September 28, 2007

JustQuotes: Don’t Shoot (But Feel Free To Debate) The Messenger(s)

“A recession within the next 12 months is likely and its impact on the Bay Area will be "sharp but short" due to the area's strong economic underpinnings, according to a new forecast.”

“A recession will be brought on by slowing consumer spending prompted by a cooling housing market, said economist Jon Haveman. "People who have seen their house values rise 10 to 15 percent annually have been spending accordingly," he said. The Bay Area housing market is overpriced and Haveman expects prices to drop by as much as 20 percent by 2009 before stabilizing.”

“While the forecast, presented to business executives this month, predicts a relatively short recessionary period, there are risks to the local economy. Among them is the commercial real estate market, Haveman said.

Low interest rates allowed unprecedented speculation on office space. If lease rates dip, that could trigger an unraveling of mortgage-backed securities in the commercial market, the forecast said. "The same excesses in the mortgage markets have also been seen in commercial markets," Haveman said.” (Bay Area may be in for short, sharp shock)

First Published: September 28, 2007 2:30 AM

Comments from "Plugged In" Readers

But my realtor says that prices can't go down here and it's always a good time to buy and not to pay attention to the news because none of it applies to SF!

Posted by: anon at September 28, 2007 11:30 AM

Does your realtor know something that we don't know? I ask because they tend to be such an intelligent lot. Most will tell you anything, and I mean anything, in order to make their commission. The really slick ones should be cruising Eddy St. in the Tenderloin IMO. They'd sell their mothers for a donkey.

Actually, this Haveman forecast seems pretty realistic to me. Though a 20% drop may be aggressive.

(Coming from a banker with a CA broker's license.)

Posted by: gh at September 28, 2007 11:54 AM

GH, anon @ September 28, 2007 11:30 AM was being facetious, taking a jab at Realtors.

Thanks for the chuckle, anon. ;)

Posted by: S&S at September 28, 2007 12:33 PM

Wow! Only a 20% drop. That is great news!

Posted by: Rich at September 28, 2007 12:42 PM

Anon, I know you were...

Poor realtors these days.

Posted by: gh at September 28, 2007 12:46 PM

20% drop from what? From last years sales? Big deal. We saw 20% appreciation each year for what 5-6 years?

Come on....the only ones losing money are those who bought last year and have to sell this year.

Posted by: fancypants at September 28, 2007 1:18 PM

We all know real estate markets are local, even in the Bay Area it can be broken down to several sectors. Haven't 20% declines ALREADY taken place in many parts of the bay area? I know places like Antioch and other cities in Eastern Contra Costa, Sonoma and Solano counties are down 10-25% and will probably suffer even a greater % loss when this is all said and done.
I guess the million dollar question we all want to know is if SF will suffer 20% declines?
I'm invested in real estate in the city and hope that will not happen...

Posted by: missionbayres at September 28, 2007 1:24 PM

Real estate may be local, but it's not a cash market (for most). And the real estate financing market is quite obviously global. So the question is how much of the recent appreciation here was driven by easy credit/speculation, which are now gone?

Posted by: Dude at September 28, 2007 1:30 PM

The housing market already HAS cooled! The thing of it is - San Francisco seems to be immune to it! I've been looking for nearly 2 years now and it seems just as competitive now as it was 2 years ago. Maybe we're like Atherton was back when the bubble burst and everything in the Peninsula was declining but people in Atherton were saying, "ohhh no. There's only so much space in Atherton." And then BOOM...it crashes. But then again, people can move to Menlo Park or Palo Alto and still get the same feel in the Peninsula, but there really IS only one "The City." Who knows!!!???

Posted by: Deborah at September 28, 2007 2:46 PM

Fancypants, remember your logarithms? It takes only a 50% drop to wipe out a 100% appreciation!

(20% down wipes out 25% up, 30% down == 42% up, 40% down == 66% up, 80% down == 500% up, etc.)

The days of selling houses for 10X median neighborhood income are over, thank goodness! SF won't drop nearly as much as the rest of CA though... There are just too many IPOs around here.

Posted by: bronson at September 28, 2007 2:49 PM

I'm dubious. I find it hard to believe that the San Francisco economy is propped up by the 25% of people who are actually lucky enough to own a house.

Posted by: nowonderitcostssomuchhere at September 28, 2007 4:24 PM

anon back again. Yes, I was taking a friendly jab, but the sad thing is that I really have heard those comments. And it is friendly jab-- as with all professions, there are well-informed and not-so-well-informed realtors. But in general, I find some of the comments from a few realtors and the N.A.R. itself and certainly Lawrence Yun to be completely irresponsible. It makes a few people believe in things like "sf is immune" and that there is no point in SF at which valuation makes a difference. It will be interesting to see not only where SF r/e goes over the next couple of years, but also if there will be structural change in how houses are bought and sold, the commission structure, and the amount of data available to consumers. "You can't lose buying a house in SF. Just close your eyes and buy," (direct quote) doesn't replace real information. It's almost ludicrous to me that that is the "value-added" provided for the commission. I hate politicization and regulation as a general rule, but there are a lot of irresponsible practices and comments from the N.A.R. itself which is self-regulated.

Posted by: anon at September 28, 2007 4:32 PM

As much as I would like for the market to take care of the foolish and the irresponsible, I think some regulation is needed too. I couldn't stand it when people in my industry in the 90's made irresponsible claims that encouraged the tech bubble and it is really disheartening to read the NAR 'information' being disseminated now. These are some people’s life savings and to treat them with such recklessness is just wrong. Real estate, like all other investments includes risk and to treat it any differently (i.e. property values always go up in San Francisco because we’re special!) is silly at best. It’s as stupid as the promotions in the 90’s of any stock ending in “.com” as an automatic winner. One would hope that consumers would appreciate the basic concept of not relying on the investment advice of the people who stand to benefit from your transaction whether it’s in your best interest or not. But as the adage goes "There's a sucker born every minute...and two to take 'em." Since we keep repeating this bubble behavior across generations and industries, I guess regulation is the only option we have left to protect us from ourselves. I feel terribly for the people who will get hurt by this as I did for those who lost their shirts in the 90’s, but I can only hope that it stays contained and the rest of us don’t get stuck sharing too much of the bailout tab.

Posted by: pica1986 at September 28, 2007 6:30 PM

Last month I was looking for something special, with character, charm, direct access to a yard and parking and be a condo... in Eureka Valley or Noe Valley... is never gonna be a bargain. Too bad for me. But I found one! On Clipper Street. List price: $699. Comps provided within the past several months suggested the condo would go up toward $800,000! And those properties were not even as nice. So I was advise to offer a minimum of $787,000. Feeling out of the ball game, I didn't even make an offer. Guess what? The place went for $760! Shocking everyone! Oh, the parking was Tandom?!?!? And so the search goes on. Point being, choice properties are still high! And I should make an offer no matter what.

Posted by: artyguy at September 29, 2007 10:06 AM

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