CFAH

Morgan Stanley San Francisco MSA Sales Mix Chart
From HousingWire’s summary of Morgan Stanley’s latest Housing Markets Insights report:

Morgan Stanley analysts are questioning the power of national home price indices, saying that local ‘shift-in-mix’ impacts may overcome the veracity of such large measurement values.

In their latest Housing Markets Insights report, the analysts for the investment bank are asserting that the notion of a national housing market that can be quantified in an index, such as Case-Shiller, RPX – and even Morgan Stanley’s – no longer “reflect what we believe to be the actual changes in home prices,” they say.

“While greater macro trends can certainly affect housing across the country, individual markets can deviate substantially from each other,” write researchers Oliver Chang, James Egan and Vishwanath Tirupattur. “We remain convinced that actual home prices may have more to fall, regardless of what the major indices may report.”

Mix? Who’s ever heard of such a ridiculous thing. And specific to the San Francisco MSA:

“For the city that shows the highest YoY gains in the major indices, we find that it is actually showing the beginning of a double-dip with non-distressed prices aggregated across square foot tiers down 1.2% YoY, short sales down 2%, and REO liquidations up 20%,” the report concludes.

See chart above.
Morgan Stanley Questions Power of Home Price Indices [HousingWire.com]
Medians Are Up, But Don’t Confuse That With Increasing “Prices” [SocketSite]
May Case-Shiller: San Francisco Tiers Up But Gains Moderating Atop [SocketSite]

Comments from Plugged-In Readers

  1. Posted by sfrenegade

    Well lookie there. There’s your 18%!
    For those who suggested that the first half of 2009 was the trough, it looks like it may have only been the first trough.
    But yeah, obviously mix matters. It’s just that there’s very little good data on it usually.

  2. Posted by unwarrantedinlaw

    If there is a double-dip in prices then prices have to rise in between the dips. But socketsite bears have been denying that prices have risen. You can’t have it both ways. If you believe that we’ll see a double-dip, then you are saying prices have risen since the first dip.

  3. Posted by curmudgeon

    Could someone summarize what that graph is showing? I’m a little confused.

  4. Posted by A.T.

    unwarrantedinlaw, you can have a steep dip, followed by a less steep deep or leveling off, followed by another steep dip. A double-dip with no rise.

  5. Posted by sfrenegade

    unwarrantedinlaw, I’m not sure what your point is exactly other than to trash your formulation of socketsite bears. Lots of people deny all kinds of things on socketsite.
    But the data are clear here if you look at YOY for January ’10 through April ’10. So who cares about the other stuff?

  6. Posted by lol

    That’s a very interesting graph.
    One element that had my attention:
    Short sales used to be doing better than REOs. Now that’s the opposite.
    I think this consistent with what this market has given us. REOs are often priced much more agressively than short sales. There was a rush on REOs more than short sales. Plus with short sales you have to go through hoops with the original lender’s mortgage department, have issues with liens, etc… With REOs, titles are clean. That attracted a ton of bargain hunters.
    Now watch these bargain hunters’ jaws drop while we go into a second dip. They’ll feel like 2007 Florida foreclosure bus riders waking up 2 years later with a 40% loss.

  7. Posted by kjhjkhk

    The only real market is the forclosure/liquidation market currently. These are “priced-to-market” rather than “priced-to-fantasy”.
    The Federal Reserve has recently made a case for mortgage cramdowns which would allow a judge to set the home debtors payments. This is good for buyers since all these people underwater on the home can now price to market and remain solvent rather then withdrawing their listings.

  8. Posted by realtormon

    I’d like to see anyone prove a YoY 1.2% price slide in SF proper. Everytime I show data from the city itself, people on here holler “mix.” But a report based upon a MSA? and “Look Who’s Talking.”

  9. Posted by kjhjkhk

    “The Federal Reserve has recently made a case for mortgage cramdowns which would allow a judge to set the home debtors payments. This is good for buyers since all these people underwater on the home can now price to market and remain solvent rather then withdrawing their listings”
    To better explain this statement, as a buyer I want to buy a condo in SF. I saw one that I liked but the seller was asking 650k for it. It really is only worth $450k based on comparables in the REO or auction (investor/cash only) market.
    $450k is the actual value of this unit on the market but the seller can’t accept this because they are underwater thus the unit does not move. With principal reduction, actual value can be accounted for and the seller can move out without much repurcussion.
    I win for getting the unit I like for fair value.
    The seller wins for being able to get out the place.
    The Realtor wins for getting a commission.

  10. Posted by unwarrantedinlaw

    Any child knows what a double dip looks like. It’s not honest to insist that prices have been plummeting and then say, well, um, there is going to be a double dip.
    Recently I bought a building in the central valley for 100k that had sold in 2007 for 485k. That is what a real estate drop looks like, not the measly examples of 10-20% drops that we see here.

  11. Posted by polip

    kjhjkwhatever
    the Fed’s policy paper is for cramdowns as part of bankruptcy proceedngs, with the residual 200k in ‘value’ of the loan then becoming an unsecured debt which is then subject to the bankruptcy proceedings
    we already have what you are proposing – it’s called a short sale, and they are ocurring everywhere.
    no matter what, there is a price to be paid, namely in the form of a hit to the seller’s credit scores (short sales, cramdowns as part of bankruptcy would both do this).
    When banks default on loans, as they often do, there is a small hit to their credit rating (theoretically, unless they are tbtf and backstopped by the USG of course). Likewise, the same should be true and is true of either short sales or cramdowns.
    Ex-sfer has said it many times before, but policy should have been aimed at moving real estate from weak hands to strong ones, and doing so requires a fair value market clearing price. Instead TPTB decided to prop up prices by hook and definitely by crook, hoping and praying that it would keep distressed properties in weak but still (marginally) solvent hands.

  12. Posted by A.T.

    polip, always a pleasure to hear from you.
    To add a bit, even if cramdowns were permitted, it would only be a part of a bankruptcy filing. But bankruptcy is an extremely invasive, unpleasant experience, and it is no easy out. Unless you have been extremely savvy and careful in investing your assets (or you commit criminal bankruptcy fraud and hide assets), you generally lose just about everything you’ve amassed to your creditors in a bankruptcy — all at once. It is a good mechanism for shedding crippling debts and getting a fresh start, but it is no easy way out of anything.

  13. Posted by kjhjkhk

    @polip
    Short sales are extremely illiquid since banks still do not want to acknowledge what their assets are truly worth. A cramdown would force the bank’s hand in the deal allowing fair price discovery.
    Credit rating aside, the seller still has benefit in the form of less cash burn, better job mobility, etc…

  14. Posted by Curious-Kitten

    Just to clarify, is this Morgan Stanley index for the San Francisco MSA the same as Case-Schille’s MSA.
    Because if so, hard for me to get to into it, whether it shows a dip or a move up. That MSA encompasses way to large of an area to glean any info on the SF market, in my opinion.

  15. Posted by thedude

    unwarrantedinlw i agree with your central valley example as being a good example of a real haircut. i own multi-family in sacramento because the cash flow is unbelievable and has been even more compelling in recent years with values getting smashed. it’s a great time to play if you’re a contrarian. after what i’m seeing in so many other markets i play in, san francisco seems like a bedrock as far as values and price stability. not to say it’s not facing some headwinds but it seems as sturdy as anything else i’ve seen out there. haha sorry for the disjointed message. i guess i didn’t really have any point. thanks for all the SS info! love this site, you guys rock.

  16. Posted by thedude

    just read my message. it sounds like mike tyson wrote it. my apologies and i’ll spare you from further stream of consciousness writing. stay in school kids.

  17. Posted by Hyperlexic

    I’m with curmudgeon in not even understanding what this chart purports to show.
    I assume the y axis is supposed to be price changes (though it isn’t labelled).
    But what is measuring? Paired-transaction like case-schiller? Or overall market average?
    Either way, it seems like separating into mix would be extremely confusing.
    E.g., assume you have a typical flip – a property that was bought in 2008, sold last year as a REO (for 30% under the 2008 price), then flipped and resold this year as a non-distressed (for 10% over the REO price.
    Then assume you have another identical property, except it was bought in 2008, then sold non-distressed this year at 20% under the 2008 price.
    Both end up (more or less) with a 20% drop 2008 to 2010.
    Both case-schiller and overall market average would treat these more or less as the same net net between 2008 and 2010. But it seems like this mix approach would hopelessly confuse the situation.

  18. Posted by noearch

    well, ok. if you say so..Noe Valley is double-dip
    PROOF.

  19. Posted by hangemhi

    holy bat turds am i confused. in one paragraph they say “Real estate owned (REO) properties are flagging in popularity and this is pushing prices up.” and the next says “and REO liquidations up 20%”
    wtf? can someone please explain the chart and the report?
    as for questioning case shiller – duh, bulls having been dissing it out for years, bears have recently gotten around to dissing it, and now we have an analyst doing it. who is next? Cramer?

  20. Posted by Skirunman

    Here is another viewpoint:
    http://www.callumhutchins.com/2010_July_Update.pdf
    “Looking at the numbers on the opposite page, median prices are up 2.5-5.5% versus this time last year, yet balancing that are the flat price per square foot figures. This is in line with the 0-5% appreciation I called for at the beginning of the year…”
    No, I am not pimping for Mr. Hutchins, but just one of many emails I get from various real estate sources, including agents, that has some data of potential interest.

  21. Posted by tipster

    I think what the chart is showing are YOY change in prices for each of three types of sales: REOs, short sales and regular sales. Down is bad. It means prices are lower than they were last year. Each color represents a different kind of sale: REO, Short Sale or regular non-distressed sale.
    If you follow just the blue bars, you can see the regular sales starting out very negative YOY in June of 2009, trending towards flat, then breaking above zero % and now falling again. As of May, the blue bar shows prices are falling about 2% YOY, though overall, if you drew a line at the outermost portion of the blue bars, it looks like a sine wave that rose and is now heading down.
    The orange bars show short sales. Short sale prices have always been falling YOY, and they came close to flat in March 10 and Apr 10 but now they are falling more sharply.
    The only thing that is doing better is bank owned, or REO. The banks are getting smarter, and face it, if you can sell a few second mortgages to fools, that helps. But since those sales are flagging, i.e. representing a smaller amount of the mix, the total trend for all three types of sales overall is down.
    What it appears that Case Shiller has done is to assume a higher mix of foreclosure sales than has been the case. Apparently they separate out these same different types of sales, then they remix them based on a model rather than the actual percentages of each type of sale. Because foreclosure sales prices are up YOY, and their model shows a higher percentage of foreclosure sales in SF than is really happening, the price indices are being distorted.
    What seems to be the issue is that they use a nationwide mix model of what percentage of each type of sale is occurring, while some areas like SF have a completely different mix. They need to reduce the impact of foreclosure sales in SF to more accurately identify the change in house prices. That will cause their mix to emphasize the types of sales that are falling and will cause the CS for SF to show a lower number, or even a drop, as opposed to an 18% rise (which by the way, I noted last week was RIDICULOUS!).
    Thanks, tipster. You’re Welcome.

  22. Posted by FormerAptBroker

    Unwarrantedinlaw wrote:
    > Recently I bought a building in the central valley for 100k
    > that had sold in 2007 for 485k. That is what a real estate
    > drop looks like, not the measly examples of 10-20% drops
    > that we see here.
    Then thedude wrote:
    > unwarrantedinlw i agree with your central valley example as being a good
    > example of a real haircut. i own multi-family in sacramento because the
    > cash flow is unbelievable and has been even more compelling in recent
    > years with values getting smashed.
    Like thedude I own multi-family buildings in (decent areas of) Sacramento, but I am ready to sell them and take a huge cash flow hit to buy in (better areas) of the Peninsula since I think that they will do better over the long haul (I’m making a big bet that Peninsula prices will drop more in two years than Sacramento prices). I was recently talked in to driving down to the Central Valley to take a look at some “great deals” selling for “$0.25 on the dollar” by a Apartment Realty Advisors broker (he drove and bought lunch).
    I’m not sure that they are even decent deals at $0.25 on the dollar since many areas of the Central Valley are a lot more like a bad suburb of Mexico City than a bad suburb of Sacramento.
    I speak fluent Spanish and when you combine all the surf trips, dive trips, random vacations and volunteer work over the past 25 years I’ve probably spent a full year living in Mexico so I’m not afraid of people that speak Spanish (I don’t have a single person working from me that I don’t talk to in Spanish), but the gangs and violence in the Central Valley scare me…

  23. Posted by FormerAptBroker

    Skirunman wrote:
    > Here is another viewpoint (from Callum Hutchins):
    “Looking at the numbers on the opposite page, median
    > prices are up 2.5-5.5% versus this time last year, yet
    > balancing that are the flat price per square foot figures.
    > This is in line with the 0-5% appreciation I called for at
    > the beginning of the year…”
    Callum and I are about the same age (we graduated from Cal the same year). We have never been “friends” but I have run in to him dozens of times over the years in the city and we would often talk about real estate. He is a sharp guy and I might even use him to buy or sell a home in the North part of SF.
    What everyone needs to remember that if you are selling real estate you ALWAYS need to predict that prices will rise (other than your off the record comments to your sellers that they need to drop the price and make a deal now before prices fall even further). I’m sure that there is a Realtor ® that has done it, but I can’t recall of any residential or commercial broker ever going on the record that “real estate prices will be lower next year” (it is hard to sell anything that people use leverage to buy when you are telling them that they will not have any equity in a year)…
    When I was an active apartment broker in the early 90’s and prices were dropping like a rock I was still trying to get people to buy telling them “we have hit bottom” (since I was on 100% commission and I needed to sell stuff to pay the bills)…

  24. Posted by ex SF-er

    an intriguing chart, I’ll have to read the whole report to see if I think it’s interesting or a bunch of hoo-haw.
    clearly, no number can truly represent “the market” but to date I’ve still found Case Shiller to be the best, all of course IMO.
    regardless, it isn’t going far out on a limb predicting double dip in RE given the macroeconomic picture. at best we have a “U” shaped recession forming (so-called “jobless” or “job loss” recovery), and at worst we have an “L” or a “W” (double dip)
    I refuse to make any binding prediction because as I’ve said for years now: SF real estate depends too much on Washington D.C. and perhaps Beijing. one needs to be a good political analyst to forecast anything these days since the markets are so politically influenced. the govt makes up an insane amount of RE purchases these days.
    I still only feel confident that
    -the recession and the RE pressure will drag on for years to come (at least Dec 2011, and probably a year after that now given what has been done, or not done
    I still think it will be a long time before real (not nominal) RE prices are above their mid 2000’s peak.
    But socketsite bears have been denying that prices have risen.
    I would assume I’m a socketsite bear, and I’ve readily acknowledged improvement in RE in 2010 compared to 2009. in fact, I PREDICTED it when the feds pulled out all their stops back in 2008.
    I’m sure if you google my name and “bear market rally” you’ll see something to that effect. or my name and “double dip”. I’m too lazy to look it up.
    That said, there are some uber bears who don’t acknowledge any improvement from the nadir of 2009. they are fools. I’d say a more common bearish view is that they deny the extent of recovery from the 2009 nadir, but don’t want to speak for them.
    I’m content to say that 1H 2010 had better RE valuations than 1H 2009. I’m also content to say that 2H 2010 will show significant pressure “surprising” the experts. This is almost a sure thing given the various real time data points that have been coming out the last few months.

  25. Posted by ex SF-er

    an add on to my last post:
    2011 will really be interesting.
    the slow economic growth seen thus far this year has started to scare some Very Important People. for the first time in a while I’m hearing “double dip” and “deflation” coming out of their mouths.
    Deflation scares American Very Important People more than anything else. (inflation scares German Very Important People… it’s beacuase we had the great depression and they had Weimar Germany). it was the fear of Deflation that caused and allowed Ben Bernanke to create all those programs back in 2007-8 and to start Quantitative easing (fed purchases of Treasures, and I’d argue fed purchases of MBS was pseudo-QE).
    Now these Very Important People are starting to squawk about Quantitative Easing 2. The economy isn’t bad enough yet. But given the trajectory my guess is we’ll hear more and more about it.
    These Very Important People couldn’t care less about the regular Joes. they care about other Very Important People (like banksters). Thus I’m sure whatever they come up with will be quite the doozy.
    this is why I think it’s impossible to forecast markets these days. It all depends on what the Very Important People think and do.
    this was one of the chief areas where Satchel and I disagreed. i think he underestimated the power of the US as a sovereign entity to impact markets. that is not to say I was “more right” than him. I was more right here, he was more right in other ways. I think both of us were astonished at how far the US went (and will go) to zombify our banking system.
    how does this relate to this thread? easy. It all depends where QE2 is directed. If QE2 is inadvisedly directed towards the RE sector again, I can easily see SF RE gaining in nominal terms. if QE2 is directed towards an industry that is SF specific, it may help SF RE as well. But if QE2 is directed to a different area, then SF may not do so well. also: QE2 could be directed somewhere but the effects may be seen elsewhere. We saw this as example in 2002. The Fed lowered rates hoping to reinflate the stock market, but the money went into RE instead.

  26. Posted by lyqwyd

    I don’t think there will be anything big anytime soon, we are to close to the election. Once the election is over they might start trying something, but I’m skeptical that there will be any significantly helping the banks… They are just too unpopular. I wouldn’t be too surprised if there were another tax credit for home buying, but it will be months before the discussions even start
    Personally I think home prices will start dropping again (if they haven’t started already) and that they will do so for at least 6 months: we are entering winter which is always week, there’s going to be high unemployment for a while to come, inventories are rising, as are foreclosures. I don’t see much that gives me any reason to think prices will rise going forward.

  27. Posted by djt

    Another dimension that goes unmeasured in national or even aggregate statistics is quality. Even block by block price changes don’t capture this.
    There has been a flight to quality in the area in which I live. 3 years ago, there was virtually no discount for condition, undesirable architecture, a bad layout, bad microlocation (good area but a bad lot), etc. People were panicked to buy by the perceived need to get a toehold in the market.
    Today, premium quality properties in our area in good condition sell for within 10% of their peak price. A property three doors down could sell, if not premium, for 30-60% less than the price of three years ago – if the property is sellable at all! Some are virtually worthless if the problems are unfixable or if the house needs to be replaced to fix them.
    Until there is an “indicator” like WalkScore (probably multidimensional) that captures condition; location; layout; desirability of features, etc, aggregate statistics for a small area will be inaccurate.

  28. Posted by REpornaddict

    Isn;t this graph also saying that the mix also affected things on the way down?
    and that non distressed sales never, ever got near the 40% or so that short sales and liquidations did? (obviosuly, would be nice if the graph went back further,,,)
    but it seems that those who didn;t go crazy with their purchase, were able to afford it, and sold it when they wanted to and not when they had to – never really go stung half as much as people on here suggest.

  29. Posted by sfrenegade

    djt makes a good point that is usually only stated as “good properties will still get good prices” without mentioning the flip side.
    The problem during the boom, as I’ve mentioned before, is that crap properties got good prices, okay properties got better prices, and good properties got great prices.
    Now we’re back to good properties getting good prices, although still likely bubble-inflated prices, and crap places sit on the market because people are unrealistic and still think they can get good prices.
    I’ve checked out properties in other parts of the Bay Area, just for Ss and Gs, and you don’t even have to go to the far suburbs and exurbs to find crap properties. Even in some of the near suburbs, you have things like: half-assed additions to houses that don’t mesh with the existing structure and have odd foundation work; poor renovations/remodeling with no eye to traffic flow and light; finishing attic space without doing it properly; general poor maintenance; downhill houses that don’t account for seismic issues; etc.

  30. Posted by ex SF-er

    lyqwyd, we don’t disagree.
    that’s why I wrote 2011 would be interesting, and not 2010.
    seems like your and my posts are fairly in synch.
    FWIW: I’m not saying there will be QE2. just that I’m hearing more and more about it, and assume that our leaders will want to do “something” if/when things deteriorate.
    I also agree that the public is tired of banker bailouts, but that only means the bailout will be hidden from the public. Similar to the homeowner programs that purported to help homeowners but were really bank bailouts.

  31. Posted by lyqwyd

    ex SF-er, sorry if I gave indication that I disagree with your comments. I think everything you wrote is pretty solid and makes a huge amount of sense. It got me thinking, and I just felt like throwing out my $.02.
    Your comments about a potential QE2 were especially interesting, and I hadn’t really thought about it before. I think that if there is an attempt at further banking handouts, QE2 is the most likely means, and can really be done pretty quickly if that, and that could potentially put upward pressure on home prices.
    I just recently read that banks are being paid interest on “excess reserves”, which I was previously unaware of, and seems like a perfect example of the type of banking handouts that aren’t getting much publicity, and seems to show the gov’t desire to continue back door handouts while publicly expressing anger at the bankers.

  32. Posted by beb0p

    This is based entirely on my personal experience, I have no data to back up; and I’m only talking about the Bay Area RE specifically and not the nation as a whole; but I don’t think prices are going to dip significantly. I heard similar argument at the end of 2008, people were saying “knife catchers”! I wish I had bought back then because that was the bottom.
    Anywho, just two months after the melt down in 2008, I was at an open house in Noe, a house that just slashed 5% off its asking, and there were over twenty people there elbowing me to see the house. It was sold soon after. That was when the economy was at its worst and everyone’s portfolio has taken a huge hit! Nowadays, it’s the same thing – whenever there is a good deal, you can expect a lot of people to check it out and subsequently multiple bids. I kept waiting for my competition to go away and it’s not happening. Whenever the asking price is below market, buyers jump in and bid them back up. A house in Walnut Creek came on the market about two weeks ago, about 5% below market. Before I could see it, it was sold – just three days after listed. I’m willing to bet the accepted offer is over asking.
    So my experience is that buyers are too impatient to allow the RE prices to drop significantly. To believe that there is a double dip, you have to believe that buyers will remain on the sideline when prices begin to drop. That does not jive with what I’m seeing out in the field. What I’m seeing is that when there is a bargain, a bunch of buyers will fight over to get it; thereby supporting the bottom.
    Has the re market slowed since the credit expired. Certainly. Is the re price going up any time soon? Doubt it. But I just don’t see how there will be a significant dip unless there is another economic meltdown.

  33. Posted by Alpha

    FormerAptBroker, just reading the comments now and am curious about your statement: I’m making a big bet that Peninsula prices will drop more in two years than Sacramento prices.
    Why would you be looking to buy on the Peninsula now if you believe this? Or did I misread your comment? Thanks – interested in your insight.

  34. Posted by lyqwyd

    Even in the worst market, unless there are absolutely no buyers whatsoever, a good property at a below market value offer price will get bid up.
    But as mentioned above, a few years ago, even crap properties were getting bid way over asking, and now those properties are not even selling whatsoever, which is a sign of weakness.
    I guess it really depends on what you mean by significant, are prices going to drop by 50%? I don’t think so, but 10%? I think that’s quite likely, but perhaps that not really significant.

  35. Posted by beb0p

    Thanks for the reply, lyqwyd. Yes, I do think 10% is significant in SF. On a million dollar house, 10% is $100k, that’s a lot of money to most people. I personally don’t think it’ll drop 10%. My observation is that enough buyers will jump in to the support the bottom before it ever reaches 10%. If a 5% discount attracts multiple bids I don’t see how prices can fall to 10% discount. I think we are just going to be flat from here on out until the economy completely recovers. I can believe a 3% or so drop in the coming future if we hit some bumps on the road, more than that I just don’t see it.

  36. Posted by ex SF-er

    If a 5% discount attracts multiple bids I don’t see how prices can fall to 10% discount.
    beb0p:
    some used a similar argument during the bubble years for why prices could never fall in SF to begin with. they thought people would just jump in and buy up all properties for more than the last person. it worked until it didn’t. (this is not a knock on you, just to show that people’s behaviors can change from bull to transitional to bear market and back).
    in the end it mostly comes down to jobs, credit, and savings (I include money from parents, investments, stock options, etc in the “savings” catergory)
    so long as people in SF have either jobs, savings, credit, or a combination of the three then they can continue to bid on properties and keep property prices elevated.
    if SFers lose access to jobs, savings, or credit it will impact their ability to jump in and support the housing market.
    of secondary importance is the people’s future expectations. More people will be willing to jump in if they foresee future appreciation. less people will be willing to jump in if they foresee long term stagnant housing prices or decreased prices.
    my own personal forecast is that SF will lose some access to jobs and also savings (higher Federal and also State taxs on the “wealthy” people earning $200k and more, continued stock market struggles, continued evolution of companies like Google into mature companies that pay less, etc). however, I think that there could be considerable INCREASE in access to credit through governmental means, depending on what government does. also, if the Govt focuses it’s Easing on stocks, then that could catapult SFer “savings” through stock market gains.
    but I’m not a politician, and I’m not sure if or where QE2 will happen.
    I also may be selling SF short. SF has been an incredible locus of creativity the last 20 years. if it finds a way to be the center of the next great thing then jobs/savings will go through the roof and housing prices could follow.

  37. Posted by lol

    To add to ex SF-er’s response to beb0p:
    A bear market is an ongoing process. A discount can bring people out of the woodwork, but this doesn’t mean prices will stabilize as a result.
    Think Florida in 2007. Foreclosure buses were bringing bargain hunters to 20-30% discounts. That was “strong demand” that should have supported a bottom. Fast-forward to 2010. Many of these “investors” are underwater.
    Think also SF condo market in 2007. People lining up around the block to snatch anything at almost any price. This was “strong demand” and that should have led to ever higher prices.
    In short, there will always be “bargain” hunters. But masses are usually wrong when they forget to respect the forces of fundamentals like Buy vs. Rent or Price vs Income Level or pure RE’s lack of liquidity among other basic principles that were quickly glossed over in 2002-2008.

  38. Posted by sfrenegade

    Re: “I’m making a big bet that Peninsula prices will drop more in two years than Sacramento prices.”
    Here’s some interesting data on “high net worth individuals,” which means that one has “investable assets of $1 million or more, excluding primary residence, collectibles, consumables, and consumer durables.” San Jose MSA (5.9%) has a lot more of these individuals on a percentage basis than SF MSA (3.9%):
    http://www.us.capgemini.com/news/current_news.asp?ID=840
    Of course, SJ’s metro area is a little more concentrated than SF’s metro area, but it’s an interesting data point, especially since some of SF’s live in places like Marin County, Southern San Mateo County, and the nicer parts of Alameda and Contra Costa Counties. SF MSA is a little lower than NY MSA (4.3%) in percentage and a little higher than Washington DC MSA (3.5%) in percentage. These 4 cities are a step above the others in the top 10.
    It also gives some data on how many more high net worth individuals there are in these cities from 2008 to 2009, for people who like the idea that SF prices have a loose correlation to the stock market.

  39. Posted by sfrenegade

    It’s also worth noting that, despite the recover from 2008 to 2009, SF’s high net worth individuals as of 2009 is still lower than the peak in 2007. San Jose’s number for 2009 is up quite a bit from 2007.

  40. Posted by beb0p

    ex SF-er and lol. I appreciate you guys’ input. Yes, the bubble years were crazy. And yes, a lot of buyers jumped in in 2007 and are now underwater. The economic melt down took care of the bubble. That’s why I said RE probably won’t drop much more UNLESS there is another melt down on the horizon. And I don’t believe there is. At least not until we create another bubble somewhere in the distance future.
    And since I believe no economic catastrophe is coming, it’s hard for me to rationalize why RE would dip by 10% or more. When it comes to this economy, I truly believe we’re slowly but surely bouncing back. And I am seeing signs of it. Many tech companies are hiring like gangbusters now. It wasn’t like pre-bubble times but it’s a long way up from 2008, early 2009

  41. Posted by badlydrawnbear

    Fannie Mae: REO Inventory doubles, expected to increase “significantly”
    On house prices, Fannie Mae “expects home prices to decline slightly for the balance of 2010 and into 2011 before stabilizing, and that home sales will be basically flat for all of 2010.”
    http://www.calculatedriskblog.com/2010/08/fannie-mae-reo-inventory-doubles.html

  42. Posted by lyqwyd

    @beb0p
    Housing prices are fairly weakly correlated to the economy, and tend to lag my many months, to several years. So the economic catastrophe that you are looking for is the one that already happened, and in many ways is still happening.
    It often takes years for the economy to fully impact the housing market, and especially with the massive tax incentive that only recently expired, the effects of the great recession are still very much impacting housing. The question is not really what else is there that can prevent a recovery as much as what else is there that can prevent a continuation in the drop in housing prices.
    I will say a caveat: I only stand to benefit from a continued drop in housing prices, so I could be letting my judgment be colored by my personal interest.

  43. Posted by FormerAptBroker

    Alpha wrote:
    > FormerAptBroker, just reading the
    > comments now and am curious about
    > your statement: I’m making a big bet
    > that Peninsula prices will drop more
    > in two years than Sacramento prices.
    > Why would you be looking to buy on
    > the Peninsula now if you believe this?
    > Or did I misread your comment? Thanks –
    > interested in your insight.
    I was not real clear, sorry…
    I plan to hold the two apartment buildings in Sacramento until 2012 since prices in Sacramento are close to historic cap rates and GRMs. I’m hoping that Peninsula prices will be much lower in 2012. The Peninsula is still in bubble land with cap rates and GRMs way above the mean.
    While there are a lot of high net worth individuals on the Peninsula they are not renting apartments and the “great recession” has Peninsula apartment and rental home rents dropping faster than Sacramento rents (my parents own apartments and rental homes they bought in Burlingame and San Mateo in the 70’s and 80’s).

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