May 27, 2008

March S&P/Case-Shiller: San Francisco MSA Declines, Top Tier Flat

S&P/Case-Shiller Index Change: March 2008 (www.SocketSite.com)

According to the March 2008 S&P/Case-Shiller Home Price Index (pdf) , single-family home prices in the San Francisco MSA fell 3.5% from February '08 to March ’08 and are down 20.2% year-over-year. For the broader 10-City composite (CSXR), year-over-year price growth is down 15.3% (having fallen 2.2% from February).

The decline in the S&P/Case-Shiller U.S. National Home Price Index – which covers all nine U.S. census divisions – reached well into double digits, recording a 14.1% decline in the 1st quarter of 2008 versus the 1st quarter of 2007, the largest in the series 20-year history. As a comparison, during the 1990-91 housing recession the annual rate bottomed at -2.8%. The 10-City and 20-City Composites also set new records, with annual declines of -15.3% and -14.4%, respectively.

Prices fell across the bottom two price tiers for the San Francisco MSA, while the top tier remained unchanged on a month-over-month basis but declined 2.0% year-over-year.

S&P/Case-Shiller Index Price Tiers: March 2008 (www.SocketSite.com)

The bottom third (under $489,431 at the time of acquisition) fell 5.3% from February to March (down 34.7% YOY); the middle third fell 4.5% from February to March (down 23.9% YOY); and the top third (over $734,115 at the time of acquisition) fell 0.04% from February to March (down 8.0% YOY).

And according to the Index, home values for the bottom third of the market in the San Francisco MSA have returned to June 2003 levels, the middle third to March 2004 levels, and the top third is holding at March 2005 levels.

The standard SocketSite S&P/Case-Shiller footnote: The HPI only tracks single-family homes (not condominiums which represent half the transactions in San Francisco), is imperfect in factoring out changes in property values due to improvements versus actual market appreciation (although they try their best), and includes San Francisco, San Mateo, Marin, Contra Costa, and Alameda in the "San Francisco" index (i.e., the greater MSA).

National Trend of Home Price Declines Continued into the First Quarter of 2008 [S&P]
February S&P/Case-Shiller: San Francisco MSA Decline Accelerates [SocketSite]

First Published: May 27, 2008 7:00 AM

Comments from "Plugged In" Readers

Ooh, all those little lines on the chart are converging! Isn't that a sign of the end times?

Seriously, 20% drop nationwide, and 0% drop in the real city. When are we gonna catch up to the rest of the country?? This is getting silly now.

Posted by: Next Stop: Ragnarok! at May 27, 2008 7:51 AM

imho, this market still has a long way to go to be back to historical affordability (4 times average salary). And SF will probably follow its surrounding areas.

Agreed, the market in SF has been pretty resilient, but we now see more and more price reductions (mostly from unrealistic expectations).

Passive flippers are out, sweat equity is still around for a few to grab, the newly built condo market is slow.

It will be a great buyer market in 2 years.

Posted by: San FronziScheme at May 27, 2008 7:51 AM

I don't think 4X median salary is every going to happen in SF. from 98 to now the price/income ratio averages X5-6 range, well above the national X3-4 range. During the peak SF hit the X9-10 range.

Now, the only way to really reach that range again is to see a decline in prices and a rise in wages. The return to affordability is not just about price declines but also is wrapped up in wage increases.

Posted by: badlydrawnbear at May 27, 2008 8:02 AM

Editor, can you give us the index numbers for the three tiers?

Posted by: anono at May 27, 2008 8:16 AM

bdb,

Or, we could simply see larger drops in the surrounding areas to bring prices for the region back into line. With gas prices skyrocketing and SF still having a huge jobs/housing imbalance, I wouldn't be surprised to see bigger than expected drops in the closer in but still commuter burbs and nearly no drops in the city proper.

Posted by: Boris at May 27, 2008 8:23 AM

Let me agree to disagree. 98 was the start of the 10-year uptick, but nothing tells us that we will not go back to the situation in mid-90s. It is highly unlikely, but millions who were saying "never" have been humbled lately.

In the down side: SF has 70-odd% renters, mostly protected and often low paying (pressure to hold on a sweet deal), the median salary is 70K, median prices are 10 X median salary. There are many imbalances in this market and time will tell if they will correct.

On the plus side, investors (local and outsiders) are still buying up the upper 1/3, middle class families still look for the same 3BR holy grail, and SF is still the greatest city on earth.

Posted by: San FronziScheme at May 27, 2008 8:24 AM

Interesting numbers. If you look at the data, the lower 1/3 peaked in August '06 and is now down a whopping 38%. The middle 1/3 peaked about the same time (May '06) and is now down 25.6%. But the top tier did not peak until August '07 and is down 10.5% since then. The decline in all tiers really began accelerating after the August 2007 credit crunch hit, which was predictable since cheap, easy money fueled the boom both in SF and elsewhere.

The big question now is how long will this continue. One notable development in SF is that the condo market (excluded from Case Shiller) really seems to have turned south in just the last few months. Listings appear to be at the highest level in at least two years while median prices (particularly $/sf) have fallen about 10% just in the last few months, and sales are down. Condo prices are pretty clearly on their way further down. SFR listings are also up, but not as much as condos. My take is that the condo and SFR markets in SF are fairly (not perfectly) intertwined -- you don't see significant price trends in one that differ from the other. CSI shows that SFRs are being hit too (maybe some leveling off?) But we'll see in the next several months if the hit to SFRs is as steep as with condos.

Posted by: Trip at May 27, 2008 8:35 AM

Where does this theory that the "commuter burbs" (SV) will have their prices fall while urban centers (SF) will not come from? Wishful thinking?

San Francisco proper does not have an infrastructure to support large job bases inside the city nor does it have the tax environment to foster growth startups. I think its fair to say that most good paying jobs in the region are not in San Francisco. Rising gas prices might, in fact, have the opposite effect on SF prices as people who commute to the valley and peninsula buy homes closer to the job base rather than commit to a long commute.

And BdB - I don't see salaries going up enough over the next 5 years to make a dent in that side of the affordability equation. Wage earners in the tech industry - our regional manufacturing base - are under constant flat to downward salary pressure due to the global labor pool. Were we seeing booming revenue growth in that sector I might change my tune...but, it ain't happening right now.

Posted by: Shocked at May 27, 2008 8:39 AM

"Rising gas prices might, in fact, have the opposite effect on SF prices as people who commute to the valley and peninsula buy homes closer to the job base rather than commit to a long commute."

Makes a lot of sense especially if the prices fall significantly in the burbs. That makes moving even more attractive.

It is silly to think that increasing gas prices and falling prices in the burbs will somehow insulate SF proper.

Posted by: akrosdabay at May 27, 2008 8:49 AM

Trip, I saw this set of data on thefrontsteps.com re SF condos. It seems that sales data indicate that condo medians are rising YOY in a majority of SF districts, inlcuding D10, i.e. medians are only down in 3 of the 10 SF districts. See below.


Condominiums

District 1 Apr-07 Apr-08
Number of Sales 5 11
Median Selling Price 975,000 1,065,000
Average DOM 32 31

District 2 Apr-07 Apr-08
Number of Sales 4 0
Median Selling Price 712,000
Average DOM 45

District 3 Apr-07 Apr-08
Number of Sales 2 4
Median Selling Price 652,000 605,000
Average DOM 48 101

District 4 Apr-07 Apr-08
Number of Sales 10 3
Median Selling Price 631,000 525,000
Average DOM 28 77

District 5 Apr-07 Apr-08
Number of Sales 23 32
Median Selling Price 950,000 968,000
Average DOM 37 33

District 6 Apr-07 Apr-08
Number of Sales 24 10
Median Selling Price 777,000 837,500
Average DOM 30 35

District 7 Apr-07 Apr-08
Number of Sales 25 28
Median Selling Price 1,105,000 1,236,000
Average DOM 28 39

District 8 Apr-07 Apr-08
Number of Sales 46 32
Median Selling Price 705,000 804,000
Average DOM 57 53

District 9 Apr-07 Apr-08
Number of Sales 45 44
Median Selling Price 745,000 701,500
Average DOM 45 54

District 10 Apr-07 Apr-08
Number of Sales 6 1
Median Selling Price 544,500 589,000
Average DOM 47 4

Posted by: Craig at May 27, 2008 8:52 AM

Where does this theory that the "commuter burbs" (SV) will have their prices fall while urban centers (SF) will not come from? Wishful thinking?

Silicon Valley is not commuter burbs. There are plenty of jobs in Silicon Valley. Eastern Contra Costa and Alameda, as well as parts of Solano and Napa are the areas that I was referring to.

There is still a massive jobs/housing imbalance in San Francisco, regardless of what everyone seems to think. Census numbers don't lie. Santa Clara and San Mateo also have jobs/housing imbalances.

Posted by: Boris at May 27, 2008 8:53 AM

badlydrawnbear, I agree with Shocked: Wage increases cannot make the market more affordable at this current rate. Globalization and other factors are actually making real wages go down and inflation is only 3-5% depending on the source.

The only way this market can go back to historical affordability averages is prices, and things sometimes tend to overcorrect.

Ask the Japanese how long it took for homes to become affordable again.

Posted by: San FronziScheme at May 27, 2008 9:13 AM

sorry I was not clear, I do not expect wage increases to correct the imbalance. However, I do not expect price declines to correct the imbalance either.

It will be a combination of wage increases, price declines, and inflation (eating at the Real value of the home while allow the Nominal value to hold steady) that will correct the bubble.

How much of each component will make up this mix I don't know. But I suspect with the pressures on wages and rising commodity prices, that it will most likely be heavy on the price declines and inflation sides.

I just didn't want to exclude wage increases as a factor for bringing the price to income ratio back into line with historically supported levels.

Posted by: badlydrawnbear at May 27, 2008 9:23 AM

In a city where only 30%(?) of people buy homes and the rest historically rent, median income is pretty irrelevant for affordability comparisons.
Should be using say, upper quartile median income instead as a better guide.

Posted by: REpornaddict at May 27, 2008 9:47 AM

fronzi,

you wrote " SF has 70-odd% renters, mostly protected and often low paying (pressure to hold on a sweet deal)."

any evidence? any link?

Posted by: paco at May 27, 2008 9:56 AM

Craig, we're looking at two different things. You're looking at median sales prices for those units that actually sold in April (about 20% of listed units). I'm looking at current listings. The former is backward looking (and I don't think it's necessary to discuss yet again the limited utility of median sales figures) and the latter is forward looking.

Posted by: Trip at May 27, 2008 10:09 AM

Where does this theory that the "commuter burbs" (SV) will have their prices fall while urban centers (SF) will not come from? Wishful thinking?

Not really. There have been numerous articles and studies done arguing this very point. And I believe the OP meant the East Bay, Solano-Napa, Stockton areas when he meant "commuter suburbs." The Silicon Valley obviously has plenty of jobs and should be considered part of the "core", as is SF.

Note, this argument doesn't even take into account that bridge tolls may also be raised in the near future (GGB going to $7, BB going to $5 or above).

Not to mention that there are 3 to 4 times the number of people who commute in to SF compared to out of SF.

Bring on $10 Gasoline!!!

http://www.theatlantic.com/doc/200803/subprime

http://latimesblogs.latimes.com/laland/2008/05/rising-gas-pric.html

http://latimesblogs.latimes.com/laland/2008/04/why-the-housing.html

http://www.ceosforcities.org/newsroom/pr/files/Driven%20to%20the%20Brink%20FINAL.pdf

Posted by: common cents at May 27, 2008 10:12 AM

In a city where only 30%(?) of people buy homes and the rest historically rent, median income is pretty irrelevant for affordability comparisons.

Which explains why the historic price/income ratio for SF is around X6 versus the national level which is around X3.

Posted by: badlydrawnbear at May 27, 2008 10:13 AM

I stand corrected. The 70-off% comment I posted should have been 60-odd%. The statistics show between 36 and 40% owner-occupied homes.

http://www.hcd.ca.gov/hpd/hrc/rtr/ex11.pdf

This document shows also that SF is in total contrast with the rest of the region, which is 60-40 in favor of the owner-occupied.

Posted by: San FronziScheme at May 27, 2008 10:24 AM

"" SF has 70-odd% renters, mostly protected and often low paying (pressure to hold on a sweet deal)."

any evidence? any link?"

Check out:
http://www.city-data.com/housing/houses-San-Francisco-California.html

The data is a bit stale at this point (suggests 65% OO -- believe that I've seen more recent articles indicating that the number has creeped up to 70%)

Posted by: mk92 at May 27, 2008 10:26 AM

Sorry, should've been 35% OO (65% renters)

Posted by: mk92 at May 27, 2008 10:28 AM

San Francisco proper does not have an infrastructure to support large job bases inside the city nor does it have the tax environment to foster growth startups.

You must have never been to San Francisco before. There are far more jobs in San Francisco than workers. Our net daytime population is 22% higher than our residential population. You may have noticed that our central business district is served by two mainline railroads and a metro subway, as well as an interstate highway.

Posted by: Jeffrey W. Baker at May 27, 2008 10:28 AM

Is there data on the number of protected tenants? I'd like to know that too.

Posted by: fluj at May 27, 2008 10:31 AM

Various SF statistical/census information can be found reviewing various documents on the Planning Deparment's website at www.sfgov.org/planning, in particular the Housing Element, Commerce and Industry Report, Housing Inventory Report, and Downtown Plan Monitoring Report. A few tidbits:

-Renter versus owner is roughly 60/40% (renters are about 60 something percent as I recall)

-About 50% of SF residents work in SF

-According to ABAG (the Association of Bay Area Governments) SF is one of the only areas with a jobs/housing balance, meaning that we have about as many jobs as employed residents

-San Francisco remains the densest employment center in the region with over 535,000 jobs at the end of 2006 (EDD, the CA. Employment Development Department, also reports that this is up slightly for 2007 but official numbers aren't out yet); nearly 40% of these jobs can be found in the core Downtown C3 zoned area that covers 343 acres or about .5 square miles.

Posted by: Enthano at May 27, 2008 10:41 AM

Dunno about what the proportion of propected tenants is, but there is a lot of demographic info there (from 2002):

http://www.parks.sfgov.org/site/uploadedfiles/rentboard/housingdatabook/sfhousingdatabook.pdf

Posted by: San FonziScheme at May 27, 2008 10:43 AM

Jeffrey:
I live in SF and have run a company here for several years. Our central business district (I assume you mean the financial district) is not served by CalTrain and only marginally served by the 101. The Muni is a joke. I lived briefly in San Mateo and it took me less time to commute to the city from San Mateo than it does to use Muni to downtown from Cole Valley.

There is little to no parking that isn't prohibitively expensive and the commercial office space that does have cheap parking is not near any of the regional commute options. If you don't think this is a problem, try to hire talented tech workers that do NOT live in SF. The first thing they note is the lack of parking.

And this doesn't begin to address the problems for startups. The SF payroll tax is an order of magnitude more than the business tax for any neighboring city. If you are a growth startup with plans to expand rapidly - you can't justify to investors a reason to grow in SF. Sorry. I'm sure one could name several startups in SF - but for every one you can name, I can name five in the South Bay and Peninsula - and those five will typically have more funding and employ more people.

But if you disagree - you sound like you work for the govt here - I would like to see the numbers. I maintain that for the highly skilled, high paying jobs (i.e the ones that can "afford" SF housing) SF has become a bedroom community for Peninsula and South Bay workers and not a destination to work.

Posted by: Shocked at May 27, 2008 10:45 AM

You really cannot draw any meaningful conclusions about housing markets and the number of people who work in a city and live there. Detroit has a huge daytime/worker influx of people who do not live in the city. But that certainly does not mean that Detroit's housing market must have a rosy outlook. No, I'm not saying that SF is Detroit. But the fact that SF's employment population is higher than its residential population says nothing about housing markets. Many, many other factors go into the equation.

Posted by: anon at May 27, 2008 10:49 AM

Fronzi, if you don't actually know, then why did you say this?

"SF has 70-odd% renters, mostly protected and often low paying (pressure to hold on a sweet deal)"

Posted by: fluj at May 27, 2008 10:50 AM

If you want to hire talented tech worker and commuting is an issue, let them work from home 2-3 days a week instead of extracting them from their humble abode to park them in cubicle farms. This is a more and more common to retain good people. Plus it is good for the environment!

Posted by: San FronziScheme at May 27, 2008 10:50 AM

my question too. where do you get "mostly protected"?

Posted by: paco at May 27, 2008 10:56 AM

"But if you disagree - you sound like you work for the govt here - I would like to see the numbers. I maintain that for the highly skilled, high paying jobs (i.e the ones that can "afford" SF housing) SF has become a bedroom community for Peninsula and South Bay workers and not a destination to work."

This chart isn't specific to high paying jobs, but for overall jobs, the # people commuting to SF is more than twice the # commuting from SF:

http://www.calmis.ca.gov/file/Commute-Maps/SanFrCommute.pdf

Posted by: mk92 at May 27, 2008 11:00 AM

Buildings built prior 1979 are rent-controlled, and SF is overwhelmingly a city of old buildings. Apart from the SOMA area, new construction is not very common, and it is very hard to transform a rent-controlled building into a non-rent controlled one, which limits tear-downs.

Posted by: San FronziScheme at May 27, 2008 11:09 AM

America, particularly California, has long been dependant on cheap oil. This dependency is about to rear its ugly head, well detailed in "peak oil" and the "death of suburbia" theories. With Bush going over to Saudi Arabia and getting zero traction in getting them to release more oil, with oil reserves dwindling, and the near exponential rise in fuel consumption in India and China, $8-$10-$15/gallon gas is inevitable in the near future.

Pertaining to SF, an estimated 265K commute into the city for work. Whereas, an estimated 96K commute out of the city to work.

To me, this shows that there is a greater draw to live within the city than out of the city for purposes of employment.

I predict a scenario not unlike what has happened in Manhattan in the near future. For what it's worth, SF is well prepared for the challenge of this transition with the Transbay Terminal projects, High Speed Rail, and Central Subway projects all in line for the next decade and beyond.

With this Suburbs may well be a relic of the past.

Posted by: McEnroe at May 27, 2008 11:11 AM

"Buildings built prior 1979 are rent-controlled, and SF is overwhelmingly a city of old buildings. Apart from the SOMA area, new construction is not very common, and it is very hard to transform a rent-controlled building into a non-rent controlled one, which limits tear-downs."

Please. You keep doing the same thing on here, day in and day out.

Posted by: fluj at May 27, 2008 11:12 AM

Does anyone understand these charts?? The top chart appears to estimate that prices rose only about 22% between 2002 and late 2005, the height of the run-up in prices. That cannot be correct for SF. And prices did not dive 35% between 2001 and 2002.

Am I reading this correctly? If so, this is pretty inaccurate info for the markets I follow.

Posted by: puzzled at May 27, 2008 11:14 AM

" 2002 and late 2005, the height of the run-up in prices"

The biggest runup started in late 2004 through summer 2006. If you look at any neighborhood in SF the difference between 2004 and 2005 will be enormous.

Posted by: fluj at May 27, 2008 11:18 AM

I do not believe Suburbs are a thing of the past. The draw to the city is undeniable, but collapsing prices in the the farthest commutable suburbs might attract people who like the very cheap large houses.

Think telecommuting. Think smaller commuting for instance to new job centers in Walnut Creek. Think families who want to have a real life.

Not everyone wants to squeeze their kids into a European-sized condo. The prices in Noe are there to prove it.

Posted by: San FronziScheme at May 27, 2008 11:19 AM

@puzzled:

You are referring to a year over year chart.
Prices did not dive 35% from 2001-2002. Prices were increasing at a 30% clip in 2001 then fell about negative 5% in 2002.

You have to think in year over year terms.

Posted by: @puzzled at May 27, 2008 11:20 AM

And yet this chart shows only about a 10% price increase between 04 and 06. Can that be right?

Posted by: still puzzled at May 27, 2008 11:21 AM

"Am I reading this correctly? If so, this is pretty inaccurate info for the markets I follow. "

No, you are not reading this correctly.

Between 2001 and 2002 (in the wake of 9/11), the SF MSA went from a YoY increase rate of about 30% to a YoY decrease of about 5%. In other words, if a property was 500K in 2000, it was 650K in 2001 (30% increase) and 617.5K in 2002 (5% decrease).

As for between 2002 and 2005, these are YoY increases -- so the 22% in 2005 means a 22% increase over what the median price was in 2004 (i.e., YoY).

Posted by: mk92 at May 27, 2008 11:21 AM

mk92,

Regarding in/outflow commute, the chart you provided is based on 2000 census data. I would be interested to see if that has changed significantly.

Posted by: fred at May 27, 2008 11:22 AM

I get it. Thanks mk92.

Posted by: puzzled no longer at May 27, 2008 11:24 AM

I don't have more recent data, but I doubt the gap has narrowed much if at all (given all the .com jobs in the valley that existed as of the 2000 census but are history now).

Posted by: mk92 at May 27, 2008 11:29 AM

puzzled,

the top chart is a "YoY Price change" chart, not an overall price chart.

Which means for instance that in January 2001, the increase in price was around 30% but the prices then decreased a few percentage points.

It's very tricky to look at monthly numbers because of seasonality and psychology (dotcom bubble, please meet 9/11)

It would be better to draw an average between early 98 and early 2006. The line should be around 13-15%. this is the size of the bubble that still has to pop, imho.

Posted by: San FronziScheme at May 27, 2008 11:29 AM

Puzzled -- the top chart shows the year-over-year changes, not the cumulative change. The latter is reflected in the bottom chart. Thus, as fluj notes, there was a huge run-up in prices from '04 to '05 (about 22%) which followed about a 10% increase in '03.

The bottom chart hides the big 2002 to 2006 run-up because it is scaled over such a long 21-year period. If you look at the actual data, it is a little easier to see it. From 1/1/02 to the Summer 2006 peak, prices were up about 75%. And they are now down 23% since then in a little under two years, back to May 2004 levels overall.

Posted by: Trip at May 27, 2008 11:30 AM

Posted by: for puzzled at May 27, 2008 11:34 AM

The chart shows the rate of change (yoy) for the particular market.

So, for example, in SF MSA prices rose at a 30% annualized rate in Jan. 2000, and then they declined at a 5% annualized rate in Jan. of 2002.

Posted by: Next Stop: Ragnarok! at May 27, 2008 11:41 AM

For those interested by raw numbers

http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_History_052703.xls

A few remarkable date/points:


2/94 - 65.79 --> 90s trough
1/00 - 100.00 --> basis for the index
9/01 - 130.95 --> top following dot com bubble
1/02 - 125.13 --> small trough after dot-com bubble burst
5/04 - 167.76 --> last time prices were at today's prices
5/06 - 218.37 --> all time top
3/08 - 168.38 --> today's reading

Basically, this market is back to 4 years-ago prices regionaly.

Of course, this is regional data and NOT what happens in SF. But very instructive nonetheless.

Posted by: San fronziScheme at May 27, 2008 11:51 AM

I think the rate of change chart would be clearer if it was a bar chart. Shown as a line chart it implies a trend and not a simple measurement

Posted by: badlydrawnbear at May 27, 2008 11:54 AM

Shocked: I too have run a company, and been involved in a number of startups here in SF. The payroll tax has never been an issue. It's a point and a half, for crying out loud. You might as well complain that the federal payroll tax is driving startups to Mexico.

Caltrain certainly does serve the C-3 district. Just ask the thousands of commuters who ride it into the city.

The lack of parking in the C-3 is a feature, not a drawback. With more parking, we really wouldn't have as many jobs as we have today, and our office space would be significantly more expensive.

Posted by: Jeffrey W. Baker at May 27, 2008 12:20 PM

If we're still arguing about this, a recent chronicle story decribed the percentage of rent controlled units in SF at 71%. I don't know where they got that number.

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/05/07/MN4V10FTG0.DTL

Posted by: Stu at May 27, 2008 12:21 PM

Wow, when you get 15-20% drops, you lose your ENTIRE DOWN PAYMENT in one year! Wohoo! Where do I sign up?

And more importantly, with the 10% down buyers upside down practically before they unpack their boxes, leaving them no real reason to continue to make the payments, where do the mortgage investors sign up?

You can see the effect of the subprime resets in CoCo county hitting full stride just now, 9 months AFTER the sub prime blow up.

What happens when the Alt-A resets hit SF next year? And if it takes 9 months to hit full stride, well, then we've got more than a year before SF gets hit by this wave.

Posted by: tipster at May 27, 2008 12:48 PM

Uh, if you look at the newyorkfed numbers (http://www.newyorkfed.org/mortgagemaps/), San Francisco has a relatively low proportion of Alt-A mortgages (as compared to the rest of the BA or the rest of CA).

Posted by: mk92 at May 27, 2008 1:00 PM

Sorry, to be clear -- California has about 49 Alt-A mortgages for every 1000 housing units while San Francisco has about half that number for every 1000 housing units.

Posted by: mk92 at May 27, 2008 1:04 PM

Yes, but what's the percentage of SF borrowers that took out Option ARMs? IMO Option ARM recasts will be a substantially larger problem than resets of Subprime or Alt-A. About 80% of Option ARM borrowers are paying less than interest (neg-am).

Posted by: unearthly at May 27, 2008 1:09 PM

wow, the way tipster and unearthly paint the picture you would think that we'd be looking at lots of nervous sellers flooding the market with product. or banks trying to dump their REOs.

so where is all this inventory? must be great deals all over the place huh?

Posted by: paco at May 27, 2008 1:34 PM

There are a few REOs around. You just need to dig stuff up. One I was following:

461 Chenery. Trustee's Deed upon Sale on 5/12 for 601,343 and now for sale at 669,900

http://sfarmls.rapmls.com/scripts/mgrqispi.dll?APPNAME=Sanfrancisco&PRGNAME=MLSPropertyDetail&ARGUMENTS=-N835289172,-N222247,-N,-A,-N13754551

http://www.propertyshark.com/mason/san_francisco/Reports2/showsection.html?propkey=30582242

Wells Fargo tries to get its money back plus costs and stuff.

Posted by: San FronziScheme at May 27, 2008 1:48 PM

thanks fronzi,

one crappy, tiny place with no parking in a distant nabe and at $680/ft.

i stand corrected. sounds like prices are crashing!

Posted by: paco at May 27, 2008 1:55 PM

collapsing prices in the the farthest commutable suburbs might attract people who like the very cheap large houses.

Yeah, we will probably see some of the McMansions broken up and turned into apartments for people on fixed incomes, the disabled, retirees, welfare recipients and the like: people that don't need to drive to work. Already, my Aunt's neighborhood has seen an influx of multi-generation families moving into her neighborhood.

In areas that take too much energy to heat or cool, they will probably end up uninhabitable.

Posted by: NoeValleyJim at May 27, 2008 2:03 PM

A "few" REOs? There's a whole slew just a few blocks away from 461 Chenery. Excelsior and Bayview are full of them, seen several in Sunset/Parkside, and I'm now starting to see them pop up in Glen Park and Bernal.

Have a look at this realtor's website. Love how everything is "Sale pending, multiple offers!!" But do a PropertyShark search on most of these and you'll find that they were REOs that sold for hundreds of thousands less than their previous sale. I know it's not Noe Valley, but it is happening in San Francisco.

http://farrellreinvestments.com/id76.html

Posted by: Dude at May 27, 2008 2:04 PM

"You can see the effect of the subprime resets in CoCo county hitting full stride just now, 9 months AFTER the sub prime blow up. "

Man, no. I happen to know for one thing that the Brentwood condo market had taken a complete nosedive at least a full year before last September.

Posted by: fluj at May 27, 2008 2:04 PM

paco,

I did not say prices were crashing. But the market is softening when the area and the place are not prime (what some call the "real SF").

And talking about distant nabe, you walk 2 blocks and you're in BH. It's not central, but it's not gangstaland neither. One block up and you're on very desirable Laidley street.

This lot is RH2, by the way. Add one floor up, build a garden floor down, get over the tree canopy, and you've got potentially a decent enough view.

Which means there's equitity sweat waiting to be unlocked (but not at this current price and in THIS market).

Posted by: San Fronzischeme at May 27, 2008 2:11 PM

dude,

you said;
"I know it's not Noe Valley, but it is happening in San Francisco."

i'd venture that all of those listed reos are closer in location/desirability to daly city than noe valley. what happens in the excelsior or hunters point or coco county does not have much to do with sf. now if you were to point out places with a similar demographic (like the better parts of marin or the peninsula) then maybe you would convince me.

Posted by: paco at May 27, 2008 2:15 PM

Dude, great link. The "Sale pending - Multiple offers" creates the sense of urgency on the remaining properties.

Buy now or be priced forever!

This is so 2006.

Posted by: San FronziScheme at May 27, 2008 2:18 PM

"i'd venture that all of those listed reos are closer in location/desirability to daly city than noe valley"

Desirability, maybe. But Excelsior is much closer to Noe than Daly City. Regardless, in reference to your other question, I looked on Trulia's foreclosure listings. Currently 77 foreclosures listed in Lamorinda, and 205 listed in Marin (limited to only Sausalito, Belvedere, Tiburon, Corte Madera, Mill Valley, and San Rafael).

Posted by: Dude at May 27, 2008 2:34 PM

bernal heights is also a distant nabe.

and as for the chenery property i would not live there for half that price.

i'd much rather go after the example of that place on page
where you can buy a 3 unit at under $400/ft and sell off 2 units while keeping one.

i guess my point is that too many on this board confidently predict that good stuff will come onto the market cheap-then when pressed for examples they offer up crappy stuff in even crappier nabes. will prices keep coming down? yes, and they should for those crappy expensive places in shiity nabes. but for the places i want to live i'm not seeing lower prices or increased selection.

a tale of two cities indeed, for its the best of times and the worst of times...

Posted by: paco at May 27, 2008 2:35 PM

" what happens in the excelsior or hunters point or coco county does not have much to do with sf."

Well, except for the fact that two of those three places are in SF I suppose.

Posted by: Amen Corner at May 27, 2008 2:53 PM

maybe to you they are.
i've got to remind those d5,d6,d7, d8etc.. area sellers that hunters point pricing is effecting
their property values; after all, as goes the excelsior so goes pac hgts...

Posted by: paco at May 27, 2008 2:58 PM

First I post:

What happens when the Alt-A resets hit SF next year? And if it takes 9 months to hit full stride, well, then we've got more than a year before SF gets hit by this wave.

Then Paco posts:

wow, the way tipster and unearthly paint the picture you would think that we'd be looking at lots of nervous sellers flooding the market with product. or banks trying to dump their REOs.

So Paco, What part of "more than a year" in my post didn't you get?

And as for fluj's Brentwood condos starting the process, pretty much the same thing starting in SoMa condos now.

And obviously *something* had to take a nosedive before the problem hit, or the problem never would have hit. You only have a subprime problem when people can't sell for more than they paid, otherwise people in over their heads just sell. The Alt-A problem will be the same.

And mk92, I don't think I'd be hanging my hat on the fact that the average % of SF alt-a loans is better than the worst state in the U.S. And do we know if that data includes Jumbo or only conforming loans? I'd suspect it excludes Jumbo loans. Even if it doesn't, it isn't saying much.

Posted by: tipster at May 27, 2008 3:00 PM

Nice strawman paco...

Posted by: Amen Corner at May 27, 2008 3:01 PM

damn wind blew him down quick..

Posted by: paco at May 27, 2008 3:03 PM

slightly OT, but i think worth your consideration..
the end of 6%?

http://biz.yahoo.com/ap/080527/realtors_settlement.html

Posted by: bobTrouser at May 27, 2008 3:06 PM

okay tipster,

as coco county goes, so goes sf. is that what you're saying?
and are you with 'im, amen corn?

Posted by: paco at May 27, 2008 3:06 PM

paco,

I understand your point of view. But it seems you are using the trademarked character attack from our friend in BH. Are you fluj?

The SF real estate scene looks more and more like the fight between sand castles vs. high tides. The lower laying sand is swept away by the waves while the castle towers keep standing.

The question is, will the towers keep on standing on their own forever?

Posted by: San Fonzischeme at May 27, 2008 3:11 PM

And as for fluj's Brentwood condos starting the process, pretty much the same thing starting in SoMa condos now.

Two years later?

The same thing?

Posted by: fluj at May 27, 2008 3:13 PM

If you look at the underlying spreadsheets, the average loan balance is in excess of the jumbo threshold. So, it's quite clear that Jumbo is not excluded.

And, I'd say it is quite relevant, and here's why... You said that Alt-A would be the real problem in SF, but the fact is that there aren't that many Alt-A loans in SF. Similarly, there weren't that many subprime loans in SF (as compared to the rest of the Bay Area or the rest of California). The rest of the Bay Area has felt the brunt of the subprime collapse, while SF has, to date, been relatively unscathed. Therefore, because SF doesn't have that many Alt-A loans outstanding, it will by definition not have as many problems with Alt-A as other parts of the Bay Area.

Sure, SF proper may suffer some effects but it will be muted -- just as it was for subprime.

Posted by: mk92 at May 27, 2008 3:13 PM

fronzzz,

i'm currently going thru the ringer trying to get financing for a five unit and i'm astounded that sf prices are not getting beat up much much more judging from the troubles i'm having.

if lending does not loosen up i predict that prices will REALLY start coming down. BUT, despite what many on here predict i have yet to see the declines i would expect from such a tough lending environment. anyway, the towers in sf were always much more expensive than the low lying areas and i expect that to become even more pronounced.

and no, i'm not fluj, but thanks for asking...

Posted by: paco at May 27, 2008 3:25 PM

paco,

Good luck for the financing, but do you know you need a real job to buy property today? Prices used to go up 15% no matter what and that was supposed to last forever! If only the bad bad bad media and all these negative people on the message boards could just all shut up so that we could go back to all becoming instant millionaires and not have to work for a living.

Good nabes are holding on, sure. Is this going to last forever? Not so sure.

Posted by: San FronziScheme at May 27, 2008 4:01 PM

"Good luck for the financing, but do you know you need a real job to buy property today? Prices used to go up 15% no matter what and that was supposed to last forever! If only the bad bad bad media and all these negative people on the message boards could just all shut up so that we could go back to all becoming instant millionaires and not have to work for a living."

LOL @ Fronzi talking down to Paco.

I hope you're learning something, Fronzi. Lucky for you teachers do like the kids who raise their hands a lot. Even on the Internet. It would be nice if they did their homework every now and then but hey, class participation does count.

Posted by: fluj at May 27, 2008 4:11 PM

fluj, are you paco?

fluj and paco, the last 2 people left on the top of PacHeights in 2010 surrounded by a sea of red ink crying "not REAL SF, not REAL SF!"

Posted by: San Fronzischeme at May 27, 2008 4:16 PM

I am not Paco, no. Apparently we have met once though. I am a realtor with a development background. Paco, I believe, is a contractor with a development background.

Buddy, on a daily basis you show that you are out of your depth on here. Yet you continually try some sort of attempt to condescend. It makes very little sense.

Posted by: fluj at May 27, 2008 4:22 PM

A market that speaks for itself should have no need to be pumped up. I feel the dings into the "everything is fine in Real SF" fantasy are starting to hit home...

Posted by: San FronziScheme at May 27, 2008 4:30 PM

Who cares? Nobody is on here talking about unprecedented runups or towers of immunity except you. You're just trying to goad and you don't know what the hell you're talking about anyway.

Posted by: fluj at May 27, 2008 4:35 PM

yo fronzzz,

still waiting to see all those bargains in real sf that you are touting. ha ha chenery chuckle ha ha

Posted by: paco at May 27, 2008 4:42 PM

I don't think so, fluj. Month after month we see more data proving housing is becoming more and more affordable in more and more places. You're holding tight as much as you can and I respect that, ultimately your lifelihood is at stake. You can't prevent me from sitting on the fence enjoying the show as I do not need anything from this market except cheaper prices and future opportunities. I can live without them, but I'm greedy and would be happy if they came my way. And I'm betting they will.

Posted by: san FronziScheme at May 27, 2008 4:49 PM

bargains in real sf

No bargains yet. Prices need to go down a good deal more for that to happen.

Posted by: san FronziScheme at May 27, 2008 4:53 PM

"You're holding tight as much as you can and I respect that, ultimately your lifelihood is at stake. "

Get out of here.

I'm not trying to convince you of a single thing except to keep your often uninformed opines to yourself.

Posted by: fluj at May 27, 2008 4:55 PM

paco, I forgot,

Where did you see I was quoting Chenery as a bargain? That's the opposite! repo-ed at 600, and WF tries to unload at 669K. Re-read my comment:

Which means there's sweat equitity waiting to be unlocked (but not at this current price and in THIS market).

You have the "fluj" syndrome. Some call it ADHD.

Posted by: San FronziScheme at May 27, 2008 4:58 PM

fronzzz,

ohh, not in this market. i asked for examples of inventory and reos and you brought up chenery. then added

"This lot is RH2, by the way. Add one floor up, build a garden floor down, get over the tree canopy, and you've got potentially a decent enough view.
Which means there's equitity sweat waiting to be unlocked (but not at this current price and in THIS market)."

so my mistake. despite your coughstupidcough construction plan you do not think this is a good deal/nabe/idea.

so where are all these deals? any deals? i forgot already (adhd again) exactly why " I feel the dings into the "everything is fine in Real SF" fantasy are starting to hit home..."

please enlighten me.

Posted by: paco at May 27, 2008 5:19 PM

Fronzi,
The problem with your theory is that lots of people are waiting around to buy so the prices won't get as low as you want them to. Buyer are purchasing now because they have had enough of a price drop to entice them.

Posted by: sparky at May 27, 2008 5:36 PM

paco,

The dings are the nabes biting the dust one after another coming closer to the "Real SF". 2 months ago fluj and I had a discussion about GP, BH and the proximity of Bayview. Now BH and GP are not in the "Real SF" club anymore apparently. Maybe someone should send them a letter of apology for being suddenly dropped from the pool of acceptable statistics along with already a good chunk of the city by area (Sunset, Excelsior, Bayview, Richmond, OceanView, Bayshore, SOMA condos, Glen Park, Diamond Heights,...)

Lots that are RH2 get converted from a single floor plan to a 3-level home with garage. I live in a house that will one day go through this process. It's done when it's economically feasable. The entry point is not cheap enough and the resale/rental value is not high enough for the sample I gave you. 669K is overpriced for GP and this property. But it will ultimately be done I think.

Posted by: San FronziScheme at May 27, 2008 5:49 PM

@Paco

Why be nervous when everything looks OK in the near term. For a real scare take a look at the amount of bad debt banks are holding/or will be holding as level 3 assets. Then look at the amplification of derivatives that are sitting on top of that bad debt. Ever wonder how someone making a $100k can buy a million dollar home for 5-10% down? Answer is Option ARM; well until it recasts in 5 years (2009-2011).

Never mind the man behind the curtain, move along...

Posted by: unearthly at May 27, 2008 6:02 PM

your theory is that lots of people are waiting around

I do not have any theory. I just think SF is overpriced.

Posted by: San FronziScheme at May 27, 2008 6:02 PM

"Now BH and GP are not in the "Real SF" club anymore apparently."

The Richmond too, huh? See, you're really exposing yourself as completely uninformed when you say that. So far in R.E. circles, the Richmond's performance is actually one of the big surprises of 2008. But whatever. You don't care.

No, Fronz, today we find you in very rare form. Today you have plumbed the depths of your inner troll. Nice one. I particularly enjoyed your recycling of the tried and true "Realtors need to tell everyone lies in order to maintain their livelihood" zinger. So thanks. I am enjoying the ride from this side too.

Would you like YoY Glen Park or Bernal stats? I'm happy to serve them up, AGAIN. Real quick YoY (1/1/-5/27)Bernal is 663 a foor 2008 versus 620 a foot last year. Glen Park is 733 a foot this year. It was 801 a foot this period last year. I think I know why that is, actually. Bigger houses this year have sold in GP. The average sales price is up 180K.

And Foolio I haven't forgotten about your Richmond question from the other day. I'll look at that tomorrow.

Posted by: fluj at May 27, 2008 6:08 PM

I am not sure how much value, if any, the above cash schiller data is worth. Here's some useful info instead.
From:
www.rereport.com
"Both single-family, re-sale homes and condo sales rose in April, as is to be expected this time of year. The sale of single-family, re-sales homes gained 23.1% from March, a 5.2% decline year-over-year. Sales of condos and lofts rose 17.5% month-over-month, but were down 22.1% compared to last April.
The median price for single-family, re-sale homes rose 4.3% from March, and, it was up 2.2% year-over-year. The average price rose 1.1%, and, it was up 5.7% compared to last April.
The median price for condos in San Francisco fell 1.4% to $755,000 from March, but, was up 4.5% year-over-year. The average price for condos gained 0.3% to $917,238, a new record high, for the second month in a row. The average price was up 10.5% year-over-year.
Condo sales gained 17.5% month-over-month, down 22.1% year-over-year."

Posted by: anon at May 27, 2008 6:15 PM

fluj, I wasn't talking to you but to paco. He qualified BH and GP as too distant and not worth talking about.

My comment was about the shrinking comps zones.

Thanks for the numbers. Is this january vs. May 27th? Or is it YoY? Please clarify.

Posted by: San FronziScheme at May 27, 2008 6:26 PM

@unearthly,

i agree about the level 3 assets and weapons of financial mass destruction (hat tip warren). i am v v worried and my reasoning is to put money to work buying assets i'm comfortable with rather than keeping it in tbills. aside from a healthy skf hedge i'm at a loss as to where to put my rapidly deteriorating greenbacks. fortunately i found a good building that noone else wanted and was able to get a good deal (appraiser measured it- $268/sq.ft.) in a good nabe. essentially i'm betting i'll get more value from my RE than my $'s.

as to the other part of your post
"Ever wonder how someone making a $100k can buy a million dollar home for 5-10% down? Answer is Option ARM; well until it recasts in 5 years (2009-2011)."

i'm not too worried about these folks for a few reasons: rates are probably not going up when they recast and if someone is making that $100k they can afford the payments (they probably do have savings) plus many folks bought in "real sf" and their properties increased in value over this time.

and as i've said here before, i don't care what happens in bernal or bayview- i don't see it affecting the areas i watch.

Posted by: paco at May 27, 2008 6:32 PM

@anon at 6:26,

thanks for the useful info. data speaks sooo much louder than
what the bears keep quoting.

Posted by: paco at May 27, 2008 6:40 PM

@ Paco

Rates are not the only issue when a Option ARM loan recasts. The worry is that after a recast minimum payments are no longer accepted (I/O or otherwise) and that P + I gets compressed to 25-27 years. Basically the mortgage payment can jump 2.5x-3x the prior payment minimum. The loan goes from somewhat affordable to unaffordable; on the example I gave a $2900 monthly can become $6200 month after a recast (1% initial rate, 5.5% after recast, 10% down).

Throw in a second mortgage, HELOC, or car payments and you can see how Option ARMs can be deadly in the hands of the uninformed. With the current lending environment it won't be easy to refinance out of these loans, especially in a flat or depreciating market. Most of these are Prime loans, not Subprime, not Alt-A. Thank Alan Greenspan and the greed of investment bankers to find ways to sell more risky debt.

Posted by: unearthly at May 27, 2008 7:01 PM

fronzzz,

"I wasn't talking to you but to paco. He qualified BH and GP as too distant and not worth talking about.
My comment was about the shrinking comps zones."

finding some reos in these areas does not surprise me one bit. i was not interested in investing in them even when they were much much less expensive. i may have been wrong to overlook these areas as they appreciated way way more than i think they should have, BUT i was correct in thinking that when the froth subsided these areas would be shown to have few clothes (or other desirable and resilient traits). in other words i have no interest in defending the prices of overbuilt crappy soma lofts but i take exception to the theory that b/c this stuff is going down everything will be dragged with it.

so bh and gp and coco county were not on my list when they went up or down.

et tu, fronzzzz?

Posted by: paco at May 27, 2008 7:06 PM

@unearthly

i agree. and those who underestimated their future liabilities PLUS threw some HELOC debt on deserve what is coming. same with all those buying what they could not afford.

as for loans or other commitments that people get into who are uninformed, i would refer you to pj barnum's (i think) quote about the frequency of the birth of fools. and how they are quickly separated from their money(who said that?).

so do you think we need lotsa regulation to keep this from recurring?

Posted by: paco at May 27, 2008 7:17 PM

@ paco

To answer your last question - I say no, let this play out. I want the bad debt out sooner than later. The biggest worry is that some bigger banks may fail or get bought out for pennies on the dollar ala Bear Stearns; Bear is the first not the last. IMO there will be a larger pricing correction in the real estate market, the question is when and where?

I'd say most people who bought or refi-ed their loan in the 2003-2007 time frame simply looked at the cheapest monthly payment option and not anything else.

Couple of interesting reads:

Herb Greenberg: Straight Talk on the Mortgage Mess from an Insider

Economist: Paradise lost

In Wallstreet the movie, Gordon Gekko (Michael Douglas) said 'A fool and his money are lucky enough to get together in the first place...

Posted by: unearthly at May 27, 2008 7:34 PM

excellent links unearthly.
thanks

Posted by: paco at May 27, 2008 9:31 PM

Hey, how did this conversation get like this? Does it have anything to do with the chart?

I would rather talk about my prediction that when the three tiers meet, that's the bottom. ;-)

If you look carefully, the three tiers have not completely met yet. However, the top tier already stopped the decline.

So, personally, I am eager to see if my prediction becomes reality.... although it seems that I probably missed the mark with the 2nd part of the prediction (the bottom happens late 2009).

Posted by: John at May 27, 2008 10:18 PM

You can't prevent me from sitting on the fence enjoying the show as I do not need anything from this market except cheaper prices and future opportunities

Sitting on the fence? Didn't you tell us that you sold your investment property in San Francisco, in anticipation of the downturn? Or was that some other guy posting under the moniker of "San FronziScheme"?

Posted by: NoeValleyJim at May 27, 2008 10:40 PM

But Excelsior is much closer to Noe than Daly City

This is actually not true. At least not if you use the SFARMLS map of Excelsior. Even if you use the more commonly accepted "everything south of 280 and West of McLaren Park" it is still not true.

Posted by: NoeValleyJim at May 28, 2008 6:58 AM

I think most people would rather live in Daly City than Excelsior.

Posted by: John at May 28, 2008 7:39 AM

I always get a kick out of reading these comments after the Case-Shiller comes out.

I live in Boston and watched the same story play out. As the outer areas deteriorated people that could pay 900K moved closer into the city. Eventually that 900K bought a nice place in North End.

Now even those North End places are seeing large declines and the people screaming that they were immune are underwater and hurting.

Looking back on what happened here in Boston and what is happening in San Francisco it is not all that surprising. There will always be people that want to buy and will have an amount they can use to buy. As the market turns downward they will be able to use that purchasing power to walk up the real estate ladder. This continues until the buyers reach the top and then even the nicest places teeter and lose value as well.

I will keep checking back on you guys. Keep up the debates. :)

Posted by: Jason G at May 28, 2008 7:56 AM

Fronzi,

just because you don't say "theory" doesn't mean it's not a theory.

Posted by: sparky at May 28, 2008 8:33 AM

Fronzi,

just because you don't say "theory" doesn't mean it's not a theory.

Posted by: sparky at May 28, 2008 8:33 AM

Jason G,

Your bemusement bemuses me. Can you explain why the same trend would be happening slower in San Francisco than Boston? You know, if it's the same and all?

Posted by: fluj at May 28, 2008 9:15 AM

FYI, data from 2007 for year end 2006.

There were significantly less subprime loans taken out by home owners in San Francisco than the national average - 5.5% versus state/national average of 12.0%.

Homeowners in San Francisco borrowed an average of 2.36 times their annual income for their mortgage. This compares to 1.83 for all of the US.

87.4% of home owners in San Francisco that applied for a mortgage in 2006 live in their homes versus owning them as an investment property. This compares to the national average of 89.0%.

Posted by: rechdxs at May 28, 2008 4:38 PM

"I would rather talk about my prediction that when the three tiers meet, that's the bottom. ;-)

If you look carefully, the three tiers have not completely met yet. However, the top tier already stopped the decline."

At best this is just a lull before the Alt-A and option reset wave begins in earnest in 2009. I'm still predicting Case-Schiller below 110 by 2011. You have never put forth a mechanism to explain why those numbers converging indicates a bottom. My interpretation is that the divergence started with the rise of sub-prime loans causing outlying area to abnormally appreciate and the convergence now is just a reflection that sub-prime is no longer readily available.

Posted by: diemos at May 28, 2008 6:48 PM

Interesting article in the Economist showing that, per Shiller's longer-term analysis, the current housing decline is already worse than during the Depression. Can SF really expect to steer clear of this? I think the evidence already overwhelming answers that question in the negative, but I also recognize that reasonable minds may differ.

http://www.economist.com/displayStory.cfm?story_id=11465476

Posted by: Trip at May 29, 2008 4:45 PM

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