January 19, 2007
San Francisco Home/Condo Sales: Historical Context
We turn to Malcolm Kaufman’s latest ‘Pulse of The Market' for twenty years of MLS sales history for San Francisco’s single-family homes (SFH) and condominiums. Keep in mind that this history only reflects properties that were listed and recorded as sold on the SFAR Multiple Listing Service, and as such, actual condominium sales volumes, and most likely average sales prices, are understated (think new developments).
Regardless, it’s additional context for our analyses and discussions of “demand” and market activity going forward. And be sure to “plug in” next week for an inventory overview (i.e., "supply") and updated Complete Inventory Index (Cii) for San Francisco.
First Published: January 19, 2007 9:15 AM
Comments from "Plugged In" Readers
Editor: Can you post one with $ adjusted for inflation?
Posted by: Anonymous at January 19, 2007 3:19 PM
Editor: and can you also post one for S&P500, Nasdaq and Dow Jones for the same time period?
Posted by: Anonymous at January 19, 2007 6:08 PM
$300K in 1987 had the same buying power as $532K today (according to the link above). That means that the condo market went from $532K (in 1987) to $850K (in 2006) - over 20 years. One of the worst investments I know of....
Posted by: Anonymous at January 19, 2007 6:15 PM
"One of the worst investments I know of...."
The average condo price went from 235k in 1987 to 841k in 2006.
The average single family home price went from 248k in 1987 to 1,126k in 2006.
I bought my house in 1995, and it's been a great investment. I don't know anyone who's owned his/her home since 1987 who wishes he/she had rented all these years.
Posted by: Dan at January 19, 2007 6:49 PM
Anonymous at 6:15 seems hellbent on proving that real estate has been a bad investment for decades. (Perhaps to console the fact that now he/she is priced out of the market?) Responsible investing involves more than putting all of one's eggs in a single basket. The arguments I seen on this site regarding the "smartness" of buying are often made on the basis of having very little to put down. If real estate has been such a bad investment, then how is it that by getting started with a modest home years over a decade ago, I was able to recently put 40% down on a $625k condo with a less-than-spectacular salary (by SF standards)-- and over that same period build a healthy portfolio of stocks and other investments? I am in complete agreement that now is probably not the right time of a cash-strapped first-time buyer to enter the market. But, as Dan points out, I don't think I've suffered for not having rented all of these years.
Posted by: SeeHsee at January 20, 2007 7:49 AM
"$300K in 1987 had the same buying power as $532K today (according to the link above). That means that the condo market went from $532K (in 1987) to $850K (in 2006) - over 20 years. One of the worst investments I know of...."
You're trying to calculate the "real" rate of return by subtracting 532k from 300k over that 20 year period which is actually wrong but I'm not going to go there. It would take too long to explain.
Bottom line, if you're staying put in a place for 20 years, you're better off owning.
Posted by: Anonymous at January 20, 2007 1:27 PM
Not to mention the tax benefits- what other type of investment allows you to earn money tax free...
Posted by: anon at January 20, 2007 2:13 PM
According to the (non-inflation adjusted) graphs, for seven long years from 1990 to 1997 prices were flat. And that was after a little baby run up in prices compared to this one, without interest only, no-doc, payment option loans that you actually had to QUALIFY for. I can't wait to see how long the next stretch of flat (downward) prices lasts.
Posted by: Anonymous at January 21, 2007 10:11 PM
"for seven long years from 1990 to 1997 prices were flat. And that was after a little baby run up in prices compared to this one..."
Anonymous at 10:11pm is incorrect. The three biggest percentage increases in both house and condo prices were 1998, 1999, and 2000, according to the table on which the above graph is based. The percent increase in home prices in 2004 and 2005 were smaller than in 1998, 1999, and 2000.
Posted by: Dan at January 21, 2007 11:29 PM
Let's put it another way. According to the table on which the above graph was based, average condo prices went up a total of 107% from 1996 to 2000, but only 29% from 2000 to 2006. Single family homes went up 100% in average price from 1996 to 2000, but only 54% from 2000-2006.
Posted by: Dan at January 21, 2007 11:50 PM
The comments about being "priced out" always make me laugh. Homeowners (and Realtors) don't seem to realize that, as soon as first-time buyers are priced out, the market must go flat or fall. Why? Because the whole concept of being able to sell and trade up or cash in implies that somebody is able to buy your property for what you think it's worth. Eventually you get to the bottom of the market, where a renter needs to take the plunge and buy that first property so that the person in it can trade up to something better.
Maybe San Francisco is destined to become the American Monaco, where the idle rich swap properties amongst themselves while nibbling on herb-crusted truffle reductions served by $10/hour wage slaves. In that case, you don't need first time buyers. Or real jobs, or any economy outside of tourism and Coach/Gucci/Porsche dealers.
But if we want to remain a real city with real people, we need a sizable adjustment to give the cops, nurses, and teachers of the world a reason to stay here.
So for those who are patting themselves on the back for having bought in year X, consider what you would do today if you made the same money as you did then, and didn't have any equity to roll over into your new property. Would you still "jump in?"
Posted by: Dude at January 22, 2007 9:38 AM
Remember that SF is primarily a city of renters. The average SF resident is a renter, in a rent-controlled apt. If I were considering buying for the first time today, I would first decide whether I was content in my rent-controlled apt. If one has a good deal on a rent-controlled apt, and one is happy there, there is no urgency to buy.
If I were a potential first-time home buyer today, I would look in less expensive neighborhoods. I would look at condos in the Mission, not on the Embarcadero. I would look at fixers that I'd be comfortable living in now, but could improve later. I'd only take out a loan if I was confident I could make the payments indefinitely.
When I went from renter to homeowner, in 1995, the market had been declining for 5 years, after a big leap in prices in the late '80's. I had no expectation that prices would rise as they have. I bought a place I could afford, in a less expensive neighborhood than where I had my rent-controlled apt. If I decided to buy today, I would do the same thing.
Posted by: Dan at January 22, 2007 10:19 AM
Thanks for the advice, Dan. Since the market just turned last year, I think I'll do exactly what you did: wait 4 1/2 more years for prices to bottom.
Posted by: Dude at January 22, 2007 10:36 AM
Dude: Not patting myself on the back, and very thankful I was fortunate enough to get in before the market went crazy. Even at the time when I first bought, though, I had to save, sacrifice, and choose a property many others would have considered too old, too small, or in an unacceptable neighborhood. Even today with a higher salary and nicer place to live, I have to manage my finances carefully and continue to sacrifice. Some might argue that it's not worth it when I could rent for much less than it costs to cover a monthly mortgage payment, HOAs and property taxes, but that's a personal choice. Referring back to the "anonymous" post that prompted my reply, it's ridiculous to attempt to categorize ownership as a bad investment for everyone when it still makes sense for many. But, as I acknowledged, today's market is probably not the place to be right now for most first-time buyers. That said, studios are still moving is locations like the Hamilton, Opera Plaza, Daniel Burnham Court, and other more entry-level developments. They're not as flashy, new or desirable as some of the newer places, but still accessible to some first-time buyers. I would still "jump in" as a first-time buyer today if I had a 10-20% down payment and could find a bare bones studio in one of the newer developments. I'd forgo any upgrades that might increase the price and focus on getting in, making improvements as I could afford them, with the expectation of hanging onto the property at least five years.
Posted by: SeeHsee at January 22, 2007 10:51 AM
Dude, I agree that you should wait. If your mindset is that you want to buy to make a quick profit, this real estate market is probably not for you.
However, there is no assurance that you'll get a better deal in 5 years. Prices went down in the early '90's because of a pretty nasty recession. And interest rates in 1995 were much higher than now. If we have another bad recession plus high interest rates, home prices will go down. But under those circumstances, it will also be harder for you to buy that cheaper house-- you'll have to pay more interest, and you may be more worried about your ability to make the payments. And it's also very possible that homes prices will rise even more in the next 5 years, putting that home even further out of reach.
Posted by: Dan at January 22, 2007 10:56 AM
Not looking to make a quick profit on real estate, I'm looking for a place to live in and raise my kids (which is why a studio and 1 bedroom are out of the question).
But at the same time, I'm not inclined to make somebody else rich and pay gains I feel are undeserved. Sorry, but just because somebody bought in year X doesn't mean they get to make $400K off of me.
So it's not that I think prices are too high, (which they definitely are), it's that I think the recent run-up in prices was completely without merit and unsubstantiated by any underlying economic factors. Otherwise, the discrepancy with rents would not be as large.
Dan, you wrote, "I'd only take out a loan if I was confident I could make the payments indefinitely." 100% agreed with you. Luckily for me, 60% of the city didn't agree with you and is financed with toxic loans. Now the aftermath begins.
"And it's also very possible that homes prices will rise even more in the next 5 years, putting that home even further out of reach."
I doubt it, but if they do, it doesn't matter, because I'll do the same thing so many others are doing already - leave the city. My job would pay similar money in Boston or Chicago, where the cost of real estate is 50% of San Francisco.
Posted by: Dude at January 22, 2007 11:29 AM
"I'm not inclined to make somebody else rich and pay gains I feel are undeserved. Sorry, but just because somebody bought in year X doesn't mean they get to make $400K off of me."
It's not a matter of whether the seller is making a profit or not. If you have 2 identical houses, and one has a seller who has lived there for 10 years and is selling at a $400,000 profit, and the other identical house has a seller who has lived there for 1 year, and is making little or no profit-- you would buy based on which seller gives you the better deal, not who is making "undeserved" profits. You can no more demand to buy a house at 1996 prices than you can demand to buy Apple stock at 1996 prices. Either way, you either buy, or you don't.
Boston, by the way, is no bargain, and not 1/2 the price of SF:
You will get more for your money in Chicago, though:
You might check out Denver-- it is pretty reasonably priced.
If you are more comfortable renting, especially in rent-controlled SF, then by all means keep renting.
Posted by: Dan at January 22, 2007 12:11 PM
"You can no more demand to buy a house at 1996 prices than you can demand to buy Apple stock at 1996 prices. Either way, you either buy, or you don't."
A tremendous run up in a stock price such as Apple can make sense based upon the underlying fundamentals such as revenue from a terrific product like the iPod. The run up in real estate when compared to the fundamentals (ie equivalent rents) looks a lot more shaky.
"Boston, by the way, is no bargain, and not 1/2 the price of SF"
That's definitely true, but have you seen how quickly prices out there have stagnated, demand has dried up, and the inventory has gone up?
Posted by: Anonymous at January 22, 2007 12:27 PM
Dan: I appreciate your comment related to profits. One important lesson I learned early on in real estate dealings is to focus solely on the value of the outcome to me and not what the other party might be gaining. Ultimately, the best, smoothest transactions are the ones where both sides feel they have "won" to some degree, which is only really possible when a certain level of anonymity is maintained. If I were fixated on whether or not the gains of the other party were "deserved", I probably never would have survived as many sales/purchases as I have, if only because my focus and mental energy would have been misdirected.
Posted by: SeeHsee at January 22, 2007 12:44 PM
Well, as much as I love SF, I came here from the east coast and could go back just as easily. And I know several people in my exact predicament who have already left or are considering leaving.
And as the discrepancy between SF and cities like Boston and Chicago grows wider, even more will leave.
Posted by: Dude at January 22, 2007 2:13 PM
Dude: The controller's office of the City & County of San Francisco does an annual survey of citizen impressions about various city services (sanitation, parks and rec., MUNI) and things like safety, condition of sidewalks, amount of greenery and trees, etc. The results of last year's survey are posted on sfgov.org. This year, I happened receive a mailed questionnaire for the current study. One question related to my likelihood of moving away from the city and, if so, in how many months/years. So clearly, this question is on the minds of city government. Later, in the write-in section, I commented that increasingly and on all levels, it seems like San Francisco demands more to deliver less. So, as a property owner who pays roughly $600/month in taxes, I often feel slighted by crappy city services despite all of money I see flowing into city government. And, I'm close enough to the process to see firsthand that it's fiscal mismanagement and bad city government that is responsible for most of it. I guess my point is that the high cost of housing is one of many problems this city faces. And even for those of us fortunate to have been able to purchase our homes, Boston and Chicago are looking better and better. Let's hope for a turnaround someday that benefits everyone (except maybe the board of supervisors!).
Posted by: SeeHsee at January 22, 2007 2:42 PM
One difference between San Francisco and a number of other cities is that even with the new towers in Rincon Hill and the Embarcadero, and even with Mission Bay, construction here has been much more restrained than in other cities.
Last week's NYTimes article on the condo glut said that in and around Boston, 600 condo buildings with 49,000 units were in the pipeline. (Of course, now with the slowdown, some of these won't get built.) The last time I was in DC it seemed like the whole city was a condo construction site.
All of the no-grwoth forces here will assure that SF never has that kind of supply.
Posted by: Dan at January 22, 2007 4:06 PM
A little perspective from someone who's owned the same home in this city for a long time.
It's always tough to buy the first home. We bought the home(2br,1b, 1200sq.ft) we live in in 1981, $115,000, 15.5% first mortgage interest rate which was the best rate available. We had rented the previous years and saved about $10k for the downpayemnt. Our lender required 15% down and we had to borrow money from family and sell jewelry and other items to make the balance of the downpayment. Payments of $1340/month, about half of my wife's and my combined salaries then. It was during the the high inflation 1980's(remember Gerald Ford's "WIN" campaign(wip inflation now). We raised a child, refinanced numerous times to pay for remodeling, college education, debt consolidations, etc. The home now paid for with about 800k in equity and I'm retired with my wife still working. Every year, my son returns home during the holidays and we walk the neighborhood talking to old friends and reminiscing about his childhood adventures. To me, that's priceless although to many others it's sounds kind of cheesy. The bottom line is we bought the home we wanted and still are happy to live here. It wasn't bought with the idea to flip it and make a lot of money but to provide a safe and stable environment for our family. It still is.
Posted by: john at July 25, 2007 7:33 AM
Real Estate a bad investment? Only if you buy the hoola hoop after everyone else...One prime example of good Real Estate Investment. Palo Alto 1970's - and East Palo Alto pre 1980's; factor in all the inflation you want- great place to have parked your coin....
Posted by: Michael at July 25, 2007 8:38 AM