prevent it). We pay a fortune for private schools (but ours is far better than the public schools in the burbs) — although I agree the savvy financial move is to move where the public schools are good.
Where are your children going to play baseball, softball, soccer or learn to swim at three years of age?
All widely available in SF. We’ve done them all.
Do you really think with two kids in tow you are going to enjoy the City life?
Definitely. Far superior to the ‘burbs. This city is great for kids (if you can afford it). The parks, museums, theater, libraries, etc. are fantastic. We brought the kids to a wonderful performance at the Symphony on Sunday (we’re even good friends with the composer and writer of the key piece performed — find that in Walnut Creek!) And all accessible by foot or Muni. Plus, we can easily walk to two different supermarkets and dozens of other markets, and literally a hundred restaurants.
What is your commute time from Noe Valley to your downtown office door to door. Unless you can beam yourself to the office, the net gain in time is not nearly as much.
This is the main reason you’d never find me in the ‘burbs. I get door-to-door on Muni in about 16 minutes. I’m out of the office at about 5:40 and home before 6:00, and I get to read the paper (or briefs) during the commute so it is not just idle car time. I’ll take the extra hour every weekday with my kids over time in the car any day, and give up the extra 1500 sf, which I don’t want in the first place (our place is too big to clean as it is).
That said, I recognize that my priorities are not the norm within the Bay Area (although I suspect they are closer to the norm among SS readers and those who choose to live in SF).
noearch, “charming” was your word — I just quoted you (although it sounds like you were being sarcastic). I just like the look of exposed brick, in limited doses — one wall in an office, e.g. It looks homey and solid (the latter is ironic, given your input on things!) And I’m exaggerating when I say it is the “only” thing I like. My point is that this is a pretty dumpy house, and I’m still shocked that anyone who could afford to pay the selling price would want to live there.
“Posted by: Outsider – I love my gated community”
Ahhhh the life of ‘privacy’ behind the gates. I’d rather reside in Presidio Heights with my front door accessible to anyone who walks down Cherry Street any day over Danville/Blackhawk (or any other gated community) with less than half or more space… It’s a mindset that City people bring to the table. A conversation that can be had with a real City person is 100% what you cannot have with most people from the burbs. The suburban mindset is a mental disease.
Sorry and good luck out-there,
@ TRIP:
no sarcasm intended at all. if you look back at your first comment regarding the brick chimney, I believe you called it “charming”. not me.
there are many definitions of what is “homey and solid” to many people. I dont consider unreinforced old brick chimneys to be either. sorry.
ok, ok, so I did. mea culpa.
too busy I guess. I need to stop working so hard.
Why sell to the 5% down guy? I’ll sell to the 20% to 30 % down guy who could finance more. Even 10 percent down was not regarded as a “strong” offer. This is one critical flaw in many of your “reset tsunami” scenarios for SF. The other has been government intervention
I find this point intriguing.
anonn:
you are saying that you wrote many offers during the bubble years with 5-10% down and ONLY a loan contingency that were rejected for a LOWER bid from a person with a higher down payment?
during “bubble” years I never heard of this as a problem. admittedly I did NOT buy or sell a property in SF during those years. But I did in an equally (if not moreso) bubbly area.
during those times all loans were going through so nobody worried about it. just make sure you had a “preapproval” letter (not preauthorized, preapproved).
if the deal fell through? who cares relist the house and sell it in one day for more money anyway after multiple bids.
the EXPLOSION of Alt-A products in SF would argue against your experience. Alt-A are Alt-A specifically because it’s not a “Strong” borrower using your lingo, it’s a great borrower with some sort of issue… high LTV, low documentation, unsteady income etc… otherwise they’d be prime
No. I’m saying I wrote offers with 10 percent to 20 percent down that lost out because they were lower in both price and down monies. I’m saying that I wrote a ton of offers, and this happened not infrequently. The houses that were sold had a lot more traditional loan structures than the Alt-A/ sub prime tsunami crowd will ever concede. But they really will have to before too long. The resets are not occurring like they were predicted like a great many on here, and I’ve explained why that is.
And I’m sorry, but “all loans” in “those times” were not going through. The competition created bad buyers who had no place being in the market, and they needed to be weeded out.
“if the deal fell through? who cares relist the house and sell it in one day for more money anyway after multiple bids.”
A statement only made in the abstract. Not anything a realtor or client would want to get into, in practice. Remember, length on the market was (and is, just look around) perceived as possibly a preliminary indication of failure. Not to mention how stressful home sales can be for sellers. Nope, the objective was to knock it out of the box the first time. And it wasn’t hard with the sort of monies people were putting down.
South Walnut Creek next to 24 is much closer.
So you can buy a brand new 3000 sq ft home in South Walnut Creek for under $800k? Please give us a URL to one of these homes for sale then, as I am skeptical.
To answer your questions:
Have you checked out quality of middle and high schools in San Francisco?
Yes, Lowell is probably the highest rated public school in the Bay Area. I would be happy with Lincoln or Washington as well. Both are excellent schools.
Where are your children going to play baseball, softball, soccer or learn to swim at three years of age ?
In a park, where else? Where did your children learn those things? We live about a block and half from a park where there are all of those things except swimming and there is a public swimming pool less than two miles away. I thought you had lived here for 10 years.
Do you really think with two kids in tow you are going to enjoy the City life?
I enjoy it every day. To me a walk down to the Farmer’s Market on 24th Street and an hour in the park is pretty enjoyable. I have to admit I don’t go to any nightclubs anymore, but there is lots for both children and grownups here.
Also, what is your commute time from Noe Valley to your downtown office door to door.
My usual commute these days is via bicycle, on which my commute is 25 minutes door to door. On rainy days, I take the J-Church light rail, which is 30-35 minutes. On the very rare occasions I have taken a car, the trip has taken 20 minutes.
Bicycling saves me a couple week in the gym as well, though honestly our lives are so hectic with a new baby that I would probably just be chunkier and crankier otherwise.
NVJ, you mentioned before that you rent. Do you still rent in the city, and are you planning on buying in the city in the future?
Wow, this thread has exploded.
Jessep,
Entitlements are included in measures of household income.
SFS,
Last I checked, mortgage payments must be paid in cash, not levies or Prop 13. “In God we trust, all others pay cash”:) In 94114, only 10% of the households made more than 250K. Only 18% make more than 200K. The average household makes 75K. Yet, 99% of the 30,000 people living in this zip code are housed. So, either there is a massive wealth transfer from those who fund housing (banks, landlords) to those who consume housing (borrowers, renters) or else house prices are not really as high as we believe, or a combination of the two.
What percent rents versus owns in 94114? I think that’s skewing all your stats from onset.
On ex SF-er’s point, here is the only thing I’ve ever seen noting the percentage of “exotic” loans used to buy in SF in recent years:
http://www.scotsmanguide.com/default.asp?ID=1775
This 11/06 report states that in 2005, 45% of mortgages were IO and 25% were neg-am. In 2006, it was 33% IO and 30% neg-am. I have no clue whether this is a reliable source, but I’ve never seen any other numbers anywhere else. If these numbers are right, that is a whole lot of trouble coming down the pike for bubble buyers (5-years was a common period before recast, 3-years also used).
Same source, but in the Chronicle. Cites the Bay Area (not specifically SF):
In the Bay Area, almost three-quarters of mortgage loans taken out last year allowed borrowers to delay the payment of principal and, in some cases, interest, according to data from San Francisco research firm LoanPerformance.
NVJ, you mentioned before that you rent.
NVJ owns a duplex (somewhere in Noe Valley, I presume).
“I hope all the talk about “Peak Oil” turns out to be the same nonsense I heard as a gradeschooler”
It’s not.
I do have to say the 10 years I lived in Pacific Heights, my cars were broken into 11 times and had both power outside mirrors of my 911 ripped out when I was at the Bay Club resulting in material and body damage of over $3000 in 1980 dollars. The 20+ years in the suburb – 0 times. Incidentally, we are buying a condo in San Francisco because we are now essentially empty-nesters. Life has come full circle…
Sorry about your cars being broken into. I am pretty sure you would not have that kind of problem today, at least not in Pac Heights. Some blocks of SOMA maybe. Welcome back, where are you thinking about living?
NoeValleyJim, keep in mind that those tax benefits are going away for anyone above a certain income (which would include me, and I certainly don’t feel “rich”) with the new legislation. And you don’t grandfather in either.
No, they are not. The plan, which still has yet to pass Congress, is to reduce the deduction from a straight reduction of your income (which makes the deduction equal to your marginal federal rate, more or less) to a flat 28%. So the tax deduction might be reduced, but not eliminated.
I don’t know how they intend to apply it to AMT filers, which is what I am personally subject to.
anonn,
For renter/owner breakdown, I can only currently get data from 2000, in which it was 65%/35%.
However, the only skewing here is in terms of a difference in the quality of the housing stock (which would affect price). A rental property is only worth the stream of rents it can generate, just as an owner-occupied property is only worth the stream of “owner equivalent rents”.
It doesn’t really matter whether you consume the housing one month at a time, or buy it all up-front — at the end of the day, the residents, and only the residents, must fully fund the housing stock from their incomes.
Admittedly, there are distortions which can skew things temporarily. For example, rent-control might give renters a break for a while, but the owners will end up neglecting their property, driving values down to what the renters are able to fund. In the same way, loose lending may give owners a break, but then defaults/fear of defaults will tighten things up and bring values back down.
NVJ: Ironically, in SOMA.
Back to the home in question – tear down/lots in Noe were selling for a million. Lord knows how much went into a tear down/lot to build 3000 SqFt houses that were then listed well above $2 million (anyone know the cost per SqFt to tear down a shack, then build a 3000 SqFt home in the city?), but even if this home’s buyer intended to live in it as-is, they were competing with developers who would gladly pay $1 million to tear it down for a relatively fast and high profit.
Robert,
If you look at the incomes of buyers versus renters, I’ll bet you’ll see a difference in income.
And as for “(that is a whole lot of trouble coming down the pike for bubble buyers (5-years was a common period before recast, 3-years also used).”
This is pointedly ignoring the other big thing that has occurred. And that is banks lowering rates because of government steering. There are also numerous programs. The government saw subprime. They don’t want Alt-A to do the same thing. WaMu is Chase. Countrywide is BofA, etc.
Also on loans, just because they were Alt-A does not mean that the buyer didn’t put 20% down. When you bought a house from 2004-2007 the go to mortgage from the bank was Alt-A, you had to push them to get fixed numbers and those were often not as good as the Full payment Alt-A rate; which they would then say if rates jack up later you can re-fi to a fixed. But, the point is Alt-A was pushed by the banks no matter your position so the Alt-A’s are not as toxic as predicted IMO. We got an Alt-A at the time and our rate is at 4.0% now (full amortized is now well below the original minimum payment) so I’m happy with it.
ditto NVJ on the SOMA comment. we lived in SOMA for a year, then high-tailed it out of their after our car was broken into in an underground garage (that we paid for).. then a fellow resident was robbed in front of our building, and finally a person was shot half a block from our place. to top it off, we lived in a brand new, high tech loft building (first tenants for our unit).
now we live in b/w noe and mission on guerrero, and park our car on the street everyday. no problems yet, cross my fingers. =)
btw, when do you think prices will actually come down in nicer areas (e.g., noe, pac heights)? prices seem to be holding up pretty well in noe valley (regardless of all the doomsday talk going on on this board). i haven’t seen any indications that these people stretching 6x their yearly income are having any trouble…
instead of selling, the noe valley’ers seem to be holding onto their properties, and trying to wait it out (which, if they were stretching 6x, i would imagine they would have to put their property up for sale…. )
thoughts?
I’m a bear and I have admitted multiple times last year that I was surprised by the stickiness of Noe vs the rest of the world.
But looking at Zillow’s stats, I think things are not that sticky anymore. At least not until mid-last-year.
http://www.zillow.com/local-info/CA-San-Francisco/Noe-Valley-home-value/
Of course locally you might see a different picture. Some properties are still very hot as there will always be buyers in any market. Some people are still lucky and SF is well known for creating its own luck…
” …. Alt-A does not mean that the buyer didn’t put 20% down. ”
Right, that too. Those who put enough down who are staring at imminent recasts are refinancing to lower fixed rates. Don’t believe? Ask a local mortgage broker what portion of his/her business is re-fi business these days. Oh, and 729.5 is actually going into effect again next week, I was told this morning.
yeah, definitely see average house prices going down, but from beating the pavement, the decrease appears to be primarily from the fact that primarily houses below the jumbo limit are selling (~$800K and below), as nobody can get reasonable financing above that number.
secondly, the number of new properties that come up on the market is sparse as a large portion of house owners are holding onto the properties, hoping for better times to come.
i guess i’m trying to understand why everyone thinks these “6x their yearly income people” exist… as they definitely don’t seem to be selling (even though they are most likely financially “strapped”), at least in the prime neighborhoods, but instead are just holding…
just playing devil’s advocate here… (although i am hoping for a bear market as well, as i’m a buyer)
sjy,
I hear you and I think you are correct to say the nature of sales does have a big impact for this market.
Compare the Zillow chart I posted with the Redfin $/sf one for 94114:
http://www.redfin.com/zipcode/94114
And Noe comprises a chunk of 94131:
http://www.redfin.com/zipcode/94131
The $/ft showed a spike in the past 2 months while nominal prices decreased, meaning smaller places. There’s definitely some mix at play there.
The trend is still pretty clear though. We’ll have a clearer picture later in the year.
“nobody can get reasonable financing above that number”
That depends upon what your definition of reasonable is. There are jumbo loans out there, Wells has a program, and I believe it was even featured on this website. If you want much less than 6.5% for a 30 year fixed in order for it to be reasonable for you, then yeah, not a lot out there at the moment. But rates have been falling in that category over the past six months or so.
in response to anonn at 10:38AM, i’ve been talking to mortgage brokers over the past 5 months, and google searching jumbo mortgage everyday (for news if it is changing)…
you need to put 25% down.. and you have to have a credit score of ~740 and above. not a bad thing, in my opinion (given the jumbo market caused the problem). but again, this is all relative.
if a house at $800K can be financed at 5% rate w/ 10% down (and oftentimes less), vs. a house at $1M at 6.5% rate w/ 25% down, the relative situation is very different.
also, there are only 2 or so jumbo players in the market in california… although BoA will be entering soon. given Fannie/Freddie will not buy jumbos (except conforming jumbos), i don’t expect a huge amount of jumbo lenders entering the market in the near future. compare that to probably dozens of conforming jumbo and below lenders, given they can sell them to Fannie/Freddie.
it is all relative, although i agree with you, in absolute terms, 6.5% is not that bad, except when you realize that the jumbo loan market is the most illiquid it has been in decades given the ~2 lenders out there (according to my mortgage person).
Right. You’re on it then. Good for you. Do you agree that rates have been falling somewhat though? I believe they were more like 7.75 % even in say August/September. The criteria is stringent as you mention. So hopefully as time goes on and none of these very good borrowers default, other banks will want to get in the mix. Then rates might go down quite a bit more. To hear mortgage brokers tell it, that’s a year off or more.
That said, another work around is that we are seeing owners willing to carry seconds more and more these days. I’m told it’s reminiscent of the ’80s when rates were 10% and up for some borrowers. However it is not as bad as that nowadays, really.
As for some preliminary costs of tearing down a “shack” and rebuilding on the lot a brand new 3000 sf house, from my experience I would budget this:
1. demo and remove completely a 900 sf shack: about $7-10k
2. To build from ground up a brand new, quality 3000sf residence budget about $325-$350/sf. or about $925k-1050k. It’s also very easy to get to $400 sf for high quality finishes and fixtures.
yeah, i totally agree rates have been falling, but i believe it is because the fed keeps cutting rates.. so all rates are falling (jumbo and non-jumbo), and it is probably not an indication that the jumbo market is easing up. but, given BoA wants to enter the jumbo market now, we’ll see… hopefully more will enter as well…
given the inflation rate is near, if not, 0% today, the 10% rate in the ’80s is probably akin to the 6.5% rate now (depending on what the inflation rate was at the time the 10% rate was offered in the 1980s).
in the end, who knows. i think it is all relative though in terms of the housing market. buyers don’t want to buy at the higher end, because they see the lower interest rates at the lower end. thus, sales are just not happening.
thxs for some good insights on the 80s…
“This 11/06 report states that in 2005, 45% of mortgages were IO and 25% were neg-am. In 2006, it was 33% IO and 30% neg-am.”
If I understand correctly, these will recast from interest (or less than interest) only payments to interest PLUS principal, which will be amortized over a shorter period than the standard 30 years. Lower current rates won’t lower these payments.
It also doesn’t make any sense to me that anyone would take an IO or neg-arm loan and at the same time put 20% down. I’m not saying it didn’t happen, but it seems a strange combination.
“”This 11/06 report states that in 2005, 45% of mortgages were IO and 25% were neg-am. In 2006, it was 33% IO and 30% neg-am.””
Well, remember, I was talking about my non inconsiderable personal experience writing offers in San Francisco. I was always sure to follow up and figure out exactly what won as best I could, so that my buyer clients would know moving forward. These statistics are not specific to San Francisco.
“interest (or less than interest) only payments to interest PLUS principal, ”
That’s one type of loan, yes.
“It also doesn’t make any sense to me that anyone would take an IO or neg-arm loan and at the same time put 20% down. I’m not saying it didn’t happen, but it seems a strange combination.
More well off people can get teased by rates too.
Tom, you’re understanding is correct. That’s why those arguing that “interest rates are re-setting lower” have it wrong. It is the recast not the reset that matters. Interest rates could fall to zero, and many who now have to start paying principal (as you note, over a shorter amortization period) will be hurting.
Also, in today’s environment, these people cannot refinance because they would have to come up with 20% in cash (more if they are underwater) to do so. They are literally stuck in their homes just waiting for the recast. Maybe they will all miraculously increase their incomes and be able to handle it. But I doubt it. As these reports indicate, the vast majority of those who took on these loans did so because it was the only way they could stretch to get a low payment.
“That’s why those arguing that “interest rates are re-setting lower” have it wrong. It is the recast not the reset that matters. Interest rates could fall to zero, and many who now have to start paying principal (as you note, over a shorter amortization period) will be hurting.”
The idea that everyone is paying only neg-ams and I/O every time is also not quantifiable by posters like you.
“Also, in today’s environment, these people cannot refinance because they would have to come up with 20% in cash (more if they are underwater) to do so.”
That’s precisely what SF buyers put down, 20 % and more. And that’s why re-fi’s are indeed possible.
Tom,
I was talking about Alt-A, the Chronicle article that was linked above basically says that when they say neg-am laons they are describing Alt-A (they say 29% of a ll loans). Alt-A has a neg-am option but also a 15year option and several other options between them. Also in Alt-A, your payment goes up annually if you are not paying full amortized. It doesn’t wait 5 years and then jump, it goes up every year in between (a small but not insignificant amount). So, lots of people have 20% down Alt-A and pay full amortized, or more (rates are so low I switched to the 15years).
just went into escrow for asking. $799K
So, if that’s right and 4174 26th closes at $799K, it’s down 20% from its 10/2006 price, and down 4% from its 4/2004 price.
Another one down more than 5-10%, and of course most people seem to be of the view that 2006 was not the peak. So, probably down somewhat more than 20% from peak.
Susie, how do you know the sale price if it hasn’t closed?
Assuming susie is right, the 2006 buyer may well have “overpaid” — although he paid market price so this depends on one’s definition of “overpaid.” Yet it is still the 2006 lender that took it in the chops. And, I suspect, the 2009 buyer will take a bath as well.
I believe that this property had some pest issues, so I don’t know that it’s apples to apples with the 2009 sale. Let’s see what it closes for. It was not on the market very long at 799, was it?
From the listing: “Work from recent pest control report has been done and a CLEARANCE will be issued. The Sellers are licensed real estate agents.”
http://www.redfin.com/CA/San-Francisco/4174-26th-St-94131/home/805029
🙂
Oh, OK. That’s what I had heard. Guess they took care of it. One thing I found interesting, but some of you adamantly will decide uninteresting, about this property is that it was listed for 799K each and every time it hit the market.