Having sold for for $2,900,000 in March of 2001 and then again for $2,900,000 in May of 2004, 2922 Sacramento returned to the market this past January seeking $3,150,000.
In February the asking price was lowered to $2,950,000. And as a tipster notes, yesterday the list price for this Pacific Heights “Large-scale Victorian…on over-sized lot…[in] Meticulous condition!” was reduced to $2,800,000.
Without the context of its two previous sales would two point eight million dollars for this property seem like bullish or bearish commentary to you?
UPDATE: We missed the withdrawn listing from last year. Asking $3,595,000 in May of 2008 and then withdrawn in December. So while it’s an “official” 76 days on the market for this property according to those Realtor stats, in reality it has been closer to a year.
∙ Listing: 2922 Sacramento (4/3.5) – $2,800,000 [MLS]
Very cute house…love the kitchen. But it kind of looks like two of the bedrooms are in the basement. Boring beige paint in every room– I wish stagers could vary the colors a little.
My wife and I looked at this one. Take a look at Google Street View for that address and turn the view to the opposite side of the street. I’d say the price is pretty bullish.
At 76 DOM, this is starting to look like it will go for a year 2000 price. Amazing!
To use a new term for price reduction that I learned on an HGTV real estate show:
This is another price “improvement”.
On the show, an agent was trying to get his client to reduce the price, telling her that after the price “improvement”, traffic would pick up. I guess it’s nicer than telling her to “slash” the price. I love a new euphenism…
There is a roughly $2M floor for a SFH in PH right now. A much smaller, less desirable home, with a better address on Clay went into contract, but contingent on another home sale — at just under $2M. This is a pretty nice home. I’m pretty surprised that is sold for $2.9 in 2001. That is totally out of line with any comps for that period of time. Even in 2004 that would have been an aggressive number. This will not sell for even the current $2.8 price. If it were 2.3 is would be in contract by Friday so my guess is $2.5.
Redfin shows this place was listed in May ’08 then withdrawn in December. So it’s been “for sale” for almost a year.
Great catch, Trip. It looks like they started at $3,595,000 on May 29, 2008.
http://www.sfhouseprices.net/blog/2008/08/27/2922-sacramento-st-san-francisco/
I guess they were gambling on the markets “improving”. That was a bad bet. At least they seem to be cutting a little faster now.
Prop shark shows that there is a huge downpayment at risk here ($1.4M), and so they will absorb the full loss of what is coming. As one market speculator to another, my advice would be to cut as much as necessary to get it sold. The climate will be worse for sellers next year. Besides, losses are good for the soul – they reinforce the humility that all gamblers must maintain before the markets.
I hope for their sakes that they don’t have to go all the way down to eddy’s $2.3M figure, but I bet if they wait long enough they would.
Nick, I looked at Google maps as you said. On the other side of the street is one of those horrendous 1960s apartment buildings. Unfortunately they are all over Pacific Heights, as there seems to have been no architectural controls. They are even on some otherwise very beautiful streets. A few of them have been improved, but only where they are very conspicuous, such as facing Lafayette Park. The rest of the area is just suffering. It will take another generation and modification of rent control to expunge them.
The apartment building across the street is a non-issue. Blocks that don’t have at least a couple of ugly and or decaying buildings are pretty rare in “real” Pac Heights – the best blocks being exceptions of course!
I’ve never seen this place, but I’m a little surprised it hasn’t sold though it definitely has some cheapo finishes inside. Yes, it’s probably still too expensive, but there’s really nothing wrong with that block. In fact, it has probably the most SFHs on Sacramento west of Fillmore. Mid-2s seems more than reasonable. However, I’d spend some money and repaint it a more sellable color.
I think it’ll be quite some time before the 2.5+ stuff starts moving again.
I love how they built a nice little house to go with the garage!
Take a look at Google Street View for that address and turn the view to the opposite side of the street.
Oh yuck. Tell me, if anyone had objected to the construction of that on their street, would they have been considered a NIMBY?
This house suffers from what most of the properties with high DOMs in Pacific Heights — challenging layout. Two bedrooms upstairs, and two in the basement. These days, houses in PH need “perfect” to move.
Sheesh, my proofreading skills aren’t l33t today. What I meant to say was
This house suffers from what most of the properties with high DOMs in Pacific Heights HAVE — challenging layout. Two bedrooms upstairs, and two in the basement. These days, houses in PH need TO BE “perfect” to move.
No, not perfect, but the defects must be fixable: a new paint job, an obvious place for a garage, a big kitchen that can be updated. Unfixable defects, such two out of four bedrooms in the basement, location on a very busy street, bring down the price or leave it unsold. This has always beeen true, just more so now.
I’m pretty surprised that is sold for $2.9 in 2001. That is totally out of line with any comps for that period of time. Even in 2004 that would have been an aggressive number.
OMG, this is hilarious. According to the bulls, prices haven’t really dropped: instead, not one, but, both(!) of the prior two buyers overpaid!
It just doesn’t get any funnier (or more desperate) than this!
As for the area, that is one of the nicest streets in D7, and a fabulous location. As Sleepiguy notes, there are few Pac Heights blocks that don’t have an apartment building on them, and the row of houses that this home is in is really very stately.
The layout is a bit problematic, but it had the same problems in 2001 and 2004.
And it has now blown UNDER both prices. Overpaid indeed!
The 2001 sales price does not surprise me at all. Remember the dot-com bubble? That was about 1997 to mid-2001. Then a brief lull. Then another easy-credit-no-down bubble from 2003 to 2007.
The average (not median) SFR selling price in D7 went from $1.2M in 1996 to $3M in 2001 to $4.5M in 2007 (http://blackstone-sanfrancisco.com/198.html). This place sure seems to be at least average for D7. The whole world is unwinding the second bubble, but SF and the Bay Area are unwinding both. The dot-com bubble did create some real wealth in this area, so I don’t think we’re going to see a complete unwinding of that one, but we are clearly seeing some.
“It just doesn’t get any funnier (or more desperate) than this! ”
This is just people talking, Tipster. No need to be so accusing or dramatic. Two point nine for Sacramento st. in 2001 did seem pretty high to me too. So I looked it up. In point of fact, this was the smallest of the six Sacramento st. houses sold for 2.5M or more between 1/1/00 and 1/1/05. And of course, two of those sales were this house. As it turns out, two other sales were 1919 Sacramento twice, and it went for 3M in 6/01 and 2.784M in 8/03. OH MY GOD! 2003 was a return to 1999 values!!!
It just doesn’t get any funnier (or more desperate) than this!
actually, it does.
I think the $100k season tickets for a baseball team where the guy in question didn;t even play any more line is funnier, and desperater(sic) than this.
Trip, you are using average prices as guidelines? In D7???????
It beats using Sacramento and Franklin (1919 Sacramento) as a comp to Sacramento and Broderick (2922 Sacramento)
No, REpornaddict, I know the problems with using means (especially where there are high-priced outliers like D7), which is why I noted it. That’s just the only set of data going back this far by district I have. Those who have better data are always welcome to share it (ideally in a complete and non-selective manner). My only point was that D7 sure looks like it went up a ton from 1997-2001, so this 2001 price looks on its face to be reasonable.
“location on a very busy street”
Very busy street? Compared to what? Methinks someone hasn’t been on this particular block that often.
Maybe was busy way back when the 4 Sutter-Sacramento streetcar line existed or before the 55 and 1 lines were combined to 1-California.
Which happened in the 80’s, by the way.
Wait a minute. Who is “desperate?” Now you’re parsing a miniscule 2.5M+ data set, the small size of which reinforces the point that the 2001 sale was high in the first place.
I did a search for “Sacramento + 7-B + 1/1/00 to 1/1/05.” Why? Because anybody knows the area knows that Sacramento is kind of its own thing around there. Tonier than California, yet not quite the cache of Clay to Vallejo or so.
OK bud. Have it your way. Throw out the 1919 comp. Now there are two others only: 2838 Sac, which went for 2.625M in 3/03 and was 3700 feet, and 2220 which went for 3.295 9/03 and was 5800 feet. Both of them were much larger than 2922’s 3272 feet.
That side of Sacramento on that block is every bit as nice as Clay. Sacramento from Fillmore to Divis (those other comps) is not the best street – kind of a mixed jumble over there.
Someone once told me it’s all very micro, bro. I assume you believe him?
I’m glad we cleared that up, too. The 2004 buyer of 2922 Sacramento overpaid. So did the 2001 buyer. It happens.
The last few days have been banner days for understanding this phenomenon. We learned that the 2000 buyer of 2306 Broadway overpaid because it’s now 10% under that 2000 price, and not sold yet. The 2007 buyer of 25 Mercedes? You guessed it – “overpaid”. The 2008 buyer of 714 Duncan in NV, which is now 12% below its 2008 price and not sold yet? Overpaid. The 2004 and 2006 buyers of 4176 26th? Overpaid.
Reading between the lines, we also see that the 2001 buyer of 1919 Sacramento (who blew up maybe $300K on the 2003 sale) overpaid, and so did the 2007 googleaire who bought some house near 25 Mercedes (on Cedro) for the unheard of price of $3M.
Whew, don’t worry potential buyers. SF real estate is a wonderful investment. It might seem expensive, but you will do very well, and so will “your” agents. That’s why you should pay twice as much (at least) to buy it as to rent it (like that smart buyer of 313 Duncan). You just need to work with someone who understands th micro markets and will caution you not to “overpay”. Obviously, SS highlights buyers who didn’t work with good realtors and so are now paying the price, but these examples are atypical. No worries ;
Trip, here are your medians:
1996: 1.095
1997: 1.2
1998: 1.595
1999: 1.798
2000: 2.208
2001: 2.5
2002: 2.105
2003: 2.312
2004: 2.7
2005: 2.8
2006: 3.048
2007: 3.555
2008: 3.25
2009 (so far): 2.798
^^Or…maybe they just want a nice place to live and don’t care too much about losing money, thinking that what they’re buying is worth what they’re paying?
Just a thought.
Real estate originally was not intended as an investment.
Agreed though that there are a lot of stupid buyers out there who are not informed but this pales in comparison to SOMA, no?
LMRiM with flame no’s. 9, 10. and 11 of the day? and Tipster still talking even though his “desperate” quip was soundly rebuked?
just a guess. didn’t read either post.
anonanon, good stuff — thanks! Looks like they listed this place just a few months too late, and then have had to chase the market down. This is an extremely pretty house — but (cue broken record) the pool of buyers at this price level is just a fraction of what it was in the easy-money days.
Agreed, jessep, on both points.
Clearly, for at least some buyers the $$ losses are immaterial. For those purchasers who were looking at this as a consumption item, I bet we could all sit down and get a laugh out of how much capital was blown up, the same way I laugh about the depreciation on an automobile.
But the struggles of many with the idea of lowering listing prices, pulling listings, and clearly “fighting the tape” shows that the investment aspect of their purchase means a lot for many. They were sold a bill of goods that said they were making an “investment”, they thought they were buying an “inflation hedge”, they thought they were outsmarting the banksters who were seemingly willing to lend them money on a sure fire winner for seemingly negative real rates. These people have been caught up – or I should say, set up – in a game they don’t understand. That basic truism becomes more and more obvious as time goes by.
And for the record, I never said the prior buyers ‘overpaid’; in fact I’m on record on the prior thread stating that the concept of overpaying is ridiculous.
re: this house — I think those prior prices are very high – even with the double bubble. Asking $3.5 last year was a joke as well as I’ve tracked this house since it was on the market last year. And this street and location, while nice, simply does not compete with Clay or Washington. In this case, the concept of Micro is as real as the difference between Califonia and Pine; or north side California and south side California.
I think everyone overpaid in SF during the last 10 years.
jessep, after you buy a $2M++ property in Noe or Jackson Sq or SOMA, can you give us the inside track on your current place?
since you fall into the “who cares if you lose moeny” camp and I fall into “I care if I lose money” camp, I figure there is a deal we can work out. I’ll give you 65% of what you paid (plus improvements, if any) and a fast close — no brokers needed.
65% is probably rental value; so you’ll avoid the hassle of listing or being a landlord, and I’ll get some of the downside protection I require before buying again.
I love the”atrium” in the kitchen, this is like your own treehouse. It’s the first thing I look for in every kitchen. If I build a house it is a must have. It’s great to be able to look up into the trees while eating, or out at the garden. Ideally one could just walk out of it directly into the garden to have breakfast or tea.
The rest of the house is… nice. Nice is the right word.
Lmrim- wrt laughing at car depreciation, is that also self referential? Weren’t you proudly telling us of the three cars (two expensive) your family owns in a previous thread? So why not blow a few hundred G’s (your potential loss) on a SFH too? Seriously. I don’t know your net worth, but if you’re beyond the typical bay area $1-3mil (what I refer to as poor ass millionaires, which is upper mid class here, not rich) why wouldn’t a home be at least a partly consumption choice?
If one lives off one’s investments what is more money for beyond providing a secure future, providing for daily expenses, and putting some away for a rainy day? Playing the game is fun, sure. But most people who have that privilege are pretty set in their way. Live by the sword, die by the sord (or in grateful dead parlance, I may me going to he’ll in a bucket, but at least I’m enjoying the ride!)
Agreed that the “they over paid” comments are being used too much. But there is a psychology that comes into play… “I want it, I know what they paid before, so I know they won’t take less than $x, and it’s all funny money anyway, so here you go”.
So “over paying” twice is not uncommon. To laugh it off as rubish is to not know what really happens in the conversations/thinking of Buyers, Sellers and their agents.
Once the first “over paid” sale happens, it’s going to happen again as long as the money is funny and the mood is good. Today? It looks obvious that they “over paid” back then if it’s got a glaring problem like bad flow, small rooms, too many stairs, etc.
Losing the above “froth” is good for a 5% to 10% general market correction with some apples off 20+%. But there’s still enough funny money in SF to keep prices from collapsing. Time will tell… in the meantime… I expect a lot more SS apples of people who bought the “wrong” house and “over paid”.
It’s a good lesson for all of us.
LMRiM,
So why not blow a few hundred G’s (your potential loss) on a SFH too?
A few reasons, most of which I guess are personal to me, but I’ll give you an honest answer.
1. I don’t buy assets at 100%+ over what I judge to be their intrinsic value. I just don’t do it. For a car, I might “waste” $100K+ on a supercar, but that’s because the consumption value to me is worth it and for pure consumption items, I’m not concerned with intrinsic value.
2. We’re not resource constrained, so have zero fear of ever being priced out. Zero.
3. I like having significantly more resources than the landlords we rent from. You’d be surprised by the “respect” you’re treated with (at least that’s been our experience). Changing wall colors? Worries about being evicted? LOL. It would be laughable to watch them try something (but none has, and we’re as good tenants as you’ll ever find – we NEVER call our landlords to fix minor things and we expect in return to receive a below market rent and zero interference).
4. By renting, I like the idea that I am participating in a system that “cheats” California of the bump in property tax revenue following purchase at today’s bubble prices. We only rent from long term owners who pay nothing in property tax (we’ve only rented two places, however, so it’s not a large sample size – I guess we move less often than owners!) I think government is horrendously wasteful, California is one of the worst offenders in this regard, and the prop 13 scheme is particularly diabolical and distortive (primarily because of the subsidization of older cohorts by newer ones, who will never see the bump in real value that the older ones did). Starve the beast.
5. Tax effects (availability of property tax and mortgage interest deductions) have historically not been as important for us as for many because we have never had “earned income” in the 7 years we’ve been in SF/Tiburon. Zero. We have some flexibility in recognizing passive gains, although unfortunately last year (and this year so far) those deductions would have been helpful because of large short term trading gains. In any event, the size of the gains would have dwarfed most advantages to be gained from a $1.1M max allowable mortgage deduction (which would have generated at most, what, $60K in deduction, and maybe $20K in actual tax savings at our bracket/profile?).
6. Somewhat related to 5 above, not owning a place gives us tremendous flexibility to leave on our schedule with low “switching costs” (subject only to considerations of school year I guess). It’s likely b/c of the timing of recognition of a long term carried interest in a former employer’s hedge fund that we will establish domicile in a no-tax state (likely Florida) for 2010.
7. The “investment” aspect of a personal residence is not very important to us at this stage right now. We could pay cash for most places, so we don’t need to enter into the “spread game” against the banksters/Fed to try to build wealth. Even a fully-paid off typical value house in the places we’ve lived (Monterey Heights and Tiburon) would constitute a smallish percentage of net worth (not immaterial, though).
7. On the other hand, rent cost is immaterial to our income or net worth. We actually find the Bay Area pretty inexpensive to live in in view of the amenities offered, but we prefer the “not so glamorous” lifestyle I guess. I could see how one could spend a lot of money here, but for us, this place is MUCH less expensive than Manhattan, Greenwich, CT or London (the other places we’ve lived).
8. Last, and most importantly, we’re just not house “fetishists”. We just don’t care that much about the place we live in so long as it’s comfortable and safe. We try not to measure our station in life by the house we “own” and our friends up here currently run the gamut from a business owner who owns outright a $5M+ Tiburon view manse (our kids all play together – sometimes at their house, but usually their kids want to be in our modest 50s rancher!) to a former VC who chooses to rent a $2800 3/2 like us (and could afford to live much “better” if he chose) to a few old timers who bought in the 50s and get by on SS payments and go to church 3 times a week. I don’t feel that as renters we’re not “part of the community” – on the contrary, in both places we’ve lived we seemed to be more integrated and friendly with our neighbors (excepting of course those poor suckers who had both parents working like crazy just to afford “their” house). Maybe we’re just deluding ourselves.
I hope all that helps explain my thinking. As should be obvious from my many posts, I’m primarily interested in asset classes/finance aspects. Bay Area housing is particulalry interesting because of the stunningly long bubble valuation period, and the massive governmental distortions that have worked their effects here. Also, I’m fascinated by the psychological aspects of the whole period, especially as the people here were suckered into an even larger blowing of an existing housing bubble so quickly after the tech bubble imploded. I never would have expected that back in 2002-03, that’s for sure 😉
urban fetishists, car fetishists, house fetishists. Fetishism has got legs, folks! 🙂
LMRiM — can you briefly explain why you think prop 13 will cause downward pressure on housing? I think I missed it. I can search, but if you can briefly distill it, thanks in advance.
I recently met someone who thought it was her god given right to inherit the prop13 tax base of her parents’ house. That opened my eyes a little bit.
One thing I like about prop 13 (there are others) is that existing owners did/do not need to “fund the bubble” with property taxes. My hunch is it will smooth out subsequent tax shortfalls as a result, so maybe CA won’t have to raise the sales tax again 🙂
re: 8. Can you explain your attitude? Why can you explain your interest in the phenomenon almost flatly, but when it comes to interpersonal discussion, you are incapable of same? Yesterday with the bolds, “they overpaid” 10 times, etc? Clearly there is a hostility. Why?
dub dub,
I’l try to put something together on prop 13 and post later. I’ll even do it on a word processor so that it won’t be as long, meandering and incoherent as most of my posts. On another thread, I asked poster Robert for his thoughts on the tax distortion (he seems to be pretty good at understanding the role of economic modelling – hint, it’s not to describe the thought processes of individual purchasers/economic actors), and maybe he could chime in after my post. I really think it’s a very important factor in what has gone one in SF valuation land.
BTW, dub dub, a long time ago you asked me about a guy I had dinner with who worked for an east bay company – the ticker was “LF”. LOL, I still laugh about that dinner.
Catching up on threads. Day job takes a toll on SS loitering…
My take on Prop. 13 pushing prices down is simple:
1 – Property tax is roughly 20% added to your mortgage. That alone decreases affordability and always has. Duh.
2 – A chunk of the high end market is more cash wealth than pay stubs. You might be able to afford that 10M mansion cash but the prospect of perpetual 10K/month in taxes is a bit scary if a downturn pushes you to live even on a cushy 500K/Y salary. What makes many stick to their cheapo taxes also goes the other way. You can scale this down to the 1M market and the 1K/month that you’ll pay year after year.
3 – Rental properties lose a lot of interest when you factor property taxes in. Every bit of savings is welcome but at the current rents taxes will easily eat up 25% of rent which plain blows. That’s a competing disadvantage compared to long time landlords in an already overpriced city. This means less price competition from “real” prospective landlords.
Of course all these points were already valid 5-10 years ago. The difference is appreciation dwarfed the taxes compared to the equity you built even though salaries in the past 10 years were mostly flat. But with flat-to-decreasing prices, this affects the overall psychology of buying. Times are tough, it’s safer not to burden yourself with a perpetual high expense.
dub dub wrote:
> I recently met someone who thought it was her god
> given right to inherit the prop13 tax base of her parents’
> house. That opened my eyes a little bit.
It is not a “god given right”, it came from the voters with Prop. 58 in 1986.
P.S. My family invested a lot of time and money to help pass both Prop. 13 and Prop 58, but I am worried that with the current California budget problems that Prop. 13 for commercial property owners may go away and that Prop. 58 may also go away (and I will not get to take over the current assessed value of $700K on my parents house on a Peninsula street with many homes assessed at over $5mm).
Ok a few comments on the topics at hand.
1. “they paid too much”. You can’t say it’s overused without a straight up analysis of props sold vs. the overpaid claim. Lmrim gave us 6 anedotal “overpaid’s”. But compared to what sales base? Of course it will be difficult parsimg out, say 06-08 sales in D5 and determining overpaid versus (then) market rate. But speaking from experience, and sales observations in the mish (the hood I closely watch). I’d say between 10-15% of people overpaid. The rest paid market norm. So persistantly selective apple-to-apples will give you the answer you want to hear, but not necessarily an accurate one.
2. CA and SF market distortions: prop 13 and rent control. Yes in a sense they distort the market through social engineering. But what does that have to do with intrinsic economic value if these mechanisms are solidly in place?
Besides, intrinsic economic value is based more on peoples perceptions, world views and sense of self than pure economic value. And this is particulairly the case with the upwardly mobile and well to do- a good size segment of SF, especially those who moved here in the last 15+ years. And don’t forget that the very large non upwardly mobile population here- many immigrants, all the social service residencies, older prop 13 families, etc- are basically restricting the supply for all the yuppies who came in.
Somehow some people here think this is all unfair and a correction will eventually ensue. With the Obama (aka Clinton II) administration focus on medical, transportation and energy the CA gov will not be making any major changes on prop 13 anytime soon. And even if they did, it would probably grandfather owner occupied units and the rest would be phased out, minimizing any reverse market disruptions.
There’s an old (not very funny) joke that “between me and my dad, we know EVERYTHING. I can prove it: Go ahead ask me any question.” The joke is that, whatever question you ask, if I don’t know the answer, I just say, “I don’t know the answer, but my dad knows that one.” Since he’s not there, there isn’t any way to disprove it.
So now we have the PERFECT assertion: that 10-15% of people overpaid. If someone loses money on the sale, you can just say that they were one of the dumb suckers who “overpaid”. Everyone else is fine! We’re not buying it.
I’ve brought up this SAME home on three DIFFERENT threads, and no one has EVER noted that they “overpaid”. But that was when it was listed HIGHER than it’s 2001 and 2004 price. Now that it’s lower, the bulls all come out and say “Oh yes: overpaid.” Others chime in “definitely: overpaid”. They all murmur to themselves how “there isn’t any question”, etc.
First we heard “It’s on a busy street” whenever something disn’t sell for its prior price. Now we get the “overpaid” BS (though someone attempted to claim this was a busy street).
What a load of crap! It was crap when it was assertions of busy streets and it’s crap now that it’s “overpaid”. The fact is that real estate prices in even the best areas are falling – incomes never existed to support prices and loans aren’t being made to anyone with a pulse any more.
And the effect of halts in foreclosures (primarily while people waited for Obama’s plan) are coming to an end. Obama threw SF over the edge of the boat: his plan isn’t going to help anyone in SF. The foreclosure machine is starting up again, and the second wave isn’t going to be pretty.
LMRiM,
Have followed your posts since the Satchel days.
But even after all this time you still can put something out that there surprises me as some hobby or background thing that we would seem to share — whether it was the guitar investment (I went for a Martin instead of you though), or lawyer background in financial services (although I’ve not been a trader), family background and even love for Tacos Jalisco.
So now I find out you too lived in London. Excellent……Think I only disagree about the fancy car purchase–I see cars like you do houses, although agree with your logic as to why you don’t mind shucking out the coin.
Most importantly is the deep hobby interest in market psychology which keeps me coming to this site all the way from Italy. Couldn’t agree more on that one.
Keep up the good work and especially taking the p*ss out of Fluj/Anonn.
Your friend far far away.
Oh, I didn’t know prop 58 covered that specifically. I just looked it up — thanks!
Prop 58 should be repealed (along with prop 193).
Transfer the property, not the tax base. That should be much easier than repealing prop 13 which I think is not a bad law (for first-home residential property owners at the very least).
I’ll let my acquaintance know it’s not a god-given right, if I ever bump into her again — at least now she won’t think I’m an apostate 🙂
Just in case anyone didn’t get it, I’m always sarcastic when I use the term “overpaid” the way the agents do. A model-based valuation approach can legitimately view a purchase as an “overpayment” relative to, say, some theoretical value, but that’s not how “They overpaid – it happens” is being bandied about. Agents talk “comps”, arguing in effect that a particular purchaser paid $5 for Big Mac when the menu says its price was $3. Notice of course that it’s only about past purchases that have already blown up, never about a current crazy price (such as 22 Hoffman or 313 Duncan), which are instead propped up as signs of strength.
The market price of a house is whatever the marginal purchaser pays (or paid). For agents or anyone to come on here claiming “overpayment” – after it has become clear that a seller is going to lose a good deal of money – is insulting to the seller imo. As if when buying the current for sale property he couldn’t figure out by looking at the comps what the right price was for them to pay.
At any given time, the “market” is a collection of these individual preferences. The fact that so many “apples” are showing much greater than 10% losses is strong evidence that the “market” is now down much more than 10%. Consider the fact that we only see what in fact sells, not what the prices for all the ones that are pulled would have been (selection bias).
That more than 10% figure of course is an average, and that doesn’t mean that individual properties wouldn’t do better or worse, because for any individual asset, the market price is a meeting of individual preference, seller willingness and buyer resources. But to exclude all observations of more than 10% down sales (to say nothing of medians, mean $psf figures, C-S numbers, etc.) on one pretext or another is laughable data analysis. The “overpaid” pretext is the most common, but it’s really all of the same form with “unusable cliff in the backyard”, “poor layout”, “there’s a gas station on the corner”, “busy street”, etc., etc.
It’s important imo to understand the purpose of the real estate agent provocateur here. If the script can be followed, namely that “in the worst recession in 50 years, SF prices are only down 5-10% at most”, the potential buyer gains confidence and is softened up into committing a huge amount of capital (for most people) into the mispriced asset. “If they’re really only down 5-10%, just think how they’ll hold up and even rocket when the economy improves” (cycles always turn ultimately, but this one is going to very rough). It’s important to simultaneously talk up buyers and talk down sellers. It’s in that glorious intersection of buyer hope and seller realism that the commission $ lives. Let’s not kid ourselves as to the motivations here.
BTW, glad you enjoy the posts, my Piedmont friend. When I worked in London (mid-90s) I lived in Islington for a bit more than a year and then on a large “horse estate” (not mine, but I had the exclusive use of it) in Surrey just inside the M25 near Ashtead/Epsom. Where did you live?
This oversimplifaction of agents saying “overpaid” is nonsense. First off, neither of you characters interact with any agents in real life. You just disagree with me and a couple others on the internet, and you try to reduce everything that we say into a sardonic quip or two. Well, guess what? There are more moving parts than that in real life. I happen to think that the 2004 sale of this property was not an example of overpaying. It was probably a good buy at the time. The next couple of years would have made this house more expensive to buy. And if they wind up holding it for another five years they are likely to see a decent gain, IMO.
At the rate sales are going, they might end up holding it for another 5 years!
At the rate sales are going, they might end up holding it for another 5 years!
The Fed/USG would love that! Every year, another $30K+ in property taxes, to say nothing of the compounding interest on the mortgage on an asset they (for whatever reason) clearly don’t want anymore. And $1.4M still sitting there in the “first loss” position, acting as a psychological backstop to the banksters’ predations, as each month a bit more of the “owner”‘s labor (the only real source of wealth) is siphoned directly into the pockets of his “betters”, the banksters. A more perfect system could scarcely be imagined.
Sales are going much better than they had been going, Tipster, with something like 10 2M+ properties selling the past two weeks or so, and quite a few others getting into contract or going pending. That’s substantially more than the previous five or even six months, I think. It’s probably seasonal + people barely on the sidelines happy to hear any good news about markets.
Just gets better: I lived in Islington as well–N7 near the cut off of N1 (Offord Rd) for 6 years. The difference is, perhaps, that when it comes to the Surrey style move (ie suburbs to raise family) I was able to hold the board’s feet to the fire and get my contract recrafted for Italy. None of those issues you discussed with Sunny Jim that one time about Diversity Day. My children just grow up near skiing, the sea, the wine (cheaper than coca cola), you get the pic.
Was pretty cool…had it all until a trader took us into bankruptcy.
But I digress.
Living in Islington at any time for a Yank expat is “edgy”, but in the 90s!?!? You’d be a laughing ZILLIONAIRE renter if you’d bought then. Even now everyone I know lives in the usual places west of the West End.
Do you follow the UK house crash sites? There is is ramping journalist for the times they particularly love to hate who lives right near where I lived in Islington.
http://www.housepricecrash.co.uk/forum/index.php?showtopic=106488
Tip& lmrim- you guys are talking non sense with your ip in the air ‘rationality’. All I said was, you need to assess if the 04-06 base price (usually the first apple) was in line with comps back then, so your baseline is accurate.
A specific example: I sold a 2/1 noe condo in 05 (no prkg). List was $599. We got several offers on the $650 range, and 1 offer for $705. Guess which we took. At that time I looked at comps carefully and I knew that the 705 was quite a bit above them, but the buyers perogative was to get this condo. THEY FRICKIN’ OVERPAID! What is hard to understand about that? So if this place was sold today, their loss would be greater than others who paid 650k. It’s not so hard to understand (it’s easy, if you try…)
Ok. Now the trick is to honestly assess if the base price was in line with like comps at the time. I agree that just because there is a 20% drop one can’t automatically assume overpaid status, but you can’t dismiss it out of hand either. And for the record, I never claimed this prop was overpaid…it’s not in my market demographics so I don’t follow it closely enough to comment.
LNMRiP(Italy),
What a small world! I lived a little closer in than you, just off Liverpool. It’s a long time ago – you’re right I’d be a zillionaire had I bought a place there! I was just starting out then (mid-20s) and I lived for free in the head trader’s flat; at 29 he got a 30 million pound payout the previous year and bought a large spread down near Ewell and so didn’t need his place in Islington anymore. The operations got moved to Surrey and then I got to live in a large estate that had been in the family of another trader for generations, and we all pretended to be English landed gentry at the Epsom Derby, lol (well, some of the guys were landed gentry I guess and they owned a racehorse together).
I only spent about 2 years total in the UK but they are fond memories. I wasn’t married then and spent a lot of my time in Chelsea with a commodities trader from Turkey. 6 years in London must have been fun for you. As for me, I’m just proud of the small part I played in the destabilization of a number of Asian currencies in 97…
Speaking about guitars and more coincidences, I used to have a cheapo 0-17 Martin, but from 1932 (so, not too cheap anymore). I sold it; now, in addition to the Walker I’ve got 4 Collings in the playing rotation these days.
I hope you were able to leave law behind. I never really practiced law – just pretended to as a summer associate in NYC and realized I couldn’t hack it.
Can you two get a room? 🙂
Hey you (missed opportunity?) zillionaire! So you should have brought in London in the mid 90’s? Sort of like buying in SF in the mid 90’s?
I brought my first prop (at that time an unusual TIC) in noe for $160k. Sold mid 05 for $705k. Guess I should have leveraged and brought a couple other 2 unit bldgs before 97 eh? I’d also be a zillionaire. Instead I’m just a poor ass bay area millionaire.
But, won’t there be asset value unwinding in London too? Deflationary forces sucking value over the next 5-10 years there too? Or is London special. It seems to me if you have a neg view on SF RE, that would also carry to other bubble prone, high leveraged success oriented cities like…London!
Comments? Also, I haven’t heard from you on the recent stock market rally. Are you still shorting stock? Maybe the recent rally is a false bull start? (I’m serious). Cheers.
LOL, hipster. Nothing is going to be immune from the deflationary forces that are being unleashed. But SF is not in the same league as London or NYC. Let’s be real here 😉
As some might recall, I’ve been bullish on stocks most of this year, and I actually got very lucky in March with some long side options positions (I’m generally short vol, but I “took a flyer” in early March on upside S&P500 calls, 810s that were purchased for $0.39, and went intrinsic and are expiring tomorrow – last traded $5.75, but I have hedged it and traded a bit and will capture only about 80% of that move). I did it in “size”. Better lucky than smart I always say.
BTW, I am getting a little bearish stocks again. Bear markets don’t end that way – believe me. I can’t say for sure we’ll go much lower than the roughly 680 the S&Ps were trading when I put on that rare long position, but I can almost guarantee another trip down to near those levels at some point in the (relatively) near future 😉
About buying in Islington – I was only there for a year. My final pay that (first full) year of traing was roughly about what you sold your condo in NV for, in mid-90s dollars, so don’t feel too bad for me 😉 Damn those taxes though!
That’s exactly the issue- taxes on high w-2 income is very substancial. I never understood the appeal of working up the Corp ladder, or becoming a trader for that matter (esp now with finance industry blown up for the next few years).
As a private RE investor I conservatively added about $100k of equity to my portfolio over the last 5 yrs. This includes current assets marked to market and some equity income I used to support our lifestyle.
So let’s see what kind of income a well paid w-2 person would need to match that. The rent value of our 4/2 condo is $3500. Personal expenses (no kids, no consumer debt) is $3500 per month. That’s $7k per month. And the $100k equity we made per year averages to about $8k per month. So 7+8=15k. Annualized that is $180k in after tax income. So, we need to double that for pre tax income. $360k per year. And, someone needs to make that consistently for 5 years. That’s 5 years of good bonus years. (How many are getting that now?) And if they are, im sure they ate working their ass of 60+ hours per week. In my case, managing the RE portfolio is part time work at best. So I get to sip lattes in my garden at will and blog on SS. I have a nice chunk of equity in my properties, and when the credit markets return I’ll look at getting more active with acquisitions. In the meantime I’m content with what I have (and am glad to have retired from employment work what, 10 years ago… And I’m not looking back!)
“Ok. Now the trick is to honestly assess if the base price was in line with like comps at the time.”
All the comps tell you is if everyone else was jumping off a cliff at the time.
You have to look at price/rent and price/income ratios to understand the fundamental value.
Diemos- only if you buy RE for investment purposes (to rent out). By your statement ANY home that cannot be rented close to mortgage level is overpriced. But there are expensive homes like that all over the world. The upper mid class and rich have been buying (by your analogy) overpriced homes for centuries. And given that these areas have had good appreciation (for the most part) since WWII, I’d say it’s worked pretty well for them.
By analyzing your base apple price, you can determine which buyers paid beyond the norm. Example: let’s say 20 2/1 condos (mo prkg) of approx sq ft and overall quality sold for a range of $630-670k. And then you have 3 that sold for $750. If by looking at all info available there was no outstanding value added (I.e. A gargage, legal sq ft added, exceptional location, gold played toilets, a harem of concubines included in the sale…) then yes, one could surmise that those 3 people overpaid. You have public records, mls data as well as anedotal feedback from: people/agents who saw the property, former owners, and people who visited the open house to help quantify the properties characteristics. Sure, this is not always simple to do, but straight out overpaid props should become apparent. As I said in my specific example, the buying party straight out overpaid. I know cause I saw all the comps, and all the competing bids. You can’t dismiss this out of hand.
I would expect a house at this price point to have MUCH better curb appeal. The garage detracts from the beauty of the house: the massing is all wrong, the front door to the house is obscured, the decor looks whimsical instead of stately. The garage also detracts from the pedestrian experience: a blank wall that destroys the public/private transition (balance) between the house and the street (aka “outdoor living room”). Just curious: why did SF shun the sublime planning tool known as the humble alley? Was there some sort of conspiracy that forced SF to become a city filled with blank (cold) garage doors, curbcuts and near zero street amenities (trees, furniture, public art, design details that connect you to civic life)?
“why did SF shun the sublime planning tool known as the humble alley?”
Just guessing but the hilly terrain probably is a factor. Constructing streets on steep slopes is expensive. Incorporating alleys doubles the amount of streets to construct.
Alleys also take away from available space. They would subtract about 10 feet from each 100′ deep lot. If we were to install alleys now, some people would have negative depth back yards.
(I experienced the impact of alleys during a 7th grade urban planning exercise. I had designed alleys into my neighborhood (cuz to a 13 year old, alleys are just plain cool) and ended up with less density compared to my classmates)
this thing will sell for sure as the owner is running out of cash. wall street banker who got canned. will go for 2.1
Well, mr wall street, easy come easy go. We gamblers have all been there. Crap out at the table – new shooter coming up. The people change but the game stays the same.
Did 2922 Sacramento get withdrawn again, or did it sell?