S&P/Case-Shiller Index Change: May 2010 (www.SocketSite.com)
According to the May 2010 S&P/Case-Shiller Home Price Index, single-family home prices in the San Francisco MSA rose 1.7% from April ’10 to May ’10, down 34.9% from a peak in May 2006 but up 18.3% year-over-year (YOY).
For the broader 10-City composite (CSXR), home values rose 1.3% from April to May for a second straight monthly gain but remain down 29.6% from a peak in June 2006 (up 5.5% year-over-year).

“While May’s report on its own looks somewhat positive, a broader look at home price levels over the past year still do not indicate that the housing market is in any form of sustained recovery,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “Since reaching its recent trough in April 2009, the housing market has really only stabilized at this lower level. The two Composites have improved between 5 and 6% since then, but this is no better than the improvement they had registered as of October 2009. The last seven months have basically been flat.”

On a month-over-month basis, and for the first time in six months, prices rose across all three tiers for single-family homes in the San Francisco MSA.
S&P/Case-Shiller Index San Francisco Price Tiers: May 2010 (www.SocketSite.com)
The bottom third (under $335,860 at the time of acquisition) gained 2.1% from April to May (up 14.8% YOY); the middle third rose 2.6% from April to May (up 12.7% YOY); and the top third (over $611,205 at the time of acquisition) gained 1.6% from April to May (up 8.3% YOY versus 10.7% in April).
According to the Index, single-family home values for the bottom third of the market in the San Francisco MSA remain just above September 2000 levels having fallen 56% from a peak in August 2006, the middle third is back to just below April 2003 levels having fallen 34% from a peak in May 2006, and the top third is back to April 2004 levels having fallen 22% from a peak in August 2007.
Condo values in the San Francisco MSA rose 2.3% from April ’10 to May ’10, holding at a 4.7% gain on a year-over-year basis (down 29.4% from an December 2005 high) for the second straight month.
S&P/Case-Shiller Condo Price Changes: May 2010 (www.SocketSite.com)
Our standard SocketSite S&P/Case-Shiller footnote: The S&P/Case-Shiller home price indices include San Francisco, San Mateo, Marin, Contra Costa, and Alameda in the “San Francisco” index (i.e., greater MSA) and are imperfect in factoring out changes in property values due to improvements versus appreciation (although they try their best).
For the Past Year Home Prices Have Generally Moved Sideways [Standard & Poor’s]
April Case-Shiller Index: San Francisco MSA Up At Top But Down Below [SocketSite]

79 thoughts on “May Case-Shiller: San Francisco Tiers Up But Gains Moderating Atop”
  1. with respect to just the San Francisco MSA-based single-family home prices data, if the year-over-year increases in double digits keeps up for another quarter, I’ll have to give up on my dead cat bounce theory. By June of 2009 it was clear that we weren’t going to have another depression and the S&P 500 was rising pretty steadily.

  2. Surprisingly strong showing for SF markets, especially post-April. But keep an eye on growing rate of distressed listings.

  3. from Bloomberg: Thirteen of the 20 cities in the S&P/Case-Shiller index showed a year-over-year increase, led by an 18 percent gain in San Francisco and a 12 percent increase in San Diego.”
    Tough to find the bearish argument here. The graphs are moving up and SF is leading the nation. If you paid attention to the bears, you didn’t buy, and waited for prices to go lower, but they didn’t.

  4. Prices are now up over 20% from trough levels.
    It is also a sign of how things have improved when an annualized return for the top tier of over 20% in April is described as a moderation of a gain!
    Clearly the YOY gain will start to drop back now, as we are approaching the point when, 12 months ago, the recovery started apace and gains of 3-4% per month were seen.Hopefully we can remain in an era of double digit price inflation for a little while yet, though.
    [Editor’s Note: Again, the index for the top tier was up 10.7% YOY in April, it dropped to 8.3% in May, the first reversal in 13 months. Yes, moderating.
    Regardless, if you buy into the index with respect to the 8.3% year-over-year gain for top tier single-family home values, you also buy into a 30% decline from peak to trough which remains down 22% from peak to current.]

  5. At my elderly, nearly half-century age, I’ve learned you have to make up your own mind and not let others do it for you. The markets run counter to popular thinking, when socketsite bears are roaring most loudly about how prices are dropping, as they did in March 2009, that’s the time to buy. That was the low.

  6. The bulls shouldn’t declare victory yet. The CS index could turn downward again, especially if distressed listing rates continue to pick up steam. This is the stat to watch; could be a game changer.

  7. BS. Case Shiller is a backwards looking (3 month averages) statistic. All I am seeing is the effect of the tax rebates and foreclosure delay programs.
    That’s all ending and you’ll see it start to exit the stats in a few months.
    The best we’ve seen in terms of year over year actuals was a single $1000 gain on one house. The rest is down and the one Rincon posts tell me prices have now resumed their declines.

  8. so long since I commented I thought I forgot how to do it.
    Bottom line, watch inventory, that will tell the story. If it keeps rising, or stays elevated (it will almost certainly do one or the other) above norms, and if overall demand stays flat, or drops (the latter is most likely as gub cheese starts to disappear), then the months of supply metric in SF will climb or stay elevated (not nearly as high as nationally mind you – there is limited SFH stock here, regardless of what bears and/or bulls may say). If the scenario plays out as I expect, we will see a rapid levelling off of C-S for SFH in about September or perhaps October (the index lags actual data by abut 3-4 months), with a slow fall in the Seasonally Adjusted (ha!) C-S index over the next 2-4 years as the inventory puts pressure on prices (and credit constriction remains the order of the day). Nothing cataclysmic mind you. But the apples in this market show clearly that at present, we are off somewhere between 5-20% (more for some condos that were train wrecks to start) from peak pricing. I would expect another total aggregate 5-10% nominal drop over those 2-4 years (from the previous lows), then flat lining for perhaps another 2-4 years, then maybe some modest rises in prices going forward (1-2%/yr nominally, c/w historical norms).
    This whole argument fails if the Fed goes nuts with QE2, or the pols decide to break open the piggy bank to prop housing permanently (tax credit for closing costs for all buyers anyone? – laughable but so is the mortgage interest deduction and prop 13, so there you go). Frankly, I don’t see it though. TPTB have avoided the GDII, and in return we are virtually all now part of the renter class. The rentier class has us by the short and curlies. Their ‘benevolence’ will be felt for decades to come. We should all thank them for their doubleplusgood munificence.

  9. Surprised there is no Mix discussion. I’m seeing mostly premium listings selling at fairly decent prices. Even average homes in very good conditions are not really moving that quickly, or are getting scooped up at discounts. The best of the best are moving; and the folks sitting on the sidelines are scooping up the homes with good $/psf values. C/S tracks the broad market averages. It’s a pretty interesting trend actually.
    I expect the fixer market to get hot again, but at lower entry points. There is an odd demand pattern in SF. Many folks are happy to wait for the right deal and there is clearly a lot of pent up demand that is keeping the C/S from showing the real weakness in the market relative to the bubble peak where anything and everything was selling in <30 days.
    I think what you are seeing now is a more balanced market and over time, if you trend out the next 4/5 years over the past 10 you will see a fairly typical annual appreciation / growth average wit the peak and correction here as outliers.
    The big variable is interest rates. The reality is that they are crazy low, and are likely to remain crazy low. The bears will tell you that if the govt raises interest rates it will crush valuations. This is not news and shouldn’t be confused with insight/wisdom, it is basic economics. And the gov’t knows this as well and they will not do anything to needlessly send the housing market into a tailspin.

  10. I find it interesting that some are ready to either claim victory or throw in the towel. we are only 2-3 years into this multi year credit event, and have YEARS left to go.
    My near term guess is not that much different from anybody else evaluating Case Shiller… we will continue to see strength until the October report due to the 3-4 month time lag. The October report will be the first that captures some of the post-homebuyer credit data and so that will be the first to show “pressure”… unfortunately the first report that will consist only of the post-homebuyer credit data isn’t until Jan 2011, which will show weakness.
    I base this thought on the more real time data (New and Repeat Sales data, non seaseonally adjusted, mortgage purchase application data, etc) which all plummeted after the FTHB credits expired. Of course, many believe this plays little to no part in the SF market, but I disagree here.
    as for longer term: I have said for some time that I have no idea where nominal home prices would go due to the uniqueness of this credit crisis and also the never-before-seen governmental and Fed intervention in the markets. however, I still see no reason to expect any significant real price appreciation in the near to mid term.
    mortgage resets and recasts as well as foreclosures and NOD’s will continue to pressure the market at least through Dec 2011. I therefore personally see no reason to admit defeat or to claim victory until sometime in 2012. (and I’ve been rather consistent in this view)
    The future of the housing market continues to be a political decision, at least until (if?) the bond vigilantes finally show up… but they are dormant. The Fed and govt are obviously trying to blow a bubble as fast and hard as they can, but have been stymied to date due to the low velocity of money… but never underestimate Quantatitive Easing… it of course will end in tears, but that’s a long term problem and our politicians are only interested in the next election
    Regardless, the economy is still on life support and we still refuse to make any needed structural changes.

  11. Bottom line, watch inventory, that will tell the story.
    Watching a stat that can be easily manipulated by people who will make money if you buy is not the smartest move. Inventory is certainly an indicator, but it is too easy to manipulate when it gets too high.
    Watch J-O-B-S. Not unemployment, number of jobs. And ignore unsustainable jobs programs: census, green energy subsidized jobs, etc. Watch salaries. Watch interest rates (and decide whether they are sustainable over the long term).
    Watch distressed inventory.
    And watch to see if problems are papered over or fixed. Reagan/Volker fixed a lot of problems and we had a long period of prosperity. Bush/Greenspan created/accelerated problems and we had a near catastrophe. Obama/Bernanke seem very focused on papering over problems while trying to convince everyone that the problems were solved. Green shoots, recovery summer, etc. makes me think they are trying too hard to manipulate attitudes with no real plan. That perks me up to be especially vigilant with stats. Stats can be manipulated, even if indirectly performed.

  12. Looking good! Looks like I bought in right at the almost-bottom. up Up UP!!
    Who wants to buy a house in San Bruno? I’ve got a spare one, going cheap …

  13. June and July will be the months to watch (if we were to go negative then, hold on to your hats). A couple of (very selective) historical data points:
    April-May Gain
    1991 0.96%
    1994 0.97%
    1997 1.55%

  14. “when socketsite bears are roaring most loudly about how prices are dropping, as they did in March 2009, that’s the time to buy. That was the low.”
    When socketsite bulls are roaring most loudly about how the bottom has passed, that’s the time to rent. There are still too many knife catchers prolonging the inevitable.

  15. Hey guys, for the Econ 101 challenged among us, how would u best explain the use of the term “nominal” on this site? ie “nominal prices” I always value your input here and am not afraid to ask dumb questions haha. Thanks!

  16. J,
    These knife catchers have the peculiar ability to scrape the required downpayment to do a purchase today.
    This is good news for the Deflation Gods. These downpayments will be vaporized if/when there’s a new leg down. We will be closer to the end of this mess as a consequence. A big thank you from all of us renters for such a leap of faith.

  17. nominal, real, adjusted, are words that tend to be over used and incorrectly used to strengthen the posters argument. Often overlooked is the extremely simplistic view that if I paid 800k for my house in any year, I really don’t want to sell my house for less than 800k at any point in the future regardless of the adjusted, real, nominal value of my home is worth. Short of hyperinflation, or extreme deflation these terms hold on relevance over a 3-6 year period.

  18. So buying in March ’09 and selling before October ’10 seems like it would have been a great idea.

  19. “nominal, real, adjusted, are words that tend to be over used and incorrectly used to strengthen the posters argument. Often overlooked is the extremely simplistic view that if I paid 800k for my house in any year, I really don’t want to sell my house for less than 800k at any point in the future regardless of the adjusted, real, nominal value of my home is worth. Short of hyperinflation, or extreme deflation these terms hold on relevance over a 3-6 year period.”
    yes, behavioral finance says you are correct, but with insight into loss aversion, the rational economic actor should care only about real returns/losses. I would submit to you that the vast majoriy of people do not think about real returns or losses. If they buy an antique in 1990 and see that it is now worth 2 times what they paid for it, they often think – ah, I made money on that. They don’t bother to perform the necessary comparison to inflation and other asset class returns (risk adjusted or not) to understand 1.) what their real return was 2.) what the opportunity cost of their purchase truly was.
    I would state rather strongly that the words real, nominal, and adjusted are not used to strengthen a posters argument – rather they are placed in the argument to provide the granularity, precision, and accuracy that is so often lacking in economic discussions and actions by the average economic actor. eddy is right, the irrational and predictable economic actor is strongly loss averse, and sees 800k today and 5 years from now as the same, even if inflation has been running at 5%/yr, or with good fortune , if deflation has been cruising along at 2%/yr.
    However, when making an economic argument, or analysis, it is critical to establish whether the argument refers to real or nominal changes.
    If you received a 5-7% yearly raise in your salary over the past 5 years, that should be analyzed and reported and understood as much more significant than a 5-7% yearly rise in your salary in the mid to late 1970’s. Whether the actual person receiving the raise understands that reality is an important question in behavioral finance (lots of good data supports eddy – people care almost exclusively about nominal data in the short to medium term), but it is not correct or useful to ignore these concepts when making economic ‘predictions’ or analyses.
    As for C-S being flawed/mix sensitive/ seasonally adjusted poorly – these are all relatively decent points. Most would say, however, that it is the best composite index that we have, least affected by mix and perhaps only recently skewed by its seasonal adjustment (they have acknowledged as much!).
    With enough apples in the apple bin (hundreds, if not thousands), an intrepid soul could compose their own index based on SS data. The problem is, the site is edited, and perhaps it is biased, perhaps it is not, but regardless only certain apples are reported or unearthed, so selection bias from what is posted on this site would ruin any index composed from the apples presented here. Nevertheless, the trend is obvious, every single housing idicator has shown that prices in SF proper are off of their peak values (in nominal and real terms!) by some percentage, which seems to often be in the 5-20% range and more like 10-30% range for certain condos.
    My point was simply that nominal, (actual numbers after the dollar sign) prices, will be even lower than most recent low, but not by a lot (5-10% lower), barring big time gub cheese.
    As for interest rates – don’t hold your breath. The ka-Poom theory is so far away as to be a speck on the oil-stained horizon. A wise man who has laughed his way far away said he was scaling into the long bond due to the structural changes that were afoot. Eventually that postion will need to be exited, but for those who like to trade and move money around (not me) the long bond offers the protection against deflation/disinflation that we shall see for the medium term of 5-7 years. But hey, all anyone cares about is 10% nominal returns, not 4-5$% nominal returns that also happen to be 4-5% real returns. 4-5% real returns. dare to dream.

  20. The last year has been something hasnt it?
    In March of 2009, Case Shiller hit 117@ change. Thats +17% above year 2000 level pricing. Yet this blog looked at that number and said “nope, no bottom yet – the smart money will wait”
    That mentality continued as prices kept on rising 120, 122, 125, etc. It was always “just you wait, when ABC happens, the market will get crushed”.
    It continued still as prices hit 127, 130, 132, etc. After ABC proved to be a nothingburger, then it was “just you wait, when XYZ happens, the market will get crushed”.
    ABC is over, XYZ is over, the market did NOT get crushed. It just kept rising, past 135, 137, 140…
    Now we stand here at 142@ change – roughly 20% higher than the levels we passed on last year because they were “nowhere close to the bottom”. Suddenly, we are all wondering if waiting was a big big mistake…

  21. I look at this chart and think it says,
    if you bought an SFR and paid over a million dollars for it after Jaunary 2003, and want to sell it now, you will get the January
    2003 value for your home.

  22. Buy now or be priced out forever!
    We heard that one before.
    RE is a long term game. The geniuses in the profession have managed to transform buyers into ADHD trigger-happy children.
    Short and medium term, you will get bumps, bubbles, crashes.
    Long term, there will ALWAYS be opportunity to purchase. Let me explain.
    The US is ~70% owners. SF is ~40% owners. The long term trend shows we are not moving much from these ratios. It went up during the big credit scam, but this has leveled off to averages since.
    Now compare the ownership rate to the affordability rate.
    The affordability rate is what is key there. We have been under 20% for most of the past decade in SF. This means more than 20% of people in SF are owners that wouldn’t be able to afford the house they currently occupy. We have Prop 13 to thank for it, among many other factors.
    Now, averages being what they are, how are we going to have these 2 contradictory ratios merge?
    Option A: Less owners? Nope. The number of rentals is somehow bound to decrease. 1 – landlording is not a very interesting business at today’s price. 2 – long term landlords will tend to sell and go out of the rental business as rent control slowly shrink their ROI. This will create more TICs, condo conversions, in short more owners.
    Option B: More affordability? I bet this is what will happen. This can come from 2 sources: 1 – prices coming down, and 2 – salaries going up. The salaries WILL go up as better jobs are added and higher earners come into the city. But that cannot be all the story there. Prices have to decrease or increase less than inflation in the next 10-20 years, time when the retirement of boomers, scaling down, etc will reshuffle the cards in SF.
    As I have said before, RE is a very long term game. No defeat of victory can be declared over just a 5 year period.

  23. the only two that have added any insight are lol and ex sf-er. that is real estate is a long term game.
    in the short term there is much volatility. this report showed an uptick. that does not translate into a healthy real estate market no matter how much wishful thinking there is.

  24. “that is real estate is a long term game.”
    People say this a lot without thinking about what it means. I agree with mike that real estate can have large amounts of volatility in the short-term, although it often doesn’t.
    That problem is that most people don’t actually think about what the long-term return on real estate actually is, especially when you include all the costs of ownership. Real estate might produce a consistent return over the long-term, but it’s usually a low level consistent return, except under certain circumstances.

  25. “real estate is a long term game.”
    It’s not really a game at all. It’s a market that is constantly shifting, but the long term trend of housing has only ever gone in one direction over the long term. UP. Sure, there are casualties for anyone that buys/sells over the short term, and there are transaction costs and ownership costs that reduce the return on invested capital. The market itself is not a game.
    See everyone next month!

  26. Real estate might produce a consistent return over the long-term, but it’s usually a low level consistent return
    Do you mean rental or appreciation?
    1 – For rental, I agree, but the returns are very dependent on the purchase price. What makes SF so prohibitive for renting out is the price-to-rent which is way over 250 almost everywhere. But people will still buy for the hope of…
    2 – Appreciation. We are landlocked, demand is high, yadayada. It will stay expensive long term (20+years) except unforeseen circumstances (loss of industry like the military in SF or auto in Detroit: what if cutting edge tech moves to Asia?). Will it appreciate? That’s another story. If prices are already what’s reasonable long term, you’re playing with fire. If only 12-15% can afford a median home in SF, that’s a huge “overpriced” sign on the overall SF market. You will have more chances at appreciation in an area where affordability is higher or approaches the homeowner ratio.
    Buy for yourself for 30 years? If your debt-to-gross income ratio is not over 25% you’ll be doing just fine long term. 25-35%? Why not, but proceed with caution, your margin of error becomes tight. 35%+? Well, Mr Speculator, it’s only money, right?

  27. the long term trend of housing has only ever gone in one direction over the long term. UP.
    Detroit today. Japan since 1989. There are many areas where RE has gone down long term, mostly due to long-term local causes. Japan is overbuilt, overindebted, and its population is shrinking even though its density is 10 times ours.
    Could it happen in the US? Population increases will probably slow down. With immigration control and a virtually limitless supply of land, the US has some challenges coming up. This supply has been kept on a very short leash these past 20 years especially in California.
    A big thing coming up: Cash-strapped cities are now thinking of expanding the supply of land. Yes, this “they don’t make it anymore except in Hawaii” idiocy will soon be proven wrong. Sure SF cannot expand. But so is Japan. There’s just so much you can do to create fake wealth. It always comes back to paycheck vs. mortgage payment…

  28. “but the long term trend of housing has only ever gone in one direction over the long term. UP”
    Sure, that’s what has happened historically in the U.S., but most real estate is a poor investment anyway. Just because it goes up doesn’t mean your real return is good. And, as lol mentioned, prices have gone down significantly in Japan since 1989. And prices have never recovered from the 80s oil boom in Houston. Baby Boomers have had particularly good timing in many cities, thus far.
    “Do you mean rental or appreciation?”
    Either one — I’m talking about the overall cost of ownership whether renting or buying. Obviously, as you mentioned, if you buy near the peak of a market, your returns will be lower, and if you buy near the trough, your returns will be higher, but historically the inflation-adjusted returns on real estate over the very long-term aren’t always as great as people think. There are certainly exceptions for certain areas, often when significant structural changes have been made (see below).
    “Yes, this ‘they don’t make it anymore except in Hawaii’ idiocy will soon be proven wrong.”
    There is plenty of available real estate and potential real estate in the Bay Area. It’s just that we have so many constraints on growth that you can’t densify some of it and you can’t build on other parts of it. These constraints on growth are some of the structural changes I’m referring to. SF could easily increase housing supply if The Powers That Be allowed it. Just think about how many single family homes there are in SF.

  29. I wasn’t really talking about foreign real estate in my UP comment. And comparing Detroit, which is basically a small town supported by a few poorly run companies isn’t a fair comparison. We can name several towns that got blown up across the US. But in the aggregate, in the US, the trend lines are clear. Maybe we slide sideways for a decade, OK, maybe / maybe not. But in 20 years, I’m guessing the trend continues.

  30. “Yes, this ‘they don’t make it anymore except in Hawaii’ idiocy will soon be proven wrong.”
    Well for SP, I agree assumning ‘soon’ meens 5, 10, or 20 years away.
    A brand new tower that was approved today would not be completed for five years, and that’s assuming the financing was there and there were no huge design changes. Factor in design changes, re-approval, and obtaining financing and it is more like 7+ years at the earlies before any sizeable new quantity of housing units are built. I’m guessing in 5 years from now there will be a significant inventory shortage in SF.

  31. eddy,
    That’s assuming our population grows faster than the rate of house/land creation. Some countries in Western Europe have managed to prolong their population growth with immigration for 50 years. The birth rates of the second and third generations are similar to the rest of the population and there are strict limits on new immigrants. their populations are clearly aging and/or diminishing. Nothing says this will not happen here if we become even more restrictive than we are today. That’s the demand side, which was the biggest motivator of price pressure.
    On the supply side, the US is pretty empty. Our density is 83/mi2. Japan is 873. Even California, the most populated state, has 233/mi2, about the same as Spain but less than most of Western Europe. Keeping a lid on “homestead” creation was viable for a while. Controlled expansion (another name for controlled starvation) helped in fueling the previous bubble. But this is totally artificial and caused by political decisions, not fundamentals. As sfrenegade said, there are many many SFHs in SF. Few cities on par with SF in demographics and economics have the same # of SFHs. Unleash this potential and you’ll have a supply glut that will rewrite SF’s RE. All they need is a big long-term budget crunch to realize something has to give. This could also cause the end of prop 13 which would unleash a lot of supply.

  32. “But in the aggregate, in the US, the trend lines are clear.”
    It’s possible, but there are a few things that aren’t good. We don’t invest enough in education so that our workers can compete for highly skilled positions. We don’t invest in enough infrastructure both to replace our aging structures and to foster new growth. We have growing inequality because of poor policy-making. Our population is aging, and we’re restricting the influx of highly skilled immigrants that could replace our aging workers. And our financial system is not configured properly for sustained growth of our economy because it has captured our government.
    If we fix some of these structural problems, things could be great. But we don’t live in your dad’s California or your dad’s United States.

  33. This supply has been kept on a very short leash these past 20 years especially in California
    I don’t follow this at all. The newer built exurbs are what has been hit/are going to get hit really hard, and that fact doesn’t correlate with your statement. You made a lot of good points but you went everywhere today. “Buy now or be priced out forever” … as a mocking rally cry? Come on. new material already.

  34. it is more like 7+ years at the earlies before any sizeable new quantity of housing units are built.
    True. But the PTBs could decide more flexible zoning rules. Like allowing SFHs to be split into 2 or 3 units. Some of these houses are too big for a “big city” anyways. Of course most in control at City Hall are wealthy landowners with multi-million dollar properties and have no interest in changing that game. (even Chris Daly owns multiple property: that’s one hypocrite idiot defender of the poor). In fact, allowing zoning splits would favor those who WILL keep their SFHs intact. There would be less of them and in return they would become invaluable, like multi-million-Pound small houses in London. There’s the issue of transport but our city is in dire needs of an overreaching subway system.

  35. The newer built exurbs are what has been hit/are going to get hit really hard, and that fact doesn’t correlate with your statement.
    Well, price pressure precisely caused the unleashing of new tracts. It was a phantom market and they realized it too late. Some cities are anti-growth and SF is a notorious BANANA.
    Many cities that were underbuilt 40 years ago decided to stop growth when they feared they would lose their local feel. This happened in the 80s when people from the original environmental movement started to become afraid and obtuse. I am talking mostly coastal area where the people that came in during the 60s and 70s under a “you are all welcome to come here” invite are now denying the next generation of newcomers the privilege they thrived on.
    This limit on growth in the coastal areas spreads its demand all around. The outside areas will create “new land” except few would move there from where the real demand is. The crash in subprime areas proved that supply has to be created where it matters. With enough pressure, it will be.

  36. Here’s what I don’t get. I look at all those pretty stats and charts, and I don’t think Case Shiller has an agenda, causing them to skew the data, but where the hell are the houses that are up 18% YOY?
    That’s a hell of an increase and yet all we are seeing here are places that are either flat, in the face of all sorts of free money flowing into the transaction, or even down. 18% is H-U-G-E. If we aren’t seeing it at all here, then it must be twice that elsewhere to make the average work out. But I can’t find anywhere else where prices are up 36%! In one year?!
    The statistic makes no sense to me at all. I’m sure it’s me and not them, but where are prices up 36% YOY. I suspect if we could find that out, the numbers would make more sense. The only home I’ve seen that’s up YOY was the $799K house that sold for $800K. One thousand dollars is not up 18% or even 8%.
    Here’s the other thing that makes no sense. The top third is up some percentage, middle third is up some percentage and bottom third is up some percentage but the average across all tiers is higher than all three of them. Does that make even a shred of sense?
    I must be missing something but none of this makes any sense to me. Can anyone tell me where prices are up by 1/3 YOY?

  37. IMPORTANT: These graphs are Seasonally Adjusted (SA). S&P has cautioned that the seasonal adjustment is probably being distorted by irregular factors. These distortions could include distressed sales and the various government programs.”
    In other words, Case-Shiller don’t believe anything is actually up 18%.
    On top of that, this is not just for SF county.
    [Editor’s Note: As previously noted, neither our graphs nor our calculations use seasonally adjusted numbers. And as always footnoted, “San Francisco” is the five county MSA.]

  38. “I don’t think Case Shiller has an agenda”
    A friend of mine has a bumper sticker on his car which reads, “Don’t believe everything you think.”
    I’ve said it before and I’ll say it again. One of the larger pitfalls in data analysis is to decide that a particular number means what you think it means instead of digging down to see what’s actually going on.
    Every month Case-Schiller takes the houses that sold that month and looks at their previous sales price. For each house it takes the change in nominal price over that time period and determines what the CS index would have to be today to have the same percentage change in the same time period. That doesn’t have to be the same from one house to another and it isn’t. There’s random noise in the sales prices and no guarantee that changes over different time periods will be consistent. Then it takes the calculated CS index from all the individual houses and finds a best fit CS index. We don’t know how big the spread in the individual values is so it’s hard to judge what precision we should assign to these numbers.
    If every house used to calculate this month’s CS had a previous sale exactly one year ago then you could very strongly say that the market is up 18%. But the reality is that there is a spread in times of previous sale and that can have an effect.
    If we had access to the raw CS data we might see that houses that sold one year ago are flat and houses that last sold at the peak are pulling the number up.
    Or we might not.
    We don’t have access to enough of the raw data to really know everything that’s going on in the data. Every time you try to reduce a heterogenous data set to a single number you lose information.
    If we knew the spread in the calculated CS index for the individual houses we would have a better handle on how seriously to take today’s number.
    In my opinion the CS index is still the best estimator that we have for changes in the market but it’s not perfect either and we never receive enough information to evaluate how seriously to take any particular number.
    “Here’s the other thing that makes no sense. The top third is up some percentage, middle third is up some percentage and bottom third is up some percentage but the average across all tiers is higher than all three of them. Does that make even a shred of sense?”
    Mix between the tiers. You’ll notice that since the bottom the central value has been getting closer to the upper tiers. If it went outside the tiers I would worry that something is wrong but I don’t see anything that is necessarily pathological at this time.

  39. All these numbers are becoming a bit confusing. Medians, averages, means, tiers, seasonally adjusted, ever-elusive repeat sales, rotten apples vs fresh oranges.
    I suggest we use $/sf per district.
    Easy enough?
    All places have a measurable surface and are bought at a price that is 99% reliable.
    All we now need is lazy-a$$ regulators to mandate the official measurement of all places when a place is put on the market.
    It’s not rocket science and it would stop all that wheel spinning anytime some complex algorithm complicates what should be a very simple metrics.

  40. J, I understand that CS is not just SF county. But if the SF MSA is up by 18%, SF is flat or down, then for every SF condo that sells, another has to be up by 36% or two of them have to be up by 27%. I’m not seeing that anywhere.
    Diemos, you are WAY smarter than I, but you seem to be saying it’s the miracle of statistics that makes this all work and I don’t get it. Seasonal adjustments? Shouldn’t that get worked out for YOY data?
    I would understand if Antioch was selling twice the homes, for 36% higher than last year, but here’s the stats and all that gubmint cheese has barely kept them even:
    Homes sold, DOWN 25%. Median price per square foot, up about 5%, which could be mix. That sure as hell isn’t doing it.
    Walnut creek, number of homes sold is up by 25%, but price per square foot down by 7.5%. Again that’s not a perfect metric but it sort of looks like now we have even MORE homes sold down and so there needs to be more somewhere else to bring the stats up.
    As for mix between the tiers, the mix could be ALL IN ONE TIER and it still couldn’t be that the average is greater than all of them. Bottom to top tiers, the increase is 14.8, 12.7 and 8.3. How do we get a composite up 18.3%? How do you “mix” to get 18.3%? It DID go outside the tiers.
    Here’s another one: Mill Valley: Price down, sales down.
    Oakland has a median price that’s up 37%, but the number of sales is way down 26%
    and zillow seems to think prices for the same home are down in oakland.
    So where on earth is case shiller implying these kinds of gains are being made. Maybe there’s one house that’s up one millon percent that’s skewing the data?

  41. “Seasonal adjustments? Shouldn’t that get worked out for YOY data?”
    I think what they are saying is that they try to adjust for typical seasonality, but that causes misleading results for an atypical season(like when there is a 1 time tax credit).
    Another take:
    Case-Shiller gives extra weight to sales where the exact home was sold before. They use all kinds of adjustments and tweaks to try and account for overly-improved or trashed homes.
    Consider that the AVERAGE price level of the 3 tiers in May of 2009 was 124.97, while the aggregate reads 120.79. Clearly, the aggregate is giving extra weight to the lower tiers.
    In May 2010, the AVERAGE price level of the 3 tiers is 139.67, yet the aggregate reads 142.99. Clearly now, the aggregate is giving extra weight to higher-priced sales.
    In 2010, the weighting metrics are favoring higher-priced homes as “better” comps…but why?


  42. “So where on earth is case shiller implying these kinds of gains are being made.”
    Case-Schiller is an algorithm that takes pairs of current and previous sales prices, grinds them up, and spits out a number.
    Case-Schiller isn’t implying anything, you’re inferring.
    Houses are getting sold all the time and the price paid is a nice well defined number. When you try to run all those numbers through some algorithm to determine “the market” you’ll quickly find that there are all sorts of algorithms that will give you all sorts of numbers with various and sundry strengths and weaknesses but … There is no spoon.
    The numbers you quote are all yoy changes in medians, which is a very different algorithm than what Case-Schiller does. Let me flesh out the example I was trying to make earlier. Assume 2 houses sell.
    One sells for $1M that last sold for $1M when CS was at 120. Estimate; today CS=120.
    One sells for $250K that last sold for $500K when CS was at 320. Estimate; today CS=160.
    Average the two and we get CS=140. That’s an example in which a dataset where medians are down or flat can create a CS number that’s up.
    Personally I don’t worry about all this stuff. I just smile and nod and take it at face value. We just don’t have enough access to the raw data to unravel all these possible effects.

    If you’re wondering how he eats and breathes
    And other science facts, (la,la,la)
    Just repeat to yourself “It’s just a show,
    I should really just relax
    For Mystery Science Theater 3000.”

  43. Now we stand here at 142@ change – roughly 20% higher than the levels we passed on last year because they were “nowhere close to the bottom”. Suddenly, we are all wondering if waiting was a big big mistake…
    I’m not. It is not enough for SF RE to simply appreciate in the current climate where the holding costs (including everything) are more than the holding costs of renting.
    the appreciation must be enough to overcome the added costs of owning.
    @tipster, it’s funny you bring your point up, because I was just thinking about bringing it up myself this morning.
    I agree with you, anybody with eyes can see that there are few houses that actually rose 18% in value year over year.
    but I’ll flip it around on you: during the heat of the crisis how many homes ACTUALLY sold for their Case Shiller value? Answer: few, because the sellers wouldn’t sell at the price buyers were willing to pay (hence the significant drop in transaction volume).
    likewise, how many homes ACTUALLY are selling today for 18% more than last year. Answer: few again.
    as diemos correctly states, these are statistical anomalies, but that doesn’t mean that we should just ignore the data. The absolute numbers are not the most important thing, instead I look at the trend.
    There is no doubt IMO that the trend was rapidly up in the mid 2000’s, and then a stall around 2007-8, and then crisis in 2009, and now stabilization and some improvement in 2010.
    The actual percentages are not so important IMO, but we ‘need’ some way to try to quantify that data, and Case Shiller has a pretty good methodology. It doesn’t mean we can just take the number and run, but it still adds value so long as the methodology is consistent
    one must always try to understand what the data is telling us. The Case Shiller data is an index based on the aggregation of property sales data. It is NOT an indication of the de/appreciation of individual homes, although that’s how a lot of people use it.
    Diemos gave a great example of how the raw number can “fool” us.
    however, I must stress again that I still like CS numbers because I think they’ve got the best methodology, and there will always be problems with any raw number that we use. Over time my guess is that the numbers will “make sense” to us all but near term there will be quirks especially due to the rapid change that’s had in the markets. on a side note this is why CS shiller numbers are 3 month averages and not just the monthly data.

  44. There is some good commentary on here. I wanted to add one point on the reliability of CS. I agree that it’s probably the best RE indicator that we have, but ii is undoubtedly impacted by mix as Diemos stated. Tipster, I agree that the 18% Y/Y gain is likely overstated. With that said, last year when no one was buying homes unless there were distressed fixers out in Brentwood – mix was likely overstating the Y/Y price decline. In other words, I question whether many individual homes had dropped 50% in two years back then….especially in San Francisco proper.
    Ex-sfer said it well when he stated that the trend is what’s important with CS, but it is important to acknowledge that mix likely impacted these numbers on the up as well as the down. My beef with much of the commentary on this site historically is that most people only discuss mix when it is making prices look more favorable. When it was artificially deflating prices it largely got ignored.

  45. Lance,
    Yes your comments are accurate. When numbers say what we see (or what we think we see), we will accept them more easily than numbers that go against our perception.
    It works both ways. On the way down bulls made sure everyone knew these numbers had to be taken with the usual caution.
    I still think $/sf is the best metric to measure a market. I know by experience some Realtors just hate $/sf because it forces them to disclose a square footage, and that such square footage is not clearly defined by regulators, therefore open to unnecessary misunderstanding. Of course, some sellers do not want square footage because it would show their small property as overpriced when it is not. Also, quality will greatly change $/sf in the same area.

  46. I find it pretty funny that all of a sudden case-Shiller methodology is being pulled apart, discredited, debunked, debated.
    No one here stopped to question it on the way down, as it was giving exactly the answers they wanted. There were plenty of months where the fall in overall index was bigger than each of the individual three tiers. But no one ever really questioned it then.

  47. No one is discrediting Case Shiller, just analyzing how the index value applies to actual houses at a given point in time.
    “There were plenty of months where the fall in overall index was bigger than each of the individual three tiers”
    Name 1 month.
    You should also realize that your statement was not the corollary to what other people were asking – how each tier was weighted in the aggregate.

  48. Some people will not be satisfied until everyone making $300k on a combined income can afford a home in D7 with a view. There was a time in the 80’s and 90’s where SF home values and general affordability in the city were more realistic. The same was true for certain parts of Brooklyn and Harlem in NYC. Things changed and value skyrocketed / affordability plummeted. I was for a long time very bearish on housing; but no longer. I’m not bullish by any stretch, but I accept that values have changed, adjustments have taken place, and the market as a whole is showing more balance. Still lots of weakness and prices will continue to fall / stay flat, and certain rare properties will sell near peak pricing. The demand for housing in SF is still very strong. I’ve always said that each decrement in value would expose a new crop of side-liners to provide price support. This very much appears to be happening here in SF. Pretty much anything / everything that is 25% below peak is selling fast in line with what C/S is showing. Anyone thinking that there is going to be another widespread 25% discount (i.e., -50% peak) is insane.

  49. It always comes back to paycheck vs. mortgage payment…
    I really don’t believe this any more. More and more, the money for housing, especially in the Bay Area comes from sources other than incomes. Dub dub’s “Lazy Google Indicator” hints at this: much of the cash for down payments in San Francisco proper has come from stock sales. We also are continuing to see The Bank of Mom and Dad having a significant effect. I see no reason to think that this is going to stop, especially as the overall number of millionaires in the country continues to grow.
    Millionaire Households Up
    We are moving towards a British entrenched class structure and all the tax policies are exacerbating this effect. Witness the debate over inheritance tax. Prop 13, rising college costs, reduced class mobility are all part of this effect. So places that appeal to the wealthy are going to tend to hold their value.
    We may even be trending toward a Brazil style extreme separation with little to no middle class.
    You point about the percentage of owners in SF trending up is a good one though, being a landlord in SF proper is not a very appealing prospect for most wealthy investors.
    Of course this *could* all change with a sea change in government policy. We should be investing in infrastructure, we should be putting unemployment people to work on public projects, instead of wasting all that real wealth sitting on the unemployment roles, we should be investing in eduction for the next generation, but these are things that are spectacularly impossible to do in the present political environment, even with a Democratic Administration and Congress. What is American, Californian and even San Franciscan policy going to be towards investment in public goods going forward? Does it seem like the political climate is going to become more generous and forward thinking? It is hard for me to imagine it.
    Though perhaps this will ultimately favor real estate in walled wealthy enclaves, ala what we see in places like Brazil, Egypt and Mexico, but we are not there yet.

  50. Yawn.
    Question: when the CS index goes negative again in June or July, the same bulls will be here to explain it, right? I trust that you won’t just hide and wait for another temporary uptick to deliver those pithy, content-free jabs that the SocketSite public has come to rely on…
    “Prices in real SF never really fell at all, plus they’re now clearly up 20% from the trough!”
    So nobody goes there anymore because it’s too crowded?
    In any case, back to our pretend-resilient market. I’m now waiting to see what, if anything, comes out of the Treasury’s August meeting regarding Fannie and Freddie. Even a modest tweak to the current nationalization program can materially affect SF. Consider, for example, if the conforming limits are reduced from $730K back to $400K. Or if down payments requirements are increased.
    The nationalization of the mortgage market has cost us $145 billion and counting, and even the can-kickers in DC have agreed to adresss/revamp Fannie and Freddie in the next year or two. What happens then?

  51. “There were plenty of months where the fall in overall index was bigger than each of the individual three tiers. But no one ever really questioned it then.”
    Plenty of people questioned it then. You’re talking about a strawman here. People can simultaneously think the index is telling a story but not telling the whole story. And plenty of people have talked about mix throughout.

  52. “There were plenty of months where the fall in overall index was bigger than each of the individual three tiers
    Name 1 month.”
    The month of November 2008 looks most recent. That month saw falls of 2.2%/1.6%/1.9% in tiers,but 3% overall.
    “There were plenty of months where the fall in overall index was bigger than each of the individual three tiers. But no one ever really questioned it then.”
    “Plenty of people questioned it then. You’re talking about a strawman here. People can simultaneously think the index is telling a story but not telling the whole story. And plenty of people have talked about mix throughout.”
    Ok, I do exaggerate, I accept. some questioned it, I did, for example. I asked the question of how it could happen two or three months. I did finally get an answer around the third month or so, I think. Let’s just say that the people questioning it now aren’t those that were questioning it in the past. Thats probably more accurate.

  53. “Anyone thinking that there is going to be another widespread 25% discount (i.e., -50% peak) is insane.”
    If private lenders were loaning out money and delinquent borrowers were being promptly foreclosed on I might even agree with you.
    But as things stand now I will wait and see what happens.
    The suspense is killing me, I hope it lasts.
    “The Bank of Mom and Dad having a significant effect.”
    I suspect that the bank of mom and dad will eventually find out that they don’t qualify for a TARP bailout and they’re not FDIC insured.
    “We may even be trending toward a Brazil style extreme separation with little to no middle class.”
    Yes. Brazilification driven by globalization and outsourcing is a real effect. This downturn has clearly hit the lower quintiles much harder than the top.

  54. I think he market is still flushing out. there is definitely a Wow property factor that is selling quickly, with multiple bids right now. i think it would be interesting if Socketsite honed in on this and compared it to properties that are not selling quickly.
    i think it is more than just well price sq footage. some neighborhoods/blocks are more vogue than others. and, buyers finally have a little more choice….

  55. i think it is reasonable to expect prices to go up as the economy.the downturn in the economy has hit the working class harder with those areas having the most forclosures driving down prices. the top tier was the last to fall, fell the least and rebounded first.

  56. http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-Type&blobcol=urldata&blobtable=MungoBlobs&blobheadervalue2=inline%3B+filename%3DMethdology_SP_CS_Home_Price_Indices_Web.pdf&blobheadername2=Content-Disposition&blobheadervalue1=application%2Fpdf&blobkey=id&blobheadername1=content-type&blobwhere=1243624745188&blobheadervalue3=UTF-8
    For the purpose of constructing the three tier indices, price breakpoints between low-tier
    and middle-tier properties and price breakpoints between middle-tier and upper-tier
    properties are computed using all sales for each period, so that there are the same number
    of sales, after accounting for exclusions, in each of the three tiers. . Each repeat-
    sale pair is then allocated to one of the three tiers depending on first sale price, resulting
    in a repeat sales pairs data set divided into thirds. The same methods used for the Metro
    Area Indices are applied separately to each of these three data sets to produce the Low-
    Tier, Medium-Tier and High-Tier Indices.

    Seems a little vague, but it sounds like the smoothing could impact tiers and aggregate by different amounts.

  57. Private lenders are loaning out money to people with very good credit. And with the value of hindsight, we can now wonder why shouldn’t only those with very good credit get 1M and 2M loans at 5-and-change apr’s?

  58. The only reason I suddenly picked this report apart was that it didn’t match *any* of the data. Even the nicer stuff is not significantly up. And lots is flat or down.
    It looks like they adjust for the season, the season happened much earlier this year, so what got adjusted up was not down, so the numbers were thoroughly distorted.
    So we’ll see the opposite problem in a few months, and it’s good to have the information out there. This also tells me what I already suspected but some were denying: $18K is not a meaningless incentive. It had quite a significant effect here, and so it should have an impact when it ends. However, it also tells me that anyone who rushed to take advantage of it was a fool, who should have waited.

  59. “it sounds like the smoothing could impact tiers and aggregate by different amounts”
    I’m unclear on that based on what you quoted. I know that Case-Shiller numbers are based on the previous three months, which does result in some smoothing in being a trailing indicator. In this case, we’re talking about March, April, and May.
    It’s funny that people focus so much on the month-to-month Case-Shiller here. Housing downturns take forever to play out.

  60. It looks like they adjust for the season, the season happened much earlier this year, so what got adjusted up was not down, so the numbers were thoroughly
    “The season happened much earlier this year” ?

  61. Spring is still spring regardless of credit, and San Francisco’s median and average prices spoke to buyers often above the range of the credit requirements, and above the top tier of CS anyway. All of this need to explain. Instead, do like the bulls did when it was down. Ignore it as not particularly relevant.

  62. “Spring is still spring regardless of credit”
    OMG! I did not know that!
    “…and above the top tier of CS anyway…”
    nothing is above the top tier.

  63. I’m pretty sure you knew what I meant about the top tier. But I wasn’t talking to you, and I’m not interested in spending an afternoon exchanging sarcastic barbs from you and others like you.

  64. I really don’t believe this any more. More and more, the money for housing, especially in the Bay Area comes from sources other than incomes
    I don’t disagree. the problem of course is that since 2007
    -incomes are down
    -household wealth is down
    -equity valuations are down
    -fixed income is down
    from YOUR link (the title is somewhat misleading IMO).
    Households with a net worth of $1 million or more, excluding their primary residence, totaled 7.8 million in 2009, up from 6.7 million in 2008, according to Spectrem Group.
    The current total is still well below the record 9.2 million millionaire households reported in 2007, Spectrem said.
    I agree wholeheartedly that the Brazilification of America continues undisturbed. I’m just not so sure that’s a good thing for SF real estate.
    it is obvious where much (not all) of the money for SF Real Estate came from. Debt.
    this is why SF saw a huge drop in RE transactions and valuations when the credit markets froze, and a near instantaneous bounceback when the government stepped in to offer the debt.
    obviously, some of the money came from the bounceback in Equity valuations as well… but we’ve got a long way to go to get back to 2007 levels. Equity levels are still near levels first seen 10 years ago.

  65. Remember that the tiers are based on the first sale, not the subsequent sale. If something sold in the 90s for something reasonable, it could still easily be in the top-third of prices now, even if the original purchase price isn’t in the top tier.
    Anyway, it’ll be interesting to see what happens to the Prestige Index next month after June numbers are out, and again in November when September numbers are out:

  66. ^^^ that’s a bit too reductive. ^^^ you’re acting as if this particular thread’s dialog isn’t dominated by one set. It is. And they’re not the “house as best investment ever” set, either.

  67. The fact that house prices are still such a heated debate on this forum means we have a long way to go in purging the excesses of the credit bubble.
    A house is a place to live. It is not ever going to give you freedom in life and will always cost you with the hassle and upkeep.
    It is not an asset that you look at like a stock chart. It is a box -made of wood or stone that you sleep in at night and raise a family with.
    It is a place to live, and will not secure your nest egg or make you wealthy.

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