CFAH

As we wrote in October:

The Mayor’s Office of Housing is helping to promote the resale of Candlestick Point (101 Crescent Way) Below Market Rate unit #2213. It’s two bedrooms, two baths, 1,063 square feet and asking $399,945 with purchase and resale restrictions.

If interested, you might also want to take a look at the bank owned Candlestick Point #2305. It’s two bedrooms, two baths, 1,063 square feet and asking $389,900. And it’s without any restrictions – other than the free market – of course.

Today, the list price for 101 Crescent Way #2305 was reduced from $389,900 to $374,900. The BMR remains available at $399,945.
∙ Listing: 101 Crescent Way #2213 (2/2) 1,063 sqft – $399,945 [MLS]
∙ Listing: 101 Crescent Way #2305 (2/2) 1,063 sqft – $374,900 [MLS]
Buy A BMR…For $10K More Than Bank-Owned At Candlestick Point [SocketSite]

Comments from Plugged-In Readers

  1. Posted by The Milkshake of Despair

    I see an arbitrage opportunity. Buy the bank owned unit, voluntarily convert to BMR, and sell for a profit.
    I’m gonna be rich !

  2. Posted by 45yo hipster

    And I’d be willing to pay $25k more for the BMR unit. I’d be proud to support a gov run housing program…even if it costs more than market rate. Viva la revolution!

  3. Posted by SFHawkguy

    I consider this a challenge.
    Don’t laugh . . . but buying this unit at below (or in this case above) market rate might be a better deal than renting or owning at market rate in some situations . . . it’s not the clear winner that the other BMR property on Berry Street was.
    I’d like to see some calculations to compare all three options. Maybe later.

  4. Posted by dr. who

    It might appear that the market rate is cheaper, but don’t forget that the Mayors Office of Housing frequently couples several programs together to aid prospective 1st time homebuyers: direct downpayment assistance as much as 70k, silent second loans at zero% interest with no payments due for 15 or more years (at which point they are often forgiven in full), and other goodies as well.

  5. Posted by zig

    funny
    What ugly squat little buildings

  6. Posted by Sambo

    Seriously, how can the BMR program maintain?
    I understand there are three (?) tiers of BMR status, but for the top tier (I think it’s no more than 120% of median income, adjusted by an annual index) the margin has gotten way too thin.
    The resale restrictions associated with a BMR obviously cap any potential gain in a good market, and render your property virtually unsellable in a bad market. Some good points are made regarding Mayo’r Office help on BMR units w/ downpayment assistance, but I don’t think that’s enough to override the downsides – (capped resales values, restrictions on using it as a secondary residence, no ability to pass along to children, etc..)
    Maybe I’m missing something here. But it seems like the program is a wreck mired in lawsuits and confusion. Perhpas for the top tier, with the prices shifting towards the sliding market rate, they should just disband it.
    I don’t know, maybe I’m missing something here..

  7. Posted by Mole Man

    The only thing you are missing, Sambo, is the deadline to register to run for Mayor.

  8. Posted by SFHawkguy

    To make it fair let’s compare the “free market” system to the “BMR” program over the last few years, not only going forward.
    First, as Alan Greenspan and Paul Volcker have both now admitted, the free market failed miserably the last ten years (and longer than that, really). Look at where deregulated mortgage markets and financial innovation have left us. People are stuck in debt because they were encouraged to stretch and leverage their homes to the hilt.
    Let’s look at the current owners of these places, and how they have respectively fared over the last few years to get a better idea of how these two approaches to pricing and financing houses compare.
    The BMR unit was bought on 4/9/04 for $349,500.
    The MR unit was bought on 11/17/06 for $550,000.
    Assuming 10% down on both, 6% interest, and $388 HOA, 25% tax savings, over the last 3 years the cost of ownership I get for these two units is:
    BMR: $2,102/month for a total of: $75,672.
    MR: $3,085/month for a total of: $111,060
    Down payments:
    BMR: $34,950
    MR: $55,000
    If both sell at asking, minus the 5% realtor fee (although I can’t tell if the City pays the realtor fee or simply mandates 5%), the MR guy of course would lose all of his down payment and the BMR guy would get almost all of his down payment back and probably make a little profit depending on principal reduction.
    So the market rate guy paid ~ $90,000 more than the BMR guy to live in the same unit over the last 3 years.
    [oh, and my search of Craigslist reveals 3 different 2-bedroom condos on Crescent Way listed for ~ $2,000 to $2,200 a month–I would then estimate the average rent the last three years to be about $2,250]
    Another point of order. Below market rate is not an accurate term. The price is tied to income–not the market rate. I’m not sure of all the particulars [it’s pretty complex–at least on a first read], and maybe the mayor’s office is not accurately tying the price to the median income and has been slow to reflect the decreases, but on a fundamental basis tying house prices to income seems to be more stable as this has been the long term trend whereas the last 10 years of extreme leverage and high prices has caused severe economic pain (after a short windfall to some people).
    Since BMR is tied to income this Candlestick BMR unit may not be the best deal going forward (it very well could be a fine deal after the other benefits are added up–plus a similar person may use a FHA loan for a MR place and pay an extra point or two and be more leveraged and more likely to default, etc.).
    It seems the best “deals” for people considering BMR are where there is still a bubble in prices–where current prices well exceed income ratios.
    As I pointed out on another thread the Berry St. BMR units seem like they may be better deal currently and into the future than both renting or buying at market rate. There still seems to be a large bubble in SOMA and this makes BMR an apparent good deal in that neighborhood. If anyone can look at my calculations there and show me how it is not smarter to be a BMR buyer than a MR buyer or renter in that area I would love to see it.
    https://socketsite.com/archives/2009/11/mission_walk_330335_berry_phase_2_inventory_and_applica.html
    Like the current owner of this Candlestick unit, the current and future owners of the Berry St. units, it seems these purchases are every bit as savvy as the free market purchasers that are paying inflated prices at very high leverage. It’s certainly has caused less damage than the free market has done the last 10 years.

  9. Posted by Agent415

    Great quantitative analysis, hawk. Except, you know, the part where they just “both sell at asking”. Way to miss the entire issue here dude, lol.
    A BMR, in a down market where the market unit sells for *less*, is DOA. Good analysis on the holding/carrying costs, fail on the actual sale.

  10. Posted by yao

    Wow. Some very poor assumptions from SF hawk Guy. What happens when you compare someone buying the bmr vs. the market rate place today?

  11. Posted by SFHawkguy

    Agent415,
    Even if both units sell at the same price (say the mayor’s office reprices the BMR unit), at $374,900, the BMR guy still pays about $65,000 less to live in the same housing.
    Say the BMR guy is stuck because the asking price is above market rate and he can’t sell and he defaults and loses his down payment, the BMR guy still pays $55,000 less.
    Instead of my above assumptions about the loans, say the MR guy took out a zero down, 30 year fixed at 7.5%. Still, the BMR guy comes out ahead by $20,000.
    Say the MR guy took out a zero down, interest only loan at 7.5% and the BMR guy is in the worst case scenario (stuck because mayor’s office has priced the unit higher than MR and the BMR guy defaults and loses his down payment). Finally, we have a winner. The MR guy pays ~ $20,000 less than the BMR guy. So that is the only situation where the MR guy comes out ahead.
    As to Yao’s point, it goes without saying that if you are going to complain about assumptions you have to at least explain what assumptions are wrong instead of simply saying it is so.
    As far as the deal going forward . . . as I note it probably isn’t such a good deal to buy BMR here . . . . it actually looks to me like renting is still the best option here instead of buying market rate or BMR. . . but I haven’t seen if the goodies justify the premium over market rate. I need to see that analysis. It is very possible that the goodies justify a $25,000 premium.
    But I should note that MR people are stuck in their homes as well. Maybe the Mayor’s office will lower the price in the future (or the measures that reflect median income will decrease) and maybe the BMR guy will get unstuck. So maybe this will be temporary (and there is a case for the mayor’s office sticking to its pricing mechanism even if it seems to result in a temporary distortion so as to demonstrate to the market participants that the pricing authority will be consistent, etc.).
    Also, there is the possibility the rules will change and the pricing may change (for e.g. adding a component to the pricing to prevent this–say priced at 33% of median income or 10% below market rate, whichever is lower). It’s also possible that all restrictions will be removed in the future and the BMR people can make a windfall (or at least get unstuck).
    Anyway. I’m not arguing buying BMR at Candlestick, going forward, is the obvious good deal it is at the Berry St. units in SOMA.
    In fact, it seems like a close call to rent, buy market rate, or buy BMR at Candlestick.

  12. Posted by SFHawkguy

    Also, since I didn’t calculate the BMR “goodies” in the cost of ownership calculation for the current BMR owner, so it is possible I’m overestimating the BMR cost of ownership and that the BMR guy comes out ahead in all situations.

  13. Posted by dr. who

    The whole issue of BMR’s always, understandably, confuses folks. There are many different kinds of “BMR’s” but most are like these. You cannot use it as a secondary unit, but the program isn’t as restrictive as you might believe.
    For these NEW units in a market rate project, children can inherit. They buyer can also will the unit to anyone else, all with no income restrictions applying. For the buyer, income restrictions apply only at time of purchase: thereafter you can go on to make millions without any penalites.
    At resale, prices are not capped. The whole idea is one of “shared appreciation” where the seller splits the profits (or loss) at sell with the Mayors Office, which then uses any profit to partially underwrite the next buyer.
    Because these are NEW units however, this first go-round the Mayors Office helps to set the price (probably a couple of years ago when market conditions were different). Thereafter the Mayors Office will not, they will only look at qualifying income.

  14. Posted by Joe Leland

    dr who
    The resale price is capped by the qualifying income of the next BMR buyer.

  15. Posted by Sambo

    Wow, good info dr. who, thanks.
    In your last paragraph you state that the Mayor’s Office will not set the price upon resale of these units, correct? So totally hypothetical situation, but if this City were to have another real estate boom (think dot come era), this unit could be sold at $600K as long the buyer met the income qualifications (and of course profits were split with the City). I imagine that would be a unique buyer making under approx. $80k/year who also had a massive down payment of like $400k, but in a city with a lot of rich youngsters who’ve gotten some sort of inheritance, it could be possible…
    Am I understanding this right?

  16. Posted by Myrna Melgar

    Hi – Mayor’s Office of Housing here: The MOH will set the MAXIMUM price upon resale for all BMR units. The price is tied to a formula that includes the area median income and the current 10 year Freddie rolling average. Over the last fifteen year it has averaged about a 4% appreciation per year so – in addition to SF Hawk’s analysis of housing costs, BMR owners get that appreciation over time. Let me just stress that there is a market for BMR units all the same. Between the City and the SF Redevelopment agency there are thousands of these units in San Francisco now, so that a resale unit at Candlestick is competing at the same price (affordablility level) as a new unit on Berry Street. We (the Mayor’s Office of Housing) only set the Maximum allowable price based on what is afforable – that is, if a seller of a particular BMR unit finds that their unit is at a disadvantage with other BMR units (or in this case foreclosed units or short sales) he or she has the option to lower their price to make it more attractive to buyers.
    Another way to look at it is in terms of the return on the investment – the Mayor’s Office of Housing offers assistance for downpayment and also mortgage assistance – making BMRs one of the most accessible ways to become a homeowner- so even the the appreciation is lower that the Market when the market is good – the initial investment is far, far lower, making the return on the investment quite high.

  17. Posted by SFHawkguy

    Thank you for the explanation Ms. Melgar.
    That makes a lot more sense. If nothing is preventing the seller from dropping the price to “market rate” or below then chalk this up to simply another case of seller intransigence. Maybe this is also a testament to the affordability factor as BMR people are not stretched thin and have a down payment on the line and can hold out for a better price.
    In fact, this seller, assuming the loan terms I assume above, would still get some of his down payment back even if he were to sell at ~ $330,000, (and accounting for the 5% realtor fees). I don’t know if down payment assistance loans or silent seconds need to be paid off at that lower sale price and how this would effect the analysis–it may lower the monthly cost of ownership but may cause problems on a resale where the down payment is getting eaten up.
    Again, the BMR guy is coming out much better than the MR guy in almost all situations. Even if the MR guy used a loan with zero down payment and interest only payments the BMR guy would still come out better at a sale of $330,00–please note–I miscalculated before when stating the MR guy would come out $20K ahead in that zero down, option loan situation–I underestimated the cost of ownership for the MR buyer in that situation by forgetting to add the HOA and taxes–so my rough calculation is it’s a wash in the worse case scenario).
    Even if the BMR guy were to get a resale at $370,000, he will have done better than a renter and any MR buyer and still get his entire deposit back.
    A resale below $370,000 down to $330,000 or so, he does better than all MR buyers but not renters.
    So don’t feel too sorry for him yet. Maybe he’s just being a little stubborn.

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