Perhaps not as dangerous as some bad LSD, but there’s some bad data being passed around San Francisco by a brokerage or two with respect to market distress. Or more accurately, the reports appear to be missing the context which would allow one to understand what’s actually happening in the market.
As quoted by a reader, 37 percent of listed distressed sales last year were in “D10 (Bayview/Hunters).” Here’s the missing context: while 39 percent of San Francisco foreclosures last year were in District 10, that’s down from 48 percent in 2009, and down from 58 percent in 2008. And the current percentage of pre-foreclosure activity in San Francisco that’s concentrated in District 10? That would be 34 percent.
That’s right, what was mainly a District 10 problem just two years ago is now mostly not. And as an aside, the percentage of District 10 foreclosures in Bayview and Hunters Point has slipped from 44 percent in 2008 to 33 percent last year as foreclosure activity moved west. But never mind that, it’s much easier to dismiss the data as irrelevant to the rest of San Francisco when framed as “37 percent in Bayview and Hunters Point.”
At the same time, while recorded foreclosure activity in California actually declined from 2009 to 2010, it increased in San Francisco as the number of foreclosed upon properties quadrupled from just over a hundred in 2007 to over 450 in 2010, up 28 percent from 2009. And the number of cancelled auctions in San Francisco – which often simply represent a delaying of the inevitable – has increased by a factor of eight over the past three years, from just over a hundred in 2007 to just under nine hundred in 2010.
In terms of where foreclosure activity currently stands in the second week of January (and despite both official and unofficial winter and holiday moratoriums), there are currently over 600 San Francisco properties in pre-foreclosure (again, 34 percent of which are in District 10) and almost 700 properties with auctions currently scheduled, keep in mind that roughly 66 percent of scheduled auctions ended up being cancelled last year.
you are really STICKING IT TO THE MAN!
and i think we all know who the man is.
i love it. keep up the good job, ss.
[Editor’s Note: Honestly, we could care less about “sticking it” to anyone. As always, our main concern is to ensure that SocketSite readers remain the most plugged-in with respect to what’s actually happening in the market and maintain a leg up when it comes to making educated decisions about buying, selling, holding, building, renting, or remodeling real estate in San Francisco. Regardless, cheers.]
Awesome stats. Thank you, editor.
450 foreclosed on properties is a lot. There were 4318 MLS sales in 2010 according to rereport.com. Foreclosures are more than 10% of that total.
Some of these canceled auctions are likely turning into short sales, so that’s a lot of distressed housing for SF.
They all simply overpaid.
You’re missing a lot of context too. What percentage of D10 preforeclosure acitivity translates into actual foreclosures, versus elsewhere? I think anybody, bull or bear, would think “a much higher percentage.” Regardless, even now 1/3 for one district is hardly insignificant. Also, the statement “which can simply represent a delaying of the inevitable,” is not saying anything. There are hundreds of scenarios within that statement.
[Editor’s Note: See comment below.]
I think that the main point of this article isn’t the current proportion (agreed, D10 is still a disproportionate source) but rather the trend. It started out being primarily a D10 problem. Now it is spreading to the rest of the city.
@anon — Any data to back this up? Everything I’ve seen on cure rates has been miserable. See http://www.calculatedriskblog.com/2009/08/fitch-dramatic-decrease-in-cure-rates.html
And note that this is the cure rate for loans which are merely delinquent. Loans that actually get to a foreclosure auction probably have an even lower cure rate.
The other thing to note is that D10 has almost no condos being sold (4 out of 191 condos sold in December). Even though we see tons of foreclosed condos on SocketSite, most of the sales in D10 are single family homes.
A Fitch press release from August 2009, so probably data from six months prior to that is ancient history when it comes to home retention, tc_sf. That was almost as bad as Tipster linking to the Cow Hollow neighborhood association’s guidelines as if it supported his argument, when it in fact supported mine.
What percentage of D10 preforeclosure acitivity translates into actual foreclosures, versus elsewhere? I think anybody, bull or bear, would think “a much higher percentage.”
We’ll see if we can’t slice and dice the preforeclosure data a bit, but it’s tricky to measure over (versus at a point in) time as it’s not unusual for a single property to represent multiple preforeclosure filings over the course of a year.
That being said, you might be surprised to learn that the ratio of cancelled to scheduled auctions in District 10 has increased from 47 percent in 2008 to 68 percent in 2010, two percent higher than San Francisco in general (i.e., a scheduled auction was more likely to lead to a foreclosure outside of District 10 than within last year).
@anon — The CR post summarized the issue nicely and I haven’t seen anything that indicates that cure rates have changed materially in the last year.
See the Aug 2010 data here (p16) http://www.lpsvcs.com/NewsRoom/IndustryData/Documents/09-2010%20Mortgage%20Monitor/Pres_MM_Aug10Data.pdf
Note that this is, I believe, from all loans rather then from securitized loans like the fitch report, but the cure rate in aug 10 is within a few % of that on aug 09. And less then the march 09 cure rate.
They have a December 2010 report here
http://www.lpsvcs.com/NewsRoom/IndustryData/Documents/2010%2012%20Mortgage%20Monitor.pdf
where they show cure count, but not rate. The count is up slightly but it is noise compared to the 45% average from 2000-2006.
Also note on p18 where even after a cure >50% of loans go delinquent/Forclosure/REO again within 1 year.
As I said before, if you have different data on cures I’d like to see it.
fluj is just arguing his old logical fallacy again – “your data are not perfect and therefor the underlying point must be the opposite of what you say.”
Bottom line is that foreclosures were up 28% in 2010 over 2009. Sure looks like the cure rate is worsening in SF! And if the “rate” is not worsening then that just means the gross numbers of homes falling into distress are rising even more! No positive way to spin this one. Thus, the attempts at misdirection.
SF is getting very close to the tipping point I’ve noted (may be there) in which foreclosures and short sales become common enough that they define the market and set the market prices.
THe problem with that August 2009 report is that dozens of things have happened in the interim. I’m not sure if we’re reading the same report. Page 18 does not speak to what you said it speaks to. I’d point you to page 24 of the December report you linked to. It’s clearly not all bad, in summary.
SocketSite- what source are you pulling your distressed/foreclosure data from? MLS? Dataquick? Some other source?
Thanks!
[Editor’s Note: We queried a third party data base of individual foreclosure records, neither the MLS nor Dataquick would be able to provide the data we needed for our analysis.]
AT, even your paraphrasing skills are weak.
Oh, I think I had it right.
So tell us, fluj, what was your point in mocking tc_sf’s data reference and stating that it was like another post that was presented for one purpose but actually supported your position?
I’ve changed my position slightly from my earlier days on SS where I would have lumped myself into the bear category in so far as I felt pretty confident we were at unsustainable levels. My standard prediction at the time was that 2 main factors were going to cause the unwinding of the bubble. And those were #1) Foreclosures/Short Sales and #2) Owners with lots of equity that could bear to sell at market pricing. There is technically a third factor that I’m seeing more that I would have guessed, and that is the class of extremely wealthy owners that will just take the financial loss. I’ve seen probably a dozen of those over the past year and that is on a casual basis so I’m sure there are more out there.
What I think a lot of people are missing is that while we’re seeing Apple stats clearly demonstrating 2006 – 2001 pricing levels situationaly, these are not horrible comps for the market in general and 1996 – 2000 owners are still doing quite well. I’m fairly surprised to see the strength of the market considering just how bad it really is out there. The market IS being defined by my #1/2/3 predictions / observations and there ARE buyers for these properties.
Everyone’s favorite bear Tipster is on record calling for broad 1996 pricing, but I’m sincerely not convinced that is the direction we are headed. It’s hard to predict but I don’t envision our Administration to let housing get much worse given the upcoming election. So that is 2 years of virtually guaranteed interest rate stability at 5-6%. And the economy is doing quite fine as well and other than a looming (and growing) debt to China there doesn’t appear to be any major road blocks in the way for further economic growth , or stability.
We’ve seen lots and lots of high end comps out there that demonstrate that there are buyers willing to fund home purchases at high end levels. And we’ve seen some major down comps. Yes, we will continue to see more downward trending but I suspect we will also see some more high end / top end comps as well. This duality is helping to keep SF Real Estate in demand.
The overall point is that homes are still selling and there remains a healthy market for SFRE. Foreclosures are having their impact but those are selling as well. Bank owned short sales are closing. Homes appropriately priced are selling. And buyers clearly have the upper hand which is a very good thing since they are setting these prices. Are homeowners taking a beating, in most cases, yes. Are homes selling less than they would have a few years ago, absolutely. But homes are selling and setting comps.
My latest point of view is that we’ll probably see a downward trend over the next few years as the foreclosure activity works its way through but I just don’t think we’re going to see another major ‘double dip’ back to 1996 pricing unless interest rates jump up to 8-10%. And inflation is most likely coming once we print enough money to pay off our debt. I’m of the opinion that housing is a decent hedge against inflation.
We all look back now and think how smart we would have been to buy in 1996-2001 and sell in 2006-8 and start renting. So if you did that and took a massive 100% gain, what would you do NOW in 2011? I’d love to hear what LMRiM would have to say about this scenario anecdotally.
Anyway, I don’t claim to have a crystal ball, but I do think a fair & balanced alternative / perspective is helpful. I personally enjoy the strong defensive positions taken on SS but I lose interest when it gets personal / offensive.
Peace.
I explained my point. Dozens of things have happened in the world of home retention since that data was collected two years ago. No, your paraphrase has me going as far as saying, “the opposite,” when I pointed out his data is dated and maybe not relevant. Why? Why go that far? You always go so far with your words on here and it doesn’t serve you well. You think people check for a guy’s paraphrase when the guy is always being so incorrect and extreme? Unlikely. Probably earn some trust first. Then start playing around with other people’s words.
@anon — Dozens of things have indeed happened since August 2009, but I’ve seen no evidence that a material change in cure rates was one of them.
Regarding the graph on p18 of the Aug 2010 report labeled “Status of 90+ Cures as of August 2010” with the y-axis “% of total” and the x-axis “Month of Cure”, my read on this graph was that each bar on the x-axis labeled by a date represents loans that were at 90+ delinquency but were cured in the month indicated. The length of the bars for that month indicates the percentage of those loans that as on August 2010 are Delinquent, have a Forclosure initiated or REO/Post sale.
Looking at the bar for August 2009, which are loans that were cured 1 year prior to when the graph was made, the three bars stack to about 55%. Hence, >50% of cured loans were going delinquent, Forclosure or REO within 1 year.
The summary title for the graph seems to confirm this interpretation, along with the tidbit that many of the “cures” recently have been loan modifications which subsequently fail at high rates.
“Modification dominated seriously delinquent cures remain at greater than 50 percent delinquency a year after cure (excludes liquidated loans / service transfers). ”
Regarding p24 of the Dec 2010 report,
“November Month-End Data: Conclusions
• Delinquency rates are down across all products as more loans entered foreclosure and new delinquencies declined.
• Foreclosure inventory increases are being driven both by elevated levels of foreclosure starts as well as a very limited amount of foreclosure sale activity.
• Seasonal trends were reversed as both newly delinquent loan rates and self-cure rates improved.
• More six and 12 month delinquent loans are moving to foreclosure, but the extremely delinquent category continues to grow.
• Refinance activity continued to be strong in November, GSE prepayment rates are at the highest levels in the last two years.
• Origination activity remains close to 2010 highs with the government percentage declining.
• Early payment defaults on new originations remains very low with improvements across all credit score bands for non-FHA product. FHA improvements are more subdued or non- existent within credit score bands.”
I see nothing here which would contradict cure’d loans having a high re-default rate. If the “not all bad” comment was referring to the improved self-cure rate, look at the cure count graph on p12 Dec2010. Remember that the 2000-2006 average cure rate was 46%
TC,
The way you first wrote it you had me looking at p.18 of the Dec. report. Now I see your point.
A few things. Where does new delinquency end and foreclusure gains begin? What are the nature of the loans in the loan mods? And back to my first point, which is essentially, “who has a better chance of rectifying preforeclosure properties, D10 buyers — who hindsight has shown us used less money down loans more per capita — or the rest of the city”? I think that question stands. You made a case for the national scene, and I thank you for that. It’s obviously a huge problem and I hadn’t looked at those reports in probably about six months.
Page 9 of that 12/2010 report that tc_sf sent is interesting. Option ARM foreclosures are up 400+% since 2008. But more importantly Agency Prime and Jumbo Prime foreclosures are up 500+% and 600+% respectively since 2008.
The latter two categories still have a relatively low foreclosure percentage, but the real story is that Jumbo Prime has diverged from Agency Prime. Whereas before they were closely tracking each other, Jumbo Prime is now about twice as likely to foreclose, and on page 7, Agency Prime is dropping in delinquencies, whereas Jumbo Prime is not.
As I mentioned in another thread, Option ARM foreclosures are worse than subprime now, even though delinquencies are lower (at 20% instead of 29%).
“Any data to back this up? Everything I’ve seen on cure rates has been miserable”
Yeah, re-defaults, even on modified loans, are quite common. More than half of the people in HAMP flunk out, for one thing.
The OCC/OTS report (Q3 of 2010) has some information on re-defaults after modification:
http://www.occ.treas.gov/publications/publications-by-type/other-publications/mortgage-metrics-q3-2010/mortgage-metrics-q3-2010.pdf
On page 34, you can see that recent vintages of modifications are doing better than prior modifications, but the effect seems to be leveling off. 1/3 of people who had loans modified in Q1 of 2010 were 30+ delinquent after 6 months. This compares to more than 40% for those modified in Q3 of 2009 and 47.5% in Q2 of 2009. It looks like the number could easily be 40% re-defaults after 12 months out.
On page 36, it’ll be interesting to see how 2010 modifications do for various categories of loans. In 2008 and 2009, portfolio loans (i.e. those where the servicer was the party who held the loan) did a lot better in terms of redefaults than non-portfolio loans (about 40% vs. 60% in 2008, and about 25% vs. 50% in 2009). This is entirely predictable, since a bankster holding a loan would be more likely to do due diligence on it. Nonetheless, the differences are quite a bit closer in 2010 thus far, and Freddie Mac is performing similarly to portfolio.
@anon — Re-reading I see I was unclear as to which report I was referring to.
Regarding my original point, I was trying to indicate that cure rates were so low on an absolute basis that any relative difference between D10 and the rest of SF would not cause much of a change in foreclosures on an absolute basis.
Also, by looking at the cure count for loans with an initiated FC you can estimate the cure rate for these loans and see that it is much lower then the overall rate. It seems reasonable to infer that loans which actually hit auction will have an even lower cure. (Note that the cure count graphs may have different y-axis scales for 1-2month vs everything else. This is indicated on the graph but may be missed with a casual glance.)
Additionally as SFRE points out, with option ARMs now performing worse then subprime I’m not even sure that D10 would have much of a worse cure rate then the rest of SF. But as I only have national data, this is more conjecture then the argument about overall cure rates.
Now given that this is national data, it is possible that SF has a higher cure rate then nationally. But as the Fitch report points out, CA in general was doing worse then the nation at the time of the report.
The general problem is that with people on average going ~15 months delinquent before a foreclosure sale you can end up with quite a pile of back payments and fees that must be paid to make a loan current. For a $1M loan this is probably about $90k in back payments. Probably over $100k with fees. Even if someone’s income situation is restored, this could be quite a check to write. And if someone had significant savings it’s unclear if they would have defaulted.
And back to my first point, which is essentially, “who has a better chance of rectifying preforeclosure properties, D10 buyers — who hindsight has shown us used less money down loans more per capita — or the rest of the city”?
And yet the percentage of San Francisco foreclosures within District 10 has dropped dramatically and homes for which a notice of trustee sale had been filed were more likely to be foreclosed upon outside of District 10 than within in 2010.
We’ll also note that while the absolute number of foreclosed upon properties within San Francisco increased 28 percent from 2009 to 2010, within District 10 the increase was only 4 percent.
“We’ll also note that while the absolute number of foreclosed upon properties within San Francisco increased 28 percent from 2009 to 2010, within District 10 the increase was only 4 percent.”
good observation
I agree with everything eddy said.
The future looks pretty good for the Bay Area for one simple reasoning:
A – Many people still have good paying jobs thanks to runaway innovation. This is the right place and the right time to be here.
B – The future real estate purchases of these people will probably be at a lower cost and pricepoint than 2006-2008.
C – The end result: good pay and lower costs will mean more disposable income and therefore growth in businesses that cater to these workers.
Lower prices are good for the economy. It sucks for the fools who got in way over their head, but for all others it is something we should embrace.
“The general problem is that with people on average going ~15 months delinquent before a foreclosure sale you can end up with quite a pile of back payments and fees that must be paid to make a loan current.”
This is why, if you look at the OCC/OTS report, page 25, the most common “modification” for HAMP (95-100% of loans) was capitalization, i.e. these unpaid balances were added to the principal. This of course *increases* the principal balance, so it makes people more likely to default. The 2nd most common modification was rate deduction (93-97% of loans), and the 3rd most common was extension of the term (50-55% of loans).
We’ve discussed on SocketSite the 4th most common, which is principal deferral aka balloon payments (20-27% of loans). On page 28, about 20% of the Fannie and Freddie loans that were HAMP-modified have balloon payments, whereas 31.4% of private investor loans and 27.5% of portfolio loans have balloons.
Other interesting things to note on page 28:
Whereas GSA and government loans had a 50-55% term extension rate, private investor loans were only at 32%, but portfolio was at a whopping 73%. The banksters are not in any sort of mood to recognize losses and are extending and pretending. However, the banksters are allowing some principal reductions. The vast majority of principal reductions are portfolio loans (36.5% of portfolio loans that were modified received one), but almost no other loan received principal reductions, as expected.
Sure, drop dramatically it did. But it dropped to a still whopping and unbalanced 39 percent last year. Last year was a year in which subprime had already worked its way out, right? Substantially over 1/3 of the city last year and still showing over 1/3 in danger this year. I’m not saying it’s completely contained. But the trend is still anything but a balanced one especially in terms of total homeowners, citywide. And again, who has the means to work it out when faced with the danger, by and large? Regardless, the percentages are all still miniscule in SF as compared to other cities. Somebody posted an article speaking to that a little while back.
D10 had about 25% of SFR sales (53/213) in December vs. 34% of current preforeclosure in San Francisco. That’s not very unbalanced, considering this is by far the least wealthy district of the city. It was actually more “balanced” when D10 had 58% of foreclosures. Keep spinning, flujio!
As I pointed out earlier, foreclosures are more than 10% of sales for 2010 in Ess Eff. That is a very very high percentage.
I’m not spinning anything, nor do I accuse people who have differing opinions yet talk to me like adults of spinning. I’d thank you to do the same moving forward. That said, your December sales versus preforeclosure stat is relevant in what way?
I mean, you’re actually arguing that the phenomenon is contained, sfrenegade. You know that, right? How many of those December D10 sales are themselves distressed properties?
Do you even read your own posts, fluj? I posted quite a good defense of why interest rates will go up (which, again, would be uncontroversial anywhere except SocketSite), and you called it spin just yesterday:
https://socketsite.com/archives/2011/01/san_francisco_housing_inventory_starting_2011_at_a_sixy.html
And here you are, arguing ex rectum that the foreclosures are somehow mostly “contained” in D10. That’s spin! And pointing out that foreclosures in SF are lower than in other cities. More spin! You may have a differing opinion, but you have failed to support it, as usual.
Maybe I’m misunderstanding your use of the word “contained,” but the phenomenon isn’t contained and is spreading to other parts of the city. Even 25% vs. 37% still means D10 is performing better than expected and the rest of the city is performing worse than expected. I would expect almost all foreclosures to be in D10 and D3D, so 58% sounds like D10 was “balanced” in 2008, but D10 has disproportionately fewer foreclosures than expected now. The fact that the rest of the city is now catching up means foreclosures are not contained.
As for your question on D10 sales, it’s not relevant to anything I’ve said so far. Nonetheless, if you assume that the 450 were spread roughly in proportion throughout the year, then perhaps 42 properties (404/4318) were distressed sales in December. Of those, 37% might be D10, so 15.5 out of 57 (53 houses + 4 condos). That’s less than 30%, but still irrelevant.
To “contain” is to keep from spreading, isn’t that the exact opposite of what is happening and the whole point?
I will agree that the TREND isn’t balanced, it is growing at a much faster rate outside D10.
Of course interest rates will go up. I didn’t say they would not. But they will go up over time. The economy is strengthening, so it stands to reason. I was arguing with people who were speaking from a calamitous perspective. The rate climb will be much more gradual than that. And the point someone else raised about managing rates leading up to an election shouldn’t be overlooked.
Regardless, I asked you to be respectful, and now it’s “spin” and “ex rectum,” and saying that I haven’t supported an opinion, etc., when it is once again I who presents the sole differing opinion. And well reasoned, if not supported by the allmighty “data” a k a some article I dug up via Google. (That’s a joke, because TC_SF actually brought up something credible.) But well reasoned nonetheless, glance at the respectful manner in which the editor engaged me. Whatever man. Just look at the web personas whose opinions you vouchesafe when you come at me this way. They’re very, very silly, over the top, wild, and you know it.
Last, you did not answer my question. 53 sales in December in D10. How many of those distressed? I’ll wager quite a few. Not a difficult point, and not unreasoned.
Yes, the trend is growing at a much higher rate outside D10. True. Percentages indicate that. An increase from 1 to 5 in a district looks quite stark on paper.
A lot more than 5 outside of D10. Fluj, read carefully. The MAJORITY (61%) of foreclosures in 2010 were outside of D10. This is a shift from 2009 in which the majority of SF foreclosures were “contained” in D10. No spinning there…
Are you being serious?
Did Eddy really say “fair and balanced’?
Really?
What reason for optimism is there when the main ray of sunshine is the government’s commitment to prevent further collapse of the market by keeping interest rates low-ish?
Until PITI is somewhere close to the price of rent, I cannot see why anyone would buy. While prices are coming down, we’re not yet close to that point yet. Forward speculation on RE prices sounds like the worst of all bets.
I think eddy’s take on things was quite good on the factors driving the market on the sell (supply) side. But the key forces driving the market are on the buy (demand) side. Buyers are fewer in number, have less to spend, and have far less available credit than a few years ago. Whereas 2003-2007 saw lots of demand – e.g. competition among buyers driving prices up – the opposite is now true with slack demand and lots of competition among sellers driving prices lower. In such circumstances, it does not matter what a buyer can pay; all that matters is which among the many sellers offering suitable homes is willing to sell for the lowest price (simplified, of course). It all boils down to simple supply and demand, but the demand side tends to get downplayed in this industry.
This discussion on foreclosures and the impact of interest rates has me longing from a post from Satchel/LMRiM. I distinctly recall him maintaining that interest rates would have to rise for fundamental reasons – something to do with the savings rate, our need to pay back all the debt, and the idea that (paraphrasing here) if something cannot go on forever, it will end. If a significant rise in rates is still inevitable that will be catastrophic for the housing market, given how poorly it’s doing even with our current, historically low, rates.
Then again, he believed that QE was unlikely, and it’s happening. Anyone with more familiarity with this line of argument care to weigh in?
SocketSite-
“We queried a third party data base of individual foreclosure records, neither the MLS nor Dataquick would be able to provide the data we needed for our analysis.”
Why not disclose your third party database? It’s fine if it’s a pay-for-access database to which readers won’t have access to the primary data- just knowing where the data comes from can give us a bit more confidence in it.
Thanks,
PostIt
This post certainly touched a nerve. Which makes me think the distressed property information might affect people’s expectations about near to medium term appreciation and whether that will affect a decision to continue to fund an underwater property. Wouldn’t it be nice if there was a graph that illustrated how many of the owners that bought between 2004 and 2008 with little equity have just decided to walk. San Francisco is nice, but it’s nice to rent too, especially with rent control.
It has been largely a D-10, an Ingleside, and an Oceanview plus various parts of D-9 (SOMA and surrounding) condo problem. I’d like to see the numbers for foreclosures and preforeclosure activity outside those areas.
this site has made apparent to me the number of wealthy people in affluent neighborhoods who are willing to sale their house at a $300-600 thousand dollar loss rather than short sale or go into foreclosure.
that’s not happening in D-10.
I actually said “fair & balanced” – glad someone picked up on that one.
It’s easy to understand the PoV of bears and its logical to think that PITI should align perfectly with Rent versus Buy. There are a host of ‘fundamentals’ that should probably come into alignment that would make home ownership attainable. And for the most part, and in most parts of the country home ownership is very attainable and the fundamentals make sense. But we’re talking largely about Prime SF here on SS. SF along with many other super prime areas have long been out of balance with the fundamentals. SF is really one of the most recent cities to experience this deviation and it certainly rode the bubble(s) and it clearly peaked; and it is deflating quite nicely as most plugged in folks predicted. I think we can all agree on those points. The disagreement stems from just how far we are going to deflate.
I was a little more concerned when the economy and the bay area was shedding jobs. Haven’t seen much data on this recently but the tea leaves feel to me that we’re net-positive and rising on the job creation. So I’m much less concerned about that issue than I was 12 months ago. The demand-side equation IS the market right now (@AT) and I tried to emphasize that in my earlier post. I totally agree with A.T. on this point except for a few super high-end sales where we are still seeing prime / near-peak pricing, but those are the outliers.
So we’re back to the question we all disagree upon. How much further will the SFRE bubble deflate? I don’t claim to know but I believe that most people these days are making more rational decisions on their housing purchases, mostly because lenders are forcing them to do so. But the fact that we’re seeing reasonable levels of sales activity, even if its foreclosure/short sale/bargain hunting, is a really strong sign that we’re at least going to have resistance to significant price declines from where the market is today. This is not to say that we’re not going to see more 20-40+% price declines from peak; but I don’t think we’re going to be seeing many Prime homes trading at -20 to -40% from where the market sits today.
As a side note, the level / quality of commenter input is on the rise as of late. Cheers.
@eddy — “It’s easy to understand the PoV of bears and its logical to think that PITI should align perfectly with Rent versus Buy. There are a host of ‘fundamentals’ that should probably come into alignment that would make home ownership attainable.”
Certainly asking for perfect alignment is ascribing an undue amount of precision to all factors involved in home buying. But this issue is not just a small mis-alignment of prices vs income (or rent). These ratio’s changed significantly during the 2000-2008 period.
“SF along with many other super prime areas have long been out of balance with the fundamentals. SF is really one of the most recent cities to experience this deviation and it certainly rode the bubble(s) and it clearly peaked; and it is deflating quite nicely as most plugged in folks predicted. ”
If by “long been out of balance” you are considering ~5 years to be long, then this could be correct. And while I’ve learned that nothing on SS is undisputed, I can at least say that I’ve seen no data that indicated that pre-2000 price/income(or rent) ratios were similar to those during the 04-08 time period for SF.
I’ve also not seen data that showed other cities serially experiencing a “deviation” with SF on the taIl end.
See http://www.nytimes.com/interactive/2010/04/20/business/20100420-rent-ratios-table.html?ref=economy
Note how the price/rent ratios changed dramatically from 2000-2009 for a wide variety of cities.
The recent price run up was pretty much a national phenomenon. See this graph of national home prices from 2006
http://www.nytimes.com/imagepages/2006/08/26/weekinreview/27leon_graph2.html
(There is probably something more recent, but my point here is about the rise in prices, not the subsequent decline)
So as far as pricing goes, I don’t see much to substantiate your above two statements.
[Editor’s Note: Bay Area Rents Surge, But Housing P/E Ratio Remains Out Of Line and San Francisco’s Housing P/E.]
Eddy,
2010 was off more than 70 percent for me from 2007/08. Most small business owners tell me they have been off at least 40%. I made what I made in 1997, unadjusted for inflation. This year isn’t looking any better.
I’m still having suppliers shutting down entirely.
Tipster.. If your back to what you made in 1997, and down 70%, it ain’t just the economy. You might want to look at other factors.
From linked ss post circa 2008:
That being said, the same Credit Suisse analysis pegged the housing P/E ratio for the San Francisco MSA at 42x in 2006. Assuming no change in property values and a 9.4% increase in rents during 2007, the current P/E ratio would be 38.4x. And a return to the historical 24x would either require rents to rise another 60%, property values to fall 37.5%, or a combination of the two.
No argument here.
[Editor’s Note: Wait a second, we wrote that back in January 2008? That’s just bunch of typical Sunday morning quarterbacking from the SocketSite team. Hopefully you’ve been running the right routes during the game.]
wow, you fellows are prescient. no wonder you’ve made so much $$$ in real estate ;-p
Avoiding the half-million dollar losses we’re now seeing on some bubble SF purchases is a pretty good day’s work! Since there is no short real estate market, avoiding losses is the way to make money in a falling property market.
bubbles are disastrous for society as a whole, no matter how much some individual players may profit from them.
I have no regrets about sitting this one out.
[Editor’s Note: Wait a second, we wrote that back in January 2008? That’s just bunch of typical Sunday morning quarterbacking from the SocketSite team. Hopefully you’ve been running the right routes during the game.]
Not sure I “get” the Ed’s Note here. But I was making an comment about PITI / Fundamentals and deviations and I was simply referring back to a post with some metrics that were presented to the readers here. It was interesting to me that we’ve seen prices fall anywhere from 20 to 40%; and I believe that rents have increases slightly over the same period. I personally have some issues with using RvB in SF due to the general disparity between the two stocks, but whatever. Regardless, it’s nice to have the ability to document these things for posterity.
Unfortunately, there is no real Playbook (to stick with the football theme) for this market. But I do think transparency of perspective is very helpful.
@eddy —
For 2007, From the sfgate article in the linked post:
“San Franciscans continue to endure the region’s highest average rent: $2,285, up 14.5 percent from the end of 2006, the company said.”
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/01/18/BUEGUGEIB.DTL
For 2010,
“Data from real estate research firm RealFacts show that San Francisco County’s average asking rent for buildings of 50 or more units was $2,282 in the third quarter of 2010, only about $120 lower than the same quarter in 2008.”
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/11/13/BU101GAN34.DTL
They predict rents to go up this year, which they may or may not. But as it stands, if you think price vs rents will revert to the mean this indicates a 37% drop from ’06 prices.
Note also that while I do not have access to the original credit suisse report, (Ed?), the data credit on the graph is for OFHEO. I believe that the OFHEO home price index only includes conforming loans (i.e. <$729k among other things) this can understate the price/rent raio as seen here (for national data)
http://4.bp.blogspot.com/_pMscxxELHEg/SMAGJbFYWKI/AAAAAAAADak/cQUwiM1ccV0/s1600-h/PriceRentNationalQ208.jpg
I’d assume that for SF the effect would be worse since we had a greater proportion of non-conforming loans.
I’d like to see the numbers for foreclosures and preforeclosure activity outside those areas.
Pent-supply (NODs, NOTS, bank owned) for the Sunset stands at 140 homes (houses, condos, multifamily); according to Redfin there are approximately 98 homes for sale. Pent-supply for the Richmond stands at 59 homes; according to Redfin there are 98 homes for sale. Pent-supply for the Noe Valley stands at 30 homes; according to Redfin there are 34 homes for sale. Pent-supply for Bernal Heights stands at 88 homes; according to Redfin there are 47 homes for sale. Pent-supply for Pacific Heights stands at 22 homes; according to Redfin there are 67 homes for sale.
Standard disclosures about noise in the data and overlap. Information deemed reliable but not guaranteed.
The one sentence above should read:
according to Redfin there are 70 homes for sale [in the Richmond].
Haven’t looked at the D7 foreclosure list in a while; anything interesting there EBG?
@Editor: “Perhaps not as dangerous as some bad LSD, but there’s some bad data being passed around San Francisco by a brokerage or two with respect to market distress.” What exactly is this “bad data”?
We are obviously talking apples to oranges in this context. I posted distressed sales (short sales and REOs, not auctions) that are listed on the MLS, i.e. brokered sales. Your are talking foreclosures. I drew no conclusions about the data, only presented it. The data you presented is interesting, but I personally don’t know what the correlation is between actual foreclosures and distressed sales (time frame, % that are brokered sales versus auctions, etc.). Does anyone?
The theory that a greater percentage of distressed sales will be in other districts besides D10 and D9 in 2011 seems reasonable to me for the reasons discussed, but it does not change the fact that in 2010 37% of the distressed sales were in D10 and that 46% of D10’s total sales were distressed. Compare this with D7 where 6% of total sales were distressed sales and D5 where only 4% of the sales were distressed. This is still a huge disparity at 10x.
I guess I don’t get the “sticking it to the man” comment either. Maybe I am just obtuse, oh well!
[Editor’s Note: The second sentence you omitted from our first paragraph should go a long way in answering your question(s): “Or more accurately, the reports appear to be missing the context which would allow one to understand what’s actually happening in the market.”]
“wow, you fellows are prescient. no wonder you’ve made so much $$$ in real estate ;-p ”
Indeed, some of us have. Absent a bubble, however, most of that $$$ is more like $. Real estate generally has less ROI than people think it does.
Our esteemed editor got a mention in the Chron article about foreclosure:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/01/30/MNC81HF7UP.DTL
The article has a little bit of added detail about where foreclosures are. While foreclosures were up 20% from 2009 to 2010, Twin Peaks/Glen Park was up quite a bit more:
“But distress is increasing even more in areas such as Twin Peaks/Glen Park, where the median price is just shy of $800,000, and where foreclosures nearly doubled in 2010 to 26.”
Another interesting tidbit is a mortgage broker talking about recasting loans (although she mistakenly calls them resetting):
“I have stacks and stacks of people where someone lost their job, or their loan is resetting to be fully amortized, or they’re self-employed and their business has dropped.”