According to DataQuick, recorded home sales volume in San Francisco was up 36.3% on a year-over-year basis last month (499 recorded sales in December ’09 versus 366 sales in December ‘08) and flat compared to the month prior. For context, December sales figures for San Francisco from 2004 to 2007 were 646 (2004), 612 (2005), 589 (2006), and 445 (2007) while the average November to December drop was 4%.
San Francisco’s median sales price in December was $650,000, up 5.4% compared to December ’08 ($616,500) and flat compared to the month prior.
For the greater Bay Area, recorded sales volume in December was up 13.6% on a year-over-year basis and up 13.8% from the month prior (7,828 recorded sales in December ’09 versus 6,889 in December ’08 and 6,872 in November ’09), while the recorded median sales price rose 15.2% on a year-over-year basis, down 1.8% compared to the month prior. Continue to think mix.
Foreclosure resales – homes sold in December that had been foreclosed on in the prior 12 months – made up 32.3 percent of all resale activity. That was up from a revised 31.9 percent in November, and down from 48.3 percent in December 2008. Foreclosure resales peaked at 52 percent of resales in February 2009.
Federally-insured FHA loans, a popular choice among first-time buyers, made up 25.6 percent of all Bay Area purchase loans last month. That was up from 25.1 percent in November, 22.8 percent a year ago and less than 0.5 percent two years ago.
Home loans for more than $417,000, the old “jumbo” limit, used to account for more than 60 percent of the Bay Area’s purchase financing. Last month it was 29.8 percent. That percentage rose from 17.1 in January 2009 to 28.7 last June. It has since remained at roughly 30 percent.
From the beginning of 2000 until August 2007, 61 percent of the Bay Area’s home purchase loans were adjustable-rate mortgages (ARMs). Last month it was 8 percent, up from 7.9 percent the month before, and up from 5.1 percent in December 2008.
At the extremes, Marin recorded a 60.6% year-over-year increase in sales volume (a gain of 100 transactions) with a 12.9% gain in median sales price, while Contra Costa recorded a 8.6% decline in sales volume (a loss of 154 transactions) and a 13.9% increase in median sales price.
As always, keep in mind that DataQuick reports recorded sales which not only includes activity in new developments, but contracts that were signed (“sold”) many months or even years prior and are just now closing escrow (or being recorded).
NOTE: We’re watching (and were waiting) to see if the published DataQuick numbers for San Francisco in December 2009 will be “revised” as exactly 499 sales and a $650,000 median in both November and December could be more than a coincidence.
∙ Bay Area December home sales strongest in three years [DQnews]
∙ San Francisco Recorded Sales Activity In November: Up 46.8% YOY [SocketSite]
Federally-insured FHA loans, a popular choice among first-time buyers, made up 25.6 percent of all Bay Area purchase loans last month. That was up from 25.1 percent in November, 22.8 percent a year ago and less than 0.5 percent two years ago.
bingo. The improvement in SF real estate can be summed up in 2 words.
“Mama government.”
“modernizing” (ROFL) FHA and Fannie and Freddie and Ginnie, removing all loss caps on Fannie/Freddie, zero interest rate policies, Fed buying Treasuries (Quantitative easing), Fed buying Mortgage Backed Securities, Fed buying toxic sludge off the banks to “recapitalize” them, First time homebuyer credit, and so on.
I would anticipate SF real estate will continue to mimic the rest of the country, since all RE everywhere is being affected by mama government (not all to the same extent obviously).
this will continue until the political will for these programs wanes, or until the bond vigilantes (our creditors) start to squawk.
There’s an awful lot of debt they have to swallow this year. it’ll be exciting!
one thing is for sure, it is a very risky time to be buying RE IMO with all these headwinds (some of these programs will be wound down IN THEORY… I have my doubts about this since the Fed/Govt still has no exit strategy).
And yes, we’re watching (and were waiting) to see if the published DataQuick numbers for San Francisco in December 2009 will be “revised” as exactly 499 sales and a $650,000 median in both November and December could be more than a coincidence.
on a side note:
it took $23 Trillion, and all we got was this anemic housing improvement? You’d think we could have done better.
Oh yeah, most of the money went into bank bonuses and bank proprietary trading operations (thus into stocks and commodities).
I guess that’s what happens when you try to re-blow bubbles to deal with the collapse of the last bubble.
To those of you who have been proclaiming “mission accomplished” about the so-called end of the housing slump, please remind me of this:
-how is the Fed going to stop buying MBS and Treasuries, when that may lead to a rather quick 0.5 to 1 percent rise in mortgages immediately? heck, people now think that 5.5% mortgages are expensive. ROFL.
-what are we going to do about FHA, which has been expanded into areas it was never designed for (such as high priced Bay Area), and has skyrocketing delinquincies and defaults in its portfolios because of this (and because of its crazy broker/lender “partners”)?
what happens when FHA needs a bailout?
-how long will our govt let Fannie and Freddie run these losses? They did indeed lift the loss cap on both companies (in the dead of the night around xmas). However, what will taxpayers/conservatives say if losses get up into the trillions of dollars?
-how long can the Fed hold rates at 0%??? if they continue to hold then eventually a lot of that money will go into commodities such as OIL which will choke off our economy. If they raise rates then that will choke off our economy anyway.
-how much longer can the fed buy Treasuries and MBS without the bond vigilantes getting nervous about stealth inflation?
in sum: the problem is that this “recovery” we’ve seen is more of a technical recovery based on massive public debt and stealth bailouts/programs etc. and thus far we have no exit strategy.
and yet the programs cannot run forever (but they can run a LONG time… remember, the Fed held rates artificially low for years after the tech bubble burst).
Nobody is saying mission accomplished. They’re talking about what has happened. There’s a long way to go and everybody knows that.
http://www.rereport.com/sf/ron/
has SFR sales up a whopping 46.6%, and condo sales up a even more whopping 64.2% Medians up 6.6% and 7.6% YOY.
Also it looks like in terms of YOY improvemebnts its the higher cost areas like SF, Marin and San Mateo which are leading the way. Excellent news!!
First of all, while FHA loans do have an impact on the Bay Area, I suspect that they have VERY little impact on San Francisco proper. In response to a question that I raised yesterday, the editor said that only 6% of loans in SF were FHA loans which was up from basically none the year prior. It’s not very plausible that those 6% of loans (all at the low end) are really skewing things that much. I’d also argue that homebuyer’s credit makes much of a difference to someone who’s buying a $700K condo or $1M house, so the government intervention argument is largely hype.
Secondly, the Dataquick release also said “A couple of years from now, when looking back, there’s a good chance we’ll refer to the beginning of 2009 as the bottom of the market. But that doesn’t mean we’re anywhere near normal yet.” After the last round of Case-Shiller results, I suggested the same thing, but few people agreed with me. Now, I’m not saying that SF RE is thriving and boom times are here again…if anything I believe it’s still quite unhealthy. With that said, it’s suprising that many people on this site still expect large nonimal declines when the trends suggest otherwise. Not supringly, many of those people are being awfully quiet when it comes to commenting on this thread.
“and yet the programs cannot run forever (but they can run a LONG time… remember, the Fed held rates artificially low for years after the tech bubble burst).”
I know that most analyst-types think of 1982-2007 as some sort of 25 year overall bull market. But I like to think of the housing bubble bursting as part of one big recession when combined with the tech bubble bursting. We never actually “recovered” from the tech bubble bursting — we just used credit to hide that fact for a few years.
People assumed that because the stock market went up (even if it didn’t quite hit the tech bubble peaks), it meant that the economy had gotten better. In reality, most people generally weren’t better off; they just thought they were because they could tap home equity and use other forms of credit.
On a side note, people focus a lot on housing, but millions of people received car loans they had no business receiving and credit card limits they had no business receiving too.
“many of those people are being awfully quiet”
Oh, there’s no need for you to hear my broken record all the time. Flujie yells at me for being repetitive.
“nowhere near a real equilibrium” … “massive government interference” … “anyone’s guess how long they can keep that up” … “Jan 1, 2012”
Beside ex-SFer did a fine job of laying out the situation and at the moment I’m just twiddling my thumbs while I wait to see what happens if and when the MBS purchases stop.
I agree with you though that the homebuyer’s credit isn’t going to make any difference in SF.
I’d be interested to know what the Dataquick release means by a “normal” market. My feeling is that coastal California markets have outperformed most other USA markets for decades and would accept that general outperforming behavior (WWII through the dot com boom) as normal. However the market since 1997 or so has hardly been normal.
“I’d also argue that homebuyer’s credit makes much of a difference to someone who’s buying a $700K condo or $1M house, so the government intervention argument is largely hype.”
There are many many many forms of government intervention going on right now besides the tax credit. Please see ex-SFer’s post above for a small list.
“With that said, it’s suprising that many people on this site still expect large nonimal declines when the trends suggest otherwise.”
Once again, most housing busts usually work through the system as an immediate and more substantial nominal decline with a slow grind real decline for several years due to inflation. I don’t see any reason why this should be different. But I do think the significant government supports may have prevented a larger nominal decline, and if those supports are lifted, we may see a double dip.
In any case, most people think of nominal pricing as the “headline” view of whether housing is going up or down, but you can look at the 90s bust to see how both nominal and real prices declined then. The real picture requires adjusting for inflation. We still have a long time to go before I’d call bottom.
controllio,
you’re right, but it’s bigger than even that, as you hinted in your last statement. This whole thing is basically a credit bubble, starting decades ago.
Here’s an article written at the end of 2007 suggesting the same:
http://www.prospect.org/cs/articles?article=the_bubble_economy
Lance:
it is true that FHA loans are not necessarily big in SF proper, but they are being used. Remember the recent article in the NY Times about FHA loans in SF??? where it was 3 young people who could barely scrape enough money to move to SF, and once they did they got an FHA loan? there were 270 FHA loans done in SF YTD through mid-november, and that number was rising relatively rapidly.
don’t forget, SF is linked to surrounding areas as well. if FHA loans can slow the fall in outlying areas it will bolster the city itself as well.
more importantly is Fannie and Freddie anyway. Oh, and the zero interest rate policy and Fed purchases of MBS and Treasuries.
SF has shown that it is extremely reliant on mortgage financing and very sensitive to interest rates just like the rest of the country. (that’s one reason why RE comparisons look so good right now, we’re comparing to last winter when it was armageddon time.. and it was that way in part due to the fact that loans dried up in SF).
FWIW: I have never predicted major nominal declines in SF. for years on SS I’ve predicted that most of the losses would be due to inflation, and drag out over many many years. Thus, I don’t necessarily predict significant nominal losses, especially since I think our govt will resort to inflation eventually.
FWIW#2: not sure how much of a trend you can make with these numbers given the unprecedented and unsustainable governmental housing support. I personally will anticipate a continuation of this current trend only as long as the political wind blows this way.
as I’ve said before, predicting future RE valuations left the realm of economics long ago and is now in political land. If you know what Obama/Pelosi/Reid/Dodd/Bernanke/Geithner/Hu will do then you have a chance to predict the future of housing. unfortunately, only Goldman Sachs gets to trade on that information though.
“I’d be interested to know what the Dataquick release means by a “normal” market.”
Milkshake, my guess is that they mean a market with many many fewer foreclosures and many many more organic (i.e. move-up) sales, rather than one dominated by investors and first-time buyers. And a market without such significant amounts of government stimulus too (beyond the usual things like mortgage interest deduction, Prop 13, etc.). At least, that’s what I’d consider normal.
Ex-sfer – I’ve followed your post over the years and I agree with much of what you say. I also am aware that you never expected huge declines nominally unlike others on here. Diemos – no offense, but you immediately come to mind. My issue is that I believe the fed would likely drop rates regardless of the cause. When GPD and spending contracts, the government generally offers incentives to increase it. That happened well before the housing bust, so I don’t see that as housing specific government intervention but rather “standard” US monetary policy. I intentionally called out standard, because this recession is anything but that. MBS buy-backs are trickier, but I don’t think the intent is to prop up housing prices as much as keep money flowing through the banking system. The flow of money certainly doesn’t hurt home prices, but the same could be said for car sales, consumer spending, or many other things.
Finally on predicting RE values, that takes a better crystal ball than the one that I carry. With that said, SF home prices for the time being appear to have bottomed out in early 2009. There has been little acknowledgement of that fact on here, and despite what individual expectations are going forward – that’s a very notable point. Time will tell exactly what it means, but it’s not an insignificant occurrence.
“SF home prices for the time being appear to have bottomed out in early 2009”
It is wrong to assume correlation between median sales price and any individual property’s value.
Also, MBS purchases are specifically meant to make mortgages affordable. The effect is not a coincidence.
“Diemos – no offense”
None taken. I am SS’s self-proclaimed “Mad Prophet of Doom” and I still stick with 50% off.
That will not change until the gov adopts policies likely to cause wages to double within the space of a few years. Until then all their bubble II blowing is just kicking the can down the road.
The last housing bust in CA and SF was 1990 (a blip compared to what we saw as the aughts boom and bust) and prices didn’t bottom, nominally or real, until 1995.
If a minor bust, in relative terms, like the early 90’s took 5 years to turn around, why do people seem to think this cycle is over in far less then that?
MBS buy-backs are trickier, but I don’t think the intent is to prop up housing prices as much as keep money flowing through the banking system.
Money was already flowing through the banking sector through the myriad of “lending facilities” from the Fed. We all remember TARP but few remember TSLF and more importantly TGLP not to mention several other 4 letter ones that even I’ve forgotten.
This plus 0% Fed Funds Rate meant that there was tremendous flow through the banking system. but it wasn’t going where the Fed/govt wanted it-into housing. They correctly see that the banks could not handle much more losses on their RE portfolios since the banks are insolvent (not illiquid).
MBS purchases by the Fed were SPECIFICALLY designed to get the mortgage market itself moving again, because nobody was buying mortgage backed securities. Even now the Fed makes up a large part of the MBS market (at one time it made up almost all the MBS market, and recently it was over half… I haven’t dug recently to see how much of the market it makes up now).
FHA was also specifically changed for housing. Which is why FHA went from a very small percentage of home loans to a very large percentage.
Limits were raised on FHA, Fannie, Freddie as well.
ZIRP was instituted in part to help decrease payment shock on all the ARMs and to allow people to refinance into Fixed rate mortgages.
and so on.
You’re right that the goal is not to help the homeowner. The goal is to slow and spread the downturn for long enough that the banks can earn enough capital so that they can slowly and covertly bleed their RE losses over time.
(remember, accounting rules were changed so most of these banks have mark-to-fantasy valuation on their RE assets/securities.)
so far the results have not been encouraging. What the govt hoped for was that the banks would take this free money, rebuild capitalization, try to reserve enough capital for their losses, and then start re-lending to businesses and consumers again.
Instead what they did was take the free money, trade for themselves in their proprietary trading accounts-especially in stocks and commodities, hide all their losses on mark-to-market gimmicks, and then pay out big bonuses to themselves.
the stock market for the last year is up on very low volume, most of it is institutional trading and very little retail trading. (in other words, it’s banks trading with each other, using govt free money and also institutional money).
whenever our govt including Obama (most clearly either out of their league or more likely bought and paid for by the banks) “tries” to reign the banks in the banks simply shoot a warning shot of stock declines in their face and they back down immediately. heck, they didn’t even bother to fly to see him in person when he asked! ROFL! how many of YOU would tell the President “sorry, couldn’t make it”.
“If a minor bust, in relative terms, like the early 90’s took 5 years to turn around, why do people seem to think this cycle is over in far less then that?”
=======
well, it’s not “far less than that.”
Check the chart…volumes have been decreasing for six years. For medians too, we are at price levels first achieved in 2004.
^ But we’re only two years into the price declines. Sales volume declines always precede price declines. While we have moved back to about 2004 price levels in those two years, that does not change the fact that we are only two years into the period of declines. Look for at least 3-4 more years of it. The Govt’s moves have simply shifted the steepness of the decline, resulting in a stretching out of its duration.
but this is just one city..the wider bay area fell for much longer (4 years at least?). sure most other places fell for around this time also.
I doubt everywhere fell for as long in 90-95 either – maybe SF IS just one of those places that will have a shorter decline – it had less of a run up, certainly. so that would only be expected, I think.
anyway, years of decline can be misleading, in terms of price falls, this decline has been much more severe, generally I think. so saying it hasn’t been as long a decline as then doesn’t necessarily mean that price declines aren’t over.
“I doubt everywhere fell for as long in 90-95 either – maybe SF IS just one of those places that will have a shorter decline – it had less of a run up, certainly. so that would only be expected, I think.”
After the aerospace bust, Los Angeles real estate tumbled into a multi-year funk. Depending on where you wish to measure the top (May 1991) to the bottom (January 1996 or February 1997), the declines definitely extended for 5 to 6 years, and beyond 1995.
http://www.latimes.com/business/la-medianhomesales-chart,0,3900278.htmlstory
It’s true that the most distant northern suburbs of Los Angeles up here in the Bay Area proved relatively more resilient during that downturn.
Oops… there I go again….
“MBS purchases by the Fed were SPECIFICALLY designed to get the mortgage market itself moving again, because nobody was buying mortgage backed securities.”
This is sort of a red herring (a red herring by Treasury and the Fed, not by ex SF-er, who is analyzing these issues well). What the mortgage market required was higher interest rate spreads (i.e. higher reward) because there was higher risk from mortgages. Note that 30-year fixed mortgages are typically based on the 10-year Treasury + a risk premium. People generally want higher rewards for higher risk, so you need a higher premium for risky investments, and mortgages were turning out to be more risky than predicted.
During this period, I was talking to a friend who works in the financial industry about how interest spreads should go up on many types of debt. I suggested that it wasn’t so much that the lending market was frozen, but rather that the *cheap* lending market was frozen.
As an example, if companies were willing to take on debt at 10% instead of 5%, the banksters would happily give it to them because it would compensate for the risk. His suggestion was that many of these companies are based on lower return on equity rates than debt at 10% would allow, so these businesses would go bankrupt.
But isn’t that exactly the point? These businesses had terrible business models that didn’t take into account economic cycles and risks. Why shouldn’t they go bankrupt for their bad decisions? Instead of bailing them out, we should sell these businesses for parts and redeploy the capital to more efficient enterprises instead of propping up the inefficient enterprises.
Propping up inefficient enterprises just prolongs the economic distress. Just look at what the credit boom after the dot-com bust did — it create an impression that the economy got better, but it never really did.
The only reason the cost of capital got so high is because banks had to recoup enormous losses from when they set the cost of capital too low. Why should the whole economy suffer from the stupid mistakes of some greedy banksters who were playing a game of “heads I win tails you lose” with other people’s money?
Who says that banks are setting the cost of capital correct now? The whole industry needs to be re-regulated. Congress should repeal the Financial Services Modernization Act and return to the Glass-Steagall era of finance. We actually need to do more than just that, we need a well regulated derivatives market as well.
I am sure that as the economy recovers, the housing market stimulus will slowly be withdrawn as well. This should tend to depress housing for a very long time. I think that the period of nominal flat growth is more likely to be 10 years than 5 years this time around.
For what it’s worth, we’ve had a pretty good couple of months on getting paid. Our customers are a wide variety of large and small tech and finance companies all over the bay area. Business has been decent, though not great, and everyone was paying their bills.
That just changed again. We had about 20% of our small customers (under 200 employees) stop paying their bills. We give them 30 days to pay, and our receivables shot up in the last three weeks, from very low to much higher. The bigger firms are having no problems, the problem has all been concentrated in the smaller companies. They are running out of cash.
When small companies run out of cash, they start squeezing their suppliers, then they’ll lay people off. The suppliers then do the same.
The government programs gave us a pretty decent last couple of months. That appears to be ending. I’ve been saying on this site for a while that I thought things could turn down again in February. This is only one month after a string of months in which almost everyone paid on time, and sometimes you get coincidences and good credit risks just don’t pay for whatever reason, all at the same time. But we just sent out the reminders and it was quite a big jump up in the number of nonpaying customers.
The last time we had a jump that big was the end of 2007. That’s what triggered me to sell all of my stocks – I knew things were about to get ugly and they did. The nonpayment problem was about three times as bad back then and it was all firms of all sizes. Now, it’s just small tech firms, who I suspect are running out of cash and will start downsizing further or shutting down.