CFAH

999 Green
Speaking of San Francisco’s modern era of development, the last we checked in on the Eichler Summit at 999 Green two two-bedrooms in the ’04 stack were on the market, neither of which moved. Prior to that we reported on a three-bedroom in the ’02 stack which sold for “over asking” but 32 percent under its sale price in October 2008.
New to the market today, 999 Green #1905 which last traded for $399,000 in 1994, now asking $1,095,000. And yes, we expect any new sale to show signs of average annual appreciation over the past seventeen years. If we were able to isolate the average annual change in value over the past seven years, or perhaps just one, however…
∙ Listing: 999 Green #1905 (1/1) – $1,095,000 [MLS]
San Francisco’s Modern Era Of Design And Development [SocketSite]
Two Renovated Corner Fours At (And Near) The Summit Of 999 Green [SocketSite]
“Over Asking” (But 32 Percent Under 2008) For 999 Green #2802 [SocketSite]

Comments from Plugged-In Readers

  1. Posted by EH

    Excellent. What’s the story on the enclosed balconies here? Is it simply owner’s choice?

  2. Posted by sfrenegade

    What’s interesting is that this unit was caught up in the 90s housing bust, but was under contract in one week because it was priced right:
    Dec 01, 1994 Sold (MLS) $399,000
    Oct 17, 1994 Listed $399,000
    Oct 24, 1994 Delisted
    Jun 22, 1990 Sold (Public Records) $425,000
    Nov 02, 1988 Sold (Public Records) $385,000
    $385K in 1988 was $482K in 1994, inflation adjusted. $425K in 1990 was coincidentally also $482K in 1994, inflation adjusted.

  3. Posted by Al

    It’s a neat looking building, at least from a distance. I guess buildings like that are unlikely to ever go up again. Across the street is another tower block, not as tall, which has one enormous blank wall, clearly expecting another tower that was never built (and probably won’t be, now). Bit of a shame.

  4. Posted by Fish

    It’s an old building without amenities and the view to the east towards downtown is blocked. It’s just not worth over $1k/sf plus $1k HOA.

  5. Posted by anonee

    “$385K in 1988 was $482K in 1994, inflation adjusted. $425K in 1990 was coincidentally also $482K in 1994, inflation adjusted.”
    the “inflation adjusted” calc’s seem to forget that most properties at that time were bought with fixed rate mortgages. iow, buyer’s typically used 80-90% of other people’s money as a hedge against the ‘ravages’ of inflation.
    so the $385k they borrowed in ’88 was worth $482k in ’94, yet they still had to pay back only the $385k (plus whatever interest, which was less than the rate of inflation and , of course, that interest expense happened to be deductible. think of it as rent of money and you get to keep the steak knives, versus rent of an apartment and no chance of getting those steak knives…).

  6. Posted by flufnus

    balconies are apparently owners choice – ruined the building imo. also the building is not this nice looking – the photo has been seriously whitewashed as the concrete is far more dingy/brown looking than this. oh, and don’t forget charlotte schultz’s apt at the top that enclosed a couple of walls of glass with drywall that you can see for miles away.

  7. Posted by A.T.

    “plus whatever interest, which was less than the rate of inflation”
    This is the foundation necessary to make paco/anonee’s logic work, yet it hasn’t been the case for 25 years. Borrowing in 1988 with an 11% fixed rate mortgage ain’t much of a hedge against inflation that has been half that rate or less ever since.

  8. Posted by anonee

    that interest expense was not deductible?

  9. Posted by A.T.

    “that interest expense was not deductible?”
    Sure, but that still doesn’t bring the “out-of-pocket” interest rate down anywhere close to the inflation rate. So your “inflation hedge” was to borrow money and pay interest on it that is higher than the inflation rate!

  10. Posted by anonee

    whoa there buddy. the foundation of your argument relies on picking out a time frame when rates went from higher to lower. we all know what happened to housing during that period-it went up. hmm, rates went lower and prices went higher so how difficult was it to re-fi to better and better rates? oh yeah, it was really easy. now that we are bouncing along at very low rates do you reckon it might be a good time to speculate with cheap borrowed money?
    let’s put this a different way; if you expect future inflation would you rather be the one to borrow 90% of the cost of a house or the one to lend it? let’s hear about your inflation hedge.

  11. Posted by A.T.

    “so how difficult was it to re-fi to better and better rates? oh yeah, it was really easy.”
    I guessed you might go there and thought about addressing it in my original post but it is such a dumb come-back that I figured you wouldn’t put it out there. But you did. So here is the reason why that didn’t cure the original problem: because rates went down only as inflation went down. So the refi rate was always higher than the inflation rate. Your “hedge” has failed over the last 25-30 years pretty much continuously.
    It is correct that NOW it just may get you somewhere as rates can’t get any lower. But if inflation and rates rise, housing prices will fall even faster. So that won’t work either unless we have a long period of much higher inflation. My “hedge” would be to wait a couple more years for housing to finally bottom out, and only buy then.

  12. Posted by anonee

    ” Your “hedge” has failed over the last 25-30 years.”
    um, an inflation hedge is not really supposed to work if inflation is going down. let’s see, back then you go long housing and inflation went down, while real estate prices went up…sounds like a winner. now, go long housing using 90% opm at very low rates and if inflation goes up, or housing goes up, or they both go up…, sounds like a winner again.
    ” But if inflation and rates rise, housing prices will fall even faster.” really? any examples of that? i seem to remember a fair bit of high inflation and high rates in the ’70’s and housing in california went up. it also went up in the ’80’s.
    just for the record, i believe we are early in a deflationary cycle and don’t really think rates will go very high. but it is tempting to be able to borrow money at such low rates.

  13. Posted by tipster

    If you are looking for an inflation hedge, you don’t buy something that has risen in value much more than inflation in the last 15 years due to a bubble and is currently falling in value, slowed only by government and Federal Reserve intervention. It doesn’t matter how cheap money is.

  14. Posted by lol

    Tipster, a lot of people are praying for inflation. You can quickly understand why.
    Ask people who really stretched to purchase a house in the early 70s, like my parents. They struggled for 3-4 years. Fast forward 40 years and 2 big bouts of inflation. Even after only 10 years the mortgage was ridiculously affordable.
    Not so for people who bought between 2002 and 2008, though.
    Prices have come down a lot already. And inflation will come eventually. Maybe in 5 years, or 10, or 20. But if you can afford something comfortable and you don’t have to sell a kidney to pay for it in the first 10 years, it’s a pretty decent deal.

  15. Posted by NoeValleyJim

    $399k in 1994 to $1.095M today is 6.1% annually over 17 years. These are to comparable times in the business cycle as well, so this is a pretty good comp.
    Bernanke claims there is no inflation and no threat of inflation on the horizon, but I think it depends on where you sit. Emerging markets are certainly grappling with inflation. In the Euro, inflation is at 2.4% in Jan, which is higher than the Euro target of 2%. In theory they should be raising rates about now, though I kind of doubt that will actually happen. They have the same problems of high unemployment and slack capacity that we have.
    But many things are pointing to an uptick in US inflation: the yield curve, increased manufacturing output, decreased inventory, increased capacity utilization and increased exports.
    Now would we be seeing this without deficit spending and QE2? Probably not. But the recovery is increasingly looking self-sustaining. I don’t think there will be a QE3, absent another down tick in inflation.

  16. Posted by sfrenegade

    “$399k in 1994 to $1.095M today is 6.1% annually over 17 years. These are to comparable times in the business cycle as well, so this is a pretty good comp.”
    Yes, a sale at asking would be very good return because this buyer got it at the bottom of the market. Based on $587K inflation-adjusted, it’s 3.7% real return, which is very good on real estate if you look at historical numbers. The mortgage market provided part of that boost. The real return from the 1988 price is a shade under 2%, in case anyone was wondering.
    paco/anonee/kidchar, you flubbed that mortgage rationalization quite spectacularly. If buying now is so great, why are you spending so much time talking about it instead of doing it?

  17. Posted by tc_sf

    “paco/anonee/kidchar, you flubbed that mortgage rationalization quite spectacularly.”
    To make this explicit and assuming that you are referring to this “plus whatever interest, which was less than the rate of inflation”, and that your numbers are correct:
    A 6.1% nominal return – 3.7% real return implies a 2.4% annualized rate of inflation over 17 years. Annualizes mortgage interest payments were almost certainly much greater over that time period.
    It is also worth remembering the time value of money. While you may have started out with a 10-11% mortgage and refinanced down, even were you to end up right now with a 2.4% mortgage that still isn’t break even since the “excess” interest you were paying 17 years ago had an opportunity cost. Also note the fees you pay in order to re-fi don’t help the matter either.
    “Just for the record, i believe we are early in a deflationary cycle and don’t really think rates will go very high. but it is tempting to be able to borrow money at such low rates.”
    Not that I’m agreeing with your belief, but note that if you believe we are experiencing deflation then real interest rates are actually *higher* then nominal rates. i.e. A 5% mortgage with 2% *deflation* is the same in real terms as a 10% mortgage with 3% *inflation*. Both are 7% in real terms. The same goes for opportunity costs. A 3.6% nominal T-bill yield would be a 5.6% yield in real terms if we had 2% deflation.
    Finally, regarding inflation hedges. While housing has on average over a national scale tracked slightly above inflation, thereby being a good inflation hedge on the whole. Note that buying a particular house is not like buying a share of the national housing market. Many things can affect the value of your particular house and there have been many regional booms and busts. The variance in outcomes for a single house makes it a much poorer inflation hedge then something like short term T-bills or TIPS which are explicitly built to hedge inflation. Also, as tipster notes, were housing to fall back down to its inflation tracking trend the loss would far outweigh any inflation hedging benefits.

  18. Posted by hangemhi

    how about we go back to buying a home for the sake of owning a home? inflation hedges, forced savings, tax write offs – are all secondary bonus/benefits. Last I checked you can’t live in a t-bill.

  19. Posted by The Flippor(tm)

    the primary is pride.

  20. Posted by sfrenegade

    “how about we go back to buying a home for the sake of owning a home? inflation hedges, forced savings, tax write offs – are all secondary bonus/benefits. Last I checked you can’t live in a t-bill.”
    I’m the first person to say that people shouldn’t see their primary residences as an “investment.” paco/anonee/kid char is quite the opposite. He constantly refers to buying homes in investment terms (and often does so badly, as in this thread). Often, there’s a comparison to an actual investment choice that he thinks may not have done as well. He also overemphasizes the tax breaks, without understanding them, and constantly mixes up issues of inflation and deflation.
    Primary housing should not be seen as an investment. I disagree on some of your clarifications, however. Forced savings is inherent in buying a house — that is what buying housing means if you have an amortizing loan. The tax write-off is already included in the selling price (i.e. you pay a higher selling price because you get a tax write-off), so it is actually a primary issue, not a secondary one. Furthermore, you can quite easily invest in T-Bills and rent, so the “live in a t-bill” statement doesn’t mean much.
    Buying a home as consumption, as you are suggesting, is a valid rationale to buy a house. I agree with you that we shouldn’t pretend it’s the same thing as investment.

  21. Posted by The Milkshake of Despair

    hangemhi – are you saying that home valuation should be guided by rent vs. buy calculations ?

  22. Posted by kthnxybe

    That is a pretty building.

  23. Posted by Po Hill Jeff

    lol: Many people are praying for inflation, and many are praying for the opposite… take your parents, who stretched to buy in the early 70’s (like mine!). If they are now retired (like mine), inflation + low interest rates are going to be a deadly combination, as their expenses increase faster than the income from their retirement fund.
    Therefore we have politically a situation where some groups benefit from inflation and others suffer, split largely on generational lines, plus institutions on both sides and foreign governments too (who wants to keep their reserves in a devaluing currency with low returns?). Will be interesting to see what happens.

  24. Posted by sfrenegade

    “Therefore we have politically a situation where some groups benefit from inflation and others suffer, split largely on generational lines, plus institutions on both sides and foreign governments too (who wants to keep their reserves in a devaluing currency with low returns?).”
    These people can’t have it both ways. The Baby Boomer-types benefited greatly from the profligacy of the last 30 years, all while sloughing off the negative consequences onto the future generations. Now they have the nerve to complain about it?
    Similarly, those foreign governments thought they could make a one-way bet without consequences. Turns out that’s not the case, and they have the nerve to complain about it?

  25. Posted by anonee

    wow guys, you are just too smart for me.
    you make a great case against my investing notions, what with yer national averages this and nominal return that..
    the way you fellas slice and dice every possible positive aspect of real estate is astounding!
    i can hardly believe my own experience seeing so much money being made in sfre by such unsophisticated investors. i can see how they are likely to be handing there gains over to you shortly. even tippy will be living in the penthouse once it is coughed up for 50% off.
    gosh, maybe i should be looking into commodity speculatin’ and t-bill housing futures..

  26. Posted by MH for Movoto

    I don’t know why, because it’s not really my style, but I am absolutely in love with the look of this building. Weird.

  27. Posted by SocketSite

    The sale of 999 Green #1905 closed escrow on 3/8 with a reported contract price of $1,175,000 (7 percent over asking).

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