“…the belief among many lenders is that the demand for commercial space and condominiums could be “extraordinarily weak” for several more years, in large part because businesses aren’t showing signs of growing or hiring. San Francisco’s unemployment rate has hovered near 10 percent since June. The state figure was 12.2 percent in September, lending support to the “jobless recovery” theory.”
∙ Building in S.F. not expected to grow for years [SFGate]
∙ SocketSite’s Residential Real Estate Outlook For 2009 [SocketSite]
∙ San Francisco County Unemployment At 9.7 Percent In September [SocketSite]
Employment AND wages. Cut the unemployment in SF in half and we won’t see the housing appreciation like we did in the past. Until I get more than a .5% raise and 0% bonus, I ain’t buying the house I want.
I’m of the opinion that SF will never again be a jobs hub as it was in its glory days.
Not just banking and insurance which are gone, but a raft of other industries that provided good middle class jobs not to mention higher end jobs. And fueled the demand for more housing stock.
Another cloud on the horizon for the Bay Area which will further dampen SF is the flight of well educated folks to other metropolitan areas. This used to be one of the Bay Area’s draws but going forward the Bay Area will fade in this measure.
Just last week it was annunced the top 4 metro areas where highly educated workers are rapidly relocating to – in no particular order they are: Austin, Portland, Charlotsville and Seattle.
Land is scarce in the Bay Area which works to keep prices high but as the middle class and upper middle class job base shrinks that factor -available good jobs – will put a damper on prices.
At the very least I don’t expect to see SF real estate priced at such a premium relative to other markets for the indefinite if not permanent future.
[i]I’m of the opinion that SF will never again be a jobs hub as it was in its glory days.[/i]
— Gold Prospector, ca. 1852
Gil: You’re describing the natural rhythm of SF. Boom and bust, the carpetbaggers moved in to milk it, then when things got a little tough moved someplace where the standard of living is a notch or two lower. So shall it be, so has it always been.
Plus, in my experience, the most flighty of those you lament are the ones most expendable. Middle managers, BizDev/Marketing, etc. Fungible skills will always flow like water.
i don’t know about the other metro areas, but i would bet money that SF has got to be the worst in terms of delivering services for the amount of taxes and fees levied on its citizens. it’s sad that i can’t count on decent roads, schools, public safety, etc. i haven’t been around that long but has it always been this bad or has the city degraded in a long slow decline?
Condoshopper – it is worse now than it was 20 years ago when I was growing up here. In terms of the filthy streets, homeless and pot holes.
I can remember a time not that long ago when I’d go with visiting relatives to Union Square during the holidays. It was nice then. Now, I’d never take relatives there due to the dirty, scummy individuals who seem to have set up shop there.
As a native one thing that hasn’t changed – SF has some of the most unattractive residential neighborhoods of any city I’ve been to. Have you checked out the Sunset on a windy, foggy summer day with the lifeless streets, wall-to-wall cement and housing stock that a friend of mine called “bird cages” when she first saw it.
I don’t know where you are from but if you are mobile enough to be able to relocate there are plenty of cities that can offer you more safety, cleaner streets, less expense and better quality housing for a cheaper price.
SF streets have never been especially clean, but things have really fallen off a cliff the past 5 years or so. For some reason rampant dumping of household junk (mattresses, couches, computers, clothing, and just plain garbage) has become socially acceptable, even in some very expensive neighborhoods. It’s an incredible fraying of the social fabric, as I see things.
Gil, I’d love to see some data that educated folks are moving out of the Bay Area. For every study that you mention, there’s another showing the Bay Area as still one of the top destinations for migrating educated folks. The other metros you mention are significantly smaller than the Bay Area. What is Charlotsville? Charlotte? (which is in the midst of a MASSIVE bust and gargantuan unemployment after both of its major employers went bust or went close to bust – Wachovia and BofA) Or Charlottesville, VA? (small town of maybe 50k where Univ of Virginia is located)
I tend to agree that the Bay Area might not be the magnet that it has been the past 15 years, but until there are lifts on the massive restrictions on new housing (SF is actually a place where more new housing is being built, compared to the almost nothing in Marin and San Mateo Counties, for instance), I don’t see prices coming in line with other areas, because there are still so many supercommuters that will be enticed to buy as prices get more reasonable.
“It’s an incredible fraying of the social fabric, as I see things.”
I agree. To me SF is “disintegrating” as a city -in the classic sense of what a city should be.
The dumping goes on everywhere. I live in the Mt. Davidson area a good neighborhood and we are seeing this here too. On one street a rusty washer was on the lawn for two weeks. Neighbors were afraid to say anything as the renter is sort of off and I guess they felt he might “go off”.
Around Lowell High it is common to see folks dumping garbage on the weekends in the north parking area – right below St. Steven’s church.
Not to mention most everyone chooses now not to park in their garage and instead leave the car on the street. As most folks have 2 cars the streets in much of Mt. Davidson are parked solid on both sides which is a real hazard especially for the young children. Try driving down Fowler if you want to get a feel for what goes for norm on the “streets of San Francisco”.
The value proposition for raising a family is amazing in SF. Keep up the great work Gavin!
So I wonder how the hundreds of millions of dollars of “Joint Development” financing upon which the Transbay Joint Powers Authority were basing their
train stationBig Bus Station in the Sky are doing?Gee, who could possibly have seen this coming?
An architectural “competition” based upon choosing the stupidest building with the most transparently unrealistic (nudge, nudge) financing plan?
What could possibly go wrong?
What a tragedy for SF to have such complete idiots ruining what should have been a great and vital project. A WELL-PLANNED and USEFUL large public works project under way right now, based on half-way realistic design and finances, would be just what the local economy needed.
Actually 20 years ago people were stepping in filthy dog shit all the time all over the city.
Granted, it’s often hard to remember just exactly how things were in the past, and the human tendency to soften negative experiences plays tricks with one’s memory.
But off the top of my head, I would maintain that the following neighborhoods are (superficially, aesthetically) much nicer than they were 20 years ago. SOMA/ China Basin, Hayes Valley, Upper Haight, Noe Valley, Glen Park, Bernal Heights, Mission Bay, Potrero Hill, the Mission. I’m sure I’m forgetting others. The Marina, but Loma Prieta was a unique influence. Even a monstrosity like Park Merced looks a little better than it did 20 years ago.
Others, like the Sunset flatlands as described above or, on the other end of the aesthetic spectrum, Seacliff, Pacific Hts, Presidio Hts, or SF Woods, are probably not any significantly better or worse than they were 20 years ago.
Most if not all beautiful cities worldwide have plenty of drab, unattractive, utilitarian neighborhoods. You ever been in a Parisian banlieue? Or a working class neighborhood in Amsterdam, Barcelona, or Zurich?
Some people tend to exaggerate how good or bad things and experiences are when times are good or bad, respectively. SF (and California in general) were not “special” like many claimed during boom times. Nor are they about to implode into the Pacific like others or maybe the same claim now.
It seems that this is the first major period of bad economic times in Gil’s adult lifetime. If he were just a bit older, he might have adult memories of the same doom and gloom scenarios around here and the rest of California post-80s boom. Then, it was the aerospace (massive down South, pretty big around San Jose) industry that was losing jobs. Then, it was Japan who had supposedly hit upon the “magical formula” for running an economy, while the US was to suffer a precipitous decline in wealth and power.
From the standpoint of governance and taxation, California is a disaster no doubt. But, in differing ways, so are other populous economically important states like New York, New Jersey, and Florida just to mention a few. These states are also pretty f’d up but I’m sure they’ll survive the down years and thrive at some point in the future just as California will.
As far as brain drain, California and the Bay Area produce plenty of homegrown brainpower despite the long term funding problems. California still has the best public university system in the country, and the top large private university, the top science and engineering university, and the top couple of liberal arts colleges in California are at the very top echelon in their categories nationwide if not worldwide. If you then consider the fact that native Californians are the people in the US who are least likely to live in another state, then you can assume a pretty large well-educated native base of professionals. From this starting point, one can then discuss the effects of the migration flows of brainpower with the observation that, since the founding of the Republic, there have always been migrants who have stayed and others who have moved on when the boom times ended.
I personally haven’t noticed any more junk on the streets than usual, but I’m not specifically looking for it and have no reason to believe that there isn’t more junk. But if this is so, then perhaps it is due to Sunset Scavenger taking a finite number of bulky items for free each year in its two bulk pickups instead of an unlimited number like they used to. I’m not so sure this is evidence of “an incredible fraying of the social fabric”, rather than another example of an “economic squeeze” in down times.
San Francisco has its share of intractable problems, and parts of it are pretty ugly and always have been, and people with fancy degrees will come and go like they always have. But, a lot of the boom time money in the past 10-15 years or so went to renewing the housing stock and gentrifying neighborhoods as always happens throughout history across cultures during very flush times.
Of course, there were short-term winners and losers among those who approached renovations as an investment vehicle. In the future though, looking back after the slow deflation of the 00’s housing bubble (I think ex-sfer has been consistently spot on about this), the aggregate outlay on renovations will be viewed as a normal cost of doing business (providing housing for consumption) as opposed to an especially profitable investment. The centuries long study of the home prices on “prime” canal streets in the “real Amsterdam” is a good reference as far as this topic goes.
nnona, excellent post!
nnona, are you the reincarnation of LMRiM? welcome!
“nnona, are you the reincarnation of LMRiM?”
Now that is a compliment! Agreed on the post; refreshing change from some of the other banter of recent from the less logical of the bunch.
The San Francisco tech industry has never been as vibrant as it is right now. And this time, engineering is playing a big role unlike the sales, marketing, biz dev and design booms of the past.
“The San Francisco tech industry has never been as vibrant as it is right now.”
Are you really talking about San Francisco proper, or the Bay Area as a whole. The “tech industry” is still a small part of the SF City economy, while tourism and government services still overshadow any other sector.
^Small as it may be, it has a huge effect on San Francisco real estate prices, since only a very small percentage of real estate in SF is bought and sold each year. Tech clearly has a much larger role in determining the price of for-sale housing in SF than any other sector.
“Tech clearly has a much larger role in determining the price of for-sale housing in SF than any other sector”
Perhaps in Noe, Bernal and other southern neighborhoods, but not on the North Side. From my experience living in the Marina, and Cow Hollow before, northside buyers tend to be from more traditional professions such as law, medecine, finance, etc.
Tech is a traditional profession, and there are many northside tech buyers. Lawyers and doctors can’t afford SFRs in those areas, not based upon salary.
C’mon man, even if no tech folks are buying in the north side, you’re using the same “disconnected” argument that “real SFers” make – that real estate prices in one area have no relation to other areas. If real estate prices rise higher in Noe Valley, that’s going to have spillover to other desirable neighborhoods, including those in the north side.
Also – not sure what you mean about typical northside buyers. Most of the people working in my company who own in SF live in the Marina or Cow Hollow (tech company), or SOMA condos. I know a lot of renters in south side neighborhoods like Noe, but buyers? Eh, not so much. Too expensive for most and not much supply.
I always find these broad-based claims of tech buyers running up SF real estate prices to be grasping for straws to explain the housing market here (as are the “foreign buyers are going to save us” type arguments).
Admittedly there are people who have outsized amounts of money due to working at tech companies, but it’s not like there are huge amounts of people for whom this is true, and it’s not like things have changed since 2006 or 2007 on this front (e.g. even with Google’s repricing, those employees are largely in the same position they were during the boom).
According to the 2000 census, about 95K or so people lived in SF but worked outside of SF. Certainly not all of these people are in the tech industry, and I would wonder also if that number has gone up or down since the 2000 census in any case. The suggestion here often appears to be that a large number of those 95K are tech workers and a large number of those tech workers own homes in SF. I’m not so sure.
I have to agree with anonconfused – I live in the Marina and I run into a lot more finance, legal and corporate types than tech people.
^How about recent buyers? (say last five years) Most of my friends that are lawyers and doctors can’t even think of being able to afford to buy here . The only medicine types I know who have bought here in the last five years have been biotech guys, rather than practicing physicians.
sfrenegade – I don’t think that tech buyers will keep prices up long term or even that I want them to – I think that the effect is terrible, but I do think it’s there. The only people who could be buying most real estate here over the last five years (without ridiculous loans) are people with vast pools of cash, rather than just good incomes. You find good incomes in law, medicine, tech, biotech, and finance, but you typically only find vast pools of cash (for younger buyers) in the tech, biotech, and finance worlds. I think that tech and biotech buyers in SF over the last five years have been much larger than finance buyers.
The amount of properties that change hands in the nice parts of the city is sooooooo small that the market is set at the very sliver of the fringe. The vast majority of owners in the city have lived here for a LOOOOOOONG time. Get rid of prop 13 and that might change.
The amount of properties that change hands in the nice parts of the city is sooooooo small that the market is set at the very sliver of the fringe. The vast majority of owners in the city have lived here for a LOOOOOOONG time. Get rid of prop 13 and that might change.
very true, and a point not understood by many SS commenters
agree with the Prop 13 point — that goes without saying. If property tax were at true market rate, people would need to make more productive use of land than they currently are.
As to the vast pools of cash, why is the assumption that these folks are necessarily living in Noe, Bernal, or Pac Hts? Schools in SF suck — does anyone have any data on whether SF private school enrollment has changed because of tech money? I think it’s a lot easier to connect tech money to outsized housing price increases in places like Palo Alto, Saratoga, Los Gatos, Cupertino, Mountain View, and other cities that have good schools, unlike SF. And the commute times to tech jobs are typically better too in such cases than from SF.
Is the assumption that all these magical tech folks buying fancy places in SF are DINKs or people with kids under the age of five (that they never see due to commute times)? That seems to be a common SS assumption for some reason to justify high prices.
I think it’s a lot easier to justify tech money as causing housing prices increases on the high end based on Case Shiller data from 1998 to 2001, but not from 2004-2007.
^I don’t think that these folks are necessarily living anywhere in particular, but I do feel that the only people pushing up prices over the past five years that were not using crazy loans had to have been tech people mostly – everywhere in the Bay Area, including SF, Palo Alto, Cupertino, wherever. The prices were just too high for a typical lawyer or doctor to be able to qualify for without a crazy loan or ten years of saving for a down payment.
The crazy loans had a far great effect, obviously.
View the change in California Unemployment Trends over the last six months using Heat Maps:
California Unemployment this month (BLS data):
http://www.localetrends.com/st/ca_california_unemployment.php?MAP_TYPE=curr_ue
versus California Unemployment levels six months ago:
http://www.localetrends.com/st/ca_california_unemployment.php?MAP_TYPE=m06_ue
I think it’s a lot easier to justify tech money as causing housing prices increases on the high end based on Case Shiller data from 1998 to 2001, but not from 2004-2007
Yes, it’s very easy to think whatever you like. But family money is a very real factor. Tech money is quite real too. The actual percentage of properties that turn over is small.
The crazy loans had a far great[er] effect, obviously.
I’d love to see proof of this. Can someone with MLS access pull a list of 10 or 15 Noe Valley houses that closed in Spring of 2007 >$2M? I’m presuming this was peak everything (prices, easy money, general insanity, …)
From there we can try to calculate % down. If the median is
ugh, post mangled by use of great than or less than symbols. rookie move. to ammend:
From there we can try to calculate % down. If the median is less than 10%, I’ll consider the crazy loan point proved. If, on the other hand, the media is greater than 15 or 20%, I’d take that as rock solid evidence that the people who bought these properties had money (family, tech, lawsuit, …).
“But family money is a very real factor.”
“Family money” is sort of a red herring. Family money has always been involved. Half the people I know’s boomer parents borrowed down payments from their parents. This is nothing new, and I don’t understand why it gets undue attention here.
Well, you would be in the minority then. Many deny it. But I don’t understand why you like Case Shiller for “San Francisco.” It doesn’t track “San Francisco.”
steve – when I mentioned crazy loans, I wasn’t talking about them being used necessarily for Noe properties, for examples. I simply meant that crazy loans pushed up the price of everything, so even if those at the top didn’t have to use them, they still had an affect on the prices that those folks paid.
Or, better, if you’re going to acknowledge mix, and more, the mix between one particular city’s micro neighborhoods, how is there a place for Case Shiller in that conversation?
A decent portion of Case Shiller top tier is “San Francisco.” I think I made that clear by saying “on the high-end.” In any case, to suggest that SF and its surroundings aren’t related at all seems a little short-sighted. As one example, the tech money-SF buyers didn’t always have tech money, so at some point they probably moved up from another place that wasn’t so swanky.
“btw, it continues to amaze me that people who follow bay area RE closely continue to underestimate how much wealth tech has created despite the IPO markets closed being closed. CSCO alone has bought 150 companies.”
steve, I don’t think anyone’s denying this. But I think pointing to the tiny housing stock in SF that has been affected by tech money as somehow more significant than the much larger housing stock in the Peninsula/South Bay that has been affected by tech money is a little silly.
This just in: Option ARMaggedon has been delayed until further notice. Looks like Wells is trying to zombify the Pick-A-Payment homeowners they inherited from the Wachovia acquisition. They’re writing down principal (avg. $46k) and converting them to Interest Only products for 6 to 10 years. Ten years of deflation has always been a longshot, but I’d say the odds just got a little better. As always, Xmas 2012 will be the reality check…
A decent portion of Case Shiller top tier is “San Francisco
Come on. The lowest third of the city is also the top tier of Case Shiller. Now factor in the mix between the various neighborhoods. It renders Case Shiller pretty unrepresentative.
Suggesting they’re completely unrelated isn’t something I’ve done today. But suggesting they’re lock step, which any usage of Case Shiller is essentially saying, is not valid.
But I think pointing to the tiny housing stock in SF that has been affected by tech money as somehow more significant than the much larger housing stock in the Peninsula/South Bay that has been affected by tech money is a little silly.
who is doing that? the run-up in palo alto, for example, between 2003 and summer 2008 was likely the most drammatic of anywhere in the bay area. central menlo park and los altos also saw huge gains (although they peaked earlier) as did less desired communities like mountain view, cupertino and san carlos. schools and tech rule the peninsula market.
No one’s suggesting that Case-Shiller is lock-step with anything, but just look at the actual data, and you’ll see what I mean. Do you think the “prestige index” is also unrepresentative? Because it would agree with my above statement too:
http://www.firstrepublic.com/lend/residential/prestigeindex/sanfrancisco.html
I realize that “all real estate is local” is the mantra, but the “SF is different” stuff is getting a little tiring.
Interesting thoughts on California economics. A lot of it is applicable to the Bay Area in particular…
http://www.urbanophile.com/2009/10/08/whats-killing-california/
For those that want the summary, here is the key excerpt:
California has simply now outgrown its youth and is now well into its middle age. Like the Rust Belt before it, California is now old. As with people as they age, “chronic lifestyle diseases” hit places too. These are: unfunded liabilities, the end of growth economics, and institutional rigidity, each of which builds on the one before it.
I realize that “all real estate is local” is the mantra, but the “SF is different” stuff is getting a little tiring.
This little scare quotes thing you did here is douchey, so you’re lucky I’m responding at all. But you cannot simultaneously acknowledge that the top tier of Case Shiller is basically the bottom tier of SF and up and still say that SF isn’t any different.
You don’t get it. The prestige index is irrelevant. I’m not talking about ~3M properties. I’m talking about like 675K and up. That’s pretty much the entire city, and it’s also the top tier of Case Shiller. Now, if you also want to acknowledge mix? Then leave Case Shiller aside.
You don’t seem particularly interested in constructive discussion, anonn, but as I said, I’m specifically talking about the top tier of Case Shiller as indicative of something.
I’m not sure what you’re trying to say here — obviously expensive parts of metro areas are in top tiers of Case-Shiller across the nation. That doesn’t mean top tiers of Case-Shiller are irrelevant. The top-end may act differently, but it’s still influenced by the bottom-end (e.g. “move-up” buyers), even if with the small numbers of transactions in SF City that we’re talking about, that influence takes a while. All I’m saying is that housing bulls around here like you don’t like to acknowledge that.
For you, somehow SF is magically insulated from market forces. Most of the people here who disagree think real values will drop. In some cases, they already have, as I noticed some commenters here have started noticing how price increases over certain periods didn’t exceed inflation.
Also note that the prestige index is for houses above $1M, which is still pretty relevant to SF and particularly in the areas which SocketSite features heavily.
The “top tier” of Case Shiller is basically SF. The top end “move up” buyers in SF are in the Case Shiller top tier. Once you also acknowledge mix, are you really even talking about Case Shiller any longer? I think you are not.
“Magically insulated from market forces.”
Hardly. I’ve been saying that SF has seen a drop, due to market forces for well over a year. I’ve disagreed about how large a drop.