August 29, 2007

They’re Back In The Saddle Again (And With More Frequency)

Back In The Saddle

It’s really nothing new. Properties fall out of escrow (and are reduced) all the time. We does appear to be new, however, is the relative frequency with which it is occurring.

∙ 1674 Hayes (3/2) - $825,000 (“Back on market - no fault of property”)
∙ 2676 21st Street (2/1) - $699,000 (“No fault of property the offer fell through”)
∙ 547 35th Avenue (3/1) - $888,800 (“Back on market !!!”)
∙ 674 Campbell Avenue (3/2) - $688,000 (“Back on market - no fault [of] sellers”)
∙ 247 Sagamore (5/2) - $699,000 (“Back on market. No fault on sellers”)
∙ 22 Chicago Way (2/1) - $689,000 (“3 failed 100% financing. Price reduced”)

Yes, it’s definitely hitting the lower end of the market the hardest. (Or is that first?) And no, the six listings above aren’t intended to be MECE. (Well, at least not CE.) Regardless, and once again, we do have to wonder: is it another blip, bump, or more in the making?

JustQuotes: Is This A Blip, A Bump, Or More In The Mortgage Market? [SocketSite]

First Published: August 29, 2007 9:20 AM

Comments from "Plugged In" Readers

I'm not yet sure the high end market isn't also suffering right now.

http://biz.yahoo.com/ap/070829/expensive_homes.html?.v=2

"In and around San Francisco, where the median home price is about $1.1 million, the tougher financing environment has created a "hesitancy" and has led to some canceled escrows for buyers around the $1 million range, said Rick Turley, president of the San Francisco and Peninsula Region for Coldwell Banker Residential Brokerage"

Posted by: ex SF-er at August 29, 2007 10:11 AM

"Yes, it’s definitely hitting the lower end of the market the hardest. (Or is that first?)"

Doesn't it always start on the lower end or outside as the bubble goes and work its way in? $50 billion worth of loans reset in December.... but SF is untouchable, right? right?

Posted by: bird_man at August 29, 2007 10:12 AM

oops... sorry... high end clearly isn't around $1Million.

I should have said "mid range properties" perhaps.

Posted by: ex SF-er at August 29, 2007 10:12 AM

entry level more like it... for the moment anyway.

Posted by: bird_man at August 29, 2007 10:18 AM

These anecdotes are the low-end for SF. But I don't think you can conclude from these examples that this is limited to any sector. I've seen a number of places in the $1M to $1.5M range change from act. cont. to active recently. Are these based on a full survey of the listings or are they just random examples to illustrate a point?

Given the fact that conforming loans are at very good levels right now, and it is extremely difficult to get any jumbo loan, I would think that this problem would hit the high-end more than the low-end. But I have done no analysis to test that.

[Editor's Note: Illustrative.]

Posted by: Trip at August 29, 2007 10:21 AM

"Doesn't it always start on the lower end or outside as the bubble goes and work its way in?"

Actually, if you studied the last down turn of So Cal, you will see the high end got hit first, and later recovered first.

Posted by: John at August 29, 2007 10:30 AM

Many have cited SF's historical appreciation of ~4%/year. OK.

547 35th Ave. Last sold in 9/03 for $630K. 4% annual appreciation means the price today "should be" about $740K. So at least $150K overpriced, or 17%.

247 Sagamore. Last sold in 6/04 for $550K. 4% annual appreciation would put it at $620K today. So $80K overpriced, or 11%.

And this ignores the fact that these properties, when last purchased, already had a few years of double-digit bubble appreciation in them.

Posted by: Dude at August 29, 2007 10:34 AM

At least right now all of these properties are at the bottom end of the market. I might be concerned if I saw it happening to $2million properties.

Posted by: AC at August 29, 2007 10:38 AM

They may be "bottom end", but many if not most buyers will likely need a jumbo loan in order to buy!

Posted by: Amen Corner at August 29, 2007 10:45 AM

1674 Hayes (3/2) - $825,000

This is an overpriced TIC. You would have to be crazy to buy into a TIC at this time knowing that your co-buyers could easily go belly up due to the ARRM resetting. IMHO, TIC prices should be the 1st to dramatically fall.

Posted by: Spencer at August 29, 2007 10:55 AM

"At least right now all of these properties are at the bottom end of the market. I might be concerned if I saw it happening to $2million properties."

you can't be serious.

There are 2 issues with the above houses;
1) low end buyers weren't able to close on their contracts to purchase a home (not surprising, many here have been predicting this for weeks)

but also
2) the current homeowners of those homes now have a home back on the market. It is not inconceivable that many of those people intended to sell the above houses, and buy another house somewhere else in the city (in the $1M plus range).

my quote above discusses that it's occuring in $1M homes too.

And those $1M homeowners may have wanted to sell in order to move up to $2M houses.

it's called the "property ladder" for a reason. Few people just up and buy a $2M first home!

Posted by: ex SF-er at August 29, 2007 10:57 AM

Wow, from “prices never fall in San Francisco, there’s too much demand”, to “10% appreciation isn’t normal, but 4% is in the bag”, to “at least good properties will be fine”, to “I might be concerned if I saw it happening to $2million properties.” It is happening to $2M properties (talk to an experienced mortgage broker) and you should be concerned.

Posted by: Michael at August 29, 2007 11:08 AM

What is MECE?

Posted by: kathleen at August 29, 2007 11:11 AM

MECE: Mutually exclusive, collectively exhaustive. Statistics jargon for "includes all available data"

Posted by: Dude at August 29, 2007 11:20 AM

Ditto: what's MECE and CE? Are you talking about this? http://en.wikipedia.org/wiki/MECE Obscure, man. Obscure.

Posted by: SerialJingleMailer at August 29, 2007 11:22 AM

OK, it may be happening to $2+ million properties, but so what?

I might be concerned if it starts happening to SF properties listed between $3M and $3.145M on streets with the letter 'Q' in the street name.

But only if the property is a SFH in SF, built with brick. And has a pool.

Until then, everything is fine and buyers should keep on buying without a care in the world!

Posted by: tipster at August 29, 2007 11:37 AM

198 Judah - $1,350,000 “Back on the market after almost 60 days.”

Agree with Trip, it’s not that there aren’t any $1M+ properties that are failing to close but that they don't advertise it in the listing.

And to ex-SFer’s point, from the listing for 2676 21st at $699K: “We are short on time to close. The buyers must be qualified to purchase property that needs work and can close very quick.” $1M move up purchase in jeopardy?

Posted by: Another at August 29, 2007 11:52 AM

No offense, to anyone who doubts what I said about not being worried about $2 million units, but unless you live in a building where many such owners live and you interact with them on a daily basis for years in a row, you are not really getting the full picture. When the local Ferrari dealerships no longer have 3-year waiting lists, let me know! Then I will be concerned.

Posted by: AC at August 29, 2007 12:21 PM

AC - The waiting list for Ferrari's as a measure of the strength/weakness of the housing market? No offense, but that's about as far from a "full picture" as one can get. Then again my IT guy owned a Ferrari for about 12 months back in 2000 before he quickly had to sell it.

Posted by: Micahel at August 29, 2007 1:00 PM

Ah yes, the Ferrari wait index. More representative of economic health than GDP, CPI, unemployment, or default rates. I'm sure this is what the Fed is looking at on a daily basis. God forbid the list of people willing to pay $10 million for a ride on the space shuttle ever shrinks...then we're REALLY in trouble.

Posted by: Dude at August 29, 2007 1:06 PM

Interesting that all but one of these are single family homes and not condos. Also noticed that 2676 21st was reduced $100K from $799K two days ago. Anybody know how much it was originally in contract for?

Posted by: Anon2 at August 29, 2007 1:34 PM

Ferrari waiting list...LOL

Thats somewhat funny but not quite realistic since people who pre-order Ferrari at MSRP only buy them to re-sell them at 40K+ higher than MSRP.

Call Ferrari of SF and ask about the wait list for a Maserati instead.. it doesnt exist anymore {as of 8 months ago}..

Posted by: Dave at August 29, 2007 1:42 PM

I don't trust the judgement of the Ferrari crowd right now.

What do the Bentley buyers think?

Posted by: Emmett_Brown at August 29, 2007 1:44 PM

I'd be far more worried about the rumored 20% haircuts that banks are taking on foreclosure sales and then reporting full price sales instead.

Now that's an indicator IMO.

Posted by: VultureBoy at August 29, 2007 1:47 PM

"No offense, to anyone who doubts what I said about not being worried about $2 million units, but unless you live in a building where many such owners live and you interact with them on a daily basis for years in a row, you are not really getting the full picture. When the local Ferrari dealerships no longer have 3-year waiting lists, let me know! Then I will be concerned."

Good point

Posted by: bird_man at August 29, 2007 1:52 PM

the lamborghini crowd is the real indicator. greenspan was always pimping the lamborghini index

Posted by: Spencer at August 29, 2007 2:11 PM

"I'd be far more worried about the rumored 20% haircuts that banks are taking on foreclosure sales and then reporting full price sales instead."

VultureBoy - isn't this illegal? Banks are all audited public filers...these losses have to show up somewhere on their P&L.

Posted by: Dude at August 29, 2007 2:11 PM

At current levels, real estate without question is the investment class with the worst promise of future returns. Cash looks "OK" by comparison. Stock, especially global stocks with dividends look fantastic by comparison. I can think of no less than 50 stocks that will easily provide a better risk-adjusted total return over the next five years, compared to real estate. And of course rental- real estate has even worse prospects. If you think homeowners have it bad, consider the buyer of rental property at the peak. Can you say multiple contraction?

At the bottom, in SF, people's mouths will fall wide open when they see the prices at which stuff will be clearing. That should be about 18-24 months from now.

-The Kid

Posted by: SurveyKid at August 29, 2007 2:19 PM

Some of these homes are out of contract for lack of financing, but I suspect others "fell out" because of the inspection contingency when the buyer found a loose doorknob screw and promptly killed the deal, figuring they'd stay on the sidelines as the prices tank.

If financing for Ferraris were handed out like candy to anyone with a pulse, and prices doubled, when the easy financing for irresponsible idiots stopped virtually overnight, I have no doubt that even the all cash Ferrari crowd would disappear for awhile, figuring that they would wait to buy when prices were lower. And pending orders would be canceled for all sorts of reasons except the real one.

Funny thing about the $2M home buyers: they didn't get there by being stupid with their money.

Posted by: tipster at August 29, 2007 2:22 PM

This isn't news, nor is it rocket science to figure out. These are subprime homes in subprime neighborhoods sold to subprime borrowers. Subprime borrowers are being turned away in droves (or charged ridiculous rates), availability of "affordability" loan products are evaporating, and jumbos are being penalized in the secondary market with higher rates. (Bankrate discussed today the fact that pooling of no-doc jumbos with full-doc jumbos has created part of the problem. As such, those with good credit and documented income seeking jumbos are being punished alongside the rest of the riffraff...)

We currently have a credit problem, not a demand problem or supply problem. If you start seeing a ton of foreclosures in SF (like in San Diego or Solano or Alameda or East San Jose) then we could also have a supply problem. Overbuilding (e.g. Sacramento, Stockton) also have supply problems.

If you start seeing massive layoffs at tech companies because the country goes into recession and main street stops buying ipods, then you'll see a demand problem too. Someone commented above about SoCal's last bust. A whole city-load of white-collar (defense industry) workers got pink slips. Had nothing to do with credit or supply.

So far, we don't have supply problems or demand problems in SF, just credit problems. Is that big? Yep. Especially when affordability is so tough here. But supply is still pretty tight and employment is too. What comes next is anyone's guess.

Posted by: Dave at August 29, 2007 2:34 PM

Dave, what you've just described in SF is a demand problem. If people can't get financing, whether or not they want to buy, they are not in the market on the demand side. That alone is exerting downward price pressure, as we can see from these examples. If we get the supply problems that many are forecasting with resetting ARMs, foreclosures, etc., then we'll have both sides of the supply-demand curve pushing things lower.

Posted by: Trip at August 29, 2007 2:44 PM

198 Judah - $1,350,000 “Back on the market after almost 60 days.”

I can say with 100% confidence, it has NOTHING to do with market conditions.

If you don't believe me, make an appointment and go to see it yourself. Bring a contractor with you.

Posted by: John at August 29, 2007 2:54 PM

AC--Would you worry if I told you I was in a $3m open house in Pacific Heights that hardly had any foot traffic this weekend? How about if I told you that last year this home would have had hundreds of people marching through it. Oh, but don't worry...the home has a couple of bids...but, ooh, similar homes last year would have had 8-12 bids...

Posted by: anon at August 29, 2007 3:03 PM

^ Um.. what house was that? I know of only 4 active homes/condos from 2-5 million in Pac Heights and three of those have been on the market for ages..

Regardless, many qualified buyers are staying away for right now...

Posted by: Sleepiguy at August 29, 2007 3:30 PM

Regarding comparisons with Ferrari's:

In the late 1980's early '90's, the market for collectible used cars, particularly Ferraris, bubbled better and faster than real estate ever has, more like the Dutch tulip bubble of the 17th century. In the last 12 months or so, prices for solid collectibles are really moving again, enough so that many cars have regained their 1989 values.

Here is a link (I have no involvement with this firm) that has an interesting collector car bubble story on their home page.

http://fantasyjunction.com/

Posted by: redseca2 at August 29, 2007 3:38 PM

can someone please give me the link between Ferrari sales and $2 Million condos?

AC: I think you err in your hypothesis of our income levels, and with whom we associate.

it should be obvious from many of our posts that many of us are quite affluent, but simply prefer not to advertise this.

I have to say, although the large majority of my associates and several of my closest friends can or do live in multimillion dollar residences, not one of them owns a Ferrari.

I just don't find Ferrari's relevant.

I'll give you (IMO) a better gauge of luxury home sales in SF:
1. stock market performance. higher stock returns make people feel affluent allowing them to spend, and many SFers participate in the equities markets. (equities not doing so great last few months)
2. hedge funds including quant funds (many hedgies are set up in the Bay area... and many are getting killed)
3. Google and Yahoo personelle... (there are concerns about advertising revenue with the housing downturn which may impact Google/Yahoo earnings going forward... also the new crop of hires did NOT get the "golden ticket" that the pre-IPO hires did)
4. BofA and Wells executives. (looks like a difficult year for them as well)
5. Gap and Levi-Strauss executives (remind me again what happens to retail during GDP growth slowdowns)
6. Biomed company employees. Some are doing well right now, some aren't (e.g. Genentech which looks fundamentally pretty strong but stock trading near 52 week low)
7. Tech employees... Tech is also making a comeback this year... but it's not like it was in 1999. this is very good for SF high end RE.

Posted by: ex SF-er at August 29, 2007 3:39 PM

^ I think that's extremely accurate. A majority of the new(ish) buyers in my neighborhood fall into those categories. There are quite a few retired (or semi-retired) tech executives actively buying Pac Heights properties as well.

Posted by: Sleepiguy at August 29, 2007 3:54 PM

Trip, I agree with you that availability of credit impacts demand but I don't agree with you that it's a problem yet. These examples seem very isolated at the bottom end of the market.

Credit availability (so far) has only materially impacted one segment: low-end or subprime. They can't get loans, period. Other prime jumbo borrowers CAN get loans right now, just not on the generous terms available even a month ago. That hasn't dented the demand side of the equation in SF to create a significant problem (yet).

Could it lead to a real demand-problem in the future? Certainly, but we're not there yet...

Posted by: Dave at August 29, 2007 4:28 PM

sorry guys, it's my fault. I put offers on all those places listed above as investment properties, but then I got cold feet and used my contingencies to back out of the contracts. Phew. But really, me backing out had nothing to do with house. I mean it wasn't the houses' fault I backed out. So please don't blame the house! Blame me as I'm the one skewing all these stats.

j/k :)

Posted by: eddy at August 29, 2007 4:37 PM

Dave and Trip: I would argue that the Defense shutdown caused a supply problem. Maybe "sudden shift in equilibrium" rather than 'problem'. Anyways, in coastal CA, people always have the option of cashing out and moving to a cheaper area. When a large number of jobless people did that in a relatively short time, the inventory shot up. In the 90's recession in the Bay Area, there was no one big layoff, but rather a constant stream of people relocating out. That caused the prices to flat-line. At least that is how I read the top chart, from 91 to 98.

Some may recall the time when U-Haul trailer rentals were free if you took them from the Northwest back to CA. So many people moved out they ran out of trailers. Could it happen again? Depends if you think history can repeat...

Redseca2: any site that puts a 300sl on the homepage gets my approval.

Spencer: The Lamborghini Index was disproven as a market indicator by the Countach Paradigm. As Greenspan himself noted, the Countach was prone to Irrational Protuberances. Link: Lambo as Financial Leading Indicator

Posted by: Emmett_Brown at August 29, 2007 5:01 PM

Posted by: SF Bubble at September 4, 2007 12:48 PM

This is healthy for the real estate market. The fact that we've seen double digit appreciation for so many years was certainly not healthy. So what if people are lowering prices, if they've owned for more than 3-4 years, they are still making out ok.

The only ones who are hurting will be the ones who bought last year, and need to sell within the next 4-6 months.

Posted by: MrJohnson at September 5, 2007 1:32 PM

"The only ones who are hurting will be the ones who bought last year, and need to sell within the next 4-6 months."

Why will it only take a couple of months to undo "many years" of unhealthy market behavior? I don't foresee any big bust for SF, but I am pretty confident that the current downturn will be measured in years not months. That "4-6 months" could easily turn into 4-6 years and hurt those who bought in the past - not to mention next - couple of years.

Posted by: Michael at September 5, 2007 2:38 PM

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