Its sale for $1,300,000 ($1,275 per square foot) in October 2006 was likely a supporting comp for other Watermark (501 Beale) penthouse units, neighboring buildings, and so on and so forth. Taken back by the bank last October, 501 Beale #PH1B returned to the market asking $940,500.
And while the sale was just reported on the MLS, it closed escrow on 2/12/10 with a reported contract price of $893,000 ($876 per square foot), a drop of 31 percent over the past three years. Don’t forget to adjust that chain of comps accordingly.
∙ From Flippy To Floppy For Watermark (501 Beale) Penthouse #2B [SocketSite]
∙ A Pair Trio Of Bank-Owned Penthouses Atop The Watermark [SocketSite]
OMG! What ever happened to sub-$600psft pricing…[being sarcastic]? Seriously when stuff like this sells at $876psft (bank owned), how much downside can there be? Any bets on what this place would have sold for, had it been listed 6 months or 1 year from now?
PS: Why does SS need to censor posts like the one above…ridiculous.
They’re probably looking forward to being able to take the elevator directly to HSR.
I guess there are still plenty of fools still out there, why on earth would anyone buy a condo in SOMA right now??? All these buildings sold units at the height of the bubble (2005-07)and prices are down 30-50% from the peak depending on the building. You are going to see a massive wave of people walking away from their mortgages over the next several years as the reality that prices will never recover to bubble levels sets in,which means lower prices and higher hoa’s still to come. Also, interest rates only have one way to go, UP. SFRE, prices will be lower 6-12 months from now, the economy will deteriorate, mortgage rates headed up, and strategic defaults on the rise in SOMA.
On one of the previous threads some chode calling himself Legacy Dude predicted a price of $900K for this place. Looks like he nailed it within 1%. Which is odd, since only the Realtors really know what’s going on in the market…
I’m getting nostalgic.
Remember 2006? When men were real men, women were real women, realtors were real realtors and $1275/sqft was just a whistle stop on the endless appreciation train?
Good times.
“how much downside can there be?”
You realize you’re asking this in a post about a place that has dropped from $1.3M to less than $0.9M, right? I don’t really understand the triumphant tone. The other penthouses that were resold here saw similar reductions:
PH2B:
http://www.redfin.com/CA/San-Francisco/501-Beale-St-94105/home/12330900
PH1E:
http://www.redfin.com/CA/San-Francisco/501-Beale-St-94105/unit-1E/home/12243464
“OMG! What ever happened to sub-$600psft pricing…[being sarcastic]? Seriously when stuff like this sells at $876psft (bank owned), how much downside can there be?”
Come on, you know there was a short sale on the first floor going for < $500/sq ft right? It looks like the listing has recently been withdrawn from MLS. Anyways, it’s (sort of) a penthouse with a view.
“be sure to adjust that chain of comps accordingly”
no, not going to do that. going to use comps from 2005. think anyone will notice?
The Watermark: Where the views are almost as breathtaking as the amount of money being lost every day by its owners!
Anyone who bought a condo in SOMA during the bubble is a candidate to walk away from their mortgage in the next few years. It makes absolutely no sense for someone to keep on paying a mortgage on a condo that is down 30-50% and heading lower. The sooner they walk away, the earlier they will be able to re-establish their credit. The SOMA condo bloodbath will continue and get worse in the next few years.
Anyone who bought a condo in SOMA during the bubble is a candidate to walk away from their mortgage in the next few years. It makes absolutely no sense for someone to keep on paying a mortgage on a condo that is down 30-50% and heading lower. The sooner they walk away, the earlier they will be able to re-establish their credit. The SOMA condo bloodbath will continue and get worse in the next few years.
Hard to predict the future IMO with all this government intervention.
For instance:
Lately, the govt seems more and more keen on doing principal reductions. This could slow the tide of foreclosures. PERHAPS the previous owner would have stayed if his/her mortgage was reduced from $1.3M to $0.9M.
obviously, there are major headwinds versus RE in the next few years.
My guess is as good as anybody’s, but I still maintain that the lion’s share of losses over the next few years will be real losses and not necessarily nominal losses, IF we have a functioning mortgage market later this summer (I doubt that the private markets are ready to take over the government-controlled mortgage market).
The banks cannot handle much more nominal losses in RE because thus far they’ve hidden those losses using mark-to-fantasy valuation models. The money they should have spent to recapitalize themselves they used to pay bonuses instead, and to re-lever themselves up in proprietary trading strategies.
Thus the only way to continue bailing out our zombie friends is to provide either small nominal losses or maybe even nominal gains in RE. The assets themselves are mostly overvalued, and will eventually need to fall in valuation… thus we “need” nominal price gains but real losses.
“All these buildings sold units at the height of the bubble (2005-07)and prices are down 30-50%”
Actually the majority of buildings in SoMa/SoBe were built before that time period (The Brannan, 188 King, 200 Brannan..and a couple dozen other loft and condominum buildings). Owners who bought at those buildings when new made a killing even at today’s valuations.
Anyway, pricing will be up in 2011. I can’t see a significant number of owners walking away in the remaining three quarters of 2010. Already prices have been on the rebound for the last, what, eight months. Employment is not getting worse (and will be better in ’11), people who have been investing heavily during the last 12 months (as they should have been) have portfolios at their highest value of all time. Time to buy myself a vacation penthouse somewhere warmer.
sorry anon, should have clarified, meant to emphasize buildings like the palms, beacon, watermark, infinity, one rincon hill, 170 off 3rd, etc. all these buildings are down significantly from the peak and it makes no sense to keep on paying the mortgage and hoa on properties that have no chance of coming back anytime soon, if ever. you may see half or even more of the residents in the aforementioned buildings walk away from their mortgages in the coming years
Anyone who tapped into equity, didn’t sell by 2007, or stayed invested in the overall stock market for the last decade, has nothing to brag about. Yes, that does leave some people who have profited.
In the same light, those who didn’t buy on the way down from peak prices are counting their blessings too.
I guess I don’t understand the “walk away from the mortgage” theory. Can someone explain why walking away from a mortgage (that is currently under water) you can afford to pay is a smart financial decision?
I’d be more inclined to wait out the market for a few years and see where it stands. If things don’t improve I would have other options besides walking away. Renting out the condo, continuing to live there, selling at a loss. I don’t see foreclosure as the good option unless I was financially unable to pay the mortgage each month.
Can someone explain?
Because if you pay $4000/month for something that rents for $2000/month, and it takes 5 years for the price to recover, you will spend $120k instead of just taking the credit hit.
Some situations will be better or worse.
Thanks for the explanation J.
“instead of just taking the credit hit”. You make it sound like getting a parking ticket. What is the real impact of taking this credit hit?
“What is the real impact of taking this credit hit?”
I have had 800+ credit score since around 23, but if I could legally trade it for $20k or more, I would. The only thing I would buy on credit is a house. Beyond that, I use credit cards for the convenience and rewards points($200-$300/year).
Everyone’s situation is different, and I’ve contemplated walking away but don’t think I will.
I put down $145K down plus the closing costs,etc, for a unit that is now worth about $10,000 less than what is owed on the mortgage. If I walk away I leave my down payment, have to pay a rent and have no chance of recovering any money, plus I’ll have screwed up credit.
If I stay, I can look at this as buying my place again with no money down at the price of what is owed, and keep up the payments. At some point the unit will recover value, could be next year.
To rent a similar unit will be at least $3,000 per month. My overall expense for mortgage, taxes and HOA is roughly $5,000 less about $15,000 that I get back in a tax refund, or $3,750 net per month. The $750 premium to own vs. rent, and the likelyhood that it will be worth more later are swaying me to stay and maintain my credit.
I wonder what others have to say about a similar situation. Does putting that kind of money down make a difference on whether to walk away or not?
Thus the only way to continue bailing out our zombie friends is to provide either small nominal losses or maybe even nominal gains in RE. The assets themselves are mostly overvalued, and will eventually need to fall in valuation… thus we “need” nominal price gains but real losses.
@ex-SFer – I interpret the ultimate conclusion of your rather cryptically worded post to be, “I think the govt will solve this RE ‘problem’ by ratcheting up the inflation rate.” Is that correct?
Grumpy,
A. From what I’ve seen on this site (and from what I know about human nature), most owners:
1. Underestimate the decline in value of the property; and
2. Overestimate its rental value.
B. Your biggest problem will be the transaction costs of selling. You are paying at least an extra $12K per year (See A above), but 5% of a $700K place is $35K.
C. Will prices recover or even rise in 3 years? No. We went through a bubble. Cisco Stock is still less than half its bubble peak ten years later. If you end up selling in 3-5 years, you are going to incur the costs of selling anyway, but you won’t have received any of the benefit of the savings.
D. If you have all the credit cards you need, and your car is in relatively good shape, you really don’t need credit. Walking away from a mortgage dings your credit for a couple of years, but I haven’t used my credit rating in at least 5 years. Best to get started ASAP.
E. So many people have or will have a mortgage problem on their credit rating that it will be essentially meaningless, the same way that being laid off was a kiss of death in Silicon Valley until the dot com bust, at which point is was practically expected.
I would not walk away if I was only $10k underwater but I would also consider any down payment money gone.
There are many ways to invest money. In your case, $750/month could potentially be put into a diversified portfolio that is not so heavily focused on one asset. For example, if you were targeting 6% growth, it would be around $73k in 5 years.
on the topic of how much one’s good credit is worth, is it true that some jobs / careers / employers use job applicants’ credit score as a hiring criteria?
Yes it is true. I have had to submit to a credit check the last 4 times or so. Don’t know how a low score is treated in that situation but, ultimately it is hard to imagine hiring based on credit instead of skill set.
grumpy —
Statements like “If I walk away I leave my down payment” make me think you have an ambiguous understanding of your situation, so let me clarify it:
You won’t be leaving your down payment, because it has already left you. It is gone. Poof. It has sashayed out of town in an old el camino like the woman what done you wrong from a bad country song. It is a deceased down payment.
The real question is, looking forward, are you going to lose fresh money by clinging to a leveraged asset in a declining market. If you’re at nominal (within $10000) break-even right now you’re actually 6-8% in the hole due to sellers’ transaction costs and property primping expenses. Not telling you what to do, just pointing out the ugly circumstances.
On the other hand, FSBO is an option.
anon said: Employment is not getting worse (and will be better in ’11)
Tell that to the city workers who will be experiencing a 6.25% loss of income. I think we’ll be seeing more of this across all levels of government in the coming year.
More than 15,000 San Francisco city workers across all departments will receive layoff notices Friday, and most of them will have the option of being rehired to work a shorter week, Mayor Gavin Newsom said Tuesday.
I certainly hope you’re right about the employment situation improving in 2011.
And I’m not sure landlords are tripping over themselves to rent to people with forclosures.. Sure, it’s a financial decision, but it still looks like they couldn’t make the payments.. which would worry the potential landlord.
So I don’t think it’s quite as cut and dried as some would make it.
You rent before it shows up on your credit score. Then in a year or two, it won;t be so fresh, and the rental history will be more relevant. Additonally, it will be like dot com layoffs: so many people will have it that it won’t raise any red flags.
We *do* pull credit reports on anyone we hire. But what we are looking for is someone over leveraged. Someone in over their head is more likely to steal from me or to have other issues that will affect their job performance. The fact that the issues are in the past is a positive for me, not a negative. And the sooner you do it, the more distant it will be when I pull it, though, honestly, if it is one day old, I’m not going to care.
Hmm. Isn’t real estate supposed to be a long term investment, like everyone says? So if it’s down, but you can afford the payments, and like living there, what’s the big deal?
The same people advocating walking away and getting their panties in twist over the price declines are the exact same people who hammered all the “losers” who were treating real estate like a liquid asset.
thanks for the confirmations about credit history; in that case my good credit score is not as worthless to me as i thought. tipster is there an argument to be made that the overleveraged guy will work his tail off for you because he needs the money most badly?
“You rent before it shows up on your credit score.”
But the mortgage shows up, even if it isn’t forclosed yet… So you’d have to explain that away to the landlord.
“Hmm. Isn’t real estate supposed to be a long term investment”
Your house is supposed to be a place to live. Looking at it as an investment is what started all the problems. It should SAVE you money over renting. Otherwise landlords would never be able to stay in business.
When you have no equity and are paying double the fair market rent, you are just getting pimped out in the work force by your bank.
“Isn’t real estate supposed to be a long term investment, like everyone says?”
For most people, it’s usually wrong to say real estate is an investment at all unless you know what you’re doing. Housing is a consumable resource. It doesn’t return too much beyond inflation in the long run.
In order to truly invest in housing, it takes a lot more work and a lot more skill than the typical home buyer.
Are people still seriously talking about walking away? Walking away from what, exactly?
We have a nationlized mortgage market in this country. If you stop paying on a mortgage, you live for free for a year, then the government reduces your principal by X% to get you to pay again. It’s not like Government Mae or Government Mac are actually ousting non-paying borrowers and holding auctions. The foreclosed properties hitting the market today are either old (like this place) or situations where the owner had no desire or ability to remain.
Legacy Dude, do your comments apply across the board or only for mortgages that are FHA backed. My loan is not so I don’t qualify for any government aid apparently or any kind of refi. I suspect the banks sold of the crappy loans to FHA and the good risk ones to other buyers and those may be easier to foreclose. NOt sure why the Obama plan only applies to FHA backed loans either, unless this bailout if for only bad loans that qualify for TARP and the good ones are on their own.
If a buyer put nothing down and has not accumulated any real wealth elsewhere (cash, stocks, bonds etc.) then the “walk away” scenario makes perfect sense. However most SOMA buyers I would imagine do not fit this category. I’m sure many of them have some other assets of value. I keep hearing the term “strategic default” but there are some real consequences to walking away. Impact in terms of credit, taxes and also potential claims on existing assets and future earnings have to be considered by the walker before taking the plunge. (Particularly if you refinanced your mortgage.) I suspect those who are bailing out of on their payments simply can no longer afford the mortgage due factors such as job loss, interest rate reset etc.
Additionally, I really don’t like the idea of government intervention by forcing the banks to reduce principal balances. Interest rate adjustment or loan term extensions (i.e. 30 year to 40 year) while far from ideal I find more equitable. Owners still have to pay what they owe but just on more affordable terms.
Legacy Dude —
I think you’re confusing proposals with practice. To my knowledge there are no current government-funded principal-reduction programs. There are, however, proposals that such programs should be put in place, as being the best compromise solution allowing us to stagger our way out of this mess.
Since those proposals are coming from the same crowd that foresaw and decried the housing bubble as far back as 2004, I doubt they’ll be listened to. The bigger problem is that no one has come up with a way to institute principal reductions while still permitting our zombie banks to remain nominally solvent.
Grumpy–
Even if principal reduction programs are instituted and become available to you, you can be damned sure you won’t be able to enjoy any home value appreciation until said principal reduction is paid back, likely with interest. You’ll be a renter, with permission to paint your walls, and a way out-of-the-money option on future appreciation.
“However most SOMA buyers I would imagine do not fit this category. I’m sure many of them have some other assets of value.”
OK, this is an important point, but ONLY if they have refinanced. If they bought at the peak and never even had a chance to refi, their other assets are at no risk if they walk away, since it would be a non-recourse loan.
And yeah, I wouldn’t actually “walk away”. I’d stop paying and save up for a year while living rent free. As far as loan mods, I would just apply for one as a delaying tactic. They just seem like a trick to get people to give up their non-recourse status or keep paying more than fair market rent.
And yeah, I wouldn’t actually “walk away”. I’d stop paying and save up for a year while living rent free.
J – Financially this may be a good strategy but I think pyschologically a lot of people who have decided to stop paying just want to move on with their lives. Also, with the hit on your credit wouldn’t it make sense to get into a new residence as soon as possible? You’re certainly not going to be able to buy another place any time soon and renting an apartment may be difficult too.
I agree, people have been messing up their finances letting their emotions make too many decisions, and are likely to continue to do so.
If you can actually save up for a year, you would then have enough to pay rent in full a year up front, which should more than make up for bad credit.
Walking away from a condo is different than a home. Not only will your lender(s) be calling you about your past due payments, if you’re also not paying your HOA dues the Property Mgr or HOA will be calling too. There’s sticking your head in the sand and turning off your phone, but can you really do that when you live in such close quarters with your neighbors? And as owners stop paying their dues, and reserves dwindle, building-wide lending qualifications get crossed, you REALLY start hurting your neighbors.
While there’s no one size fits all solution for under-water financially stressed owners, both loan mods via HAMP and HARP ought to be reviewed with a lender (I’ll have a post on that on my blog in a day or two), and a Short Sale ought to be considered as an alternative to willful foreclosure aka “strategic default”.
I wrote up a “Short Sale Advantage” piece on my website – link below – that frankly was covered quite well by the above commenters – but I also believe there are physcological advantages – for you, your neighbors, your future employers, landlords, etc, etc.
And yes, print out your credit report BEFORE you miss a payment. At least you’ll have proof that you WERE a great credit risk UNTIL you ran into problems with your mortgage.
Finally, consulting an attorney is a MUST before taking any action that just might result in your lender(s) going after you for what you thought you could just walk away from. Imagine 3 or 4 years later, your back on your feet, and the lender comes calling for the defaulted amount+. Yikes.
There’s a lot of denial going on here.
I would challenge anyone to show me someone who would make money by selling a property at 188 King today. Or 199 New Montgomery, or even 79 New Montgomery.
I know 199 well. The building opened in 2005. All owners who purchased then are underwater, and not by 10K. One bedrooms that sold for 500K in 2005 are not budging at 450. The BMR units appear to be too expensive for this market.
Most of the buyers purchased with interest only financing, as was the case for most buyers from 2005-2007. THis makes walking away that much easier. As the poster above points out, this puts a real strain on the HOA. Many buildings in SOMA are in some state of distress because of the strain placed on the HOA by members who simply stop paying.
This will take many years to unwind, but I have no doubt that more and more mortgage holders will come to the conclusion that walking away is the only real option. The loan modification programs are simply ways of extending the pain.
Many “owners” at 199 are making payments upwards of 4K per month on their 1 bedroom flats. “Owners” in other buildings can’t be far from this situation. These flats would rent for less than half that. How on earth does it make sense for people to throw away $2k per month? It doesn’t. The market is not coming back, not in time to make the $2k/month price tag seem anything less than unreasonable. As more of these units hit the rental market, the price of rent will face increasing downward pressure.
Owning a SOMA condo is like living in quicksand. Smart people are simply getting out. I wish them the best of luck and am very glad that I’m not in that situation myself.
@Embarcadero: Here is one – Unit 1001, bought for $760k in 2005, under contract for very close to asking of $775k.
http://www.redfin.com/CA/San-Francisco/199-New-Montgomery-St-94105/unit-1001/home/12401783
“Walking away from a condo is different than a home. Not only will your lender(s) be calling you about your past due payments, if you’re also not paying your HOA dues the Property Mgr or HOA will be calling too. There’s sticking your head in the sand and turning off your phone, but can you really do that when you live in such close quarters with your neighbors? And as owners stop paying their dues, and reserves dwindle, building-wide lending qualifications get crossed, you REALLY start hurting your neighbors.”
So, just pay the HOA fee…
“I wrote up a “Short Sale Advantage” piece on my website – link below – that frankly was covered quite well by the above commenters – but I also believe there are physcological advantages – for you, your neighbors, your future employers, landlords, etc, etc.”
I have quite a few friends 40%+ underwater in non-recourse loans. The money they will save by defaulting and living rent free makes them far better off than doing a short sale. The credit hit is the same, unless you never miss a payment when doing a short sale. They are really going to depend on having a nest egg with their bad credit. And the last thing they need to be considering is making another purchase! Once bitten twice shy???
^ But if they walk away rather than sell short no agent will earn a commission…
From the Wall St Journal:
California is one of 10 states that largely prevent mortgage lenders from going after the other assets of borrowers who default.
http://online.wsj.com/article/SB126040517376983621.html
This NY Times piece gives some good arguments why one should walk:
http://www.nytimes.com/2010/01/10/magazine/10FOB-wwln-t.html
re SOMA HOA – 246 2nd – 95 units, 0 delinquent HOA dues
Most of the buyers purchased with interest only financing, as was the case for most buyers from 2005-2007.
Any evidence to back up this claim?
“as was the case for most buyers from 2005-2007”
How do you explain all disparity between the money heaven properties that get published on here versus the pure bank loss ones?
Probably that the banks are very slow to foreclose…
Really? So you believe that most of the buyers who bought in the Watermark between 2005 and 2007, and further, most buyers in general used 100 percent financing too? Do you have any evidence to back up that assertion? Do you see any NODs to back up your Watermark theory?
I didn’t say any of that, nor am I interested. I was just pointing out that there are a very high number of properties in limbo. Banks are in NO hurry to show a loss.
I don’t disagree that banks are in no hurry to show a loss. Not sure how apropos that is of “everybody bought with 100 percent financing” and a lot of the “limbo” properties are probably vying for HAMP mods, but I don’t disagree.
The 100% financing question is a good one; in my limited experience, the equity extractors are usually the one who, if they timed it properly, can hit (or go over, if the appraisal was generous!) the 100% threshold.
Here’s a recent foreclosure that backs up Embarcadero’s musings. The condo at 199 New Montgomery #1403 was originally bought for $461,500 in May, 2005 with 90% financing (first & second) from Countrywide. Don’t worry, though, it appears they may have extracted some of their downpayment in 2006 via a Wells Fargo equity line(?). The bank took it back on the courthouse steps for $292,050 on Feb. 11,2010. End of story? Oh, no, it only gets better. This does not appear to be their primary residence, only an ‘investment’ property. Their primary residence in San Carlos was bought with 100% financing for $1.26million in 2005 (closed about one month after the New Montgomery condo). Their residence received a NOTS on Feb. 11; it appears they took two properties out of circulation for 5 years with, shall I say, dubious financing. I’ll leave it up to the reader to decide if 100% financing has had an effect on Ess Eff real estate prices…
So you offer a singular anecdote as evidence and leave it up to the reader? That’s not even … oh heck. What does it matter? You’re a bear so say what you want on here and everybody will thank you for it.
As long as you are not willing to make a list of bhuyers who put 20% down in a given building, you don’t have much grounds to judge other people’s lack of data…
First, I’ve never made a claim about what buyers put down in any given building. Someone did, above. I questioned it. All we got was an anecdote. You are cool with that, because it’s a bearish anecdote. As I said.
Secondly, as far as in general, this site provides a preponderence of money heaven first loss anecdotes as opposed to bank loss anecdotes. That’s not arguable.
Third, aren’t you interested in the subject? If you are then stop talking about others’ words all the time and say something tangible. Because where are you in this other than kibbitzing about my talk, which you’ve miscategorized?
Also, “most put down zero” and “show us who put down 20” aren’t two sides of only one solitary coin. There were 5, 10, and even some 15% at times in between. Think of it not in binary terms, but rather as the Dungeons and Dragons five sided di that your DM had you roll for hit points last night, J.
So you offer a singular anecdote as evidence and leave it up to the reader? …You’re a bear…
Oh man, I got out my North Slope pom-poms for you this morning and this is the thanks I get?!
I thought my anecdote should have made it clear regarding 100% financing — it’s complicated. No housing market is an island…
“Oh man, I got out my North Slope pom-poms for you this morning and this is the thanks I get?!”
Maybe the post you commented on hit a little too close to home, EBGuy…
Huh? pom poms? Close to home?