The sale of the “completely renovated” 6521 California closed escrow yesterday with a reported contract price of $640,000 ($434 per square foot), down 32 percent from its purchase price of $938,888 in August 2004.
As we noted in December:
According to public records the buyers of the house in 2004 financed the purchase with two variable rate loans totaling $938,850. And according to its latest listing, the “Sea Cliff” house is now bank owned and asking $799,900 (but subject to tenant rights).
Apparently $38 isn’t enough skin to keep a buyer in the game.
The list price for 6521 Californiahad been reduced to $689,900 in March.
∙ Not So Lucky Number Eights (Maybe The Nines Will Be Better) [SocketSite]
∙ Now An Eight, Two Nines And A Sexy Six For 6521 California [SocketSite]
$640K? Zillow pegged this one at $1.4M in 2008! Where are those idiots predicting 50% haircuts! This one is down more than that!
Of course, that was two years ago when Bebo sold for $850M, as opposed to today when it sold for less than 2% of that. No wonder houses cost 50% more in 2004 than they do now. With the new reality, you can see where the new realty prices are heading!
It’s no wonder the M&A guys and IBankers are selling their homes now. They see the valuations local companies are being offered (if any) and they can see the future of real estate in this area!
Yawn. It’s obviously still only condos, TICs, and lousy areas that have seen big price reductions. And “the bottom” was a year ago.
The new owner is only paying a little more than comparable rent, if you ignore the opportunity costs of the down payment. But they can say with a straight face they live in an almost-million dollar house.
when zestimates are
used as an example it
means you have reached
An appropriate price would be 614,144
Now we’re getting closer to rental parity. Using a FHA loan (let’s assume 3.5% down and a 5.25% rate) I get a monthly cost of ownership of $2,820 for the new owner. And that’s with only $22,400 down.
I’m having a hard time figuring out what fair market rent would be here. I would only think this would be a buy if fair market rent were over $3,500. If fair market rent is actually $3,000, as I suspect, it would then not be worth the risk of buying.
Here’s why it’s not a buy if fmr is only $3,000. The owner “saves” $2,160 a year by owning instead of rening. So that sounds good. But then say he goes to sell in 2015 and his house is still worth only $640,000, or let’s say has fallen to $625,000. With the commission costs the sale does not cover his down payment nor does it cover the meager principal reductions over the 5 years. So he either has to write a check, do a short sale, or strategically default.
Even if he “strategically defaults”, which is the strongest card in his hands, he is worse off than renting. He saved $10,800 by owning over renting those 5 years, but has put $22,400 down, so he’s lost $11,600 and has gone through a foreclosure or short sale.*
On the other hand, if fair market rent is really $3,500 a month, then maybe this is a buy. He saves $8,160 a year, and over 5 years $40,800. So even if his house has stayed the same or lost value in 5 years, as long as he is willing to strategically default, he will come out ahead of renting by $18,400.
So maybe rents for this place will indeed be $3,500 over the next 5 years. I bet downward pressure continues though and this still isn’t the buy it seems and rents will be closer to $3,000 and below.
*Of course I’m also not calculating the free rent that a strategic defaulter gets. So that also adds to the calculation in favor of buying here.
SFhawkguy…you assume there will be no underlying inflation for 15 years? Maybe we will truly have a “lost decade and a half”, but I would think a long term hold would be at least somewhat saved by the underlying inflation of the asset.
Not just me Curmudgeon, the people that trade the Case-Shiller futures:
http://www.doctorhousingbubble.com/futures-market-home-prices-real-estate-cme-case-shiller-may-2012/
Now those futures cover the broader Bay Area and I for one think that San Francisco proper is going to do worse than the broader area (because the high end has a ways to fall and the low end has fallen a bunch already).
Wow – zillow really is off on this one – it estimates it’s current value at $934,500 (updated as of 6/15/10). Obviously zillow isn’t great for true values on specific homes – but I’m surprised at how wrong it is – over 45% off. I usually refer to Zillow for neighborhood trends….maybe no longer.
Well according to Tipster’s comment above, zillow estimates can be used to determine value so congrats to the buyer of this place for the instant equity and 46% gain!
I think all of California including the Bay Area may see lagging real estate prices for a while.
The net in/out migration numbers for not just LA and SD but surprisingly Santa Clara County are pretty stark.
Especially when you compare them to Texas or Seattle. Though not shown in the below tool, it’s the more well to do generally who are leaving the Bay Area and the state. Likely to depress real estate prices here relative to places like Seattle – over the long haul and if the trend continues for this decade as seems plausible.
This is a nifty resource. You can click on any US county and get population migration info.
Oops – here’s the in/out migration tool link:
http://www.forbes.com/2010/06/04/migration-moving-wealthy-interactive-counties-map.html?preload=48453
This is an interesting example of rent being disconnected from ownership value. This is a cute cottage on Yukon, and wonderful little neighborhood sitting at the top of the Castro and the base of the Swish Alps. The point of buying such a thing is to fix it up and keep it looking totally twee in much the same way one might pay an otherwise irrational for a showy car for driving around and looking good while living well. The new owner will probably add custom touches throughout and redo the landscaping at least once. Being so small makes stylistic changes cheap and easy.
All that said, even this lower price is still at the high end of what is imaginable. Even if very well kept the value of this place could still have some ways to fall.
One of the problems with automated estimates is that garbage fed in results in garbage coming out. Look at the last five years or so of transactions in this area and find nothing but craziness. There are a number of different sites with automated estimates, and usually others are lower.
SFHawkguy’s C-S link shows a prediction of rising prices in the SF Bay Area.
From Gil’s link, there appears to be more migration into SF (black lines) than outmigration from SF (red lines).
The data SFHawkguy linked to are either flawed or outdated. Latest Chicago Merc futures show bets on further CS SF declines through May 2012 (120) and beyond.
http://datasuite.cmegroup.com/dataSuite.html?template=hsng&leadMonth=SFRX1&category=Housing&exchange=XCME&selectedProduct=SFR&selected_tab=real-estate
Did anyone actually see this place? It’s a good location and I’m surprised it sold for so little. I know there are tenants – was one protected, or are the rents quite low? Since it’s two units you can’t OMI to get a SFH. The lower unit may be very basementy.
California’s growth comes from people moving here from overseas, not from internal migration. The CME link posted by A.T. shows a 4% decline to May 2012 and then increases (not decreases) after that, going to 131 by Nov 2013. The bid/ask spread is pretty extreme though, making the value of the data pretty doubtful.
Did you guys see this Bloomberg article?
http://www.businessweek.com/magazine/content/10_25/b4183044361706.htm?chan=magazine+channel_news+-+markets+%2B+finance
Home Bidding Wars Are Back in San Francisco
The recovering tech industry and lack of supply boost prices
Yes, we saw that realtor-written puff piece. Meanwhile, in the real world, one year apples are down, firm one rincon deals are falling out of escrow, soma has slipped under $400 psft, M&A guys are selling real estate like mad, and private tech company valuations are dropping like rocks.
But I’d run with multiple offers, if I were you. That’s indicative of basically nothing.
Thanks A.T. for the link to the direct future quotes.
While the data charted by Dr. Housing Bubble is now dated, his observation on the general trend is still valid: the futures predict downward and sideways prices in all of California for the next four years–if we’re lucky.
San Francisco is no longer the anomaly and newest data shows San Francisco declines.
Indeed, San Francisco August 2010 futures are trading at 135. May 2013 are trading at 122! November 2014 futures last traded at 131. So that’s a huge predicted decline 3 years from now and still declines 4 years out.
Looks like my hypothetical scenario of this house being worth between $625,00 and $640,000 in five years is looking to be optimistic. Optimistic because San Francisco proper is going to suffer a worse fate than the futures predict for the entire Bay Area. The reason San Francisco proper will suffer is because there are a lot of people in jumbo land not taking their lumps yet.
“realtor written puff piece” ? Looks like a staff writer from Bloomberg wrote it.
The “Harvard University economist Edward Glaeser” and “Ted Egan, chief economist in the San Francisco controller’s office” quoted in the article are actually Realtors as well, don’t let “them” fool you.
Remember “they” control the media.
NVJ, notice that those two didn’t have anything to say about bidding wars or real estate prices at all. The writer injected their quotes to make a connection which may or may not exist. You just need to look at the stats to see that bidding wars are not the norm here any longer, although I’m sure they occur on certain properties. Price reductions are far more common. That article is just silly.
Noe Valley Jim,
That article is a ridiculous piece of tripe. I will take Tipster’s analysis over those two official economist fool’s analysis any day.
What is this pablum?
“San Francisco has conditions of very restricted supply and lots of things that can push demand: an attractive climate, innovative economy, and high quality of life,” says Harvard University economist Edward Glaeser, who has studied U.S. housing bubbles.”
Oooh, he’s studied bubbles. But San Francisco defies any bubble because of its attractive climate and innovative economy and quality of life?
Look at the subject at hand. In this very thread commentators are showing the actual Case Shiller future predictions for San Francisco that show declines for four years. The two hair brained economists are citing the recent and now past surge from government support. They are also citing median prices, which is ridiculous, and “bidding wars” as a justification for their quixotic opinion about the future of San Francisco home prices.
I’ll take Tipster’s take on it over those two hair brains. What was their prediction 3 years ago? 5? I bet they were wrong.
And no, it’s not irrational or paranoid to note the fact that there is a huge industry that pays for propaganda like that.
It’s classic hack journalism. It takes an anecdote or two, and supports the anecdote with a couple of quotes from “experts”. The experts are probably responding to a question like “we’ve actually begun to see bidding wars again in San Francisco, how would you explain that in the context of the national real estate recession?” Glaser says “well, it IS a pretty place and everyone likes it” Egan says “well, we have had some tech growth in the city, so things aren’t awful, but don’t go crazy” (okay, I’m paraphrasing). If you actually read the quotes they are pretty general and don’t necessarily support the thesis of the article.
Hack is maybe too strong a word. It is typical soundbite journalism, and no one should really put a lot of credence in this kind of reporting.