April 23, 2007

JustQuotes: Investment Bankers And Their Wacky "Fundamentals"

“Median California home prices are still creeping up, and the state's strong employment trends should support the real estate market. But Goldman [Sachs] is worried that surging prices in the state in recent years weren't driven by traditional factors such as strong employment and income growth. Instead, the bank reckons an increase in ARM mortgages offered to borrowers who were already stretching to buy high-priced homes fueled the boom.” [Editor's Note: Inconceivable!]

California home prices to weaken further: Goldman says [MarketWatch]

First Published: April 23, 2007 3:41 PM

Comments from "Plugged In" Readers

Many of us have been preaching the "disconnected from fundamentals" sermon for a long time now. I personally have been saying it for over 2 years and have been scoffed at by many of the anonymous millionaires that seem to comment here. So not every Californian/San Franciscan makes $500K/year after all?

Posted by: Dude at April 23, 2007 4:21 PM

The median may be creeping up but the Case Shiller Index is alread creeping DOWN, indicating home prices are already falling (and according the futures traders at the Chicago Mercantile Exchange it is going to keep falling)

http://www.paperdinero.com/CSI.aspx?id=SFXR&start=1987&exp=5/25/2007|8/27/2007|11/26/2007|2/25/2008&yoy=1

Posted by: badlydrawnbear at April 23, 2007 5:53 PM

This is really scary stuff and not a lot of people are absorbing the facts. They are basically saying that some smart people in overpriced housing are going to potentially get burned. This would seem to indicate that the number of homes being listed should increase as these folks start to realize that the end is near; compounded by the fact that other smarter investors will 'cash out' while the market is still near record highs.

Inventory levels are going to be a key stat to watch. Fact is though, San Francisco properties for the most part still seem to be selling well???

Dude, I agree with you but this market seems to be slow to react.

Posted by: eddy at April 23, 2007 6:21 PM

"Disconnected from fundamentals"

It is me or has the bay area housing market just gone up even higher since a few months ago? I'm having a hard time finding anything decent under $700K.

Posted by: richard at April 23, 2007 8:33 PM

Richard - It is not just you, the market has indeed 'creeped higher' from the holidays at the end of 2006. Did you read the chronicle article about the southern part of SF heating up?

Also, in District 7 (northern part of SF), the market is definitely moving higher. For example: 3321 Octavia St. closed last week for $3.7 million, but really $3.8 million since there was no buyers commission paid. Asking was 3.495 and it sold in 2 weeks! 2752 Filbert sold within 9 days for 100K over asking to $3.49 mil. Someone is buying these houses, which were in the mid 2 millions just a year or so ago.

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/04/22/REGMTPCPNE1.DTL&hw=zephyr&sn=001&sc=1000

Prime

Posted by: Prime at April 23, 2007 8:58 PM

Genius. Just ... pure ... genius.

Posted by: Sexy & Sassy in SF at April 23, 2007 9:33 PM

The subprime mortgage problem is happening now because the time periods for sub prime loan resets are shorter than the change periods for alt-a loans. Because SF has more alt-A than sub prime, we haven't been hit yet. Our time will come.

It is interesting to see the desperation so soon: realtors desperately trying to hold onto comps. The property prime keeps boasting about up there is a great example. A seller was ONLY willing to pay 3.7 for the property, but the agent says comps are 3.8 because she shaved her commission by 100K to make the deal. Wrong. The comps are 3.7, just what the buyer was willing to pay. But it is interesting to see the desperation come out in the attempt at propping up the comps.

Posted by: tipster at April 23, 2007 9:39 PM

"which were in the mid 2 millions just a year or so ago."

What a joke. 3321 Octavia sold for $1.7M almost SEVEN years ago while 2752 Filbert last sold for $1.45M almost EIGHT years ago. Great gains indeed but with the majority of it coming from 2000 to 2005 these properties were likely in the mid $3M range last year.

"closed last week for $3.7 million, but really $3.8 million since there was no buyers commission paid."

I'm stunned by the stupidity of that statement and reasoning.

Posted by: BankerBoy at April 23, 2007 11:29 PM

Median CA prices are still creeping higher?

not in SF ...
'06 '07
San Francisco $769,500 $753,000 -2.1%

http://dqnews.com/RRBay0407.shtm

Posted by: badlydrawnbear at April 24, 2007 3:58 AM

Don't borrow trouble, San Francisco!

Looks like the powers that be are concerned us poor folk have been overstating our incomes for a peek at the american dream.

http://www.freddiemac.com/news/archives/predatory_lending/2007/20070420_dbt_sf.html

Posted by: Stu at April 24, 2007 10:14 AM

Bankerboy - I can't tell if you are being facetious or not. Are you saying that selling for $2million more for each house below after 7 and 8 years is bad? That's like 115% in that time period over the total housing price. Assume the seller put down 20%, that's a 575% return cash on cash. Don't know about you, but I'll take that return, especially on such a big number, and especially since the stock market was crappy from 2001-2003.

Have you ever sold a property? When you sell, you pay 2.5% to the selling agent, and 2.5% to the buying agent who brings the buyer. 2.5% on 3.7 million is about $93,000. The selling agent was also to find a buyer, and 'saved' the buyer 100k. The previous record for a SFH Marina row house was $2.75 million about 16 months ago. This blows it out of the water.

Prime


You wrote:

What a joke. 3321 Octavia sold for $1.7M almost SEVEN years ago while 2752 Filbert last sold for $1.45M almost EIGHT years ago. Great gains indeed but with the majority of it coming from 2000 to 2005 these properties were likely in the mid $3M range last year.

"closed last week for $3.7 million, but really $3.8 million since there was no buyers commission paid."

I'm stunned by the stupidity of that statement and reasoning.

Posted by: prime at April 24, 2007 10:20 PM

Prime, the house sold for 3.7. No economics or other factoring will ever justify the property selling for 3.8. It doesn't make any sense.

Posted by: eddy at April 25, 2007 12:04 PM

”Are you saying that selling for $2million more for each house below after 7 and 8 years is bad?”

Not whatsoever. I’m pointing out that your statement that these houses were in the mid $2M range “just a year or so ago" is complete BS along with the rest of your calculations.

Posted by: BankerBoy at April 25, 2007 1:24 PM

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