Referenced by a reader on our post about an under $600 per square foot comp at 235 Berry (dismissed by many as a glitch…), the short sale of 255 Berry #504 closed escrow three days ago with a reported contract price of $514,000.
At 873 square feet, that’s $589 per square foot for the one-bedroom condo that had been purchased for $610,000 in October 2004.
All granite and stainless steel appliances had been left intact.
∙ An Under $600 Per Square Foot Two-Bedroom Comp At 235 Berry [SocketSite]
Pergraniteel! Cheap! (for SF anyway).
Must be haunted or something!
No reason to expect prices to fall in line with demand.
^Don’t you know that the BOS repealed the laws of economics? Weren’t “progressive” enough.
speaking of catawampus listing pictures…
Talk about liveable housing! What is more liveable than a price that someone can afford. Sure, ppsft in the $500s will seem high years from now, but at least it is more liveable than a mortgage that sucks the life out of you.
The mortgage and property taxes will run about $2200 after taxes and add about $600 for HOA and you start to get pretty close to rent parity at current rents.
This isn’t some tiny shoebox like the block away Arterra, asking 25% more psft, it’s a liveable space for a 1 bedroom.
All in all a positive sign.
What is remarkable is that the seller, too, probably thought that being close to rent parity was a good thing, only to realize that they could still lose over $1000 per month when they sold. Oh well, it’s only money.
tipster-
$500s ppsft will seem “high” years from now because of a short sale that as even you note is nearly at rent parity in a nice space? Even as the market is beginning to at the very least level off an possibly improve?
What apocalypse is going to befall us that is going to drive down both rents and ppsft prices below $500 and should I be stocking up on weapons to fight off zombies or aliens?
Even with 20% down(and tax deduction, etc), it is not at rental parity when all is said and done(> $2,600/month + maintenance). Not to mention opportunity cost on $102k and the idea that owning is supposed to save you money.
J-
If you plan to stay in the home 5-10 years and it appreciates (obviously a big “if” given recent history but more likely than not) you’ll make whatever difference you’re losing month to month. The important thing is that it’s close to parity and a return to rationality and historical norms. But rents aren’t sinking, the job market and economy are stabilizing, and it’s tough to see where additional downward price pressures are going to come from (and with the Euro in the tank interest rate pressures are waning).
The bears on this board have some serious stars in their eyes if they’re counting on prices to get a lot lower barring a serious turn for the worse in the economy. That’s obviously not out of the realm of possibility and we’re by no means out of the woods but current trends are not in the bears’ favor.
You need appreciation just to cover the transaction costs. And now you want to add on hope for enough appreciation to cover negative cash flow, relative to renting??? In addition to lost liquidity on the downpayment? In addition to taking on the risk of depreciation???
That is NOT the historical norm at all.
You want to know where downward pressure is coming from??? High unemployment rate(I guess double digit unemployment = stabilizing to you). Banks finally starting to approve short sales, increase foreclosures, etc, etc.
Rents are far lower than they were 2 years ago. Especially in this area.
This guy held for over 5 years and lost well over $100k. So much for that theory.
…and unit 514 at the Arterra was asking well over $700psft.
lol — “opportunity cost” on $102 k! Like the “opportunity” of losing 10% of it in a single day.
or, the opportunity cost of earning 0.5 % interest now or a few percentage points if you tie up the money for years. Not very enticing “opportunities.”
gotta say that real estate at today’s prices seems like a comparatively prudent investment.
If -10% to .5% is the best you can do, you have a lot to learn.
This guy lost 100% of his $100k in 5 years.
Even with the low interest rate environment today, you can easily get 1.25% on a 5 year CD(or 1.0% on a 1 year). So you would make over $6k over the period of time in which this guy lost $100k, when he could have just rented for less…
J, if tying up your money for 5 years to earn %1.25 is the best YOU can do, you ought to consider real estate.
Using this calculator:
http://submedian.blogspot.com/
I conclude this owner lost about $2500 per month compared to renting. I used a $2500/mo comparable 2004 rent, and the total loss may be a bit less as this was a short sale. Let’s call it $2000 a month. Regardless, think of the fun this guy could have had with that extra $2000 every month, month in and month out, for almost 6 years. But at least he had “pride of ownership.” The new buyer won’t do as badly, but if he put down 20% and also sells within 6 years there is a decent chance he’ll also lose the entire down payment. It’s really the selling cost — the “exit fee” — that kills you more than the buy vs. rent differential.
Not really interested in the argument of whether or not it’s better than real estate, but you can get 2.99% 5-year CD rates from Ally Bank.
“if tying up your money for 5 years to earn %1.25 is the best YOU can do, you ought to consider real estate. ”
No, it’s the least I can do, which is a hell of a lot better than -100%, and trashed credit.
For 60 months, you should easily get upward of 3%.
Rent prices are definitely cheaper than they were 2 years ago, but they’ve been ticking up recently.
As for owning vs renting, renting may still be cheaper most of the time. This is especially true for those who aren’t very demanding. For me, there are a lot more condos that meet my requirements than rentals. Money alone doesn’t dictate lifestyle decisions, at least for me.
“What apocalypse is going to befall us that is going to drive down both rents and ppsft prices below $500 and should I be stocking up on weapons to fight off zombies or aliens?”
Try higher interest rates for one. Rents could stay the same, but higher interest rates alone would push down prices to maintain the rent/price parity.
You could also reduce the number of people who could buy by eliminating the government incentive programs for downpayments, mortgages, etc. That too would bring prices down further. There once was a time when investors could actually buy real estate and rent it out for a profit. So there are lots of things that could bring prices down. No calamity needed.
As for owning vs renting, renting may still be cheaper most of the time. This is especially true for those who aren’t very demanding.
It has nothing to do with not being demanding, and everything to do with an asset bubble. The only other time it has been cheaper to rent something equivalent, was during the late 80’s RE bubble, which now seems small in comparison:
http://3.bp.blogspot.com/_pMscxxELHEg/S6N_1DpNYII/AAAAAAAAH0o/tjV8i4_1aNc/s1600/PriceRentJan2010LoanPerformance.jpg
Not being demanding is just an additional way you can save money as a renter as changes in salary may necessitate.
Why would anyone talk interest rate spike during the biggest bond rally this year? Eurodebt is going to equal downward pressure on rates.
tipster-
There are a lot of things that could happen. Whether it’s likely is something else entirely. You act like things are going to stay down forever. That’s no more likely than things going up forever.
It’s almost like the bears have gotten so drunk off of their most pessimistic predictions coming true in the last couple of years that they’re not willing to let the bad times go. Dow 2000 baby!!!
1. The seller in this property lost money because his/her timing is poor. The calculation would be quite different if the sale was 12-18 months after the purchase – say in late 2005 to first half of 2006.
2. Purchase was never cheaper than rent right off the bat ever in my experience going back to the 1970’s. The benefit of owning did catch up within five years as rent steadily rose while my fixed rate mortgage stayed the same. 10+% a year appreciation on my home helped as well during the Carter years.
3. Reagan’s first term saw prime went up to high double digits. That killed real estate but rent never came down. It wasn’t cheaper to own at that time as 14% fixed rate made mortgage payment unreal by today’s standard.
4. The closest match was 1993 when I sold my 2/2 at Pacific Heights Tower next to Lafayette Park for $250K and I was renting out the unit at $1400. HOA was $400.
“Purchase was never cheaper than rent right off the bat”
No one is using such a simple minded calculation as that. Most of the time you don’t even need to include transaction costs to show that renting is cheaper in SF, as was(and continues to be) the case for this example.
“Reagan’s first term saw prime went up to high double digits. That killed real estate but rent never came down. It wasn’t cheaper to own at that time as 14% fixed rate made mortgage payment unreal by today’s standard.“
You are flat out wrong about that:
http://3.bp.blogspot.com/_pMscxxELHEg/S6N_1DpNYII/AAAAAAAAH0o/tjV8i4_1aNc/s1600/PriceRentJan2010LoanPerformance.jpg
reagan’s first term is scarcely even on that chart
The chart says nothing about what data they used to calculate the ratio. I was referring to condominium which, unfortunately carries substantially higher monthly cost due to HOA dues which may be as much as 25-30% of mortgage cost on a monthly basis. If the folks at calculatedriskblog used SFH values, I believe they would add weight to home ownership. By the way, J, where were you in 1980-81-82 ?
“reagan’s first term is scarcely even on that chart”
Looks to me like it covers over half of his first term (1/20/1981-1/20/1985).
“The chart says nothing about what data they used to calculate the ratio.”
It’s right in the title.
“I was referring to condominium which, unfortunately carries substantially higher monthly cost due to HOA dues”
I see, so condo’s are more expensive than SFHs? I thought the HOA dues took the place of the cost of building maintenance.
“where were you in 1980-81-82 ?”
I was on Earth, where the law of Supply and Demand is still in effect.
That chart starts in 1983.
“Purchase was never cheaper than rent right off the bat”
That’s just wrong. The backwards “owner premium” is a ’00s phenomenon in SF just like everywhere else. We bought our place in Spring 2000 and were paying less than comparable rent on day one. I’ve posted the numbers before. Friends of ours who bought in the mid-90s were paying far less than rent from the get-go.
A.T. @ 9:26 AM – I agree that was doable under the right circumstances. It depended on the type of property ( lower price range SFH especially ), amount of down payment, HOA dues etc. I owned a 3/2 ground floor unit at 66 Cleary Court next to the Cathedral and the Chinese Consulate throughout the late 70s and 80s and the rent I got covered my overhead within four years. That was only because it had a large floor plan, cheap to purchase because it had no view and because it was located not far from the old “Pink Palace.”The HOA dues was my biggest problem but we needed the doorman and security services because of being in the Western Addition. I also owned a small, sunny 1/1 at the same time on Laguna Street next to Lafayette Park that was much much more desirable in location but the rent and mortgage cost wasn’t even close. Aside from the HOA dues, the culprit was my mortgage interest rate (fixed) at 12.75%. The mid 1990’s offered a real opportunity to match mortgage with rent as your friend obviously took advantage. The real estate recession lasted from 1991 through 1996 and both home prices and interest rate was low – just like today’s. As I mentioned, the 2/2 I sold in 1993 came close to 1:1 even with very high HOA dues. Interestingly, we have slowing moved towards the same low home prices, low interest rate environment that offers another shot at matching mortgage and rent. I bought last April the largest 1/1 (1,021 sq ft) with curve window at The Infinity at just over $500k. My mortgage + tax + HOA – deduction + AMT comes to $2,600 which is close to rent.
It has nothing to do with not being demanding, and everything to do with an asset bubble.
Rental properties typically have a lot of restrictions. As a demanding renter, I require a property that:
– allow pets
– has an in-unit washer/dryer
– has parking
– has the finishes I want, or gives me the freedom to remodel and swap out appliances to my liking (not that I’d spend the money to do that to a rental).
Rentals that meet my requirements are quite close to the cost of buying reasonably price properties. If I wasn’t so demanding, renting would be significantly cheaper.
That’s just wrong. The backwards “owner premium” is a ’00s phenomenon in SF just like everywhere else.
Yeah, I’m not sure where people are getting this notion. Renting *should* be more expensive than buying because it should internalize all the costs of owning plus reasonable return. I see so many people who don’t understand how to properly evaluate a rental property, and this misconception is part of it. Buying does have heavy transaction costs, which is what should make buying with a short-term hold more expensive. Buying with a planned 5-year hold should lose money without an undue level of appreciation, such as that which occurred during the recent boom.
The extent of the upside-down situation we have right now in SF is particularly strange. I’m not sure if it’s a combination of ridiculously low interest rates and Prop 13, or something else.
“Rental properties typically have a lot of restrictions. As a demanding renter, I require a property that…”
Do you actually live in a building that is 100% owner occupied(no rentals)?
You could do all the remodeling you want on a rental, and replace the appliances, for less than you pay a realtor to buy or sell, even if you eventually have to reverse all the changes. Not that I think it should be that way.
“That chart starts in 1983.”
Are you implying that the data was wildly different before they started collecting it?
Of course, it goes without saying that you have failed to prove such implications.