May 29, 2009
Another "Real" Apple Closes Escrow In The Marina: 1756 North Point
The sale of 1756 North Point closed escrow this past Wednesday with a reported contract price of $1,575,000. That’s an official 1% under asking of $1,595,000 and 49 days on the market according to industry stats, but do keep in mind it was also listed for $1,795,000 four months ago (which would be 12% under original list and 120 days on the market).
Of more interest to us, and those actually trying to make sense of the market, the 2009 sale price of $1,575,000 is 17.9% below its purchase price of $1,920,000 in April 2007.
As we wrote in January, "while short holding periods might not make for the best real estate returns, they do make for better apples in terms of isolating movements in the market versus simply averaging a bunch of years out."
First Published: May 29, 2009 1:45 PM
Comments from "Plugged In" Readers
So, down 18% since 2007, which actually isn't too bad, as that was probably a "peak" (or very near peak) price, probably a little less of a decline than SF overall.
Capital loss (assuming normal transaction costs) was in the range of $450K - call it $19K per month.
An additional $40K+ in property taxes, maybe $1.5K per month.
And only then do you get to the mortgage costs. Is it safe to say that this place cost the seller somewhere around $27-30K per month in real dollars?
As I said in the earlier thread on this property, kudos to the 2007 seller for his excellent timing. Bubbles are wonderful for those who time them well, and crushing for those who refuse to open a history book, thinking "this time it's different".
Posted by: LMRiM at May 29, 2009 2:48 PM
Is this on landfill?
Posted by: jessep at May 29, 2009 3:10 PM
Posted by: gh at May 29, 2009 3:35 PM
Wow... just read the original comment thread on this place from January. The first time I've ever seen an owner enter this forum to defend his property - a really hilarious read if you've got the time. LOL at a motivated (to say the least) seller telling folks shopping for real estate that they'll never get their "grubby mits" on the place. Was that, like, a marketing strategy?
Posted by: rabbits at May 29, 2009 3:38 PM
Was that, like, a marketing strategy?
Yup. Playing the "exclusive" card.
But when you're shelling 20++K/month (per LMRiM's estimate) to live in a condo, I guess you have every right be a bit upset.
Nonetheless, he shouldn't take it on the SS crowd. Most are only trying to caution others not to repeat the common mistakes of the bubble years. 2007-2008 were very odd years for SF RE, but we all see now that it was just a "pride before the fall" moment.
Posted by: San FronziScheme at May 29, 2009 4:06 PM
Reading that old thread induces severe schadenfreude. The seller (or someone pretending to be him) was pretty obnoxious.
Did the owner finally bring his taxes current? I guess he must have, in order to close... And was the unit really rented at $7500/mo?
Posted by: Po Hill Jeff at May 29, 2009 4:10 PM
we haven't heard from paco in a while -- although this apple wasn't held very long, wasn't it his thesis that prime SF will always be a good investment if improved and held 5+ years?
There's a lot of caveats/conditions/qualifiers in that thesis, but even still, I don't think it'll fare well and I don't think we'll hear from him. That'd be a shame tho.
Posted by: Rubicon at May 29, 2009 5:38 PM
LOL at that owner post. Perhaps he can comment on why he decided to sell, taking such a huge loss?
Posted by: Jeff at May 29, 2009 6:29 PM
I'd love to hear the owner's reaction to burning approximately the price of a brand new Rolls Royce convertible to live in the Marina for two years.
Hopefully he didn't really need the money he lost ...
Posted by: Jimmy (No Longer Bitter) at May 29, 2009 6:45 PM
Even the most arrogant person is humbled by the awesome power and fury of The Bubble.
Blessed be The Bubble.
Posted by: tipster at May 29, 2009 9:47 PM
Holy Sh*te down 20% in two years! Man on man o manny man.
Posted by: been there at May 29, 2009 11:22 PM
Interesting. Looks like the new buyer paid more to live in a condo than that SFH on Rico sold for.
Posted by: pacheightsguy at May 30, 2009 7:57 AM
The seller must be kicking himself. I could not stomach $2mill for a condo. Even during the peak of things you could get a SFH for $2mill-ish. I just don't get it, but I would also take SFH over a condo any day.
Posted by: MarinaLocal at May 30, 2009 8:27 AM
"The seller must be kicking himself."
Experience keeps a dear school, but fools will learn in no other. -- Benjamin Franklin
Posted by: diemos at May 30, 2009 9:16 AM
Um, I paid over 2M for my condo: 2.175M actually.
Guess I'm an idiot though.
My neighbors paid over 2.4-2.75 M.
Posted by: jessep at May 30, 2009 9:50 AM
I agree with you. I just don't see buying a condo, when you can buy a SFH in the same neighborhood. I think people, whom have paid 2 mil+ for a condo are going to lose some money over the next few years. Heck, I would rather have a house in Walnut Creek for $2 mil and take the BART then pay $2 mil for a box in the sky. And I am single with no family, but I did grow up in a rural part of the country and value square footage over a view.
Posted by: MarinaRenter at May 30, 2009 11:37 AM
MarinaRenter, You don't have to go to Walnut Creek, and you don't need to spend anywhere close to 2 mil.
Here's a $1.2mil (asking price) house in Moraga that would be a shorter BART ride to downtown than the 30X from the Marina than this 1.575M Marina condo. Small yard that backs up to a greenbelt, so you have a tree view without the maintenance.
It sold for $746K in 2001, so I'm guessing there is plenty of room for negotiation. I'm guessing you can get it for about 2/3 the price of this Marina condo.
Posted by: tipster at May 30, 2009 12:18 PM
I sort of find the Marina confusing...sure it's beautiful and very clean, but why not just cross the bridge and live in Marin County?
The landfill scares me.
Posted by: jessep at May 30, 2009 12:32 PM
"why not live in Marin"
You can't walk to Chestnut street from Marin. I'm in the marina not on landfill. I'd rather live in a shoe box that i can get to everything i do via walking, then live in a mansion where i have to drive everywhere. definitely trade offs to both... but i literally can't ever see myself in the suburbs even if i have to stack kids in a triple bunk and home school em to do it.
i don't know why landfill isn't more of an issue... except that in '89 only a few buildings were really effected, and we don't have to deal with Katrina hurricanes, driving on ice, severe flu outbreaks, tornados and all the other fun stuff other parts of the country die from.... so maybe landfill doesn't feel like a risk to most.
as for this property.... when i see a $400k loss in 2 years, my reaction isn't "oh, there's proof of the bubble", my reaction is "something is f***ed up here".
digging in... "Diabase LLC" bought it at $1.9 with what appears to be $700k in cash. it went "pending" in 2 days at $125k over asking. was there really a need for that in April '07? i suppose - there was a lot of over bidding.... but 2 days for this place????? I don't see why...
interestingly, 8 months later in Dec '07 Diabase LLC buys 1417 15th - an 8200 SqFt loft, for $3 mill with over $1 mill in cash (not an MLS sale). Previous MLS sale was for $1.99 mill in 2003
owner's name appears to be Jeffery, not Jonathan.
bottom line... this guy has/had enough money to throw around... funny enough, if i have the right guy... he's a lawyer and financial & estates planner. He dumped a LOT of cash into SF real estate.... even though no one ever dumps cash in and only gets 100% financing so that they can walk away later
the retreat below the '05 sales price is more meaningful to me... while there is no '04 apple here, my guess is that this place would have sold for about what it sold this year in '04.... so a retreat to '04 prices for this apple imo
Posted by: hangemhi at May 30, 2009 1:48 PM
The prior owner sounds like a "diemos hero". $700K put down in the first loss position? Someone clearly didn't understand how the financial world works - but don't worry, class was in session and I'm sure he's a wiser investor now.
There's a lot of talk about the seller, and $1.92M for that place was of course an absurd price to agree to pay. But I actually think dumping it here was smart. $1.575M is still a fantastical price.
I bet the current buyer suffers a much larger loss than the current seller. Prime areas of SF are not even halfway through with their nominal fall imo, so another $350K loss over the next few years is a very real possibility - in fact, in the spread of potential 2011 prices for this place, less than $1.25M would probably be my bet for the highest probability. Filling in the tails of the distribution goig forward, I'd bet it's much more likely that the place is under $1M than over $2M five years hence.
The bubble still has a lot to teach SF buyers, and market junkies will have lots to watch as the unwind unfolds.
Posted by: LMRiM at May 30, 2009 2:53 PM
> "Diabase LLC" bought it at $1.9 with what appears to be $700k in cash.
> Interestingly, 8 months later in Dec '07 Diabase LLC buys 1417 15th –
> an 8200 SqFt loft, for $3 mill with over $1 mill in cash (not an MLS sale).
It looks like 1417 15th is the HQ for this firm:
Diabase LLC also owns 435 Union Street that it bought 11/07 for $1.6mm (LMRiM and I congratulate the seller who bought the place 7/02 for $871K for great market timing).
The tax bill for 425 Union is sent to Office of General Counsel American Home Realty Network, LLC at the address in UT on the URL above.
Odds are that 1756 North Point was never rented (for $7,500 a month or any amount) since the tax bill has always been sent to the property…
P.S. You really can’t compare living in the Marina to living in Marin, the East Bay or the Peninsula (I lived in Burlingame in my early 30’s and I had to do things over again I would have moved to the Marina the day I got out of grad school)…
Posted by: FormerAptBroker at May 30, 2009 3:36 PM
"The bubble still has a lot to teach SF buyers, and market junkies will have lots to watch as the unwind unfolds."
As someone who still owns in the Marina, (near corner of Prado and Scott) but currently lives in Chicago, I am one of the junkies that is fascinated by so many San Franciscans still holding on to the religion that "the city" is different than the national bubble. I bought in the Marina in 1991, so with Prop. 13, I can rent the two flats at a healthy profit. My question is, why do so many still think San Francisco real estate will be immune from the huge corrections we are now seeing in other desirable zip codes such as in Santa Monica and Beverly Hills, or Lincoln Park, or La Jolla?
Posted by: anoninLincolnPark at May 30, 2009 4:02 PM
San Francisco real estate will be immune from the huge corrections we are now seeing in other desirable zip codes such as in Santa Monica and Beverly Hills, or Lincoln Park, or La Jolla?
"Corrections" have been occurring for some time now. Within those examples you've given there are probably recent success stories galore. Some people simply know what they're doing. Overbidding and then selling without improvements within a relatively small time frame doesn't particularly qualify as knowing what you're doing IMO.
Posted by: anonn at May 30, 2009 4:19 PM
> Why do so many still think San Francisco real estate will
> be immune from the huge corrections we are now seeing
> in other desirable zip codes such as in Santa Monica and
> Beverly Hills, or Lincoln Park, or La Jolla?
Almost everyone knows that San Francisco real estate values are headed down. SF Realtors need to keep telling people that SF is immune from any drops or they won’t sell any SF property (just like stock brokers needed to tell people that dot com stocks were immune from any drops or they would not sell any dot com stocks). The other group of people that keep “telling” people that SF is immune from any drops in value are recent buyers who don’t want to admit they made a bad investment (the people that bought SF condos for $1,000/sf are like the people that bought Webvan for $30/share and never once admitted that Webvan was “worth” $1 less than the price they paid…
P.S. Realtors and recent buyers in Santa Monica, Beverly Hills and La Jolla are exactly like the Realtors and recent buyers in SF (I have not been to Lincoln Park in the past 5 years so I can’t comment on that area). I recently talked to a (now out of the closet) fraternity brother (who bought a in Santa Monica since he said West Hollywood had too many gay guys) who is in big time denial about the Santa Monica condo market…
Posted by: FormerAptBroker at May 30, 2009 5:46 PM
Realtors need to keep telling people that SF is immune from any drops or they won’t sell any SF property
No, we dont. And no, you're wrong.
Some of you folks just can't get your heads around the FACT that not everyone thinks like you. I find it pretty arrogant. People buy property for many reasons. Deal with it. The market isn't "hot hot hot." Realtors have no business saying that it is. Few are saying so, at least that I come in contact with. But cut it out with the stupid generalizations already. You're a joke "FormerAptBroker" -- so what if you brokered apartments (doubtful). You don't speak like someone once plugged in to r.e. in SF. Once again, I'm saying there's something pretty fishy about you.
Posted by: anonn at May 30, 2009 8:49 PM
Anonn, while it might have once been true that "people buy property for many reasons", they are not buying property now, and estate agents such as yourself are currently looking awfully foolish. Years of assuring people that the market was hot, that they needed to bid more to get the property, and lots of shenanigans worthy used car lot have earned your lot the reputation you now have. That the NAR and local agents continue to plead with potential buyers that we're at or near bottom of this market really only adds fuel to the fire.
People despise estate agents for many reasons. Deal with it.
Posted by: embarcadero at May 30, 2009 10:11 PM
We are seeing huge corrections in Santa Monica real estate?
Posted by: NoeValleyJim at May 30, 2009 10:38 PM
Here's a $1.2mil (asking price) house in Moraga that would be a shorter BART ride to downtown than the 30X from the Marina than this 1.575M Marina condo. Small yard that backs up to a greenbelt, so you have a tree view without the maintenance
More silliness from tipster.
The Moraga place is 7.3 twisty rural miles, or 17 minutes from Orinda BART, according to Google maps. BART runs every 5 minutes during rush hour and is a 26 minute ride to Montgomery. So that is 46 minutes, on average, plus a few minutes to park your car and walk to the station from the parking lot, say 50.
The 30X takes, what, 20 minutes to get downtown? Add five minutes on each end for your walk and it is 30 minutes, very generously, as a commute. By bicycle, this is a 15 minute commute.
Why do you always do this tipster? Why do you wildly exaggerate commute times from the Marina to downtown, particularly when compared to East Bay?
Posted by: NoeValleyJim at May 31, 2009 12:17 AM
Overbidding and then selling without improvements within a relatively small time frame doesn't particularly qualify as knowing what you're doing IMO.
Wow, the Three Musketeers must be pretty confident about the flip (16 months and counting, no permits, but I'm sure some improvements were made). I am starting to doubt that the FHA has your back (not to mention carrying costs might make things tight, and the buyers broker has to get paid.) Am I missing something here?
Posted by: EBGuy at May 31, 2009 1:28 AM
"We are seeing huge corrections in Santa Monica real estate?"
"Do Tell" (NoeValleyJim)
(There are numerous bubbleblogs regarding Southern California, but the link is to a site dealing with Santa Monica)
Posted by: anonwlink at May 31, 2009 5:39 AM
Realtors need to keep telling people that SF is immune from any drops or they won’t sell any SF property
although I agree that many people still seem to think that SF will be less affected than other areas in the country, and I also believe many people still don't grasp the fact that SF responded just like almost every metro area to a worldwide credit bubble, I disagree with the above statement.
Real estate salespeople make money based on commissions on transactions. The more transactions they make, the more money. Thus, what real estate salespeople need to do is get more transactions happening.
In a down market one of the ways to do this is to get sellers to reduce their asking prices. The faster they can do this, the faster they can get transactions going again. And although sales prices will be down, the increased # of transactions will make up for it.
there are honest and intelligent real estate salespeople. They were vastly overwhelmed by "bad apples" during the bubble... but this correction will hopefully shake a bunch of the crap out.
Jim The Realtor is an example of a guy who is doing just fine in this downturn, and who lead the charge against the bubble while it was happening.
(he used to post on the housingbubbleblog as far back as 2005 if I recall correctly).
he has a hilarious website where he takes a video camera and does housing tours through SoCal.
I've referred a friend to him who bought a very expensive home from him recently since he is HONEST.
Posted by: ex SF-er at May 31, 2009 7:15 AM
"people buy property for many reasons", they are not buying property now,
But they are tho. Tomorrow when April's numbers come out they will look much better than March's numbers.
Your point is seemingly relative to the high volume markets of the last five years or so. People buy, in all markets, for a variety of reasons. And SF is expensive. Some SF properties continue to command near peak levels. The South Park condos featured on this website? They would habe been laughable pricepoints in 2004, not even remotely considered by anybody.
Posted by: anonn at May 31, 2009 8:22 AM
"The South Park condos featured on this website? They would habe been laughable pricepoints in 2004, not even remotely considered by anybody."
Would have been and still are today.
Posted by: diemos at May 31, 2009 8:27 AM
It isn't as if nobody is buying anything. The difference between the January and April numbers is pretty stark. I'd look at the MLS in say, December or January and there would be single digit sales almost daily. In April and May I'd see 30+ sales on occasion, and 20s pretty routinely.
This board has gone from 2007's puerile "I'm going to argue from a future eventuality of sheer destruction" mentality to 2009's "Nobody is buying a single thing. The market is vaporized."
I mean, come on. Be real for one moment. Life, and real estate, is often comprised of shades of grey.
O, and Embarcadero,
You have no inkling what I say or do not say to clients. Yet you shoot buzzwords and broadsides my way: "market is hot" "used car salesman" "shenanigans" "bid more" my "reputation" "at bottom" ? Nope. Even my most fervid bashers on here will tell you that I've always mainained a stance that buyers should add value before they sell, and that relatively short time frames will lead to trouble.
So come on. Speak to one person. Don't speak to a generalization. I know some of you think you're a community on here and all. But try though you might, one cannot address generalizations in blogs. One addresses other people.
And people generally despise rote blog blowhards. Deal with it.
Posted by: anonn at May 31, 2009 8:39 AM
Would have been and still are today.
By you, and others, myself included. But they wouldn't have been put on the market at such heights either.
Posted by: anonn at May 31, 2009 8:41 AM
"But they wouldn't have been put on the market at such heights either."
Indeed. Our dear friends in South Park still think it's 2007 and are following the standard path for developers these days. First, see if there's a sucker out there that will make you rich. Second, cut to a price that will allow a healthy profit. Third, cut to a price that will allow them to get out with their skins intact. Fourth, rent and wait for the market to come back. If they have the resources to do that, that is.
Let's see, it's the beginning of June so I will guess that the South Park condos will be taken off the market and rented in October.
Posted by: diemos at May 31, 2009 8:54 AM
Our dear friends in South Park still think it's 2007 and are following the standard path for developers these days. First, see if there's a sucker out there that will make you rich. Second, cut to a price that will allow a healthy profit. Third, cut to a price that will allow them to get out with their skins intact. Fourth, rent and wait for the market to come back
Yeah, that's pretty much the gameplan. These ones are so nice looking, and South Park such an odd little cache, that I would not at all be surprised if plan two were to pan out. But I wouldn't be surprised if it went to plan three either. Four I tend to doubt due to the uniqueness of the properties ... however we've all seen that happen too.
Posted by: anonn at May 31, 2009 9:13 AM
"The 30X takes, what, 20 minutes to get downtown?"
The 30X takes 40-45 mins to get to SBC. I've taken it dozens of times.
Posted by: lolcal_94123 at May 31, 2009 9:40 AM
2007: He NEVER would have gotten that price in 2004!
2009: He NEVER would have asked that price in 2004!
Posted by: tipster at May 31, 2009 9:41 AM
"Conspiracy theory. Overstatement. Negativity. Realtor bash. Pap. 24/7!!! "
Posted by: anonn at May 31, 2009 9:53 AM
Or better yet,
2009: Undefined town sees rampant real estate based organized crime.
I can't speak any further. My anonmymity is my hobbyist life's blood.
.... and then we all stopped paying a shred of attention.
Posted by: anonn at May 31, 2009 9:58 AM
Wow anonn, for someone who everyone has stopped paying a shred of attention, I get an awful lot of attention! Two posts! dedicated to attacking just me alone! I'm truly honored!
NVJ, the commute times to Embarcadero Bart were about the same (1756 North Point vs the Moraga House I posted), but it doesn't matter, if you really want to minimize the commute, there are much better options. You can live 5 minutes from the Orinda BART station in brand new construction on a half an acre.
My point wasn't so much that the commutes were the same, as much as I was really just trying to point out that you no longer have to move to Walnut Creek to find something much more affordable.
And by the way, there is a free shuttle to the Walnut Creek shopping district 7 days from Bart that you can reach from either Moraga or Orinda. So you don't even have to live in Walnut Creek to enjoy the shopping and cultural activities: you can have access to both their activities and SF from halfway between Walnut Creek and SF.
And you can leave the cold summer days and urine soaked streets behind and get access to real schools for no additional charge. I just can't imagine why someone with kids who works in SF would even bother living in SF. I used to see all the strollers at Open Houses in the Marina, but jeez who needs it? Give your kids a half an acre with a pool, rather than a postage stamp sized, shared back yard full of fog. Your kids can walk to school.
Posted by: tipster at May 31, 2009 10:17 AM
As anonn said, recent buyers who overbid liberally, made no smart improvements, and especially those in the > $1.2 mil are going to loose money if they sell now/in the near future.
People like me who acquired disfunctionsl POS's, redeveloped them to higher and best use, can cashflow them NOW, benefit from prop 13 and market rents, can wait this cycle out.
Unlike some who post here, I do not think overall prime SF prices will continue to decline significantly over the next few years to a nadir of -40 or -50%. That would only happen with a japan style slow/protracted deflationary cycle. This is what will happen: The smartest way to reduce the defecit is by increasing the money supply. That will create inflation, which will increase interest rates. Higher rates will put downward pressure on home prices. But congruently, rents will also start increasing, along with all other cost of living expenses, as well as salaries (in inflated terms). Higher rents will put upward pressure on home prices. Through the next several years we will go through a significant inflationary period (hopefully in a controlled manner, if it can be engineered by the Feds well). At the end of that cycle you will find that homes, as well as most other things, will cost significantly more than they did in 2009. But, owners of rental properties who can hang on will benefit big time.
Say I collect $10k in rent with $2k in overall profit. Say my personal expenses are also 2k- not incl the home i own. With 50% inflation in the next several years, which is very possible, my rents go from 10 to $15k, my profit will increase from $2k to say $6k (fixed rate mortgages; other expenses effected by inflation are relatively minor). My personal expenses, fully effected by the 50% inflation go up to $3k. So my cash profits increased by 100% (3 to 6k, adjusted for inflation.) And of course the property increases in value by 50%. With leverage, my net worth easily goes up north of $1 million, with an asset base of $2+ mil.
Real estate has always moved in long cycles. And if you can hang on to it, inflation becomes your friend big time. It's virtually guaranteed that the gov will increase the money supply. Engineered correctly, it's a free pass to dealing with the $8 trillion we're spending. Why would the gov not do that? Especially when the gov controlls the leading monetary device that runs the world economy - the dollar. And investors of RE will benefit hugely if they can keep/manage/cash flow their properties. The more things change, the more they stay the same. Amen.
Posted by: 45yo hipster at May 31, 2009 10:22 AM
I know you have a thick skin. But I mean you went "2007: Realtor this 2009: realtor that" apropos of what, precisely? LOL.
I should have nuanced it better in the first place anyway. Really it was more like
Socketsite 2007: "Arguments made in the here and now from a standpoint of future destruction"
Socketsite 2009: 2007's peak market days are long behind us. The market is now completely annihilated.
Posted by: anonn at May 31, 2009 10:36 AM
was in a rush, and dropped the end of my post^.
All the same we take our chances
Laughed at by time
Tricked by circumstances
Plus ca change
Plus c'est la meme chose
The more that things change
The more they stay the same
Posted by: 45yo hipster at May 31, 2009 10:40 AM
The 30X takes 40-45 mins to get to SBC. I've taken it dozens of times.
You are confusing the 30 and the 30X. The 30X doesn't even go to SBC Park and it skips China Town so it is much faster than the 30. The one or two times I have ridden it, it took 15 minutes, but it might take a few more minutes at peak traffic times.
Are we talking about commute times to SOMA or Downtown?
Posted by: NoeValleyJim at May 31, 2009 10:45 AM
Your plan would work if higher interest rates were being caused by a booming economy. THAT would drive rents up.
But the upcoming time period is one that is going to be one of higher interest rates due strictly to government intervention requiring an unprecedented need for foreign funds. This will cause unemployment to remain high, keeping downward pressure on rents. Rents aren't going up for awhile. Mortgage interest rates will go up, but rents will fall. Prices are the third degree of freedom in that equation, and they will adjust downwards to allow lower rents with higher interest rates.
It's not an economic world in which I want to live, by the way, but it's the new reality.
We've cut our new hire salaries by about 10-20%. All of our new hires are living at home this year, for the first time. We only hired people out of school who had local addresses, for that reason. They consider themselves lucky to have any income at all! In contrast our new hires for the past three years have all lived in SF. So we've sucked an entire class out of the SF rental pool.
It's a whole new world, and the old ways are not going to work out very well, IMHO. Those who can adapt will do just fine, but those who think this is 1998 or 2008 will suffer, I'm afraid.
Posted by: tipster at May 31, 2009 10:53 AM
Some people simply know what they're doing [in real estate]. (anonn)
People like me who acquired disfunctionsl POS's, redeveloped them to higher and best use, can cashflow them NOW, benefit from prop 13 and market rents, can wait this cycle out. (45YOH)
Who could argue with these ideas? Certainly not I. Same reasoning goes for the stock market. A few have done very well. In fact, at the very time the seller of 1756 North Point was buying (April 2007), I was spending a lot of time and energy trying to craft a strategy to unload and/or hedge an equity portfolio that had easily returned over 100% since I got back into stocks in mid-2002 (with only partial success, looking back now in the fullness of hindsight). Good Lord, what were people thinking buying SF real estate in April 2007 already 2 months after New Century had blown sky high and with the writing so clearly on the wall in so many locales in the US?
There will always be success stories in any market, up or down. This does not detract from the fact that the overwjelming majority of purchasers in SF during the bubble were financially naive and will suffer large losses. A substantial portion will be washed out. That's just the way it is - no reason to get all emotional or weepy eyed over it. Each person who bought a house contributed to an unsustainable pricing structure that made choices more difficult for the potential purchaser that was displaced by the sale. Losses now are well deserved - a simple transfer of relative wealth from the foolish to the smart. Just sit back and watch it unfold. I plan to!
Posted by: LMRiM at May 31, 2009 11:04 AM
This does not detract from the fact that the overwjelming majority of purchasers in SF during the bubble were financially naive and will suffer large losses
Believe it or not, most people never took this stuff lightly and bought to put down firm roots. Most people are maybe not as sophisticated as you financially, but they aren't rubes either. And IME, there was a lot of capital put down as well, which will sheild a great many from the dreaded resets to come, rendering "large losses" paper losses while they ride it out. As they live their lives in the place they chose to be.
I do not dispute the apples we see on here daily. They're real. But always look at the timeframes. For every late 2004 and on purchase/2009 sale loss, there is an early 2004 and back purchase 2009 and sale gain.
I also wonder about the backstories. Job security, etc. Family stories, etc. For these more sensational apples, what would cause a person who is taking such a huge loss to bite the bullet? Divorce is common. The job market scenario/ need to move away is obvious. The ARM reset thing? not so sure, and certainly not yet appreciably.
Oh, I know. "Every single person who bought thought that real estate could only go up because their realtor told them so." Because they were all unsophisticated. Only smart folks watched and rented.
Posted by: anonn at May 31, 2009 11:32 AM
Arm resets are coming. The most popular ARM mortgage in 2003-2004 was a 5/1. Those STARTED resetting last year. And while some reset lower, those resetting now are not so fortunate and the ones that reset lower will reset again higher at the next reset.
Add a few months while savings are depleted and credit card bills are racked up and then add the typical 13 months from the first missed payment to the date of the foreclosure sale and you can see why the resets haven't yet become the tidal wave that they inevitably have to be. The very earliest have not yet hit 5 years plus 4-5 months of trying plus 13 months to hit foreclosure.
And not all of them need to walk away to cause major damage. 10% of them will do so easily, and that will cause prices to fall making it harder for the others to refinance out of the rising interest rates. That's when they get squeezed out of the market and sell if they can or walk if they have to.
That doesn't even START for a few months and prices are down 15% this year. Call me in a year and we'll talk about how well we did or did not weather this storm. It hasn't even hit yet, but it will.
What you are seeing now are the effects of the 3/1s. There weren't as many of those, and many of those were able to get out but it was enough to knock the market down to 2004 prices. That was the equilibrium point that the market HAD to fall to because it was there that the sellers suffering began. All the 2003/2004 sellers could easily just bail by lowering prices to 2003/2004 prices at which they bought. So that's why prices fell almost immediately to that level and paused. And 3/1s were more popular in SOMA because people were buying for investment there so they wanted the absolute cheapest total cost. That's why Soma started getting clobbered last year. More 2003/2004 3/1s in that area.
Next year D7 and any other area that was above the median will get hit just as hard with the 5/1s and then the start of the option arm disaster. S&P is downgrading mortgage backed securities like mad: I wonder why!
The easy part is ending. Next comes the pain. It's so predictable, you can pretty much set your watch by it. Anyone in the above-the-median parts of SF should get out now, or plan on staying a decade or more just to get back to today's prices.
Posted by: tipster at May 31, 2009 11:56 AM
5/1 Arm at 3.8% and full amortized well below origination minimum payment on a lot of those loans.
Posted by: sparky-b at May 31, 2009 12:01 PM
So you've been saying, Tipster. For a very long time. And I cannot take your tracking of ARMs taken out in San Francisco, whether 3/1 or 5/1 or Neg-Am, or what have you, seriously at this point. You simply do not know who put down what, when, and what sort of loan it was.
That's why Soma started getting clobbered last year.
SOMA started getting clobbered last year because of supply/demand.
S&P is downgrading mortgage backed securities like mad: I wonder why!
Is downgrading? Or has downgraded?
The easy part is ending. Next comes the pain. It's so predictable, you can pretty much set your watch by it.
The boy who cried wolf two years early is saying that the easy part is ending?
Posted by: anonn at May 31, 2009 12:06 PM
Good pt, I was referring to the 30 which goes through Chinatown (painfully). It takes 40-45 mins to get to SBC, which is why I drive. ;)
I agree with your point though that comparing the Marina to a place in Moraga is just plain silly.
Posted by: lolcat_94123 at May 31, 2009 12:31 PM
.. "comparing the Marina to a place in Moraga wrt commute times is just plain silly."
This site needs to update to legit message board/blog software, not having the ability to edit is weak sauce.
Posted by: lolcat_94123 at May 31, 2009 12:38 PM
tipster- I must admit that anonn is correct and you're more often than not attempting to blow hot air up everybody's ass.
Regarding your reply to my post. A. No, you cannot have a 'booming economy' and rising interest rates; they tend to be diametrically opposed. B. The rest of you post depicts what we have had for the last several months: deflation. That won't last long (maybe 1-2 years max), and inflation will take it's place, and the resultant effects I described.
As for ARM resets, they have alredy been occuring, and will continue, but more or less as a constant- not some hyped up tidal wave. And as sparky pointed out, alot of the are sub 4% now.
I guess what diminishes the quality of you posts is that whatever a balanced/measured observation is, you're always coming back with the most negative spin possible.
Posted by: 45yo hipster at May 31, 2009 2:37 PM
You must admit that while I've been "blowing smoke up everyone's ass" about problems starting at the end of this year, prices have already fallen. Nuf said on that.
And if you think prices will only fall for 2 more years or ten, it doesn't matter because buying now is stupid.
Anonn, "IS DOWNGRADING" is the right term: they are in the process of downgrading even the most senior tranches. Of course, the US Gov may strong arm them the same way it did FASB to blow away the mark to market rules, and the banks are arguing with their methodology, but either way, the mortgages are going bad even higher up the tranche levels than was expected the last time the mid to high-level tranches were downgraded. They are reaching further up the chain to do the downgrades.
Posted by: tipster at May 31, 2009 3:54 PM
A. No, you cannot have a 'booming economy' and rising interest rates; they tend to be diametrically opposed
I disagree. In general rising interest rates occur during booming economies and falling interest rates in bad economies. For instance, the Fed Funds Rate fell down to 1% during the dot com/911 bust. Then it rose to 5.25% during the most recent boom (from 2003 to 2006). then it was slashed to essentially zero as our economy tanked again.
If the Fed doesn't raise rates during a boom, then you have negative real interest rates and you get a bubble. (such as what happened in 2003 when the Fed acted far too late to raise interest rates).
there are times when rising interest rates do not accompany a boom economy, such as what happened during the stagflationary years of the early 1980's under Volcker. however, our economy these last few decades has consisted of rising rates during boom times.
FWIW: although I do foresee significant RE pressure for the next few years, my analysis of what is occurring is slightly different than tipster's view.
I've stated it countless times on socketsite since 2007, so won't bore you again.
I agree with you that it is highly likely that the end game will be inflation. I've also stated as such many times (so called "ka-POOM theory").
although I agree that hard assets typically do well in an inflationary environment (at least in nominal terms) it is not clear as yet that housing will do well in the coming inflationary scenario.
I don't have time to flesh out this argument today, but basically housing will do VERY well if the powers that be are able to create WAGE inflation. If we have stagnant wages with monetary inflation, however, housing would likely get crushed.
I still have difficulty believing that the Fed et al will be able to engineer wage inflation. this will be a big problem.
remember $4-5 gas? that's not bullish for housing when wages aren't going up.
Posted by: ex SF-er at May 31, 2009 4:24 PM
You can live 5 minutes from the Orinda BART station in brand new construction on a half an acre.
That house doesn't even exist yet, but your general point is taken. 21 Spring Rd is more my style and if I can't get the kids into a decent school in The City, it is somewhere like here I will end up:
If I was going to move to Negativeland "for the schools" I sure wouldn't pay $1.6M for the privilege. And you would still have to have a car, even 1/2 mi from BART.
More likely, I would move to Piedmont, somewhere near the Oakland border, so the kids could have some kind of chance of meeting their neighbors and having some diversity growing up, while still getting excellent schools.
Posted by: NoeValleyJim at May 31, 2009 4:38 PM
I quibble with tipster's link above. His source discusses COMMERCIAL mortgage backed securities as opposed to residential mortgage backed securities. that said, he is correct that there are many more downgrades coming for residential and commercial securities unless we have some government influence/interference.
the 2007 loans appear to be the worst loans written of all time across all types (prime, ALT-A, Option ARM, etc). They are defaulting more often AND earlier than expected, even worse than was anticipated after seeing the horrific outcomes of the 2005 and 2006 vintages.
It remains to be seen if this worst-ever performance will continue or not.
the 2008 loans should do much better, as it was after some of the worst offenders had gone bankrupt and lending standards started to tighten some.
it is unclear if the government will allow the ratings agencies to downgrade these securities, however, as that puts the bank bailout plans in jeapardy.
Posted by: ex SF-er at May 31, 2009 4:42 PM
You can WALK from downtown to the Marina faster than the door-to-door commute from that place in Moraga.
and its a beautiful walk, also. Really beautiful.
Posted by: REpornaddict at June 1, 2009 12:25 AM
> If I was going to move to Negativeland "for the schools"
> I sure wouldn't pay $1.6M for the privilege…
What do you mean by “Negativeland”? I’ve never heard this term used to describe the East Bay.
> More likely, I would move to Piedmont, somewhere
> near the Oakland border, so the kids could have some
> kind of chance of meeting their neighbors and having
> some diversity growing up, while still getting excellent
At Cal in the early 80’s a huge number of greeks were Piedmont High grads (and about half of them had parents that went to Piedmont High, then Cal and play golf at the Claremont CC). For most of the people I know from Piedmont “diversity” means letting their kids meet people that went to University High then Stanford who play golf at the SF or Burlingame CCs)…
Posted by: FormerAptBroker at June 1, 2009 5:44 AM
What do you mean by “Negativeland”?
East bay experimental music group : http://www.negativland.com/
Posted by: The Milkshake of Despair at June 1, 2009 9:30 AM
R those guys still around? Sheeeett. I remember having a fascination with them, along with art band the Residents, during undergrad at Cal in the mid-eighties :)
memories, how they fade away
Looook back, there is noooo escape
Posted by: 45yo hipster at June 1, 2009 9:41 AM
Anybody on SS ever lived in Moraga? One of the most boring towns ever, I did six years there.
Zero, and I mean zero, nightlife.
You might as well move to Rossmoor.
Posted by: gh at June 1, 2009 10:17 AM
I was under the impression that Orinda High was more diverse than Miramonte, but it looks like this is not really true. Maybe a little bit.
I would much rather live in a walkable neighborhood and there is no doubt that living near Oakland would give you a richer diversity of daily interactions than living in Lamorinda.
Posted by: NoeValleyJim at June 1, 2009 12:13 PM