According to the August 2011 S&P/Case-Shiller Home Price Index, single-family home prices in the San Francisco MSA fell a nominal 0.1% from July ’11 to August ’11 but remain down 5.3% year-over-year (versus a 5.6% YoY drop in July), the eigth consecutive month of year-over-year declines and down 38.1% from a peak in May 2006.
For the broader 10-City composite (CSXR), home values increased a nominal 0.1% from July to August, down 3.5% year-over-year, down 30.9% from a June 2006 peak.
“In the August data, the good news is continued improvement in the annual rates of change in home prices. In spring and summer’s seasonally strong period for housing demand, we cautioned that monthly increases in prices had to be paired with improvement in annual rates before anyone could declare that the market might be stabilizing. With 16 of 20 cities and both Composites seeing their annual rates of change improve in August, we see a modest glimmer of hope with these data. As of August 2011, the crisis low for the 10-City Composite was back in April 2009; whereas it was a more recent March 2011 for the 20-City Composite. Both are about 3.9% above their relative lows.
“The Midwest is one region that really stands out in terms of recent relative strength. Chicago, Detroit and Minneapolis have all posted very sharp monthly increases going back to May. These markets were some of the weakest during the crisis, particularly Detroit. But as of August 2011, Detroit is the healthiest when viewed on an annual basis. It is up 2.7% versus August 2010. Prices there are still back to their 1995 levels, but the recent pickup in the US auto industry may finally be helping.”
On a month-over-month basis, prices fell across the bottom and middle San Francisco MSA price tiers and were unchanged for the top. On a year-over-year basis, however, values remained down across all three tiers.
The bottom third (under $321,866 at the time of acquisition) fell 1.5% from July to August (down 8.0% YOY); the middle third fell 0.7% from July to August (down 9.6% YOY); and the top third (over $608,109 at the time of acquisition) was unchanged, down 2.3% year-over-year.
According to the Index, single-family home values for the bottom third of the market in the San Francisco MSA have dropped below June 2000 levels having fallen 59% from a peak in August 2006, the middle third remains below April 2002 levels having fallen 41% from a peak in May 2006, and the top third remains at February 2004 levels having fallen 25% from a peak in August 2007.
Condo values in the San Francisco MSA fell a nominal 0.2% from July ’11 to August ’11, down 9.0% year-over-year, down 33.0% from a December 2005 peak.
Our standard SocketSite S&P/Case-Shiller footnote: The S&P/Case-Shiller home price indices include San Francisco, San Mateo, Marin, Contra Costa, and Alameda in the “San Francisco” index (i.e., greater MSA) and are imperfect in factoring out changes in property values due to improvements versus appreciation (although they try their best).
∙ S&P/Case-Shiller: Annual Rates of Change Continue to Improve [Standard & Poor’s]
∙ S&P/Case-Shiller San Francisco: SFH’s Moderate, Condos Fall In July [SocketSite]
Detroit is up 2.7% YOY. I guess they must really be having an internet boom there.
Here in SF, for some perspective, the 2010-2011 decline just about equals the steepest declines of the 1991 recession and the dot-com crash.
That was a brutal correction. I don’t think there’s any correction left apart maybe very locally.
Banks are not lending recklessly anymore. People are purchasing using real cash down and with a mortgage payment that makes sense compared with their incomes. Not everyone can buy, which makes some very angry, but which in itself is reassuring. Others are fighting to get a mortgage and this is OK. You SHOULD fight for a mortgage if you cannot easily qualify. It’s not a birth right. When you fight for it, you realize something is wrong with your application (paying too much, not making enough, flawed financial skills) and you really know if you want it and need it. If you default after that, you know who to blame.
Now if we could get a few bankers to be accountable for the current mess…
Maybe people are really starting to get it: Owning a home is not a right, it’s a privilege.
And it’s very serious stuff. And CAN be rewarding as well.
As long as there are underwater homeowners we’re going to continue to have a problem. These issues take a long time to correct. I’m frankly amazed at how quickly the market is adjusting down. The fact that we’re seeing somewhat standard turnover in inventory is a good sign. Nationally, inventory levels have been trending way down do this is a good sign overall. Everyone hates the government and cries over the bailout(s), but I’m reasonably impressed with how they have managed to engineer this whole thing. I still think we’re in a 5 year holding pattern with some slight declines. I think buying a home remains risky for anyone not basing their decisions on rational facts.
“People are purchasing using real cash down and with a mortgage payment that makes sense compared with their incomes.”
While I generally agree, the notable exception is the FHA which still allows 3.5% down. While noting that CS is an average and doesn’t mean that *every* house is down by that amount, a -5.3% YoY basically puts most recent low down payment buyers underwater. Even with 10% down you’d on average be underwater accounting for selling costs. Since the declines were concentrated in the lower tiers more likely to have FHA loans, reality is probably somewhat worse then the above for these tiers. Conversely, the upper tier should be relatively more stable.
So let me get this straight. In the past year, we had a massive quantitative easing, actual (if fake) economic growth, a mini tech boom (just now starting to level off), a long hot dry spell of public offerings ENDED, interest rates were dropped, and housing prices still fell 5.6%?
Other than another interest rate drop, which is basically a certainty, what is it you guys are expecting that’s going to prevent further declines? An even bigger QE? More growth? A bigger tech boom? More offerings?
I think you may see some up years and flat years, but this has a ways to go. I think it’s going to be managed to make sure the drops aren’t so big that they scare anyone, but over the long haul, incomes still don’t justify the prices.
In 1999, you used to be able to get an 80/10/10 loan: 80% first mortgage, 10% second and 10% down. I don’t see that any longer. Some banks would loan 90% and you could get insurance via a company called PMI, but they went out of business over the weekend so I don’t see that either. I’m pretty sure no other company is going to step up and fill their shoes.
In 1999, virtually anyone could get a job here. Virtually anyone could make nearly six figures. Those days are over too.
But CS is 40% above 1999. Anyone want to back up your “it’s almost over” theories with how “things are different this time” and incomes and loans don’t matter? I’m not buying any of this wishful thinking. Salaries, with a few exceptions up and down, are about at 1999, the finance industry is dead – affecting both incomes and loans, yet prices are still at least 40% too high and you guys think it’s over? Look at the graph. Track back to 1999.
Do you remember what 1999 was like? You couldn’t even DRIVE on US101 between 8 and 11am and between 3 and 7pm. I had to stop setting up meetings during those hours because I literally couldn’t get anywhere in the bay area.
Prices are more than 40% above that. Yet the decline is over? Really?
didn’t even know pmi was seized last weekend:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/10/24/BUT41LLJ2A.DTL
media and blogs haven’t had any coverage about this. i’m surprised it’s not covered more.
I still feel we need to remember that San Francisco is somewhat a unique market, and some neighborhoods such as Noe, Bernal, Glen Park, etc. are holding well and increasing.
Excellent properties in those neighborhoods are selling well and often above asking. Excellent means: good floor plans, good finishes, parking, yards, upgraded foundations. That all makes a property very desirable.
And, trust me, I’m not a realtor, but I see what is selling quickly in my own Noe hood.
To be clear, I wasn’t agreeing with lol that “it’s over” just agreeing that private lending has gotten a lot more sane. There’s some data that peoples propensity to default about doubles when they’re 20% underwater, so if you get 20-30% down you can weather a 40-50% decline before you hit this point. Not riskless, but doesn’t seem insane either. Plus people are actually verifying incomes.
tipster, it is true that the dot-com boom puts to shame anything going on in the bay area today in terms of local wealth creation, spread wide. 1997-2000 was the real housing boom here, based on real economic gains and not funny debt.
However, inflation has whittled away 34% of value since January 2000 (so SF housing is just about even with inflation since then). I can see another big drop if we get a new shock, and that very well may come from Europe. Otherwise, I can see the current downward drift – a few pct a year – continue for several more years. So that would put us back to late 90s pricing in real dollars. Getting to that point in nominal dollars would be a real 35% drop in prices from that time period. I’m not betting we go that low, although I certainly see that as a possibility that anyone looking to buy should factor into their risk appetite. I really cannot see any scenario where we have material price gains in the next five years. If anyone can envision that, please explain because maybe I’m missing something.
This gets back to the point I’ve often made. If you can buy a place that’s less than comparable rent, go for it as long as you accept the downside risk. If you buy a place banking on future price gains, you’re a fool.
The year-to-year blips we’re seeing seem rather seasonal, don’t they?
So let me get this straight. In the past year, we had a massive quantitative easing, actual (if fake) economic growth, [omitted], [omitted], interest rates were dropped, and housing prices still fell 5.6%?
Well, don’t forget massive amounts of government stimulus in general — bailout funds, FHA/VA/GSEs with higher limits and low down payment requirements, lots of foreclosures, etc. Interest rates weren’t just dropped, they are historically very low. The thing that strikes me is that despite record “affordability” of payments, we still don’t have record sales.
Prices are more than 40% above that. Yet the decline is over? Really?
Well, you have to consider what interest rates are doing too. Buying at 4% is a different beast than buying a 7-9%. You can “afford” much more principal (although it’s harder to pay it off early).
I’m still with people like NVJ — there is still a lot to work out of the system to get a “normal” market based on market rates and market prices. Maybe there won’t be a big drop (although there could be if interest rates suddenly rise), but I don’t see the market being too far from being relatively flat, as it was during the latter parts of the 90s bust. We never really had a true market bust (which would include more overshooting on the downside) because Treasury/Fed/Congress put in a floor with massive amounts of stimulus, both direct and indirect.
I believe the index is of nominal prices, so yeah, its up 40% since 1999. When you adjust for inflation almost all of that gain vanishes. The Bay Area CPI average for 1999 was 172.50. As of August 2011 it was 234.60, up 36%. The CS for SF area looks like it peaked in early 2001 around 130ish, which means that real prices are down from then as the Bay Area CPI is up 23.5% since 2001.
Nominal prices are now about what they were a decade ago (on average for the region) and there is likely some variation from those averages for various specific cities based on demographics and amount of new housing built since 2001.
So it won’t surprise me if nominal prices continue to bounce a round a bit, with some ups and downs for a few years while real prices continue to decline.
a -5.3% YoY basically puts most recent low down payment buyers underwater. Even with 10% down you’d on average be underwater accounting for selling costs.
It doesn’t really work that way since it all depends on where you purchased your home and how well you negotiated the purchase price. We’ve seen people buy homes below 2000 prices in some instances so its not accurate to portray that every house is declining by those YoY metrics. It’s a market average and there are still many people that bought at the peak that have not sold that will show massive declines when / if they sell (at least in the short term).
I think you may see some up years and flat years, but this has a ways to go. I think it’s going to be managed to make sure the drops aren’t so big that they scare anyone, but over the long haul, incomes still don’t justify the prices.
I agree with the first part; but the second part is more tricky with regards to incomes. Almost every single person I know that owns a $2 to $5M home in SF (I’d say probably about 30 people) is well within their financial means. I probably know another 50 people in the 900 to $2M range and same thing there. Most of the rest are either in $<1m condos or renters and everyone seems to be doing OK and does not have an issue with finances.
I’m not seeing the income issue in my circle.
Darn, A.T. beat me to the inflation adjustment issue. That’s what I get for pausing while typing my response and answering a phone call from my mother.
But one comment on what A.T. said: “I can see another big drop if we get a new shock, and that very well may come from Europe.”
I think the most likely candidate for another big shock will be from China not Europe. Unless Europe completely screws itself over it isn’t likely to create a big shock. The issues there are known to the market so are less likely to cause a long lasting move in the markets absent a complete meltdown (look what is happened this year, the market gets jitters about Europe then they have a meeting and the market recovers).
Meanwhile over in China, their housing bubble is starting burst, their growth is slowing, and everyone is focusing on what is happening in Europe. China is the worlds 2nd largest economy these days and its housing industry is big, estimated 13.5% of GDP. It used to be said that when the US sneezes the rest of the world gets a cold, we might be about to find out what happens now to the world economy if China sneezes.
@eddy — You seem to have missed the first part of that sentence: “While noting that CS is an average and doesn’t mean that *every* house is down by that amount,…”
Unfortunately, the SF MSA is not Lake Wobegon and you can’t have *all* houses perform above average.
“I really cannot see any scenario where we have material price gains in the next five years. If anyone can envision that, please explain because maybe I’m missing something.”
Avalos or Baum win the Mayor race and put a moratorium on market rate housing and condo conversion.
Touché! But it looks like Ed Lee has it wrapped up, with maybe Herrera as an extreme long-shot possibility. Neither would be terrible. San Franciscans have grown up a lot since the Matt Gonzales days.
Regarding Tipster’s question about what is going to prevent further declines, take a look over at Vancouver; there, Chinese nationals have not only propped up the housing market, they have lifted it way beyond SF area levels — in a local economy with no Silicon Valley, no IPOs to speak of, and local income, across all percentiles, far lower than it is here.
Standard practice has been for rich Chinese to buy an expensive house, park their kids there, then go back to China and make more money. These folks still don’t entirely trust their own government, or even society, and are willing to pay a premium — even knowingly buy into a ‘bubble’ market — to hedge their bets.
Its been tougher for those folks to do this in the USA, as the US is stingier with Visas and taxes folks on their wordwide income, so Canada has seen much more this strategy.
That, however, may be about to change; if Sens. Charles Schumer (D., N.Y.) and Mike Lee (R., Utah) get their bill passed (one of the only bipartisan things in the pipe, btw…), my guess is that its the bay area that will see the results.
“Other than another interest rate drop, which is basically a certainty, what is it you guys are expecting that’s going to prevent further declines? An even bigger QE? More growth? A bigger tech boom? More offerings?”
The same comment, verbatim, could have been uttered 2.5 years ago when CS (SF) bottomed at 117 or so.
Today, despite all the wailing, the screaming and abject pessimism reflected on this board for the past 2.5 years, CS (SF) is now at 135.
So if the question is “do you bulls think SF prices are going to shoot up anytime soon”? The answer is — No.
However, if the question is “do you bulls think the same shenanigans we have seen for the past 2.5 years will continue for another 2.5 years (or longer) such that CS (SF) will stay above 117”? The answer is — Yes.
weird thing for me, which I never realized before, is how closely aligned the composite and SF graphs have been over last 10 years.
even the recent trough and then peak, the magnitude may have been a little different, but timing pretty much exactly spot on.
So wait – isn’t Linked-In’s lock-up-expry supposed to save the local (housing) market…and everything else?
As someone that doesn’t live in SF but is looking to buy, does this stuff make any material impact on pricing or the market?
http://online.wsj.com/article/SB10001424052970203658804576639433460981352.html
take a look over at Vancouver; there, Chinese nationals have not only propped up the housing market
I think this is a myth, just like “European and Chinese buyers will prop up San Francisco” was a myth. The stats don’t really agree. For example, the number of investor visas isn’t really sufficient to explain it. More likely it’s Chinese-Canadians who are doing the buying, just like here, and realtors are reporting it as “Chinese.” If you look more closely at the Colliers numbers, upon which most of the articles were based, you’d see that China wasn’t even the top market from which foreign buyers were purchasing in Canada.
Standard practice has been for rich Chinese to buy an expensive house, park their kids there, then go back to China and make more money. These folks still don’t entirely trust their own government, or even society, and are willing to pay a premium — even knowingly buy into a ‘bubble’ market — to hedge their bets.
This is a weird rationale. If you are a rich Chinese person in China, you can get your kids into the best international schools there, and they are very good. I don’t buy this theory at all, and there’s been no proof of it, and no stats support it. Why would the Chinese park their kids here in a fancy house en masse? It doesn’t really make much sense except as trying to make an anecdote to fit the myth.
That, however, may be about to change; if Sens. Charles Schumer (D., N.Y.) and Mike Lee (R., Utah) get their bill passed (one of the only bipartisan things in the pipe, btw…), my guess is that its the bay area that will see the results.
Its been tougher for those folks to do this in the USA, as the US is stingier with Visas and taxes folks on their wordwide income, so Canada has seen much more this strategy.
Canada is easier to buy into with an investor visa than the US for sure. Its threshold is $400K instead of $500K, and its investor visa standards are not very stringent. Do you really think that many more foreigners will buy into the US than have already bought into Canada, even though our threshold is higher and our standards higher too? I doubt it. Especially when our economy doesn’t seem to be doing so hot, and our property market doesn’t look like it will be a great investment in the near term. The “everybody wants to come here” argument is becoming outdated.
The same comment, verbatim, could have been uttered 2.5 years ago when CS (SF) bottomed at 117 or so.
Today, despite all the wailing, the screaming and abject pessimism reflected on this board for the past 2.5 years, CS (SF) is now at 135.
That can easily be explained by mix. Case-Shiller is susceptible to mix, and foreclosures were running far more rampant a few years ago.
Corelogic produces organic sale numbers (i.e. those that are non-distressed), and they are not usually very impressive. Morgan-Stanley published organic numbers based on Case-Shiller data a while ago, but hasn’t provided any updates since then — when they did, it was clear that mix made a difference because distressed homes were up about 20%, while non-distressed was about flat.
A downward turn in August for the SF Bay Area Index is (from what I can tell) unprecedented. Bad years typically turned negative (month-to-month) in July. I’d say this puts us somewhere between 1993 and 1994 on the charts. Note that the Composite-10 did turn negative in August of 1993.
“That can easily be explained by mix. Case-Shiller is susceptible to mix, and foreclosures were running far more rampant a few years ago.”
Of all indexes, CS is least susceptible to the mix. Also, it clearly had nothing to do with foreclosures because CS treats foreclosures separately.
Still it could be the “mix”. Then again, I do recall some people in 1999 saying CS wasnt really going up, it was just the mix. We all know how that one turned out…
I agree that the rich chinese buyers is a non-factor. let’s put some numbers on it. the number of deca-millionaires (in dollar terms) in all of asia is less than 200k. that’s about the level you need to be at in order to be looking to buy international real estate in various locations. what percent of those will be buying international real estate and then what percent of those will be buying in sf? I don’t see it.
“take a look over at Vancouver; there, Chinese nationals have not only propped up the housing market”
This is true– the Vancouver realtor I know sells most of his properties these days to Chinese nationals who are bringing money out of China to invest in Vancouver homes, including multimillion dollar tear-downs.
Well I guess that settles it…
“the number of deca-millionaires (in dollar terms) in All of Asia is less than 200K … that’s about the level you need to be at in order to be looking to buy international real estate in various locations.”
“Deca millionaire” is the criteria? That’s quite simply put very detached from reality. I’m speaking as somebody who not infrequently sells/vetts/passes on real estate for Chinese parents. It’s more like like four to five hundred K that they’re willing to spend on a property, and trustworthy adult children.
sfrenegade — are you referring to this Colliers report?
http://www.colliers.com/NewsDetail.aspx?nid=41b71f4a-eeeb-44c8-8a1e-9892bd6da89d&nwslst=D:%5CInetpub%5Cwwwroot%5CWEB%5CCountry%5CChina%5Cxmldata%5Clistdata%5CLocalNews.xml&lang=en&title=Mainland%20Immigrants%20Demanding%2029%%20of%20All%20New%20Homes&area=Country/China
This article is making my point, not yours.
The real question is whether or not the Shumer/Lee bill is going to bring US immigration policies close enough to those in Canada for us to see an effect in the real estate market. It may not. The point for overseas Chinese is not so much the investment potential of our real estate (although it helps), so much as its providing a comfortable foothold in case things take an unwelcome turn in China. For that, there has to be a sense that the purchase is a real foothold (allowing their children to become established, etc…), not a thin, stingy welcome mat that might get yanked back at any time…
One reason that wealthy Chinese buyers are looking to invest in foreign real estate is that it provides a way to own a property in perpetuity. It isn’t possible to purchase a property outright in the PRC since the government owns the land and will only lease to residents.
This conversation scares me. Right before the big downturn here in 2007, we started hearing about how “rich foreigners” were about to swoop in and buy SF real estate. Then the market tanked.
Whenever the boosters and realtors run out of anything good to say, they seem to turn to that old standby, “rich foreigners”.
The reality is that any rich foreigner who wants to buy real estate has been able to do so since 2007 and the market tanked anyway.
Shakin in your boots are ya, Tipster? “here in 2007” is pretty funny. You chose to not even get that right?
risible stuff.
“”Deca millionaire” is the criteria? That’s quite simply put very detached from reality. ”
Note that if someone was a mere millionaire, putting half a million into a house ties up half your net worth. And what do you get in SF for half a million.
Why?
In turn you should note that “mere millionaire” is your insertion, and that “deca millionaire” was the point.
Also, moving forward tcsf, once again, learn the difference between using “than” and “then.” Do everyone a favor.
tipster – I’m not trying to promote the “rich foreigners will save SF RE” concept. Just pointing out that Chinese buyers have an additional incentive to invest in foreign RE whether that be in SF or anywhere else one can actually own land, including other countries in Asia.
While I do believe that foreign investment affects our market I don’t think it has a very large effect.
“And what do you get in SF for half a million.”
500K probably gets you the ability to finance every single structure for sale at any given time within the Sunset. That would be one obvious point.
I see. Not only are you twisting “deca millionaire” to “millionaire,” but you’ve inserted “cash buyer” into the mix too.
Whatever! What is wrong with you guys? Seriously. You’re on here so much, just talking and talking and talking about how you think other people SHOULD spend THEIR money. Arguing from that perspective, as if it is other folks’ rationale. What a joke.
From my sample size of one, the rich Chinese buyer is paying all cash. I don’t know the reasons but I suspect its the simplicity of closing the deal without having to deal with documenting income.
sfrenegade — are you referring to this Colliers report?
That’s not the report, eh? — this article talks about the report:
http://www.theglobeandmail.com/report-on-business/economy/economy-lab/daily-mix/whats-driving-vancouver-house-prices/article2072241/
Even in the article you sent, eh?, they make a point to say Chinese immigrants, while being vague about it — i.e. it could be Chinese people who already live in Canada, eh? (which is often the case in some of the markets on the Peninsula — they already live here and have lived here for years).
People also often see the articles reprinted from Caixin which make huge errors, eh?, such as this:
http://www.marketwatch.com/story/is-china-driving-property-bubbles-abroad-2011-06-28
That article has a huge flaw, eh?:
That’s not true, eh? The actual page that you linked above said:
New homes not total homes! Nice journalism, eh? Without even mentioning what the raw numbers were or how many new home were typically built in Vancouver on a year to year basis. Anyway, it’s clear from Colliers that a lot of the Chinese buyers are dealing with London (finance) and Australia (commodities) too — the U.S. isn’t even on the radar, much less SF.
Of all indexes, CS is least susceptible to the mix. Also, it clearly had nothing to do with foreclosures because CS treats foreclosures separately.
Again, the Morgan Stanley data shows that to be untrue — Case-Shiller was showing 18% up around May 2010, whereas distressed sales were up about 20% and organic sales largely flat (and likely down). That’s why Case-Shiller likely overshot and then came back up a bit. I’m surprised the editor didn’t mention the SS post as he often does when I mention it:
https://socketsite.com/archives/2010/08/mix_pshaw_whos_ever_heard_of_such_a_ridiculous_thing.html
“From my sample size of one, the rich Chinese buyer is paying all cash.”
Yeah, all three of them. :p
One reason that wealthy Chinese buyers are looking to invest in foreign real estate is that it provides a way to own a property in perpetuity. It isn’t possible to purchase a property outright in the PRC since the government owns the land and will only lease to residents.
This seems like a Western-invented rationale (i.e. projecting the “American Dream”) for why Chinese buyers would purchase here. If you’re a rich person in China, I doubt you’d care about this too much, since there are assets you could buy that are far more valuable than Canadian or US real estate.
The point for overseas Chinese is not so much the investment potential of our real estate (although it helps), so much as its providing a comfortable foothold in case things take an unwelcome turn in China. For that, there has to be a sense that the purchase is a real foothold (allowing their children to become established, etc…)
Ditto this — seems like a Western projection too. It also doesn’t explain why the US or SF.
John Paulson who made $5B last year with his hedge fund, says that this is the best time in 50 years to buy a home:
As this is the best time in 50 years to buy homes, Paulson advised his listeners, crowded into 3 separate dining rooms, to issue 30 year mortgages to buy a home as “your debt and interest payments get locked in at record lows, while the price of your home will rise.”
“If you don’t own a home buy one,” Paulson recommended; ” if you own one home, buy another one, and if you own two homes buy a third and lend your relatives the money to buy a home.”
Paulson’s funds have gotten absolutely creamed this year, so I’m not sure I would credit his recommendation with much worth. I agree that IF one intends to hold the home for a very long time, and IF one believes we are headed for growing inflation, then that certainly favors buying a place with interest rates so low (in nominal terms). The typical hold is not for a very long time, and I don’t see rising inflation for many, many years. On the other hand, I did not earn billions shorting housing, but nether am I down something like 40 percent this year like Paulson is.
In any event, advising people to buy two, three, or four homes is very, very reckless.
Best time in 50 years to buy? Really? It sure doesn’t feel like that at all.
Perhaps Paulson is holding some stinky tranches that he cannot easily dispose of.
—————
sfrenegade – I’m not claiming that Chinese investors will prefer USA or SF real estate. Just that some yearn for a family plot of land that can’t be taken away by government whim.
I’d think that places closer and with a more entrenched Chinese culture would be preferable, like Singapore. Indonesia would be much cheaper but there’s a bad history there of anti-Chinese sentiment.
That quote is over a year old and in the same speech he predicted double digit inflation by 2012. If you get a 4% fixed rate mortgage and we do see years of double digit inflation I’m sure that would work out well, but it’s unclear if this will happen.
http://www.forbes.com/sites/robertlenzner/2010/09/27/john-paulson-sell-bonds-buy-stocks-double-digit-inflation-coming/
Didn’t Paulson say that over a year ago? Rates seem to be lower now, although I’m not sure prices are better yet. Also, hedge funders usually talk their books.
I didn’t notice the date on that article, you are right this is an old and terribly inaccurate prediction. I am personally predicting more of the same for a while with a recovery starting to happen near the end of the decade.
are we talking rich foreign chinese real estate buyers in sf or are we talking about general chinese people who buy homes in sf. those are two very different populations. one is a lot closer to the deca-millionaire status than the other.
the standard chinese parents who buy a house in the sunset with an unwarranted inlaw they can rent out is a buying population that is nothing new and is as much a part of the standard real estate market as the twinks buying soma condos. they’ll be part of the sf real estate market as always but they’re not going to suddenly be the savior.
I thought we were talking about the magical horde of rich real estate hungry overseas chinese not our local chinese folks.
If you’re a rich person in China, I doubt you’d care about this too much, since there are assets you could buy that are far more valuable than Canadian or US real estate.
Maybe some Chinese. Others would like fee simple in a stabler economy. It’s a fact, and it seems as if several of us are speaking from real points of experience. But join the ranks of the “whatever comes down the pike, I’ll hate on it” crew again. I guess. Thought you’d moved on from there.
The Chinese are experiencing their own Real Estate Bubble Pop right at this very moment. Prices in new developments are being slashed by 25%, screwing the existing owners in those developments right to the wall. I fail to see why very many of them would buy in an unknown country with a huge debt problem and a declining market, exactly they are all running away from in their own country.
And like I said, there has been nothing stopping them from buying last year when their mood was better and yet prices here still fell.
Think they want to lose money here for just fee simple when their own market is just starting to melt down? Get real. Their wallets are going to shut tighter than Ghaddafi’s grave.
the Chinese RE bubble is WHY they would NOW be buying here. they were all buying in China – and lots of s*** is hitting the fan there so if you’ve got cash to invest and you fear a huge collapse which is entirely possible given their rampant malinvestment and money printing, you’d be wise to look elsewhere. that said I don’t buy the argument either – it does sound like they are PART of Vancouver’s bubble – but Vancouver is in a bubble so all of the excuses for why “it’s different here” are being rolled out including that foreign Chinese love them some Vancouver condos.
that Paulson quote is hysterical. QE is not money printing. it is an asset swap and doesn’t make it into the real economy. the only inflation we have is the result of speculation, supply issues or oil related (which is both speculation and supply issues). we’re more akin to Japan – their “debt” is 225% of GDP, above the supposed threshold that supposed hyperinflation experts throw around – yet they barely eke out any inflation.
the US is printing money – via unemployment benefits, increased military spending (despite Romney accusing Obama of doing the opposite), etc. and that is keeping us out of serious deflation. but should the deficit hawks and tea party get their budget cuts and austerity – look out, tipster could be right in the end.
but i think the GOP is only able to convince the true believers now, and so I expect Obama to get re-elected – and with his new found voice he might succeed in getting the spending machine going again which will slowly lead us out of this muddle through economy within the next 2 to maybe 5 years. a paint drying economy until then with both the Euro and China posing some serious short term risks to the downside.
fancy rental, yes we are talking about the “magical horde of rich real estate hungry overseas Chinese”, here’s the context (first mentioned above by ‘around1905’): From the L.A. Times on the 20th, Bill would encourage foreigners to buy U.S. homes:
Btw, one of my acquaintances who brokers mortgages and lives on the peninsula recently narrowed the scope of her business to full time doing nothing but handling loans (yes, some Chinese do borrow to buy real estate) for both HK & PRC nationals and the local ethnically Chinese who aren’t proficient in English.
But back to the bill under discussion, the way this relates to tipster’s comment at 10:23 AM is that if this bill becomes law, unlike 2007, there’ll be a marked difference in policy: right now a Chinese national has to get a new visa every year. That would change to them getting one visa good for five years.
The way this addresses [anon.ed]’s objection raised at 1:14 PM is that under the terms of this bill, folks getting their visa this way wouldn’t be able to employ financing, they’d have to pay all cash.
“I didn’t notice the date on that article, you are right this is an old and terribly inaccurate prediction.”
Why is it that when NoeValleyJim cites a press article or so called “expert” in order to prove a point, said point often ends up being discredited?
Maybe some Chinese. Others would like fee simple in a stabler economy. It’s a fact, and it seems as if several of us are speaking from real points of experience.
No, most of you are speaking from anecdote. Even in the case of your client, are you absolutely sure that the money was from mainland China or were they resident here and funding the kid?
All I’m saying is that the available stats don’t really support the anecdotes. No one seems to be able to dispute that thus far.
I don’t see why you start your ridiculous editorializing every time someone disagrees with you, fluj/anonn — it’s really tired and incredibly rude. Grow up, dude.
“Nationwide, residential sales to foreigners and recent immigrants totaled $82 billion in the 12-month period ended March 31,”
Isn’t total $ of national existing home sales something like one trillion?
Also, in addition to the all cash requirement of the bill the fact that it would subject their worldwide income to US taxation seems like a steep disincentive.
“Also, in addition to the all cash requirement of the bill the fact that it would subject their worldwide income to US taxation seems like a steep disincentive.”
Well yeah, that’s a huge problem and something people aren’t considering — yes, you’re subject to US taxes. Also, you must live in the house for 6 months out of the year. You aren’t eligible for citizenship unless you have some other means of getting it.
Another thing is that it’s not that hard for someone smart who has an immigration lawyer and money to burn to get an EB-5 visa (which also permits employment, unlike the proposed visa program). Not that many people do it, and we’ve never hit the quota, although there was a spike in 2009 when it appeared Congress might eliminate the program. A large number of people in that spike year were Chinese, along with Brits and Koreans.
Canada’s investor visas are issued in numbers approximately 4-10X what ours are. All they require is that you invest the money in Canadian government securities, which would presumably be more stable than our housing market.
Also, more often than not, I’ve found that many of these foreign buyers allegedly from China turn out to be residents of the US who are of Chinese origin, frequently long-time residents. I can’t tell if realtors just hear someone speaking something that sounds Chinese and assume foreigner or what.
No, most of you are speaking from anecdote. Even in the case of your client, are you absolutely sure that the money was from mainland China or were they resident here and funding the kid?
Anecdote is singular. That’s not where I’m coming from. And it’s been mainland with cash, mainland parents with cash and a son who married a local girl, local family pooling assets with mainland to acquire, several times, let’s see, there are a few other permutations probably. Honestly, you guys are non-actors. Why you like to argue with people who know things, and do things, is a head scratcher. There you were, weighing in, talking about some hypothetical monied Chinese not being interested because of other investment options? As if those words are anything.
“Anecdote is singular. That’s not where I’m coming from.”
You are so experienced in this area, yet you were not only completely unaware that the bill being discussed required all cash purchases you went and made a buffoon out of yourself over the point?
Anecdotes can be useful at times, but it is more then a bit noticeable that on this blog some of the folks that are the most consistently incorrect or deceptive about verifiable facts have the most choice unverifiable anecdotes!
What are you talking about? They are not mutually exclusive as it’s not even in effect. It’s a BILL. And no, I didn’t know about it. My point is not that THE CHINESE ARE A LEADING LIGHT THAT WILL SAVE US. OK? My point is that these sort of purchases are common. good grief, you are a troll’s troll.
most consistently incorrect or deceptive about verifiable facts have the most choice unverifiable anecdotes
You think you’re standing on principle there and you didn’t even get it right. That’s a bad look, among many. Not as bad as your inability to use prepositions, but hey.
“Anecdote is singular. That’s not where I’m coming from. And it’s been mainland with cash, mainland parents with cash and a son who married a local girl, local family pooling assets with mainland to acquire, several times”
That’s funny, most of my stories are from realtors on the Peninsula (not just Cupertino) during open houses. “Mainland China buyer, all cash.” My buddy: “umm, yeah, so my (Asian) co-worker from Cisco who has lived here for 20 years bought that house, and he definitely has a mortgage.” This has happened more than once, and my friend who is a realtor on the Peninsula (shocker, I have a friend who’s a realtor) has said the same thing — that many of the so-called foreign buyers turned out not to be foreign, several times, as you said. Multiple anecdotes, sir.
And that’s only the stuff that I’m able to disclose easily.
“There you were, weighing in, talking about some hypothetical monied Chinese not being interested because of other investment options? As if those words are anything.”
Yes, I’m sure the rationales about wanting a fee simple are so much better… You don’t know anything better than any other person here, so give that up. Seriously, if you’re a monied capitalist in China, you can buy a real mansion there instead of a piece of crap house here that needs work, and your kids can go to better schools than SFUSD.
But my main point is that I don’t think this proposal will have a huge effect. If you are a monied capitalist in China, there are strong incentives to stay there, especially while our economy here is floundering.
I know that it is a fact that you can’t get fee simple in China, and that that is a common motivator in my experience. You say experience equals anecdote equals same as all the rest. I beg to differ. Anyway, ask somebody who happens to be Chinese about ownership, etc. It isn’t a secret, or uncommon. As I’ve said.
A fair amount of overseas businessmen will buy property here and then send their family over to live and go to school. The patriarch stays behind to run the office or factory. That scenario probably also makes it more convenient to maintain a mistress in the homeland without exposing the family. I knew one such family though they were from Taiwan rather than the PRC.
“Nationwide, residential sales to foreigners and recent immigrants totaled $82 billion in the 12-month period ended March 31.”
Let’s break this down. Total sales to all foreigners and recent immigrants of $82 billion.
So sales to just foreigners (not recent immigrants) is less than that.
Sales to non-Chinese is even less than that.
82 billion is 8 percent of 1 trillion.
So we’re talking about less than less than 8 percent of all home sales.
A non-factor.
I agree with your conclusion that Chinese investment (as in old world residents investing in the new world) is probably a non-factor. But 8% incremental investment is nothing to sneeze at. Prices are affected by the delicate balance of supply and demand and an additional 8% on the demand side can result in a significant increase in price.
It works both ways: subtract a little from the demand side and add a little to the supply and prices will drop. That’s what we’re seeing right now: supply is increasing via foreclosures and REOs, demand is dropping due to more stringent lending standards. It is probably the reason that banks are taking the sweet time disposing of their defaulted properties: throw too much on the market at once and the value of your defaulted back inventory drops, a multiplicative effect. And the bank’s interest lies in the margin between loan balance and value, further amplifying the impact.
——
Also note that the Taiwanese family I mentioned earlier would be classified as “immigrants” since everyone in the household held at least a green card. The money for the household purchase was definitely earned overseas so the economic effect is identical to the foreign investment case. That’s probably why immigrant purchases are lumped in with foreign investors. What really matters is the source of the funds.
You’re the same poster who inserted “deca millionaire.” That was offbase too, as if it’s only those with 10M in the bank who buy things to the exclusion of all who have even 1M to 9.9M. Anyway 8 percent, as MOD points out, can swing a market. (Again nbody is saying that it did.) Also, consider the possibility that the portion of that 8 percent that’s entirely coastal. And in the case of Chinese, West Coast. Against the total amount that changed hands, nationwide?
hey don’t listen to me, let’s get the facts from your realtor friends.
http://tinyurl.com/3uhgwfx
9% of international buyers were chinese.
12% of sales in california.
the rich overseas chinese buyer snapping up residential real estate is a mythical creature (or at least rarer than we think). he/she exists mostly in the lay press.
just to recap for those too lazy to do the math, chinese buyers (overseas and recent immigrants) accounted for 0.7% of residential real estate purchases from March 2010-11.
I’m not “listen”ing to you, nor are trade groups who publish pamphlets my “friends,” thanks. You’re bound and determined to use numbers to tell you what you already think. So have at it. But 12%, international buyers, California, will do little to change other people’s minds as to the EXISTENCE, not the LEADING LIGHT of actors in the local market.
And how you think you can use a multiplier and speak of a local market is beyone me. Let alone obtain .7, when it’s .75 to begin with even using your dodgy “national times california” math? Come on. You want to think what you think. Just like a lot of these posters. Fine. But know that your words will be skipped moving forward now. You’ve had your chance. “Deca millionaire” + 8%” + “.7%” — uh huh. You had an idea, first, then you went round and tried to back it up.
Let the knowers know.
c’mon anon.ed, he outclassed you. He found facts, that were no doubt juiced, by your own trade association and threw them back in your face to prove he was right and you were wrong.
Touche!
He found numbers, Tipster. He inserted interpretation and odd multipliers, throughout. Of course it appealed to you. The guy is sitting there arguing and he actually found 12% foreign, Cali! C’mon yourself.
can someone spell out what we think this has to do with SF?
Nothing!
You lost me. I would call 12% of sales in California “significant”, why wouldn’t you?
Taking at face value, for the sake of argument, fancy rental’s comment at October 28, 2011 10:59 PM, I’d still say that just < “8 percent of all home sales” is still significant and not at all in the category of “mythical”. Maybe I’m missing the obvious implication that any percentage less than, say 50%, won’t move the needle, but if that is what’s being relied on here, why don’t you say that and why it’s the case? ‘Cause it doesn’t seem obvious to me.
So the point of contention would be what percentage of sales would be in SF. I think we can agree that the geographical locations of those sales aren’t going to be evenly distributed throughout California.
———————-
hypocritical
and glaring this absence of
questioning maths, ha
—————————–
Chinese millionaires fleeing China
http://www.businessinsider.com/chinese-millionaires-to-leave-china-2011-10
fancy rental:
Your street math is interesting, but you seem to lose sight of the fact that it would not take many Chinese buyers — NEW buyers who are not selling another local home to compensate — to meaningfully move the market.
“But 8% incremental investment is nothing to sneeze at.”
Note that it’s not 8% incremental since international buyers have always been a part of the US market.
Also, I don’t think the above 12% represents the percent of CA sales to foreigners, but rather the percent of foreign sales occurring in CA. Also, note that this 12% number is down from 16% in 2007. Also from the report fancy rental linked to 45% of foreign sales were under $200k which the report calls out as a growing segment.
hangemhi,
Wanting to leave is not “fleeing”. It can be also “chasing opportunity”. If someone has done well in his own country and sees local assets as overpriced and business as saturated, he might want to go where he can go on growing.
This is the great leveling of populations in motion. The world is becoming flat.
hey don’t listen to me, let’s get the facts from your realtor friends.
http://tinyurl.com/3uhgwfx
Another interesting point — look at the realtor quotes. A lot of it is about working here — foreign transfer of executives (L-1 visas in some cases, or employer-sponsored) or just general hiring. The proposed bill specifically doesn’t allow the buyers to work here, so it would only affect the Category A the article mentions (about half of what the report is citing as “international”).
Funny also that in the reasons people don’t buy survey, 32% said financing is an issue and 18% say cost of property (62% is claimed to be cash buying), with 9% saying property tax and 4% saying insurance. 10% says US taxation and 11% say immigration issues.
82% of properties are $500K or less. 91% are $750K or less. 95% are $1M or less. Average is $315K vs. US $218K, and median is $200K vs. $170K. Only 61% bought SFH vs. 88% of US.
The number used to be 16% of int’l sales in CA, vs. only 12% now. I’m not sure if that means Florida and other places are dwarfing CA or numbers in CA are dropping — the report didn’t really say.
No baseline numbers here other than saying $41B were in Category A and $41B in Category B, by the way, only percentages, so take it with a grain of salt. The data are from an NAR survey.
Agree with some of the others that 8% of the market could affect things greatly at the margins, but there are many factors in play — such as whether this number has changed.
On October 25, 2011 2:33 PM, sfrenegade wrote:
Link via the blog Credit Writedowns, Sixty percent of China’s rich want to leave the country; from China Daily, China’s national English-language newspaper:
The chart accompanying the piece quite plainly addresses sfrenegade’s response and objection above. And let’s just quote the tenth ‘graph (the ‘money ‘graph’) wholesale:
So there you go. The principle of argument against own interest applies here; if a former board member of NORML says that medical cannabis is a subterfuge designed to facilitate quasi legalization of recreational pot use, that carries more weight than if The Director of National Drug Control Policy says it.
Similarly, if the English language version of the Chinese government’s approved house organ reports that half of all wealthy Chinese invest overseas to facilitate their children’s education, that counts for a lot more than around1905 or Milkshake’s comments on a real estate blog.
Hope this helps.
Similarly, if the English language version of the Chinese government’s approved house organ reports that half of all wealthy Chinese invest overseas to facilitate their children’s education, that counts for a lot more than around1905 or Milkshake’s comments on a real estate blog.
If you have to explain this, you’re trying too hard. Also, I’d note that China Daily no longer receives government funding and has liberalized its editorial policies. In addition, China Daily depends heavily on advertising for revenue (including advertising of foreign property deals) and engages in much real estate investment itself. I’m sure China Daily would have absolutely no interest in suggesting that rich Chinese nationals should buy property elsewhere.
Anyway, if the 40% who are trying to come to the United States amounts to 772 people with EB-5s (stats in article, and I’ve mentioned the relatively low number of EB-5 visas issued), that’s not particularly impressive. The quota is something like 10,000/year if I remember correctly, and those other 46% if the average person (more on that later) has almost $10M in assets should easily be able to do this.
What’s stopping the other 46% who supposedly haven’t even applied? It’s even easier to go to Canada, and not that hard to go to many other countries with which China does lots of business and where you could provide your kids a great education.
China Daily gave a more aggressive line than other papers that wrote about this white paper:
http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20111101000078&cid=1103
That article says the other 46% are “considering” emigration. That’s not as strong as “intended to migrate.”
This softening of intent is repeated in other non-China Daily publications too:
http://business.blogs.cnn.com/2011/11/01/report-half-of-chinas-rich-want-to-leave/
You can also see China Daily’s extremely poor journalism (as is the case for many haphazardly written Chinese articles, since you are rewarded for quantity, not quality) in that CNN blog post. The *average* of the 980 people surveyed was 60 million yuan (roughly deca-millionaire in USD), but the range went as low as 10 million yuan, which is going to make it hard for some of them to come here.
I should also mention that nowhere is anything about a fee simple among the top reasons:
Observers believe that personal and capital safety is an increasing concern for the rich who are choosing to transfer their wealth overseas.
In fact, many of them are rich because of Chinese real estate. If they really want to diversify out of Chinese property, they could buy more foreign assets, but only 1/3 are doing so and only up to 19% of their portfolio. Read the other way, 2/3 of Chinese don’t have foreign investment, and 81% of assets for the ones who do are in Chinese assets.
This does give you some insight into the number of people we’re talking about, however. Thanks for the link — sufficient to say, a decent number of people think about it, but not all have the motivation, gumption, funds, know-how, etc. to do it. I don’t see this as dispositive (especially since China Daily oversold it), but it shows more people are thinking about it (although not to the extent claimed).
“I should also mention that nowhere is anything about a fee simple among the top reasons:
Observers believe that personal and capital safety is an increasing concern for the rich who are choosing to transfer their wealth overseas.”
Nothing, except for the very next thing you said. As if fee simple isn’t the very aspect of Western title holding that speaks to stability, and personal and capital safety? Really. Articles such as this one rarely employ that sort of more technical terminology, as you probably know. You can stop parsing words and/or expecting verbatim phrasing at any time, to the improvement of communcation on this message board.