1039 Noe: Inside
According to a plugged-in tipster the home we deemed to be a “Deck-O-Licious Victorian” two weeks ago is now in contract with a rumored twelve offers. And yes, it’s safe to assume for “over asking!”
A Deck-O-Licious Victorian (In Façade Only) At 1039 Noe [SocketSite]

142 thoughts on “It Pays To Be Popular (And Price Appropriately): 1039 Noe In Contract”
  1. Wow, what happen to, “run! the sky’s falling, prices are crashing, prices are going to plummet 40%, the world’s going to end!”
    Guess that didn’t happen for this property…

  2. Well Missionbayres, if you happened to notice the price range for this place, you’d realize that this is at the high-end of the market, which hasn’t faultered yet. It’s the bottom of the market (i.e. all those crappy units at the Palms & the Beacon) that are hurting. There’s a domino effect – give her time.

  3. A comment on the original post: “From the pics, the house seems quite similar to 4065 25th st. I never understood how that place sold so quickly, and for well above this $2.2M they are asking for this place.”
    Underpriced to begin with?

  4. Wow, 12 offers? That’s huge for this time of year when everybody is celebrating the holidays. Makes me wonder what the other 11 people/couples/families bidding are going to do.
    Price seems pretty reasonable for Noe at $880/sqft for a remodel. Do you guys think this can go for $1,000/sqft to $2.5 million?
    Also, besides the 11 losing bidders, the other interesting thing is what about all the neighbors on that block and across the st.? They must be high-fiving themselves!

  5. Noe’s “high end” won’t hurt until there is a recession. I know you folks don’t like to keep hearing this, but there are hundreds of lowish-level Google employees (to say nothing of higher level ones) who could afford this house, many of whom are playing with found money, and who don’t care if they are “overpaying” 20%, 30% (or whatever).

    I’d be willing to bet high-end Noe valley house prices correlate very closely with google’s stock price. Maybe I’ll post a spreadsheet 😉

  6. At the end of every bubble, credit revulsion begins to take root. At that point, the pool of buyers for any given asset shrinks to that limited subset that is both wealthy enough AND stupid enough to purchase the bubble asset. Right now, that intersection of wealth and stupidity appears to be centered in San Francisco proper (as a general matter), and perhaps in Noe Valley specifically.
    We should track the joker who is buying this. Assuming he or she is paying around $2.5M (pretty safe assumption given that there were 11 offers to beat – can you say, “winner’s curse?”), that person is paying approximately $12-15K per month in “rent” to live in this place, PLUS he or she is taking on the risk of buying in an obvious bubble. Not a bet I would take, but like I said, let’s follow this and check back after a few years….

  7. Satchel – We’ve been checking back for years. Donno when things are ever gonna change unless a big time recession occus and: Google, Apple, VMWare, Ebay, Oracle, Youtube, Facebook, etc finally implode. Instead, unlike in 2000, they are all making record profits.

  8. Interesting…
    I made the original comment Michael was commenting on. To be fair I didn’t see the Noe house, and from the floor plan it seems to be a bit smaller than 25th st.
    Having said that, I think this sell clearly demonstrates that location is very important, and you really need to be at the heart of Noe and NOT on 24th st.
    As for the GOOG effect, I think it’s somehow mythical, I work there so I should know. Not that many people can easily afford $2.2M places, you can use property shark to track recent buyers of high end stuff and I found them to be from all over the place.
    Having said that, a recession will hurt many of these potential buyers, they all rely on bonuses and stock options that will vanish right away.

  9. RT,
    Well, if by “years” you mean about 10 years…. Half of those companies you mentioned didn’t even EXIST 10 years ago!
    We all have our roles to play. There’s always a cassandra like me, there are always bubble boosters, there are always fundamental arguments for and against, etc.
    I’ll just leave you with this idea. At the peak of a bubble things seem like they can’t get any better. That’s generally right. Things can’t – that’s why they get worse!
    This cycle has played out scores of time in recorded history, and doubtless thousands of times throughout the unrecorded annals of human psychology and history.
    With regard to housing and economic prospects for a given region (which is what you seem to be arguing), you only need to look at Detroit in the mid-1960s, Denver in the 1920s, Buffalo, NY at the turn of the 20th century (when it looked like canals and light manufacturing would always be the wave of the future), and literally hundreds of other examples in order to see that the future is often not what is expected. (The same thing could be said for SF and SV – in 1975, who would have ever guessed that all those fruit orchards would become so “valuable”!)
    No one knows the exact future of course. But my point is that people paying $2.5MM for relatively modest housing sure act like they do! (We can see this quite easily because they are willing to “invest” in their imagined future so much more than they would be willing to “rent” the ability to be there.)
    My humble prediction: the next 30 years will see a systematic and continual weakening of the drivers of SF property values (namely, finance and speculative tech spending, itself a result of the huge increase in finance activities). Perhaps similar to the secular declines in steel, heavy manufacturing, mining, oil production, agriculture, etc., each of which enjoyed its moment in the sun in the history of America.

  10. Satchel, your prediction seems to assume that the Bay Area will be unable to evolve and change as the “finance” side of things changes. This is possible, but I would argue that it won’t likely occur. There is certainly plenty occuring here with tech, but other industries are also firmly rooted here as well. Biotech, clean tech, and green tech all come to mind as industries that may step-up and replace anything that is lost in the high tech side of things. For example, guess which area of the world receives the most biotech VC money right now…yes, it is here (and the margin between us and the nearest competitor is growing per the last data I saw). Sand Hill Rd is not going anywhere anytime soon.

  11. @Someone: When did you join? If you joined pre IPO as a full-timer when google had about 2-3000 people, you can probably afford this house — whether you actually buy it is a different matter. “Recent” employees are not wealthy of course, and I’m sure internally google plays down the wealth effect for morale reasons.

    As you say, when things get rough, the plug will get pulled, but that hasn’t happened yet.

    One more point — I had rented in Noe valley for many years, and the rental stock was not comparable to the house shown here. There may be no “comparable” rental to this one. You might as well compare driving a Mercedes to a ford focus: both get you there, but I’d always expect to pay more for the former, even if I think it’s overpriced and absurd.

    The buyers of this house may be operating outside the model you are using to price it (and may be doing so *rationally* like the Mercedes driver). It’s too bad, etc., but that’s life.

    @Satchel — you may be correct, but thirty years? Man, there’s a lot of life to be lived in there: “In the long run, we are all dead”.

  12. I’m curious – why is google constantly mentioned as the source of all real estate transactions in SF? It’s like there are no other companies or jobs in the bay area….is google a cliche for ‘highly paid high tech’ or do people really think that every employee @ google is anxious to purchase a house?

  13. My original prediction was correct – it went into escrow within 2 weeks, with multiple offers. This is a very nice property – wonderful flow and outdoor space – not to mention the fact you could easily fit 3, possibly 4 cars in the garage – it is huge. Great location and case in point that many areas of the city are still seeing good activity and multiple offers. Noe Valley appears to be in the thick of it all.

  14. I don’t have the data for bay area. However, in the last down turn, in LA area, the high end went down first and then later recovered first.
    Why? Maybe because the buyers are more financially savvy. They know the properties were overpriced before the general public, and then see bargains before the general public.
    For some reason, people think the high end will follow the low end this time. However, if you look at the CS index, the high end never really took off.
    So, maybe they were not overpriced at first place?

  15. Craig,
    Well, let me say I really am humble about the future. I’ve got my opinions, but of course they’re just that – I’m no clairvoyant!
    But about “evolving” – that’s dangerous thinking, IMO. Hey, why didn’t those guys in Detroit or Buffalo “evolve”? In the late 19th century (and very early 20th) Bodie, California was MUCH more expensive than SF – been there lately? Why didn’t they evolve?
    IMO, one of the main reasons areas fail to evolve because they hang on to the past. Too many entrenched interests protecting “their” turf. If tech goes, and finance weakens significantly as an engine of growth, SF will be left with an extraordinarily high base of expenses (from housing values to taxes). Most expensive will be average people’s refusal to let go of their dreams. I’ve said it before, if AVERAGE MODEST housing costs 10X median income, you will quite literally cease to have a functioning city. It is not an equilibrium condition and NEVER has been. That’s one of the main indicators that we are in an extraordinary bubble.
    If you really think about it, most of the arguments of those in a bubble boil down to one thing, “we’re DIFFERENT”. Like I said, I’m humble before the future – maybe we ARE different. But history says otherwise.

  16. There are of course counter examples of cities that have not went boom and bust with no return following the bust. NYC, London, Houston, Chicago, etc. The list could go on.

  17. Craig,
    Of course! But carefully consider the wipeouts many of those cities went through on their way to their “resurrections”! I grew up in NYC in the 1970s. Housing that was built as “middle class” or even “upper” middle class was literally BURNT DOWN as worthless. Today, some of those areas are very pricey again (but the “owners” of ousre were wiped out first). Not that I’m saying Noe Valley will be burnt down, of course…..
    Anyone investing their lifetime savings and an overwhelming portion of their anticpated earnings at the top of any of these cycles can have a LOT of pain ahead…. In a bubble, no one imagines this. That’s why it’s a bubble!

  18. A totally redone house in in SF is an ultra-rare commodity and clearly commands a premium. I guarantee you that the developers of this property made double what they were thinking it would return from the time when this investment was started. Noe is HOT and is starting to get Pac Heights types of psf prices. I’d rather live in Pac Heights; but then again, I don’t have to drive down 280 to get to work. Clearly this is driving value to Noe.

  19. @Northern_Autumn: the “rich google employee” is an annoying cliche in the bay area. Like it or not, there’s some truth to it. Although most of google’s > 11k (?) bay area employees are not wealthy, several thousand are, some extremely so. Some are young, and extremely idealistic about the future, for obvious reasons. Some are older and want to start families now that they’ve hit the jackpot. You want to change it, run adblockers, or figure out how to shut down the click farms 😉

    And we are not talking about “all” SF real estate transactions, only those in desireable regions of Noe valley (and other nice SF places not mentioned), where there are no comparable rentals — Noe’s a doable commute to google (certainly google SF) for the “rich workers” especially on the googletard busses; or to your swanky soma/southpark office for your hilarious self-funded social networking startup :). I’ll bet 5 of the offers on that house were from the google-industrial complex (GIC). Any insiders willing to share? It’s found money, and that’s a nice house!

    I don’t make the world, I just have to live in it… Don’t expect “good Noe valley” to go down until there’s a real recession that hurts the GIC. Just watch the stock price if you are lazy. Again, I hate being right about this 🙂

  20. @dub dub: “I had rented in Noe valley for many years, and the rental stock was not comparable to the house shown here. There may be no “comparable” rental to this one.”
    That’s an excellent point in relation to all these rent vs. buy debates. There are substantial perks to buying a property, either remodeled like this one or to remodel yourself, that don’t translate on a spreadsheet.

  21. I’m always fascinated by the Google employee myth. Someone posted that the pre-IPO # of employees was maybe 2,000 to 3,000 (and that’s assuming all of them got stock options, which we shouldn’t assume.)
    But the Chicago Mercantile Exchange in Chicago had about 1800 employees and all of them (assuming, again, they all got options) are even richer than Googlites- as their stock has gone up more than Google shares have since their IPO.
    So why don’t we hear about the CME millionaires in Chicago? Why aren’t there stories of them purchasing ritzy condos for all cash? There had to be some lower level employees there that got some options, right?
    Instead, Chicago has a glut of high end condos that aren’t selling (and probably won’t sell for years.)
    I also think the discussion about what happened to Detroit or Buffalo to be interesting.
    General Motors paid out a special dividend of $2 a share to shareholders in 1927 (during the boom years.) What is that in today’s money? $10 or more a share? Extraordinary. It must have seemed to those living in Detroit that the good times would never end.
    You just never know what the future will hold for an area. Take Rincon Hill. I found this on a historical website:
    “A fashionable neighborhood in the 1860s, Rincon Hill was the home of William Tecumseh Sherman, William C. Ralston, William Gwin, H. H. Bancroft, and others. By the 1880s the hill, already partially leveled, became a working class district. Today it is nearly invisible beneath the Bay Bridge.”

  22. “For some reason, people think the high end will follow the low end this time. However, if you look at the CS index, the high end never really took off. So, maybe they were not overpriced at first place?”
    John may have a very good point. I believe if you track percentage appreciation at the high end of the market from, say, 2002-2006, these higher end properties had lower % gains than did lower end properties during the same period.

  23. @xem: indeed, if you think about it, it’s right there on any spreadsheet: it’s the difference between the line that says “here’s what you should pay to rent this” and the price it actually sells for. Of course, there’s another invisible line too: “the bubble amount”. Thing is, for properties without comparable rentals, how you apportion between the two invisible lines is impossible to say, and for lottery winners, the bubble part may be safely ignored.

    Obviously (reading here) not everyone thinks this way, and not all lottery winners will be so profligate, but all it takes is one (preferably two to start a bidding war). Say what you will about this house, but in Noe valley, there are very few comps.

    @Sabrina: “ritzy condos” have comparable properties (the one next door, the one above, below, diagonally, across the street, the one being built next block over), which I am explicitly leaving out of this discussion! Also, going back to 1927 is a bit like what Satchel did: too long, we will all be dead, and we have to live our life and raise our families now. I don’t refuse to buy a nice car because in 10 years it will be junk.

    An earthquake could burn Noe to the ground in 20 years, but you’d be crazy to value property like that; and in any case you can be sure there is someone else who would not.

  24. “But the Chicago Mercantile Exchange in Chicago had about 1800 employees and all of them (assuming, again, they all got options) are even richer than Googlites- as their stock has gone up more than Google shares have since their IPO.”
    You don’t really know how stock options work, do you?
    Let’s say you join Google when it is very small, your option price is probably $5/share for 100,000 shares. It goes to IPO at $100 (around that?), and now it is about $600. So your profit from the options is 5.95M.
    It is not about how much it went up since IPO. It is about how much it went up from the option price.
    And stock options are used to extreme extend only in the high tech companies in bay area, because at early stage, those companies are poor on cash. Even if all the CME employees have options, I doubt the number of shares the employee get is in thousands (certainly not 10x or 100x thousands).
    Another way to look at the high tech field (or any field) in any geographical area is to look at the total market caps of the companies. Silicon Valley has created dozens of high market cap companies over the last decade. That not only increases the wealth of the investors, but also the wealth of the employees proportionally. How many big new companies have appeared in Chicago?
    No, I am not saying the RE market is driven by google employees. However, I am saying in general, a lot of wealth is created in this area (including by google), and that is a positive force in general.

  25. 100,000 shares? You really don’t know much about Google. There are only a handful of senior execs with anywhere near that many shares.
    You really don’t know much about math either. 100,000 x $595 = $59.5M.

  26. I also heard from people in the know that the majority of the Google options were concentrated in about 200 employees. Maybe that isn’t true?
    Yes, a bunch of other people got options- but not enough to go out and buy a $2 million house in cash (and certainly not those who joined the company later.)
    There is plenty of wealth concentrated in the Chicago area. We have both the largest hedge fund (Citadel) and two of the most powerful exchanges (CME and CBOT). We could go on and on. Chicago and San Francisco are both wealthy cities. But Chicago has boomed and busted in the past (pretty severely- if you go back and read what was happening in the 1930s.)
    I doubt anyone thought it could happen to their city. The Peninsula and San Jose are strong in tech but San Francisco is almost completely dependent on services: financial and legal. Financial is busting. Hopefully the legal services end holds up.
    But nothing is guaranteed. New York in the early 1990s, for instance.

  27. “I’ve said it before, if AVERAGE MODEST housing costs 10X median income, you will quite literally cease to have a functioning city. It is not an equilibrium condition and NEVER has been.”
    And I’ve said it before: Average modest housing in San Francisco is rental housing. With rent control, most San Franciscans pay a smaller share of their income in rent than do renters in Seattle, according to a recent SPUR comparison.

  28. Dan has a great point, and I will to agree with him. In a city where there is such a high % of renters vs. homeowners, I just don’t see how Satchel’s theories would hold true.

  29. Dub Dub,
    I’ve been with Google close to 4 years (yeah pre-IPO), in a management position, and until you identify your sources I could easily claim that mine are far superior to yours. The only reason I’m even engaging in this irrelevant discussion, is because I’m tired of this unsubstantiated rumor mill tied to my employer.

  30. Obviously, every time a property like this closes escrow it provides another COMP for the neighborhood. Plain and simple, prices in Noe Valley are still on the rise. You have to be able to spend $1.7+ million to get a decent single family in Noe that’s not a tear-down.
    Satchel, I think the person who was the winning bidder on this place will be very happy. It’s a great property and you can’t beat the location. Obviously, they can afford to spend quite a bit of money – I doubt they are squeezing themselves in the door by any means.

  31. Sabrina, while finance and legal services are very important, perhaps dominant, SF industries, San Francisco also is the home to world class retail/consumer brand companies as well. Levi Strauss, Gap/Banana Republic/Old Navy, and Williams-Sonoma/Pottery Barn, to name a few.

  32. Dan & movingback,
    Not to be rude, but your lack of intuition about economics with respect to renting is simply STUNNING. This isn’t really the place for an indepth discussion, but consider that I said EQUILIBRIUM condition. Distortions sometimes take time (sometimes a long time) to work themselves out.
    Think about what happens when something like rent control is imposed upon owners – the ownership of rental housing over time becomes UNECONOMICAL. That’s why you get things like TICs. That’s also why there is a long line with the authorities for condo conversions. That’s why there is an Ellis Act. Get it yet? You cannot hold rents artificially low by government fiat: new buyers of properties will not rent out their flats or apartments at levels below their carrying cost or financing cost. When rents are not that far out of line with respect to purchasing, these price controls do not exert that much influence. But as asset prices rise, controls become overwhelming distortions. Notice an increase in TIC ownership, availability of TIC financing in the past few years, etc.? This is all to evade rent control and the poor economics of being a landlord here. Asset prices rising out of range with respect to available rental yield (which is limited through things like rent control) leads to an undersupply of the good in question, in this case apartments and flats. This creates an illusion of a housing shortage, where none exists. It also creates pressures for rising rents.
    Incidentally, as I’m sure you know NYC tried rent controls (still has them). As the rents were held artificially low, landlords found it more economical to BURN their rental units. (I guess they hadn’t thought up Ellis Act scams and TICs then.) Supply was thereby constricted further, leading to higher equilibrium rents.
    So, with this as background, let me modify what I said. Once again, when the value of the average living unit trades at greater than 10X the median income, you will cease to have a functioning city EVENTUALLY, as the supply of rental units is choked off and equilibrium wages cannot rise enough to bring the ratios into a positive real return scenario. Keep in mind, that it has only been within the last 10 years (and really only in the last 5 or 6) that the price to rent ratio has really gotten out of hand.
    In the end, though, it’s always the same with bubbles, always. Remember, the “e” in price-to-earnings ratios when used in real estate broadly can be considered the “rental earnings”. People who forget about the earnings aspect when they buy in SF today are making the exact same mistake that so many Bay Area “investors” made 7 years ago when they bought Pets.com. I met a lot of those people of course. For the most part, they were clueless, just like most of the buyers of 1-bedroom condos (at literally 3X the rental equivalent cost) I talk to today.
    Does that make it a little clearer?
    BTW, just as in the dotcom frenzy, many buyers of SF real estate are making the same mistake, namely substituting their assumptions about future appreciation in place of reasonable current earnings (in this context, rental yield). That’s one of the reasons that SF actually has a housing surplus, as does most of the United States now. Longterm owners (who pay very little tax because of Prop 13) judge their opportunity cost of holding vacant property here to be very low, since they are projecting great appreciation. You might be surprised to hear that SF has a housing surplus. Take a walk around and carefully look at what is occupied and what isn’t, then look at the census data for the city, and you’ll see this is true.

  33. Wow sanfrantim, you just listed off the other industry that is hurting even more than financial: RETAIL. Especially retail tied to the home like Williams-Sonoma and Pottery Barn. Gap has its own share of problems and a recession won’t help them out one bit.

  34. GOOG employees are definitely having a big impact on SF housing prices. Even if only 3000+ of the employees are worth over a few million, that is a large # most who didn’t own a home and who would like to buy in trendy SF and take the google bus to work.
    Just look at the # of housing transactions for high end homes in the nicer part of SF each month and it is easy to see how 3000+ people with millions to burn could have an outsized effect.

  35. ” Once again, when the value of the average living unit trades at greater than 10X the median income, you will cease to have a functioning city EVENTUALLY, as the supply of rental units is choked off and equilibrium wages cannot rise enough to bring the ratios into a positive real return scenario. Keep in mind, that it has only been within the last 10 years (and really only in the last 5 or 6) that the price to rent ratio has really gotten out of hand. ”
    Amen Satchel! I have long felt that though many real estate boosters would like San Francisco to become Santa Barbara with skyscrapers (just look at all the palms in SOMA now), but I instead hope for a real city with a diverse economy. Tourism and financial services along with a large group wasting years in their rent control apartments does not an intersting city make.
    I have noticed over time that many of the sales in my building are now to trustafarians, or lost graduates who got the money from Mommy and Daddy and have not decided on a career, and not people who actually get up and work for a living. (Realtors on this site refer to people who have jobs as “working class” I have noticed before). No great art or music is created by people who have not had some pain in their lives. This city long ago stopped making art and music of interest, and is really a hollow, though pretty shell.

  36. smug, it’s all business cycles. Gap, Levi’s, and Pottery Barn aren’t imploding and probably will be around for decades to come.

  37. There is lots of great and nationally recognized music being created in San Francisco. What there isn’t, is accounting for individual taste.

  38. SmugCloud, you may be right but you don’t produce any evidence at all to suggest it’s goog folks who are buying up high end property in SF. Saying something – even something plausible – doesn’t make it true.

  39. Not to be rude, Satchel – but you are the one forcing the indepth discussion – and no, your point didn’t make anything any clearer – I feel like I am reading a economics lesson. I am bored to tears.

  40. Take a walk around and carefully look at what is occupied and what isn’t, then look at the census data for the city, and you’ll see this is true.
    Satchel, care to enlighten us as to what “census data” you’re basing this conclusion on?

  41. Brutus, here is the most current census data on SF as far as I can tell:
    http://quickfacts.census.gov/qfd/states/06/06075.html
    2000 pop.: 776,733
    2006 pop.: 744,041
    Census data also indicate there were about 8400 new housing units added in SF from 2000-2005 (most current). Median household income in SF fell about 8% from 2000-2004 (most current) from $55,221 to $51,815 (not sure if these are inflation-adjusted).
    There are, of course, other data sources.

  42. Hey Brutus,
    Thanks for the serious question. I’m basing this on two facts. First, SF population has generally declined over the postwar period – actually pretty significantly, although there was a “blip” up for the 2000 decennial survey (almost certainly tied to the dotcom boom). In 1950 SF had 775K residents. In 1960 740K. In 1970 715K. In 1980 678K. In 1990 723K. In 2000 776K. Frankly, when I went back to look at the data, I was actually a little surprised that SF showed some growth prior to 1990. Some of this is no doubt due to illegal immigration and higher organic rates of population growth for Hispanic residents.
    You can see the data at http://www.census.gov/population/www/documentation/twps0027.html
    It will be interesting to see the 2010 data when it comes out, because that will fully reflect the influence of the bubble pricing in the late 1990s through 2005 or so.
    About vacancies, you can look at the 2006 (latest available) American Community Survey (ACS) data. They show that 9.5% of the housing stock in SF is vacant (+ or – about 1%). I’d guess it’s even a little higher, but I’m not going to argue with the census data (especially since I referenced it!). Keep in mind that the census doesn’t look at underutilization. For instance, there are plenty of “mini-mansions” in Western SF where a single old lady is living in 5000-6000 square feet. 55 St. Elmo (featured on Socketsite) was one of those. You see, even after the kids have moved out, there is little reason to move out of a house, especially if you have a chance to grandfather the tax base, and the state only taxes you $1500 (on a property that sold for $3.1MM!). Census data will not pick up this sort of distortion created through Prop 13, for example.
    You can see the 2006 ACS data for SF here
    http://factfinder.census.gov/servlet/ACSSAFFFacts?_event=ChangeGeoContext&geo_id=16000US0667000&_geoContext=&_street=&_county=san+francisco&_cityTown=san+francisco&_state=04000US06&_zip=&_lang=en&_sse=on&ActiveGeoDiv=&_useEV=&pctxt=fph&pgsl=010&_submenuId=factsheet_1&ds_name=ACS_2006_SAFF&_ci_nbr=null&qr_name=null&reg=null%3Anull&_keyword=&_industry=
    (Sorry for the crazy link!)
    And sorry to bore you, movingback! We all play our assigned roles in this bubble I guess…..

  43. Regarding the census figures. I agree with what was posted in both number of people and incomes. My curiousity is how many homes in this city are now being bought still either by investors or property “collectors”. I went up on my roof balcony at Pierce and Green in Cow Hollow with a neighbor and he pointed out the numerous homes that were for the majority of the year not occupied. This neighborhood used to be flooded with children playing on the streets, and now it is a ghost town flooded by double parked bmw’s. My block of Pierce has only about 60% full time residents and I would say of the full-timers, most do not have children and are basically two people living in a large home originally built to house a family with children and even a grandparent as well as a live in housekeeper.

  44. You got it Adam Smith! The city is being hollowed out and inexorably turned into an amusement park for rich outsiders (at best) or a pretty relic (at worst). Amusement parks and museums don’t “evolve”, to echo an earlier theme we talked about. When outside conditions change, they wither away.

  45. Satchel, I think what you have been writing about is the dirty secret nobody wants to really discuss. Trophy condos and houses are still selling, but is this REALLY a sign of a healthy city? My brother lives in the Lincoln Park neighborhood of Chicago which is pretty much like Cow Hollow or Noe Valley, BUT with a difference, there are children everywhere! Most of my neighbors seem to have no real interest in neighborhood issues including crime and trash, but would LOVE to talk about what “the big white victorian house” sold for up the hill. I find the whole direction this city is moving towards to be boring at best, and get my real urban “fix” from trips to New York, Paris, and Chicago.

  46. Ahhhh…so you’re referring to the census estimates. I’m a bit more of a believer in the state estimates, since they have been much, much, much closer to the actuals over the past two census counts – and state estimates put us at an all time population high of over 800k.

  47. Adam Smith,
    Manhattan seems more “real” to you? I certainly agree with some of what you guys are saying about the direction SF is moving…but to say that Manhattan has not ALREADY moved there is ignoring reality.

  48. Brutus, that’s interesting about what you found regarding the state estimates. My intial reaction was that the state is overestimating in order to scam additional federal $$. Then, I read the article you cited to. Sure enough, here’s the “money quote”:
    “As much as $200 billion in annual federal aid to the states is parceled out based on population estimates.”
    Always follow the money! Yes, there are systemic problems with undercounting illegals. But I think I’ll go with the census data, since distortions in those data series are at least likely to be consistent over time.
    Most importantly, the census data comports with what I see with my own eyes. Anecdotally, lots of vacant properties. Lots of “underutilized” properties (used to be a family with 4 children, now it’s 2 gay guys and a dog). Catholic schools that had literally twice the enrollment as recently as 30 years ago (St. Gabriel’s in the Sunset – used to be the largest Catholic elementary school east of the Missouri). Public elementary schools being shut down.

  49. Guys,
    I have been reading this blog and would have to disagree with the majority of the assessments above. First of all if you look at the statistics on the current California housing market you will see that San Francisco is one of only a handful of markets to maintain increasing values even during what has been termed the worst housing downturn since WWII. San Francisco, unlike many housing markets benefits from an already short supply combined with the inability to effectively increase that supply in the near future (much like NYC). Furthermore, the San Francisco housing market is bolstered by the tech industry itself not just a couple of companies. While some might not believe in the long term success of every company there will always be successful tech companies in Silicon valley which produce enough wealthy young home buyers to sustain the limited resource housing market of San Francisco. That being said, it doesn’t even matter because I have inside knowledge that it is Jake Gyllenhaal who is the highest bidder on this house anyways, and I don’t think he is too concerned with cash flow.

  50. Wow, boom boy – that’s some major scoop you claim to have there. Hope it’s true – it would be nice to have Jake (and Reese?) in the neighborhood. But prepare to have your post flamed shortly! At any rate, like I said before, I doubt the person who bought this house is concerned about cash flow either – apples to apples, oranges to oranges, it’s a rent vs. buy debate, and after 6 properties total, I’m staying on the ownership side – census statistics, cash flow, rent control, boom or bust, did we pay too much, loss or gain – etc – I much prefer owning my own home to paying someone else’s mortgage. The benefits are too difficult to explain to those that don’t understand.
    Fluj, where are you?

  51. @movingback: I guess he didn’t have time to check his rent-versus-buy spreadsheet between movies! Doesn’t he know the apartments on Castro and 25th have vacancies? 😉

  52. i’ll second that. good one dub. what was jake thinking? buying a beautiful place in one of the nicest places to live in the world? he’s a friggin’ idiot!
    😉

  53. Satchel, what money are you following? The state has not challenged the census estimates, as NYC, Detroit, and scores of other cities have – and guess what? In EVERY case of an urban city challenging the results, the census estimates for this decade have DRASTICALLY underestimated urban areas.
    Most of your anecdotal evidence merely points to a decreased number of children, which I certainly will not dispute. However, that doesn’t mean that population has fallen – during the population runup in the late 90’s, do you think it was families with kids causing that?

  54. Why would an actor with a pad in N.Y.C. and a newly purchased house on Mullhollamd Drive in Los Angeles (don’t you people EVER read L.A. real estate blogs!?) need a place in San Francisco? To be close to the “action” in the entertainment industry? Or because of our “thriving” arts and theater scene? Give me a break. This reminds me of certain realtors in the 80’s who used to call Herb Caen to claim Madonna was thinking of buying their listing on outer Broadway because she just “had” to have a house in San Francisco. You know realtors are getting desperate when they start claiming Noe Valley is Hollywood north.

  55. ^I interpreted the Jake-G comment as a joke. BUT, I know of a few HUGE movie stars that recently bought homes here while they filmed movies in the area. It really had nothing to do with wanting a permanent place in SF.
    How cool would it have been though if Madonna had purchased a pad on Broadway! Then again, I’m sure I’d just happen to walk my dog in front of her house several times a day, so it’s just as well that didn’t happen.

  56. Brutus, you’re not seriously questioning whether or not SF proper has lost population since the post-war period, are you? You asked what census data. You’ve seen it now, but you disregard it. In the 2010 decennial you’ll see an even bigger drop from the 2006 data, I’m guessing. We’ll see.
    The late 90s surge was based on tech hiring. We saw this immediately in rental rates – i.e., there was a real demand shock. After the tech bust, rents collapsed (the house I am renting today rents for 33% LESS in nominal dollars today than in 1995-2000!!).
    That census data is doubtless imperfect. But its methodology is relatively consistent (that’s what big bureacracies are good at – creating consistent procedures). So, after questioning where the census data comes from, now you dispute it, by citing to a one-time state survey that shows more people than the census.
    My proposition is that SF does not suffer from a housing shortage. As proof of that, I’ve shown you some post-war trends in the data, showing decreasing population as a general matter. (Keep in mind that ENTIRE NEIGHBORHOODS were added to SF in the 1950s and 1960s.) I’ve offered some anecdotal data regarding the prevalence of vacant housing, again consistent with the census data. Also, some anecdotal observations about the absence of children, which you apparently accept, but then fail to follow through to its logical conclusion – namely, that housing that was designed for 5 or 6 family members is now being underutilized – “two gay guys and a dog” was what I said (actual example around the corner from me); or a single old lady (about 80 or 90 years old) living in a 6000 sq foot mini-mansion with 7 bedrooms (55 St. Elmo).
    As further proof that there is no shortage of housing, you can look at rents, which are substantially below carrying costs on like properties, and are still not back to late 1990s pricing (although of course you can find exceptions). When you get into expensive properties, the difference between renting and buying is really extraordinary – I’d venture to say never before seen in a major city in the US (with the possible exception of some parts of LA).
    We are at the tail end of one of the greatest bubbles the world has ever seen. SF is playing its small role in it (now that the fact that there was a huge bubble, it would be pretty odd for SF NOT to have particpated in it, wouldn’t it?). This fact is gradually dawning on people, but perhaps not yet in Noe Valley. I can tell you that in most of Western SF, people are finally noticing.
    If you can’t see this, don’t feel bad. Economic intuition is not widely distributed, apparently. It really has nothing to do with intelligence. Sir Isaac Newton, who we can say with 100% certainty is smarter than any of us on these boards (and BTW much smarter than anyone at GOOG or in Hollywood) fell for the South Seas Bubble, losing something like 20K pounds if my memory serves me right (a substantial sum back then which would have bought a nice London townhouse). Over the next few years, this will all become obvious, but by then we’ll be on to the next thing. You don’t hear too many people around SF talking about Webvan or pets.com these days, do you? Well, if you were here in 1999, that’s all you would have heard.
    Schopenhauer said it best: All Truth goes through three stages. First, it is ridiculed. Next, it is violently opposed. Finally, it is accepted as self-evident. Most of the US is in the second to third stages. SF, ever behind the times, is still in the first and second.

  57. There are lots of kids in Noe Valley. Anybody who says differently has never spent a significant amount of time there.

  58. Fluj, there are NOT a lot of children compared to even only 25 years ago in Noe Valley. WHY are schools closing in San Francisco if there are “lots” of children. I would also like to thank Satchel for participating with intelligence and patience. Like Satchel posted, we are still in stages 1 and 2 of this bubble, while most other cities have already moved on to stage 3. The funny thing is that the rest of the Bay Area is already in stage 3, and now we will just sit back and watch how long San Francisco can hide its head in the sand.
    I would also like to add my own observations regarding under-utilized housing in San Francisco. In Pacific Heights, Cow Hollow and the Marina (the parts of town I know best and have lived in for over 25 years), there are hundreds of homes, mostly lived in by widows of men who did rather ordinary jobs. (My neighbor is an 83 year old widow of a laundry store owner. She tells me how she “cannot afford to sell”, and at one time had raised four children in their home which is probably worth about 3million) If there was no Prop. 13 or rent control, I believe San Francisco would be no more expensive or “special” than any other desirable urban area in America.

  59. “Brutus, you’re not seriously questioning whether or not SF proper has lost population since the post-war period, are you?”
    SF’s population rebounded by the time of the 2000 census, to a new census high. The federal government has not done a count since 2000; its numbers since then are estimates. The State of California (Dept. of Finance) also estimates San Francisco’s population annually, and according to the state’s estimate, the population of SF is higher than it has ever been. We won’t know which estimate is more accurate until after the next count, in 2010.

  60. Losing children doesn’t mean losing households.
    First, people are getting married later, and having kids later. 30 years ago, most women have kids in the 20’s. Nowadays, if you go to a baby’s playgroup, you will find most moms are in the 30’s or occasionally 40’s. I have a 2-year old, so I know.
    Second, the baby boomlet was from 80’s to 90’s, and after that, the birthrate is in a valley (just like RE market, the birthrate has up and down too) right now.
    Third, people want more space per person. A family of five could live in a 1000 sqft house 40 years ago (my formal landlord did that). Nowadays, a couple would want a 1000 sqft to start, 1500 sqft when they have the first kid. When they have the second kid, they start to adding rooms in the basement without permit, or (the more likely solution) look outside the city since there are so few larger properties in SF. Of course, when a couple with kids move out, some single or DINK move in.

  61. Thank you Dan for responding before I had a chance to – Satchel, please take a look at the estimates over the last two decades from both the census bureau and the state department of finance – you’ll quickly see which estimates have been more accurate.
    The fact that your entire theory rests on estimates that have been incredibly inaccurate in many parts of the US (and especially in CA), when tested against the actual counts – leads me to discount much of the rest of your theory.
    I have no doubt SF is losing children. I have no doubt SF participated in the housing bubble. I have TREMENDOUS doubt that SF has a “housing surplus”.

  62. Dan and Brutus,
    Thanks for the info about census data. It caused me to go back and look at it all, particularly the California Dept. of Finance series (I’ve got to find better things to do on a Sunday morning!).
    First, Brutus, California doesn’t do any “counts”. NONE. Only the Census Bureau does that. California BEGINS with the fed data, and then adjusts it based on things like drivers’ license change of address forms and other state data.
    The State data series are interesting. Go back and look at the historical data (these are the E-4 series) from 1970 to 2000. These data (by year) are essentially IDENTICAL to the decennial surveys done at the federal level. In other words, the annual “counts” by the state look like simple linear interpretations of the decennial (federal) counts. It looks like California literally did NOTHING to the data prior to 2000.
    Brutus, you suggested I go back and look at the “last two decades” of CA data and see which was more accurate. I can’t find ANY discrepancies earlier than 2000 – can you give me a cite to what you are loking at? Maybe I’m looking in the wrong place?
    From 2000 onwards, I can’t find the individual year “counts” (E-1 series). (I also can’t find E-1 series for periods before 2000, so as to judge their accuracy against the respective E-4 that they become part of.) But the latest E-1 series (Jan 1, 2007) shows SF population at 808,000. That would be about 30,000 more people than in 1950. By strange coincidence, that would be about 30,000 more than in 2000. In other words, using the most favorable data from the state, SF has grown a little less than 4% in almost 60 years.
    Of course, the latest Census data (ACS – 2006) estimates that SF LOST 30,000 people since 2000. That would be consistent with the widely reported exodus of tech jobs following 2001 and the significant (and widely reported) drop in Bay Area rents in the early part of this decade. Considering that the CA state numbers have NEVER deviated from the Census data before (look at the E-4 series), and that California does NOT do and “counts”, I’d have to say the latest E-1 estimate is pretty suspct. Maybe someone in the finance department “woke up” after Bush took office and decided to alter methodology for federal grant purposes? Just a (tongue-in-cheek) theory. Like I said, we’ll see in the 2010 count.
    And this is all a litle far afield, but it’s been a fun and interesting (at least for me) detour. Brutus, I’m glad that you admit that SF took part in the national (and worldwide) housing bubble. Most people here (especially those who bought recently) won’t admit that.
    After all this discussion, I’ll revise my original statement. San Francisco does NOT enjoy a housing surplus. Rather , it suffers under an artificial (nonmarket) housing shortage caused primarily by (1) Prop 13; (2) rent controls; and (3) optimistic assumptions of future home price apprecation that cause long-term owners to judge that holding homes vacant is essentially “costless”.
    Whatever it is that is driving SF housing prices, asset values clearly have not been squeezed higher by any exogenous population shock (keeping in mind of course that huge numbers of housing units have been added since 1950 – in fact, many of the neighborhoods of Western SF, and good numbers of new condo units and industrial conversions). Median income as well doesn’t show any dramatic increases. The answer, of course, is Bubble, the evil stepchild of rampant monetary inflation since the mid-1980s. After infecting equity values throughout the 1990s, Bubble has morphed into its most virulent strain to date, attacking the single largest asset (for most Americans) and causing all sorts of malinvestment at the heart of the US economy.

  63. What Satchel may be writing about is a wholesale change in the character of San Francisco. Sure, it looks like a city, but is it still really a city by classic definition, or a neighborhood in the greater Bay Area that is now becoming home to single professionals, gay couples, out-of-town condo collectors, and a large increasingly violent underclass? “The city” as San Francisco calls itself, is no longer the population center of the Bay Area, the economic center of the Bay Area, and I predict over time it will loose more and more of its assets to the peninsula and south bay as long as it continues on the present course. By not being attractive to families with children, young graduates starting out, or working people, we will see this city become an ever increasing exspensive historic neighborhood playland, and not what I would call a real place. I must admit I am sort of an urban romantic though, and still wish the port of San Francisco was a true port with ships unloading everything from coffee to electronics, Soma a place where artists could actually afford to live, and the Castro to be more like the rather adventurous young sexy neighborhood it once was with a nightlife, a politcal core, and a real neighborhood instead of a historic monument. Now I find a lot of this very distasteful, but buyers of $800,000 1 bedroom condos seem to LOVE the new San Francisco with its pretend urbanity and pretend neighborhoods (ex. Rincon Hill), so I predict prices will continue to rise as we become an affluent condo ghetto.
    Now as for this house, let’s pretend it is a Google buyer. What does that say about San Francisco? People point to the Google busses as a sign that the city is still healthy and I think the busses show the exact opposite. They show that a certain economic group wants to sit two hours on a bus every day so they can live in a “brand name” city that they identify with but have nothing to do with. How is a Google bus rider enjoying a REAL San Francisco lifestyle? They are living a fantasy in the new pretend San Francisco. Now tell me again, why are we a great city because we are becoming a bedroom community of Google!?

  64. Brutus,
    Sorry, I looked a little further and I think I understand why the latest CA data shows an increase.
    The state ESTIMATES a population increase from the change in “Housing Units” – that is, things like annexations, new housing permits, etc.
    Look under “methodology” here:
    http://www.dof.ca.gov/HTML/DEMOGRAP/ReportsPapers/Estimates/E1/E-1text.php
    So, if I am understanding this correctly, the Bubble “created” population! Because people mal-invested and overinvested in housing (because Bubble sent the wrong price signals), the state ASSUMES that population was being added.
    I could of course be missing something here. You were very authoritative in your earlier post:
    “The fact that your entire theory rests on estimates that have been incredibly inaccurate in many parts of the US (and especially in CA), when tested against the ACTUAL [emphasis added] counts – leads me to discount much of the rest of your theory.”
    I guess I’ll have to call you on this (and if I’m wrong I’ll eat crow here, or maybe even buy a Bubble property in Marin – my little boy is getting ready to enter school). Where are you getting your information that California does ANY actual counts? And please point to at least one piece of data that shows that the Census has been “incredibly inaccurate” in comparison with the CA numbers at ANY time in the last two decades?

  65. I can say for a fact that Google is having an impact on the bay area housing market – I sold my house to a Googeler a few months ago. Sure he ignored comps and overpaid, but why would I care about that?
    In the end, this housing bubble (and Google bubble) will eventually rationalize, and a bunch of people will be holding assets that are worth a lot less than what they paid.

  66. “How is a Google bus rider enjoying a REAL San Francisco lifestyle?”
    That’s the key question, isn’t it? If your work is far away from your lifestyle location, do you live close to work (and drive to party), or live close to the activities (and drive, or sit in the bus, to work)?
    Or, in another words, do you live closed to your workday activities, or weekend activities?
    I have tried both. In my experience, you will be much happiers living close to the weekend activities, especially if you don’t have kids.
    The funny thing is, sometimes it is faster to drive from sillicon valley through the freeway than in the city through the local streets. It is somewhat psychological. It just felt different.

  67. John, as a commuter that’s one of my long standing jokes. “Do you live in SF? No, I just sleep there.” But I can’t bring myself to acquiesce to the suburban life.

  68. By the way, it is stupid to fight over the population of SF. The population has nothing to do with demand – the demand is the people/household who desire to buy.
    Based on my definition of the bears (people who would like to buy but frustrated by the cost), the demand for SF is quite healthy. Just look at SocketSite – let’s all be honest, if you don’t have some desire to buy in SF, who would you come to SS and putting in comments? When was the last time anyone went to a San Mateo RE blog (is there one at all?)?
    When one day, the traffic to SS decreased, or all the comments are from bulls, that’s when an SF homeowner should be worried.

  69. John.
    With all respect, you could not be more wrong regarding your apparent economic intuitions.
    About posting on SS, for my part I get involved mostly because I have way too much free time! 🙂
    But seriously, I LOVE bubbles! I am absolutely FASCINATED by them. I’ve been involved personally (either trading, shorting, investing, etc.) in 5 or 6 of them (they have been coming fast and furious since the late 1980s!), and I’ve studied historical examples extensively. I guess I fancy myself an amateur taxonomist of bubbles! I happen to be in SF now, and the credit bubble has now manifested itslef in housing prices in its latest iteration, so I gravitate towards having fun with SF housing!
    Who knows why some of us are compelled to bloviate about it? Who knows why some always fall for Bubbles? I guess we all play our roles….

  70. Both the state of California and the US Census estimates for non-Census years use the decennial Census count as the basis of their annual estimates on non-Census years. If you look at the state of California estimates for each year in the 1990’s (data on the state of CA Dept. of Finance website), you’ll see that the annual estimates in the 1990’s were not linear extrapolations of the Census count, but showed a small dip a couple of years during the early 1990’s, when SF’s population was stagnant, followed by a strong increase in SF’s population in the last 1990’s, when vacancy rates approached zero during the dot com boom. The states annual estimates fit in nicely with the federal Census count of 2000, in which SF’s population reached a record high.
    Again, we’ll have to wait until the next actual count, in 2010, to see whether the state of CA or the federal Census estimates for the 2000’s was more accurate. Clearly, rental vacancy rates rose and rents dropped with the 2001 recession, and those vacancy rates have been dropping more recently, with accompanying increases in rents.
    Demographic changes, of course, also affect population, with changes in number of members per household over time.
    The numbers do not support, however, Satchel’s comparison of SF to Detroit in the mid-1960’s, when much of that city’s population were fleeing to the suburbs. We are not seeing the torching of abandoned homes (much as that might help the resale value of that $950k shack in Noe Valley).

  71. Satchel,
    That’s exactly what you are saying.
    Nobody would study Stockton bubble. Why, it doesn’t matter. The fact that Adam thinks the San Francisco matters so he created this site, and the fact that this site got quite healthy traffic means SF is indeed different from the rest of the area. Otherwise, we would all go to a “baby area RE blog” instead of the “SF RE blog”.
    Please also realize that the are quite a few SF RE sites, nost just SS.
    You are just one person among all visitors. Not everyone’s a trader like you. Most people come here to talk about the RE market, not from perspective of the bubbles.
    BTW, I have said in other thread too: the extra wealth created in the last two decades means there will be bubbles after bubbles, so I believe another bubble is forming while the RE bubble is popping. What’s your opinion on that?

  72. googled,
    Good insight, but it’s incomplete. Fear and greed are always present. The magic ingredient in bubbles is CREDIT. Simply put, without extension of credit, people’s greed cannot be inflated to more dollars than they actually have.
    The academics have done some thinking on it. I think Kahnemann and Tversky (somebody please correct me if I am wrong) isolated it in a research paper back around 1999 or 2000 (maybe earlier?). Using experimental techniques, they came up with three preconditions that tend to create bubbles, and concluded that if all three were present bubbles were very likely to form:
    1. Uncertainty as to fundamental value of the asset (who really knows what it is worth?)
    2. High ratio of “new” players to experienced participants.
    3. Ready availability of cheap money (i.e., credit).
    If you’re interested in bubbles, the classic works to start with are Mackay’s mid-19th century “Extraordinary Popular Delusions and the Madness of Crowds” and Kindleberger’s contemporary “Mania, Panics and Crashes”.
    I could recommend many others. I’m wondering if anyone else can chime in with recommendations here (maybe diemos?)

  73. Satchel, those are all good.
    “Fiat Money Inflation France” by Andrew White is a fascinating account of how money and credit creation brought France to ruin just after the French revolution. It’s also available as free text on the internet.
    “The Great Crash 1929” by Galbraith is a classic.
    John, stockton is a FASCINATING market that I’m watching. Along with markets across the country where I can watch the bubble mechanisms play out in real time. It’s like watching Katrina coverage, you just can’t tear yourself away.
    But no, I don’t spend my time pining for particular properties in Stockton.

  74. @John — I had the same experience. When I lived in NV, it used to take me 45-50 min to drive south to SV, and longer than that to take the J Church downtown. Both were unpleasant and ridiculous, but I preferred driving (but not by much).

    I’m not cool enough for a motorcycle, and I’m sure that would have helped…

    But I also used to be able to bike down to and from “outer SOMA” (or whatever the kids are calling it these days) pretty easily, and I’m not a bicyclist.

    Like I said, bubble or not, unique NV properties like this one will do fine until there is a (real) recession. If you are lazy like I am, just check Google’s stock price for a quick summary of how “desireable” SF real estate (this excludes cookie cutter condos) is holding up. You are out of your mind if you think properties like this one are going down significantly without some major economic pain to the Google industrial complex.

    There’s too much found money floating around out there, and some of these folks are not using the same valuation techniques you are because (like it or not) they don’t need to. Sorry to keep bringing it up, but this simple fact will help you more than posts and books on bubbles which happened hundreds of years ago.

  75. John,
    Interesting that you mention Stockton. Anyone buying in Stockton of course in 2000 or 2001 would have made extraordinarily more money than buying in SF (if he had been smart enough to get out of Stockton in 2005 of course). There was plenty of interest in Central Valley of course in 2004 and 2005. Ever listen to talk radio in the Bay Area in those years? Plenty of real estate “investment” shows highlighting the central valley. Of course, don’t forget about blogs (more recently) like Sacramento Landing, and now Sacramento Area Flippers in Trouble (google those for some fun!). Anecdotally, I’ve read in the blogs that 50-75% of the foreclosures in Stockton and surrounding (basically the foreclosure capital of America) are sent to Bay Area “investors”! LOL! To think that having been suckered in the dotcom bubble just 8 short years ago, they would have learned their lesson!!
    Seriously, though. About what the next bubble will be – I’m still looking! This one is a real doozy. I would caution you, though, about thinking that “wealth” is so much greater today. True wealth of a society grows through increases in productivity (plus population growth). That’s it. And it’s on the order of 1-2% per year maximum (on a per capita basis) post-WWII.
    Housing values (like stock market valuations) are snapshots in time of perceived value, not wealth. For instance, the “wealth” represented (in real terms) by the Pacific Heights mansion that is “worth” $25 million is only slightly greater in real terms than what it represented in 1950 when it was “worth” $200K. It is still essentially the SAME HOUSE, although SF has become a slightly more wealthy place (in terms of productive capacity). In areas of the country where real income has declined (like the Midwest in general), such comparisons would yield a slight (and sometimes not so slight) decline in housing values.
    Credit inflation confuses many things and alters the economic intuitions of people. If you always remember that in general housing is a CONSUMABLE ITEM and not a PRODUCTIVE CAPITAL ASSET, you will be well on your way to understanding why as a general matter real estate assets exhibit real returns of basically 0 (again, on average, and recognizing that there can be significant regional trends).
    I guess this is all a little esoteric. But about the “next bubble”, when economies beome so credit dependent and distorted that they cannot service their debt (in real terms), historically there have been HUGE “resets”. The macro picture for the US (and much of the developed world) is fairly dire when looked at from a credit perspective.
    No one can predict exactly when you get a “reset”. All you can really do is be reasonably prudent in the face of credit conditions. The last time the US faced the array of malinvestment and credit/debt ratio constraints was in the late 1920s and early 1930s. Japan faced similar issues in the late 1980s.
    My personal opinion is that we will get a deflationary “wipeout”, followed by an attempt to reflate using monetization. But not before a wipeout, and I’m trying to trade all sides of it!

  76. Dub dub, these things seem to repeat themselves every 80 years or so. Just enough time for the generation that lived through it the last time to die off and the protections put in place to prevent it from happening again to be removed in the name of “not stifling financial innovation”.
    [And now I’m going to bite my tongue and restrain myself as I swore that I was not going to get into Great Depression diatribes more than once a month on SS.]

  77. After all this discussion, I’ll revise my original statement. San Francisco does NOT enjoy a housing surplus. Rather , it suffers under an artificial (nonmarket) housing shortage caused primarily by (1) Prop 13; (2) rent controls; and (3) optimistic assumptions of future home price apprecation that cause long-term owners to judge that holding homes vacant is essentially “costless”.
    I can agree with your first two points. I think thst point number three has little effect on the entire city – certain properties sure, but not large enough to really change things. I would say that prop 13 and rent control make up at least the large (very, very large) reasons.

  78. Dan,
    Good try. I guess we all agree now that California doesn’t do ANY counts. There have been NO significant discrepancies between California and Census data at the decennial points. Although the annual CA data is not purely linear interpolations of the decennial endpoints, they’re reasonably close.
    And lastly (and most importantly), CA discloses the methodology for their estimates. It is based on “Housing Unit” changes, as you can see in my earlier post. In other words, investments in housing “create” population, and there is NO COUNTING involved. Whether that housing is vacant, underutilized, whatever, is irrelevant.
    I stick by my original surmise – namely that the 2010 decennial count will likely show a DECLINE from 2000 (consistent with the well-documented loss of tech jobs, the loss of children and families, and the too high housing costs relative to median income).
    Now, how to explain the explosion in SF housing prices in the earlier part of this decade (tapering off now, and even declining, albeit with pockets of real strength)? If it’s not population and it’s not median wages (the fundamental drivers of housing demand), could it be that it is sentiment and easy credit availability (the “fundamental” drivers of Bubble demand)?
    Thanks for engaging with me on this – I learned a lot, and I would sincerely appreciate any cites to other data sources, if you have any.

  79. Good try. I guess we all agree now that California doesn’t do ANY counts. There have been NO significant discrepancies between California and Census data at the decennial points. Although the annual CA data is not purely linear interpolations of the decennial endpoints, they’re reasonably close.
    No one was saying that CA “did” counts of their own. I was saying that the estimates done by the state between census counts were more accurate than the estimates done by the census bureau between counts.

  80. Brutus,
    Well, now tragedy is repeated as farce, as they say…..
    “No one was saying that CA “did” counts of their own. ”
    In fact, you said it yourself! Look at your 12/16 1:24am post:
    “The fact that your entire theory rests on estimates that have been incredibly inaccurate in many parts of the US (and especially in CA), when tested against the ACTUAL COUNTS [emphasis added] – leads me to discount much of the rest of your theory.”
    Now, am I misunderstanding you here? Who’s doing these “actual counts” that show that the Census estimates are innacurate (“incredibly inaccurate” in your words) when ONLY THE CENSUS DOES THE COUNTS??

  81. To those who decry the profound decline of the “once great San Francisco,” you might want to get out while you still can, before the coming collapse.
    As for me, twenty years of living in and loving San Francisco — through the changes that any great city must experience — I like SF more now than at any time I’ve lived here before.
    You may disagree, and I wish you well in whatever city you eventually find to live in and like.

  82. These comments have taken a fascinating turn toward masturbatory self-congratulation.
    To get back to the point…
    Nice house in Noe. Flawed but fundamentally sound renovation. Great location. Strong demand.
    That is all.

  83. no masturbation here. just simple wonderment at how a posting about a much-sought-after home in Noe Valley gets turned by some into another opportunity to whine about all the many things that are wrong with San Francisco.

  84. At $875 psf for something of that quality and layout, I’m surprised they didn’t get more offers.
    If you can undercut all those sterile condos in some middle-of-nowhere building in SoMa with a beautiful place like this in a pretty neighborhood, I’m sure a lot of people will always bid on it.
    The market is down, but it will never be out for a SFR in a good neighborhood that is done up and well priced.

  85. sanfrantim –
    You were in no way the target of my post. That was directed at those who consider themselves a combination of Nostradamus, Robert Schiller, Milton Friedman, Robert Rubin, Ben Bernanke and John Kenneth Galbraith.
    And they may or may not have usernames tied to a former Negro League great.

  86. Now, am I misunderstanding you here? Who’s doing these “actual counts” that show that the Census estimates are innacurate (“incredibly inaccurate” in your words) when ONLY THE CENSUS DOES THE COUNTS??
    Yes, you are misunderstanding me. The census bureau is doing these actual counts, EVERY TEN YEARS. The census bureau ESTIMATES have been shown to be incredibly inaccurate in urban areas by THEIR OWN ACTUAL COUNTS. That is – their ANNUAL estimates have been shown to reliably undercount urban areas (as opposed to suburban areas) when compared to their ACTUAL COUNTS (every ten years).
    The state and the census bureau estimate counts in between actual counts, but only the census bureau conducts the actual counts. The state estimates have been closer to the actual counts (again – only done by the census bureau) than the estimates prepared by the census bureau.
    Understand now?

  87. Brutus,
    Sorry to belabor this. I’m sure if we talked about it in person, everything would be a lot more friendly – blogs are so impersonal!
    Clearly, you are just making this up as you go along, aren’t you? The ACS data only started in 1996 (as a pilot program). Only post-2000 have they become generalized. So far as I can tell, there has NEVER been any systematic undercounting in the ACS because they’ve not really had any decennial counts yet. (Only limited data sets for 2000, which were then compared with the actual 2000 counts.)
    BTW, lucky for our conversation SF was in fact part of the pilot program. The census did compare 1999-2001 ACS with census sample data for the 2000 decennial count. There were NO statistically significant differences (the differences were about 2,000 people). You can google that – pretty easy to find (look for “ACS 1999-2001 and census 2000 comparison study”) .
    Apologies to the board that we have gotten so far afield with such minutiae! Perhaps it is useful for some people. As I’ve said above, I’ve learned a lot.
    amused, I take the reference to Milton Friedman (and maybe Nostradamus 🙂 ) as a great complement. Not so much with the others. BTW, it’s “Shiller” not “Schiller”, just in case you want to read some of his stuff. It’s pretty enlightening, but you might find it tough sledding….

  88. I am interested that when presented with actual facts, along with sources, some continue to want to be cheerleaders for the idea that San Francisco is Wall Street West with Google thrown in. We are now a bedroom community, and our product is charming houses such as this tucked into “authentic” victorian neighborhoods. Why do some want to claim population is rising when it is not? This city long ago made choices in who it wanted to live here and who it did not.
    Families with Children are no longer wanted.
    Middle Class working people are no longer wanted.
    Artists, actors and musicians are no longer wanted.
    What is wanted: Single person high income households without children, or couples with high incomes and no children. Retirees are welcome if they are planning on using the city as a place for a second or third home.
    So the population is declining, it is a natural by-product of trends in this city that started in the early 90’s. Investing in schools, safe streets, and promoting more housing would have helped to start to solve these problems. Now we are left with a house such as this turning into a trophy property, instead of a family home.

  89. so what’s your point? nyc doesn’t have these problems? i dream of us having similar problems and property values as nyc.

  90. “Brutus,
    Sorry to belabor this. I’m sure if we talked about it in person, everything would be a lot more friendly – blogs are so impersonal!”
    So why don’t you and Brutus get together, as you suggest? Bandwith doesn’t grow on trees. GYOB.

  91. Satchel,
    You got me. I made everything up as I went along. Damn, you’re good. Clearly, the census bureau was doing no estimating of population figures between actual counts prior to the introduction of the ACS. You can Google that!

  92. The rest of the country is in stage 3 of the bubble, and we have yet to acknowledge we are in stage one.
    LOL.
    Sorry.
    Why do you think we have yet to acknowledge that? Could it be, perhaps, that prices are still high and people are still buying? We have our “head in the sand.” Yet sales are brisk in most areas of SF.
    Some of you folks are too much. You know the rest of the country is actually talking recovery, right? And it hasn’t really even hit us in the city yet, right? Prices have not really dropped. I hate to be a broken record on here. But they plain ole have not dropped.
    Is it stubborn sellers? Possibly. But prices aren’t that different from a year ago. Period.
    Wherein, your grades or “stages” ?

  93. James, Manhattan is not a bedroom community for Long Island. THAT is the difference between S.F. and Manhattan. Got to get to sleep early tonight so I can catch my Google bus in bright and early. Later.

  94. BACK TO THE HOUSE!
    @Patrick – Did you see the property during any of the Open Houses? It’s really wonderful inside. The kitchen is really stunning – the type of lens used to take the photo of the kitchen/living room area gives it somewhat of a distorted appearance. The house also has wonderful outdoor space on the front and back – private terrace on front even has an OUTDOOR SHOWER. Not sure what you would use it for.
    @Sanfrantim – I salute you. As I have mentioned previously in my comments here, we moved away from the Bay Area about 7 years ago to the Washington, DC area. We knew within the first few months we had made a huge mistake. We realized how much we had taken for granted living in this crazy, dirty, vibrant, accepting and beautiful city. I suggest anyone who is sick and tired of San Francisco or the Bay Area in general to pack up and move away for a few years. Then you will know if you truly love it or hate it here. There are a hell of a lot of less expensive places to live out there – rather than stay in San Francisco and complain, and wait for everything to completely collapse, including the economy, housing, etc, etc – why not get out why you can?
    Satchel, what do you do for a living? You are so serious it’s scary.
    Now, back to the rumor about Jake buying this place. Hmmmmmm……

  95. The rent versus own argument neglects that many high end buyers are likely to put enough down that the monthly nut is far less than renting a similar property, even if such a property were available on the market. (Or course if these homeowners chose to rent, the large cash down payment could be invested otherwise such as in the stock market, but that carries its own risks). My limited knowledge of the rental market is that there are few rentals of the same caliber as this property. Thus, the only way for a family to live in the type of house that they want is to buy into what may be “frothy” valuations (to steal a phrase coined by Alan Greenspan).
    Regardless, it seems as if there is a demographic shift going on that will keep urban pricies firm…an aging and affluent baby boomer generation that is looking for an urban lifestyle. I may be wrong, but I think this is going to drive prices in places like SF and Manhattan for the forseeable future.

  96. movingback,
    “Satchel, what do you do for a living? You are so serious it’s scary.”
    Yeah, I gotta lighten up. I know. My “people” skills have always been crap…. too much time spent on trading desks.
    About what I do – I used to be a proprietary trader for one of the (really) big name hedge funds. (For those of you who don’t know what a prop trader is – it’s basically someone who is given a bunch of cash by a firm, turned loose on the markets and told to make more of it.)
    I traded out of NYC in the early 90s, out of London in the mid-90s, and finished up in Greenwich, Connecticut by the late 90s. I fought my way to some measure of financial security (not like the early GOOG guys! but enough to keep me and my family in “shits and giggles” as they say in Britain) and chucked it all in 1999. I specialized in the macro instruments, mostly currencies, currency derivatives, interest rate derivatives and equity index derivatives, always with a directional bias.
    Moved out to California on a lark, and we LOVE it here in SF! (been here since ’99) I know I sound like a bear on housing (and I am), but that doesn’t mean that SF isn’t cool to live in!
    These days, I basically just manage my own account, and money for a very few friends and family, and spend a lot of time at the beach with my son and our dog.

  97. God, I’d love to have Jake Gyllenhaal as a neighbor. Maybe he could take me up to Brokeback mountain for some ‘fishin.

  98. This place is extremely nice, and no surprise it sold quickly. As for Noe Valley generally, I see 21 listings for SFRs and condos/TICs, 11 of which have price reductions. Draw whatever conclusions you will.

  99. There are a lot of smart people on this blog, which makes for interesting reading.
    Satchel, I could not begin to understand all the economic analysis you throw out here, but a few things emerge for me from your writings: 1) Because your evaluation of the data and economic theory cannot explain the run-up in SF housing prices, you assert that there must a Bubble operating here. This reminds me of deists who, having a scientific bent, nonetheless hold fast to a belief in god, to explain what science cannot explain, the god, as is it were, ‘of the gaps.’ Is the “Bubble” the name we give to the mystery that explains what cannot be rationalized by one’s theoretical pricing framework? 2) You are correct to remind us that unexpected things can happen which will drastically alter the landscape. 9/11 and the invasion of Iraq are good recent examples. We must not become too cozy in our assumptions concerning how things must be for the future, because of the recent past. If you’ve not read “The Black Swan,” I heartily recommend it. 3) You, unlike some here, are not dis-sing San Francisco. You have chosen to live here (buy here?), instead of London, NY, or Connecticut. I envy the life you seem to have. A life of relative leisure here in SF is a fine one indeed.
    To those who report rumors that Jake G. bought this place in Noe Valley, please substantiate!!! I will gladly volunteer to camp out in front of this property, if necessary, to confirm.
    To those who believe SF is a mere “bedroom community” for the Silly Valley, I suggest that you may be spending too much time at work at Google, or wherever. I, like tens of thousands others, live AND work in San Francisco. If good Google (or Visa, or VMWare, or Apple ….) folks want to live in SF … that’s a bad thing???
    Change happens. Go with it.

  100. sanfrantim,
    Thanks for the kind words. Bubbles are well-known and documented, even though the processes are rooted in human psychology and are thus a little mysterious. They don’t always happen, but when they do, they ALWAYS arise in conditions of reckless credit expansion. ALWAYS. There are numerous examples throughout history. They are coming much more frequently now; I believe this is because government and central bank policy (in numerous countries) has become practically suicidally reckless since the debt crises of the early 1980s (perhaps since the US went off the gold standard in 1971-73) and because people have become “functionally stupider” (because life in general has become increasingly complex and people have literally thrown up their hands). I cited some books (and so did diemos) that you might find fun somewhere above in all these comments!
    Remember the last time fundamentals got disjointed from valuation in the SF Bay Area? How would you explain the dotcom frenzy and subsequent collapse? It was but one of a long series of bubbles blown by an inflated global money supply. The global housing bubble is (to date) the largest, and in terms of GDP impact rivals the South Seas Bubble of the 1720s.
    Funny that you should mention Taleb’s book – it is literally sitting right here at my right elbow! His earlier book, BTW, “Fooled By Randomness” is a little better IMHO, but both are good.
    I know Taleb (not personally, but maybe by one degree of separation? we sort of travelled in the same circles, although he’s a good bit older). Believe me, he recognizes bubbles, and if he was on these boards, I’ll say with 99.99% probablity he’d tell you that housing in the US 100% is a bubble. Remember how he set himself up for life (or at least moved most of the way towards that goal)? He recognized the fundamental mispricing of option volatility in 1987 (just before the crash).
    Unfortunately, fundamental mispricing of real estate assets do not set up neat trading opportunities from which to profit from their demise. For most people, it’s best to stay on the sidelines.
    Bottom line, if you have the CASH to pay for a Noe Valley (or other SF) property at these price levels, AND you don’t mind suffering a real loss of 40-50% (that’s what Taleb would call a “black swan” BTW, a type of event which he would argue happens much more frequently than people assume), then by all means go ahead and buy! It’s not certain that you will suffer such a real loss, but it’s likely. If you need to borrow to buy a home, remember Satchel’s advice – do NOT put any of your own money down, NONE. Use 100% other people’s money. That’s the advice I’ve given to my best friends and family over the past few years FWIW!
    BTW, you know that some of the greatest scientists were strong believers in the existence of God? Albert Einstein, for one…..

  101. I could see Taleb’s influence in some of your postings.
    That bubbles are documented elsewhere (i.e. Stockton of late or Dutch tulips in the 18th century) is no support that the phenomena is present in SF now.
    Generally, when I can understand you, you make sense to me … that is, until you start predicting 40-50% losses in SF properties. Barring an earthquake or similar black swan, I see no evidence of that happening.
    Yes, I was around for the dot-com-dot-bomb scenario and, I, with my basically conservative instincts, could see then that I should not invest my hard-earned money in pets.com, despite the flash of a savvy puppet-marketing campaign. SF real estate markets are different than 1999 tech stocks. You agree?
    Black Swans are not all bad. I would suggest that the rise of Google, with its attendant beneficial influence on the SF economy, is such an unpredicted outlier event. It is as likely that unexpected good things may happen to the SF market, as unexpected bad things.
    Scientists, perhaps like Einstein, know what they do not know and thus posit a ‘god’ to explain the rest. I suggest that the notion of “bubbles” function similarly for some economists attempting to explain how, for instance, a Noe Valley residence could have jumped in price without corresponding increases in median incomes, rents, … or what have you.

  102. One factor that hasn’t been mentioned here is the long-term impact of the internet and telecommunications and other electronics and computer related technology. Funny omission, given that this technology is the basis for most of the bay area wealth. There is an assumption that people will always choose to live in major metropolises (SF, NYC, LA, London, etc), and that this preference is unchangeable, perhaps because it is based in biology. But what biologists, anthropologists and psychologists actually know is that while humans DO prefer to be around other humans, there is a very low cut-off point for how many people we need around us to be fully satisfied, something on the order of a few hundred at most. Our network of close friends is on the order of 20. Beyond these cut-offs, everyone else is treated as not-existing. So there is nothing that says that the uber-wealthy might not someday migrate en-masse to places like Aspen. New towns created in the middle of nowhere, just for the rich, so they don’t have to mingle with the masses, but where they can still control the levers of power via telecommunications and the other technologies mentioned above. Such a migration won’t occur until there is a trigger to suddenly change people’s views about what constitutes a desirable place to live. Such a trigger might be a global flu pandemic, terrorism, or social breakdown due to an oil shortage and state government bankruptcy causing layoffs of police, etc.
    My own gut feeling is that the future of SF and the other glamour metropolises is dim, a fairly rapid decline to the level of Detroit… People will live here because they have to, in order to work at or provide services to the silicon valley factories with their toxic chemicals, which can’t be moved, just like people still live in Detroit because they have to work at or service automobile factories there. But anyone who can afford to get away will move up the coast or to the mountains. Someplace far away from the coming big-city troubles.

  103. Easy credit is present in all bubbles. However, easy credit does not definitely lead to bubbles. That’s a critical difference.
    For example, reducing the stock margin requirement does not necessarily lead to a stock market bubble.
    Human psychology is a more important factor. The credit follows it. I would say the mentality that “RE appreciates 20% every year” is the cause of the bubble. The financial sector responded to the market demand by giving out easy credit.
    There is no question that there is a national RE bubble popping. However, just by looking at the CS index of the different tiers will make you release the high end was severely lagging behind the low end, thus not as “bubblish” as the low end properties. I have said this in the CS thread – if you consider the 2000 price “fair” (just before the CS indice for the three tiers split), then maybe the current high end market is 5% overpriced max, while the low end can expect 20% to 30% decrease. (If you consider the 2000 price is overpriced already, then that’s too bad because SF has been overpriced for the last 30 years).
    It is difficult for regular folks to profit from RE bubble. However, I will still say there is a next bubble forming and everyone could potentially profit from it (or lose your shirts over it).

  104. anotheranon,
    I LOVE it – a bear even more apocalyptic than I! A rapid decline to the level of Detroit following a global pandemic or biological attack. Now that would be a Black Swan!
    I’m not that dire, though, but you bring up (by implication) a very important point. SF is extremely expensive. We traders might say “fully priced” – and then some. The cozy consensus seems to be that everything is going to be perfect, that all the wealthy will want to live in SF (BTW, every “glamour” city and big town claims this), that there will continue to be great increases in apparent wealth, etc. The risk in this rosy scenario is all to the downside….
    @sanfrantim – your thoughtful insights and questions really deserve a real response (at the risk of pissing off some of the others on this blog who would rather talk about everyone did “really, really well” and how “you can’t rent comparable properties” [that’s a laugh!]), I will post a more thoughtful response later.

  105. With regard to the analogies being drawn to the dot com bubble, I’d like to point something out. Like John says above a lot of that bubble had to do with human psychology too. What is Google actually doing differently? Nothing. They are utilizing web advertising. It’s just that they stuck with it when others saw no future in it. That’s the story of the dot com bubble in a nutshell. Web advertising actually works for good products. Nobody saw it, tho. The East Coast pulled the money plug and a reversal of fortune ensued.
    That’s oversimplified, but it’s one very important cog in the dot com bubble. Like the dot com bubble, the R.E. runup can’t just be reduced so simply. Thirty years of overpriced property in SF? There are others who would say that only recently has SF started to emerge from decades of undervaluing. In 1997 it was possible to buy a three unit property and rent all the units out and be in the black. That was only 10 years ago.

  106. fluj,
    “In 1997 it was possible to buy a three unit property and rent all the units out and be in the black. That was only 10 years ago.”
    Think about it. That’s the equilibrium condition. If it weren’t, then over time no one would be a landlord. Since not everyone has the ability or discipline to save for a downpayment, conduct their affairs so that he is viewed as a good credit risk, etc., and so cannot buy a property, where do you think he is going to live, if it is uneconomical for anyone to be a landlord???
    Bubble myths die very hard. As Mackay famously wrote in the 1840s (I’m going by memory here, so please don’t beat me up if I mangle the quote):
    “It has been well said that men go mad in herds. It will be shown that they regain their senses only slowly, and one by one.”
    Another corollary to your idea that the act of renting by a landlord should NEVER be profitable: this means his tenants BY DEFINITION are “consuming” the property (the only way to enjoy a property in the end is to LIVE in it) at a lesser cost than the landlord’s opportunity cost! In effect, the landlord is making a GIFT to his tenants. Thanks!
    People have been fooled into the belief that rising asset values (fueled by expansion of credit) is equivalent to rising wealth in real terms. As I saw on one of the blogs somewhere:
    Behold the American serf [debt-slave],the only creature on God’s green earth that can be skinned alive more than once….

  107. “So there is nothing that says that the uber-wealthy might not someday migrate en-masse to places like Aspen.”
    Family members moved to Aspen, and tried to move their business’s headquarters there. However, there was not enough of an employment pool there even for a small office, due to a severe shortage of housing for those who aren’t very rich. And here are limits on what many businesses can do remotely.
    The uber rich already live part-time in places like Aspen, but most still fly to big cities to run their businesses.

  108. Actually, I was just pointing out that SF hasn’t been overpriced for 30 years. Far from it. Prior to the Dot Com era SF was known as a great place to live with no jobs. Cheap rent. Great culture. The best city on the West Coast. But no jobs.
    There are a lot of moving parts. Let’s not be so reductive all the time.

  109. fluj,
    You’re right! You get it. SF has NOT been overpriced for 30 years. Right now it IS overpriced. Why do all the Bubble-boosters think it will always stay overpriced? Either real wages will have to rise dramatically (almost impossible in a competitive economy) or real estate values will have to fall dramatically, in real terms at least (although I think large nominal price drops are ahead as well). The latter is much more likely IMO, even given stickiness in prices on the way down. In fact, we’re seeing just that happen now throughout California, and it is munching its way through to the last holdouts of glamour, wealth and prestige (parts of LA and SF, maybe some glamour towns on the coast – maybe).
    For those of you out there who are amateur economists, let’s see what happens when an inelastic supply curve meets an elastic demand curve in the context of a credit crunch and almost certainly a deep recession – the mirror image of what we saw in the first part of this decade.

  110. “People will live here because they have to, in order to work at or provide services to the silicon valley factories with their toxic chemicals, which can’t be moved”
    anotheranon : the majority of silicon valley’s manufacturing already moved to Asia in the late 80s and early 90s. What’s left are highly portable white collar jobs, many of which are now beginning to drift towards Asia. Just about every high tech company has R&D offices in Beijing, Shanghai, Bangalore, Kuala Lumpur, etc. and are hiring there faster than in the US.

  111. Satchel,
    San Francisco is not a city-state, where the demand only comes from the existing residents. Far from it. Major cities draw demand from the surrending area (so, some bears argue SF is becoming a bedroom community for SV), from the whole state (didn’t some people just said in another thread that a lot of people come to SF to escape LA?), from the whole country or even the whole world (that’s the theory that Chinese are buying up all the properties in SF).
    All of the above are overblown and I often laugh at them. On the other hand, it is also laughable to believe the demand is limited by the “real wages” of existing residents, because that’s not true either.
    By your own admission, that you came to SF and “loved” it.
    Of course, many will complain that SF’s RE prices are driven the locals out.

  112. Hey John,
    It’s all in good fun! SF is not a city-state. It does draw demand from all over surrounding areas, maybe even from the world. That makes it “unique” among 10 or 12 other cities in the US alone, I guess. In every bubble, there is always a variation of “this time is different” or “we’re special”. Let’s enjoy it and watch what happens!
    BTW, I do love SF. I rent a beautiful house for about 1/4 the cost of owning it, and it’s exactly the type of house I would buy for my family if I wanted to pay these prices! (Still trying to figure out exactly how the rent can be that low, but in surveying my friends here it’s not that uncommon.) I love my Audi too. It’s a great car. But I wouldn’t want to pay $150,000 for it…..

  113. I do NOT believe that prices 10x median household income are unsustainable. If you have 500 very rich owners supported by 5000 working class renters, then the median price for owner-occupied housing is the median for the rich, which can be extremely high compared to the median income, which is dominated by the working class, due to their superior numbers.
    What is really unsustainble is the notion that people HAVE to live in SF because living elsewhere is just unthinkable. This is not based in reality, but rather is a matter of fashion, which can change in an instant. Maybe it won’t change, but if it does, then SF will collapse quickly, because the government here is absolutely disfunctional. That is what destroyed Detroit, Cleveland and Buffalo, after all. The loss of industry could have been compensated for, but when you have a dysfunctional government, then you are doomed, and my opinion is that the gov of SF is worse, by far, than any of the afore-mentioned cities.
    Prediction: at some point in the future, Chris Daly will introduce a bill legalizing squatting in those vacant houses Satchel mentioned. The courts will strike this down as unconstitutional, but that will take time. Meanwhile, the government will reprimand any police who try to evict squatters, and God help anyone who tries to bring in private security guards (Blackhawk, etc).
    BTW: Dan’s comment about being unable to run a business from Aspen is exactly the kind inability to see beyond existing paradigms that will doom the big cities. Even when they could adapt, they won’t adapt because it’s easier (in the short run) to keep doing things the old way. As Milkshake of despair correctly points out, much of silicon valley has already been exported all the way across the ocean, and yet Dan can’t even imagine people moving a hundred miles north or east. All Dan can do is throw up his hands and say “it’s hopeless, no low-cost housing in Aspen, no way to solve the problem, so that means people will always be willing to pay $2 million for a condo in SF.”
    For those of you who ARE willing to look ahead, the big future is place like Aspen, though not Aspen itself. Places a few hundred miles from existing big cities, beautiful locations, where it is possible to build new towns from the ground up. A town for the rich people, run by a co-op board which has the right to approve/disapprove buyers, and a separate town for the working class. Keeping the town for the working class is separate means they won’t be able to vote a tax increase on the rich. (Lack of such a provision will be the downfall of SF.) Look around for good sites in the next few years, during the coming great deflation, and then put your money into land before the great inflation that will follow the deflatino.

  114. ” That makes it “unique” among 10 or 12 other cities in the US alone, I guess. In every bubble, there is always a variation of “this time is different” or “we’re special”. Let’s enjoy it and watch what happens!”
    Actually, if you look at some of the data, SF has become LESS special.
    The affordability index (it was posted in one of SS’s threads) shows that SF WAS the least affordable city since the index was tracked (in the 70’s?). However, it gave up the title to LA, then Salinas.
    BTW, the affordability index for SF has hovered around 13% since the beginning – went down to 6% in 2002 (yes, that was before the easy credit!), went back to 13% in 2005 (peak of the bubble?) but went down to 6% in 2007.
    No, I am not saying “SF is different”, or “this time is different”. I am saying “It has always been this way, nothing has changed”.

  115. off topic, sorry if this isn’t the right place to post this. Anyone know where you can get paintings like the large orange rothko type in the living room. can’t afford the real thing…

  116. @anon8: SFMOMA Artist’s Gallery at Fort Mason
    “The Artists Gallery’s rental program provides access to affordable fine art without the pressure of commitment. Whether looking to dress up the walls of a business or a studio apartment, established collectors and art novices alike can choose among a variety of works in a friendly, informal environment.”

  117. thanks for the advice. i’m artistically challenged so i don’t think creating a copy is my thing. i’ll check out the art gallery though. great idea

  118. I don’t know if this is true, but it looks like two google folks really did buy this house:

    see here.

    I hate being right about this folks. Presumably they know how to use missionite’s spreadsheet 🙂

  119. That is pretty funny. But Google’s stock is down 25% since then. 200 points. To the extent the Google-millionaire effect ever impacted things in any material way, it would have largely disappeared by now.

  120. @anon — Respectfully disagree. Although a 200 point/25% drop affects *psychology* a great deal, it is still above where it was even a year ago (when the effect was in full force), and there are still plenty of folks out there 🙂

    Note the buyers were apparently non-executive (dime-a-dozen) project managers. The good news is

    1. There are a finite number of google employees, and each probably only wants one or two fantastic houses in the bay area 🙂
    2. Newish ones will not be wealthy (too bad for them)
    3. Eventually, the fuel will run out (see 4 below)
    4. You can still use my (patented) Google stock indicator as a lazy person’s gauge to desireable SF real estate, freeing your time to underbid on second-tier SF properties 😉

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