One Percent Down In 2004 (And Perhaps
September 7, 2010
More Down More Since)
In 2004, the Cow Hollow condo at 2382 Union sold for $759,000 and was purchased with a variable rate first mortgage for $599,200 and a fixed rate second mortgage for $149,800. Yes, that adds up to just over 1 percent ($10,000) down.
The two-bedroom unit without parking in 94123 is now back on the MLS as “bank-owned” (although we can’t confirm) asking $679,900 with a kitchen that has since been remodeled (with “stainless steel appliances”) and a “wine cellar” in the works.
Speaking of condos in 94123 (which includes the Marina and Cow Hollow), so far in 2010 the median sale price weighs in at $1,200,000. That’s up 24 percent from 2009 ($965,000) and within just 2 percent of its peak to date of $1,219,000 in 2007!
Unfortunately, the median size of condos sold in 2010 (1,525 square feet) is also up over 20 percent from 2009 (1,270 square feet), up 12 percent from 2007 (i.e., the mix of sales has changed). And on a price per square foot basis, so far the median in 2010 ($760) is down 1 percent from 2009 ($768), down 17 percent from 2007 ($921).
In 2004 the median size was 1,290 square feet with a median sale price of $713 per square. Keep in mind that smaller units tend to yield higher per square foot prices.
∙ Listing: 2382 Union (2/2) 1,000 sqft – $679,900 [MLS]
∙ Medians Are Up, But Don’t Confuse That With Increasing “Prices” [SocketSite]
Comments from Plugged-In Readers
Not to mention, refi (and/or HELOC) activity in Feb. and April of 2007. Sure hope she ‘saved’ that $10k; WaMu was involved so I shouldn’t fret…
Pardon my ignorance but if this is bank owned who is doing the reno? I was under the impression that these types of properties were usually sold as is.
and there is the “real sf” argument at work. Buyers are getting more for their money than in 2007 – but still spending at peak levels. not true in south beach where both prices and price per SqFt is down.
as for this REO – it looks under priced. another Cow Hollow condo was under priced – 1988 Greenwich asking $879k got over 20 offers with several over $1 million. No one is able to see 2382 Union ST yet so who knows, but it sure looks cheap on the face of it. So don’t get too excited about some 2004 apple until it sells. speaking of apples – in 2004 it says it was remodeled. so maybe the former owner stripped the place before the bank got it – banks do fix up (with the help of their agent usually) on occassion
Boy, you got that right about south beach. Check out this Metropolitan condo whose opening listing price is 30% under what the current owner paid — in 2005!
I really feel for the sellers all over the city. How do you compete with people who are pricing their places for sale so aggressively? I guess you cut your price to the bone and then some?
$700/sf is not a good deal by any measure. Plus they call it “luxury”! This unit is a bland box with blah generic carpet. $250K would be a fair price regarding rental equivalent but some reckless buyer will surely jump on the instant (n)equity and put his 5 years of savings in first loss position.
i don’t think 250k is anywhere close to fair price. what do you think the place at the met would rent for? 250k with 20% down is $1000/month the $650 HOAs bring it to $1650. You may be able to get a 1bed in the TL for that price but it won’t have parking/gym/pool/doorman/etc…
i think the place would rent for around 2,500/month which implies around 450k.
no argument on the “luxury” aspect of the interior of that condo…
Says the Metropolitan condo is an REO. As happened elsewhere, foreclosure prices are starting to become “the market” in SF.
Someone doing the “fair value” calculus on this place will have to do some thinking. Yao is right that the “net monthly payment to own” vs. monthly rent suggests a price of around $400k-450k. But once you factor in an expected term of ownership (5-7 years for a little place like this?) and the substantial selling costs, the “fair” value goes down. Factor in the likelihood of selling into a higher interest rate environment, and the “fair” price declines further.
So back-of-the-envelope, if you plan to live there a while then sell and move up, $300k sounds about right. If you plan to buy and hold for the loan term, then maybe $400-450k would work.
yao, did you forget property taxes.
“as for this REO – it looks under priced. another Cow Hollow condo was under priced – 1988 Greenwich asking $879k got over 20 offers with several over $1 million.”
At $680/sqft (the list price of 2382 Union), 1988 Greenwich would be around $1.09M. That sounds close to what you’re claiming as the pending sale price. As an REO, I’m not sure if that bodes well for 2382 Union, but smaller units do typically have higher PPSF, as the editor pointed out.
Btw, doesn’t it seem odd to have a wine cellar in a 1000 sqft 2/2?
It’s a bit small for 2500. Then again it does have some amenities. It doesn’t really matter. My estimate still works out with 2500 though. Let me explain.
Your response does contain a very important element:
250k with 20% down is $1000/month
Flashback to “normal” times (7-8% 30Y fixed), a 200K mortgage would historically cost 1500/month. It might not matter today at government-subsidized rates, but at time of resale it will. If you sell in 2030 and rates are 8% then, your buyers won’t care if you had yours at 4%. They’ll price their offer accordingly. Plus, what if you have a big expense and need to refi? You are overpaying because of the lower rate, just be aware of it. Of course appreciation might save you. Might.
The mortgage payment is not at the top of the list in rental investment. How much you pay for a place matters much more in the sustainability of the rental business model.
Then you add HOA fees, prop taxes, AND everything else a renter will NEVER pay or at least directly:
– Regular paint job
– Replacement of appliances, fixtures, finishes
– Building special assessments
In itself, this is probably an extra HOA bill when averaged over the lifetime of your ownership.
Also, the opportunity cost of 50K, if minimal, cannot be discounted. Banks will give you 1% today, but maybe they’ll give you 5% tomorrow like on long term CDs 3 years ago.
A landlord lifetime is not 2 or even 5 years. It is 20-30-40+ years. All these costs WILL come up and have to be accounted for. A renter doesn’t have to worry about any of these.
Millions lost their homes in the past 4 years because they extrapolated an exceptional situation into the future.
Hope for the best, but plan for the worst as they say… And never overpay for property because of a flawed model.
true, there are property taxes and insurance, but with a mortgage and a job, there are also interest deductions. thanks uncle sam!
selling costs are definitely a big cost and something i did not consider.
it all depends on how long you hold (duh). in the long run, i’m not gonna bet against inflation–which is what will raise rents and thus housing prices eventually. 2~5 years may not raise rents prices, but i’d be surprised if any 30 year window in recent history saw lower or equal nominal rents at the end of the period.
“but with a mortgage and a job, there are also interest deductions.”
Paying $1 in interest to save between 25 and 35 cents in taxes isn’t always a good decision. People need to think more critically about tax deductions than they do. There are some cases where this makes sense and others where it doesn’t. If you are planning on a short holding period, a vague idea that there are tax deductions may not save you. The AMT tends to wipe out property tax deductions, so you can’t always count on that.
yao, it depends on what scenario we’re in.
A buyer in the “US 1970” option will be a winner 20 years after.
A buyer in the “Japan 1989” scenario will be a loser 20 years after.
An other factor to consider is rent control. It will not apply to this property, but who knows what the supes will come up with in the future? For pre-1979 buildings, inflation will not automatically save a bad rental investment in the long run. Appreciation might.
At $400K, deducting for taxes, etc, you’re about $2200. This place would rent for $2600. That leaves $5000/yr to pay your move out fee to the realtor, so including assessments, after 5 years you are at break even if you can sell it for what you paid. These places are dated already, so plan on $40K to update the kitchen and bath while you are here for 5 years. So we fall to $360K.
Japan real estate dropped for ten years, even with zero interest rates, so expect this place to to drop over 5 years. I’d say this place is fairly priced at $300-325K.
But there is no intelligence test for real estate. Someone will pay much more than that. This year. Next year, as the realization that real estate prices continue to sink, and anyone buying will need to factor future price depreciation into the equation, it could happen.
The good news is the days of buyers paying *679K* are over. No one has to compete with them any longer.
Which is why there were only about 20 offers for Greenwich St @ $458 psft. When you hear of 20 offers, it means 18 were at or below asking and two or three were really in the ballpark of the sale price. That means there are 20 people still holding out for $458 psft or less in the Marina. And once they find a place for $458psft (or they head to the East Bay where $900K gets you a house in a great school district on half an acre 20 minutes out of SF) the price will go lower still.
The big losses started in SOMA and then spread to the real SF, as much as the realtors and owners protested it would never spread there. Without the government propping them up, prices are heading down again SOMA and so you’ll see that bleed through to the real SF too, soon enough.
Something that always gets on my nerve is that rent/own calculation that a landlord will want to break even.
Nope. A landlord wants to make a buck, and get some reward for the risk of allowing someone else in his property.
Of course some landlords will accept break-even of even some loss, but not over a 30-Y mortgage. Real landlord investors will not make a 30-Y loan. They’ll go for a much shorter period like 10 or 15 years. I have even seen 5-Y in very depressed areas (try Merced).
Landlords that count on 30-Y mortgages are going for the appreciation and will use rent for cash flow. I call that speculators.
Paying $1 in interest to save between 25 and 35 cents in taxes isn’t always a good decision.
but we are comparing $1 dollar in interest vs. one dollar in rent, where it is a significant savings.
That means there are 20 people still holding out for $458 psft or less in the Marina.
the same situation exists with sellers… not sure what point you are trying to make. the only price that matters is the market clearing price, which is the price that a house sells for.
A landlord wants to make a buck, and get some reward for the risk of allowing someone else in his property.
totally true. only crazy landlords are willing to pay to have someone live in their place. if the deal can be cash flow positive though, i think it can be a good idea since rents will increase and the landlord builds equity along with the possibility of appreciation.
do you guys think that rents will decrease further? as a renter, i would enjoy that. traffic on the 101 seems to be getting worse though.
lol – landlords will also accept a break-even or less than profitable purchase at the current rates under the assumption that rents will eventually rise and produce a profitable property. The expected profit horizon varies from landlord to landlord. I don’t think that there are any rental properties selling these days that are profitable for the first year, yet they do sell.
“if Japan, then SF” is untenable
Dunno about where rents are going. The rule of thumb is where are wages going, because there’s a mechanical dependency between the 2. Global wage arbitrage is not of favor of the US. For SF this will be a bit different as long as we have innovation that creates jobs that are not oursource (yet). I think we’re going to have an expansion of the chasm between haves and have-nots, both in wealth and salary.
– People whose jobs can be shipped out or that do not cater directly to the haves will see increased pressure.
– The lucky few that at the forefront of innovation and decision making will do OK.
I am not sure SF will be all “haves” though. Many of SF current average jobs are at risk today, some of it in tech.
“if Japan, then SF” is untenable
Ah, fluj… I am pretty sure your comment is not so much about the core of the issue than it is about trying to refute an idea that would scare all potential buyers. Saying “Japan” at an open house is like shouting “fire” in a theater.
Actually, the global arbitrage comment does apply on the Japan vs SF.
Japan deflation happened after a huge asset bubble built on the premise of forever growth/appreciation. China took over as the core of global growth. Whatever Japan’s growth could have been in the 90s and 2000s, most of it was taken by China. Take electronics. Most of it in made in China today, replacing Japan in manufacturing. Japan kept the design part, but the end result is no growth in Japan and exponential growth. Of course the US hasn’t seen any of this shift as electronics had already moved out of the US in the 70s and 80s. US electronics is often designed to be manufactured in China from the get go, bypassing Japan.
“the only price that matters is the market clearing price, which is the price that a house sells for.”
That is not really correct, although it is the way realtors will usually spin things (not saying yao is a realtor). It is true that a single property clears where one buyer and one seller agree on a price. But that is not “the market.” In hot times, 20 would-be buyers would overbid. While only one got it, the other 19 went off to bid similarly on other properties, thus driving up “the market.” Now, more typically, nobody bids on a place or one party does. Tipster’s point is that even in “multiple bid” cases almost all bidders are offering less than list. So while one buyer gets that place, there is no impact of 19 other buyers fanning out to bid up prices anywhere else.
“but we are comparing $1 dollar in interest vs. one dollar in rent, where it is a significant savings. ”
But you can’t say that that’s meaningful out of context. This is why I recommend missionite’s calculator to people because it accounts for all the costs and benefit without the spin and the vague generalities. People love saying in the abstract that “buying a house gives you tax benefits,” but that’s a meaningless statement without context and specifics.
“The expected profit horizon varies from landlord to landlord. I don’t think that there are any rental properties selling these days that are profitable for the first year, yet they do sell.”
There are probably a few cashflow-positive places in outerlying areas, but they get snapped up fairly quickly. For example, I would bet that many slumlord-type properties in Richmond are cashflow-positive, but you have to be willing to do the work. I agree that you need to work out the timeline and the numbers, and different landlords have different tolerances.
What surprises me the most are landlords who don’t make adequate profits from real estate, given the risks. A lot of people just don’t bother doing the math, which is shocking to me. A lot of people assume 100% occupancy, which makes no sense. I have found that the best rental property investors tend to have 15 year loans, like lol said.
Btw, renting should always cost more than buying because of shorter holding times and reasonable profit for the landlord, although distortions in the market can cause the reverse sometimes.
“Saying “Japan” at an open house is like shouting “fire” in a theater.”
No, it would be more like nothing.
That’s probably true because the sheeple frequenting open houses today are likely no geniuses and as a good real estate professional, fluj understands that.
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