S&P/Case-Shiller Index Change: March 2009 (www.SocketSite.com)
According to the March 2009 S&P/Case-Shiller Home Price Index (pdf), single-family home prices in the San Francisco MSA fell 2.2% from February ’09 to March ’09, down 30.1% year-over-year and down 46.1% from a peak in May 2006.
For the broader 10-City composite (CSXR), home values fell 2.1% from February to March and are down 33.1% from a peak in June 2006 (down 18.6% year-over-year).

On a positive note, nine of MSAs are reporting a relative improvement in year-over-year returns and nine of the 20 metro areas saw an improvement in their monthly returns compared to February. Furthermore, this is the second month since October 2007 where the 10- and 20-City Composites did not post a record annual decline. Based on the March data, however, we see no evidence that that a recovery in home prices has begun.

San Francisco MSA single-family home prices continued to fall across all three price tiers.
S&P/Case-Shiller Index San Francisco Price Tiers: March 2009 (www.SocketSite.com)
The bottom third (under $268,429 at the time of acquisition) fell 4.6% from February to March (down 37.3% YOY); the middle third fell 2.5% from February to March (down 20.8% YOY); and the top third (over $481,916 at the time of acquisition) fell 3.5% from February to March (down 22.2% YOY).
According to the Index, single-family home values for the bottom third of the market in the San Francisco MSA have retreated to April 2000 levels having fallen 61% from a peak in August 2006, the middle third has fallen below March 2002 levels having fallen 42% from a peak in May 2006, and the top third has fallen to April 2003 levels having fallen 30% from a peak in August 2007.
Condo values in the San Francisco MSA fell 6.0% from February ’09 to March ’09 (over three times the average of New York, Boston, Chicago and Los Angeles), down 27.3% on a year-over-year basis and down 32.7% from an October 2005 high.
S&P/Case-Shiller Condo Price Changes: March 2009 (www.SocketSite.com)
The standard SocketSite S&P/Case-Shiller footnote: The S&P/Case-Shiller home price indices include San Francisco, San Mateo, Marin, Contra Costa, and Alameda in the “San Francisco” index (i.e., greater MSA) and are imperfect in factoring out changes in property values due to improvements versus appreciation (although they try their best).
The Pace of the Decline in Residential Real Estate Prices Slowed in February [S&P]
February S&P/Case-Shiller: San Francisco MSA Continues Slide [SocketSite]

81 thoughts on “March S&P/Case-Shiller: San Francisco Slide Slows But Continues Fall”
  1. I have come to view all of these stats as completely worthless. Too many ifs ands or buts.
    The only stat that matters is apples to apples with no improvements/upgrades.
    How about an index based on this Socketsite?

  2. 30% declines in ONE YEAR! 2.3 more years of 30% declines and, (woo hoo!) houses, will be free!

  3. jklkljl wrote:
    > I have come to view all of these stats
    > as completely worthless.
    I had a Realtor tell me ths same thing last week…
    It’s a great time to buy, don’t let the media fool you in to thinking that prices are falling…

  4. I know you’re being facetious tipster, but that’s not exactly how exponential decay works. 🙂

  5. The bubble unwind is proceeding magnificently – as these things always must. House prices in SF and surrounding areas are going to give back every dime of the gains since the late 1990s. Every dime.

  6. tipster – check your math. prices won’t go to zero by your formula. they need to fall 100% to get there.

  7. This is all bursting fairly predictably at the higher end, but I am surprised to see that price declines are continuing at such a rapid pace even at the low end. There has been a huge uptick in sales volume at that level as it appears that there is some pent up demand at the very low end. Yet prices continue to plummet even there.
    I suspect we’ll see some seasonal moderation in CSI and other measures over the next few months — still YOY declines, but perhaps some slowing. But then the declines will pick up once again. A pretty decent overview in the Comical today summarizing the factors that will continue this broad decline for several years. Not a whole lot of analysis or discussion of SF-specific trends, but a decent precis of the headwinds. I got a kick out of the reference to “peppy real estate agents.” Knife-catchers beware.
    http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/05/26/MNRB17JFHB.DTL&tsp=1

  8. I’ll re-post the running stats for the MSA thirds.
    Houses that were considered to be in the lower-third in Sep 2007 would now be considered upper-third properties
    Month…Upper 1/3….Lower 1/3
    Sep-07..$860K……..$614K
    Oct-07..$853K……..$605K
    Nov-07..$834K……..$586K
    Dec-07..$816K……..$566K
    Jan-08..$794K……..$545K
    Feb-08..$756K……..$513K
    Mar-08..$734K……..$589K
    Apr-08..$722K……..$474K
    May-08..$722K……..$474K
    Jun-08..$707K……..$447K
    Jul-08..$696K……..$432K
    Aug-08..$675K……..$410K
    Sep-08..$648K……..$386K
    Oct-08..$562K……..$321K
    Nov-08..$592K……..$342K
    Dec-08..$561K……..$321K
    Jan-08..$527K……..$298K
    Feb-08..$502K……..$281K
    Mar-08..$482K……..$268K

  9. This data looks really quite promising — if only it applied to Pac Heights/Burlingame/Palo Alto.

  10. Worthless statistics? I see, so in lieu of using data, you should what, trust the judgment of a commission-motivated realtor who possesses the same education and intellect as a the manager at your local GAP?
    I can’t imagine a worse source of real estate ‘data’ than a realtor.
    Of course, just an opinion, and we all have a right to one.
    This is definitely the bottom, and you’ll totally generate the required minimum appreciation of your home investment to make the SF home-premium calculations work out. I mean, you’ll save tons on taxes! And this is SF, the real estate is ALWAYS a sure bet as the best alternative for investments. We don’t need math to show that; what a totally useless science.

  11. Lars wrote:
    > FormerAptBroker, What justification did the broker
    > put forth…. or was it “trust me”?
    A broker cornered my wife at a party and in an attempt to get rid of him she said that we are planning to wait until prices stop going down before we buy a place on the Peninsula. He then told her about a great West Menlo listing that has “multiple offers” and “is sure to sell above list price”…
    The guy found me and tried to explain that “crappy bank foreclosures are pulling down the average and median prices while “prime” West Menlo, Atherton and Woodside properties are actually still going up in price…
    Knowing that I would have an easier time trying to convince Tom Cruise that Scientology is a joke than convincing this guy that prices were dropping I told him that “it was great to hear that well located property was still increasing in price” and asked for his card so I could call him in a few days…

  12. Guys, keep in mind that this is MARCH data … and the mood in March was that the world was coming to an end with all economic indicators bottoming out in March.
    Don’t get me wrong I am still bearish regarding the housing market but it will be interesting to see what happens in SF proper this summer.
    I have seen a lot of people out there thinking that they can finally afford something (anything!)
    People are still shopping around in the city with 2005 mentality …

  13. Reading the sfgate article Trip posted, I felt I had stepped into a bear post from SS. Better, I felt the excellent “Surreal Estate” was back.
    Nope.
    This is not the-end-is-nigh bear talk, but a ready-for-the-masses article stating facts and trends.
    Kudos for once to the Chronicle.

  14. “Guys, keep in mind that this is MARCH data … and the mood in March was that the world was coming to an end with all economic indicators bottoming out in March.”
    March was when Hank Plante declared RE boom in SF and developers and brokers started their propaganda campaign, 42 multiple offers and all.

  15. Articles like the sfgate one are key to snapping the upper tier folks out of their denial phase.

  16. HappyRenter:
    Homes that used to be bottom third would now be top third if they were still selling for those old prices. It’d be more correct to say that if you still had the same nominal purchasing power you had two years ago, you can now afford a top third home, instead of a bottom third home.

  17. East Bay anecdote (re: condo index).
    I know someone looking at condo units in the Adams Point area of Oakland. Here’s the history of one of the units (1/1) that he is looking at:
    2005 – Sold at peak for $300k. Listed 3 months later for $330k. Chased the market down. Eventual foreclosure. Now listed for less than $120k. Plenty of room for the condo index to go down.
    And, as always, bear in mind that in the last downturn the C/S SF Index always increased slightly during the summer months (peak July/August) before continuing the downward trend.

  18. I don’t see how anyone can guess if this is the bottom by looking at house prices in spring.
    If prices are flat in winter then house prices are more likely to have stabilized.
    Other signs that the worst is over are
    1. Inventory is falling compared with the previous year
    2. Sales are increasing compared with the previous year
    3. “List price” per sq. ft. and “Sales price” per sq ft are very similar

  19. Yes, I was being facetious. Homes won’t drop to zero. Neither will home prices decline 30% YOY every month.
    At some point, some sideliners will think things are cheap enough, and a group of them is right now moving off the sidelines. You can buy a $599K new home and get an 18K tax credit, and then get a “bridge loan” for the 18K. With a 3.5% downpayment on an FHA loan, you will bring about $5000 to the table for a $599 condo.
    So we’ve moved from zero down to $5000 down on conforming properties. It isn’t going to reflate the bubble, but it will cushion the fall.
    Is that going to help short term? Yup. So Trip, as usual, is right, and things won’t fall like this forever. Particularly in the conforming limits.
    But in the long term, LMRiM of course, is also right, and we’re heading back to the late nineties. I said this six months ago, and I’ll say it again: anyone who buys right now is a complete idiot, or a spendthrift, who will save well over a hundred thousand dollars if they wait.
    And what is also true is how many times you’ll hear that “this is the bottom” in the next two to three years. Want to know when the bottom will come? Watch J-O-B-S, foreclosures and lending standards – jobs are first and foremost.
    There is an interplay between housing prices and jobs. As housing gets cheaper, employers can pay people less to move here or for college grads to stay here. This is because some projects that are unprofitable at an average salary of X become profitable at an average salary of 2/3X. When unprofitable projects become profitable, people get hired and that slows the decline. If houses cost $1, employment would be 100%: we could pay people to sew sneakers, those people could live well and the companies could still make a profit.
    BTW, last year SF had fewer 20 somethings move here (net migration: inflow minus outflow) than moved to Des Moines, at least according to the WSJ. That’s a scary thought. When that starts to reverse, you can start watching other factors for signs of a bottom. Until then: not gonna happen.
    If Case Shiller bumps up, and I think it will, it will be due to the lending standards being relaxed. $5000 down? It’s gotta have an effect.

  20. These are convincing charts but they’re no help in buying a house north of Clay. Sellers are still requiring that buyers give them a ton of money, not pretty charts.

  21. BTW, last year SF had fewer 20 somethings move here (net migration: inflow minus outflow) than moved to Des Moines, at least according to the WSJ.
    Where did you see that tipster?
    The only thing I could find on domestic migration in the WSJ was this:
    http://online.wsj.com/article/SB123743043403180645.html
    And they had this to say about San Francisco:
    Older metro areas such as New York and San Francisco, which have seen residents move to faster-growing areas, are now losing fewer people. Cities in the formerly hot housing markets such as Nevada and Florida are seeing fewer arrivals and, in some cases, more people moving out than in.
    At the local level, more people are staying in the city and postponing their move to the suburbs. In 2005-06, metropolitan areas with one million or more people saw a net 688,000 people leave their core counties. In 2007-08, a net 336,000 left, according to an analysis of Census data by Kenneth Johnson, senior demographer at the University of New Hampshire’s Carsey Institute.
    “Fewer people are leaving the urban cores to go to the suburbs,” said Mr. Johnson.

  22. Tipster: How did you calculate a $5k down payment on a $599k home? The 18k in tax credit is just that: TAX CREDIT (I believe over 3 years). The buyer doesn’t get a lump sum just in time for the down payment, bringing down the upfront cost to $5k. They’ll still need that 3.5% (approx $21k) for an FHA loan. Granted, that alone should help “slow” these declines, but the massive amounts of foreclosures in our future should easily nullify these effects.

  23. Tipster said: “If Case Shiller bumps up, and I think it will….”
    I am not a trader and can count on one hand how many times I have purchased a security.
    With that lack of sophistication, I still have never seen a chart (stock, housing, what have you) that ever moved in a straight line. It’s always a down or up TREND.
    If Case Schiller ticks up for April / May, that is consistent with every chart I have ever seen. It’s still a dead cat bounce to me.

  24. There seems to be a viewpoint that the index will rise a bit as a sort of temporary rally during a jagged downward journey, based in part on experience in prior downturns. I’m not so sure about that – this pricing trajectory is very different from anything seen in SF in living memory. A somewhat different way of plotting the data (vs. the downturn of the early 90’s) is here http://tr.im/msPp and man is it stark.
    Methinks it’s all downhill from here…

  25. Case Shiller is a smoothed inex (3-month moving average) so that will mute some of the normal wiggles in any time series of market asset prices.
    That said, I also expect some moderation of decline in the next few months, and perhaps an increase in the middle tier (where FHA and GSE support is going to be most effective). Case Shiller has exhibited seasonality, and the slowing of declines for March fits perfectly with the historic pattern:
    http://www.calculatedriskblog.com/2009/04/case-shiller-house-prices-seasonal.html

  26. PS – that chart is for Case-Shiller numbers in general (not just the sf metro area); but the general arc of the curve is quite applicable to SF (indeed the drop is more severe here than it is on average).

  27. “Fewer people are leaving the urban cores to go to the suburbs,” said Mr. Johnson.
    @NVJ, One of the poster children for The Shift is Amy Graff — particularly around SF school issues. I believe you mentioned she lives around you. At any rate, this was on her blog today at SFGate.
    And, well, money is a little tight in our household. We have to refinance and it will be at a higher rate, and neither my husband or I feel particularly secure in our jobs. Sound familiar? Wonder how many other Shifters are in their predicament, except with a bit more “hostile” loan terms?
    Okay, I did a little checking up on PropertyShark. They have a variable rate mortgage for $940k — but it is on a four unit building, so they should be able to weather the storm (as long as the rents keep coming in…)

  28. …And I should add, it looks like they own their multi-unit as a TIC as there are others on the mortgage.

  29. “perhaps an increase in the middle tier (where FHA and GSE support is going to be most effective).”
    I agree. Based on this comment do you think one would make a better profit selling in this price range before this possibly changes or to hold the property 5-10 years? Not a guarantee increased conf will be available going forward, people may see this as a last opportunity to get in even if prices are still dropping they are not peak so it’s a happy medium no?

  30. il_guru…
    I am with you…we will know what is really happening by the end of the summer. This happy camper would love to buy, too…but, um…I am still in a wait and see mode.
    I remember watching the Macy/Gimbel Thanksgiving parade every year when I was a kid…and, it ain’t over til the fat lady sings (My country tis of thee…).
    The end of this parade doesn’t even happen til the summer comes to a close…and, the market heads into the fall season…

  31. @il_guru “People are still shopping around in the city with 2005 mentality …”
    And prices appear to be at 2005 levels now, as well.
    Adam, I’d like to see a chart blotting Case-Shiller to the stock market (Dow, Nasdaq…you decide). There looks like a direct correlation between price and the stock market. If so, the recent stock market leveling out, and slight rise, might be another indicator of a real estate “bottom”

  32. opps, typo. make that “plotting”, not blotting. not sure an ink blot test would do any good, although it might bring some clarity as to the mental faculties of this crowd *snark*

  33. pumpkin patch and gowiththeflow …
    Think the combination of stimulus money, low mortgage rates and declining prices will give us some surprise in the mid-tear before the end of the year.
    People that are ready to buy (life events) and have been in the sideline for a long time might see something that they can afford and jump on it.
    Nothing wrong with that … sort of back to buying a house to live in it and not to flip it.

  34. @il_guru: exactly. the sideline buyers seem to be back in the market. i have more buyers than sellers now.
    anecdotally, my partner works at a big software company downtown. lots of people there are talking about jumping back into the market. they have the income, down payments through options (yes, many are still above water), and desire to buy after seeing the rise of the past 5 years.
    plus, i just lost a condo in noe valley that was on the market for 45 days, then got two offers in one day. all of a sudden, my buyers market was gone and we were in a bidding war. tables turn quickly sometimes.
    only time will tell…(insert line about hindsight here)

  35. @David: I am not as bullish as you are … but anecdotally I have a lot of long-term renters friends in the market right now.

  36. bullish by profession, I guess you can say. but the worst thing I can think of is steering my clients toward something if I have a notion that the bottom is still coming.
    gotta run out on tuesday tour now. let’s see what the “mood” of the industry is today…

  37. I also have a number of long-time renter friends in the market right now. Most of them are shopping in the areas of the east bay that have seen >50% declines in value.
    A friend of a friend was telling me stories of depreciated houses that generate bidding wars only to have the winning offer thrown out because the property can’t appraise for that value. Apparently the winner often gets to pick up the property at the appraised value then? Anyone ever heard of this? I was skeptical.

  38. “i have more buyers than sellers now”
    Let’s see how many of those “buyers” turn into actual buyers. Sales volume continues to be far lower than last year, although volume at the extreme low end is not as bad. And listing inventory continues to run significantly higher, especially for condos and higher-price places. So there are still far more sellers than buyers overall, and the margin does not appear to be shrinking except, perhaps, for some seasonal effect.
    If David sincerely believes that the worst thing he can think of is steering his clients toward something if the bottom is still coming objectively considered, rather than just his “notion” of whether the bottom is still coming, then advising his clients not to stay on the sidelines is indefensible. I suspect he does not sincerely believe this is “the worst thing” at all. You can tell by the steepness of the downslope of these charts that we’re nowhere near the bottom.

  39. then advising his clients not to stay on the sidelines is indefensible
    In your anonymous opinion. Maybe. But maybe you’re just saying stuff on the internet for fun. Who cares tho.

  40. Lovely news…I might actually be enticed to buy in the next year or two….

  41. For future reference (say, next month) the SF foreclosure count (NODs, NOTS, bank owned) stands at 1214.

  42. We’ve been on the sidelines for the past 2 years (sold in 2007 at the peak). We’ve been looking again recently and decided to go back on the sidelines – prices in decent areas (Palo Alto, etc) are still as absurd and unaffordable as ever.
    We know of many people who are warming up to the housing market as well, all of them with good incomes and money burning a hole in their pockets. I have advised them to wait at least until Fall as there is no rush to buy now during peak season. Even if prices are bottoming (very unlikely in my view), we are not going to see a quick turnaround in employment and income that would presage a snapback in home values.
    If I had a gun to my head I would buy a foreclosure somewhere in East Bay right now, but nothing else is close to a bottom. Don’t believe the hype.

  43. I’m in the same position as Bernie. Lots of people with no vested interest have been telling me that it’s a good time to buy. (Fortunately, not my real estate agent.) In addition to all the factors mentioned in the Chronicle article, it seems obvious that prices will be forced down when interest rates go up. And rates will go up, eventually. Right?
    I know three couples who bought recently in the East Bay and South Bay. All of them had life changes (marriage, kid going to kindergarten, new baby) that prompted them to buy. Two of the couples think that prices will keep going down, but they really wanted the particular house they found, and they plan to stay for the long haul (10 to 20 years). The third couple bought a starter condo. I hope they aren’t paying more than a rental would cost, I didn’t want to ask…

  44. I hope the Editor or someone else can explain the following to me.
    Did you see CNBC this morning around 7 AM ? The host had a man (analyst or something) and a woman (representing the S P Shiller Index Entity) on the call.
    The S P Woman painted a rosy picture and claimed that only 25% of the sales included in the report were from foreclosure sales, short sales and other distressed unit sales, and so the housing sales has bottomed out because the rest 75% is new home sales and hence the economy is moving up and already recovering.
    The man, on the other hand, claimed that 90% (and not 25%) of sales included in the report were from foreclosure sales, short sales and other distressed unit sales and hence we are in for a long long housing slump. His reasoning was that this 90% foreclosure sales means that people who are losing jobs and getting foreclosed formed the majority of this stats, and since the economy is still bleeding a lot of job losses every month, that more homes will fit into this type of sales and as such these numbers indicate a very long winding housing slump for the next 2 or 3 years, since there is only 10% of new home sales.
    Who is right ? Which person’s interpretation is more accurate ?? I am utterly confused.

  45. Wow! Just look at the credit quality divergence in Jan of 2001. This was the month that Greenspan did his “surprise” half point rate cut BTW. Markets jolted upwards briefly then collapsed.
    This is all defenitely the finaling stage of a credit driven speculative economy. Also note the parabolic shift upwards for all credit classes prior starting around 1997-1998 (aka asian financial crisis).
    Also note the shift upwards of everything -not just RE starting from 1995.
    The housing market bottom will be 1995 prices in “true” inflation adjusted terms.

  46. if you sort through the numbers you should start to see the bottom is near… while prices continue to fall, the rate of decline is lessening… bargain hunters and folks waiting on the sidelines for years are starting to get back into the market… the data is nearly two months old now, come June i have a feeling prices are going to be going back up… for that to happens, sellers must remain realistic and excess inventor needs to get sucked up… take it as a sign of good things to come

  47. “if you sort through the numbers you should start to see the bottom is near”
    huh … waddaya know … i don’t.

  48. I’ve been on the sidelines since 2002 (saved up a ton of money) and am about to buy a 2BR condo in South San Francisco for $321K. Place sold in 2005 for 535K using a 0% 3/1 ARM and went into default immediately after the 3 year reset. The price is now below the 2001 nominal price and the 1999 inflation adjusted price. By looking at the bottom-third graph, it probably will go down even further to 280K in the next 2 years but it will be hard to time the exact bottom so 214K off peak is good enough for me. No life changing events really that prompted this move — just the wife has been anxious to buy for 6 years now and the possible loss is a relatively small percentage of my net worth. (Plus, might as well get that 8K first time homebuyer tax credit — one of the few times I will ever get a nice tax break in my life.)
    My wife wanted to buy in SF but I slowly nudged her thinking around. It’s an extra 20 miles roundtrip on 280 to commute to SF but the 300K extra for a 2BR SOMA condo would pay for 658 years of gas expenses in my Prius.

  49. Mossy said:
    “the wife has been anxious to buy for 6 years now”
    “My wife wanted to buy in SF”
    Those are the sentiments of pent-up SF buyers. We have roughly three to four years of pent-up SF buyers now, not counting the pent-up buyers that already existed in 2005 (remember them?) That will count for something when the perceived bottom is near (or nearly here?)
    Whether or not it’s a good investment-only decision or whether the numbers are right for those looking for superior returns in the near term, there is something to be said for such emotions. I think 2010 might be a surprising year for the uberbears. Time shows that bottoms rarely drag along for years…they tend to spike down and then slowly recover to historical averages, and nothing about the Bay Area job losses tell us that we are doing worse than the rest of the state. We’ve been spiking down for 4 years now. We may not get to positive territory for another year or more, but I do think we will see the negative YOY numbers continue to moderate throughout this summer and into the next year’s selling season.

  50. [i]I think 2010 might be a surprising year for the uberbears. Time shows that bottoms rarely drag along for years…they tend to spike down and then slowly recover to historical averages[/i]
    I agree with you that 2010 will not be “the” bear year for SF. My own feeling — based on how many people I know who have been saving like madmen since the turn of the century to buy — is it will be flat or even a slight rebound for 2009-2010. But then the resets for SF come in 2011-2012 plus another year for foreclosures to work their way through the system and that’s when we’ll see the real bottom.
    Unfortunately, this kind of logic doesn’t work with the wife who’s not as cold-blooded as me when looking at numbers. Telling her we have to wait until 2013 or later is an argument I cannot win. Instead, redirecting to an acceptable alternative where the majority of the price corrections have already happened was the most viable solution.

  51. One advice to first time buyers: watch out before jumping the gun. If you lose 15% the first year it will take 10+ years in plain amortization to catch up. Wait for a year and you’ve saved 10 years of mortgage payments (or just do a 20-Y mortgage!). Of course we can always dream that 15% appreciation a year will bail us out and make us all millionaires. Way too late for that game.
    Patience has been a winning strategy so far since 2007. I have saved at least 400K on what I wanted to buy since last year. Plus I have paid 1/2 of a mortgage in rent, without all the taxes and costs of the same property. No hassle, more buying power. As good as instant equity is no-neg equity!
    I could have listened to bulls last year and be living in a plan-C or plan-D nabe like BH or the Sunset for 2X more what I pay today renting in upper Telegraph Hill.
    Timing is everything. Bulls are desperately looking for buyers and are using this spring bounce to call a bottom but beware, they’re not the ones getting stuck upside down.
    Fundamentals are the same. Debt is overwhelming. Deflation is there for a while. The economy is going nowhere.
    Neither are those houses stuck in pent-up supply!

  52. Agreed, Fronzi. I wouldn’t jump the gun now, just commenting on those who are counting on continued 30% depreciation YOY for years to come. It’s totally weird to even be commenting on such numbers which were off the chart to begin with, but the bust doesn’t outdo the boom, generally. You go back to where you started, maybe a little overshoot, providing the fundamentals don’t change (think Detroit) and I think the fundamentals in the Bay Area are better than average. The CS for the Bay Area is now down to 2000 levels at 117. I just don’t see it going back to 60, or even 90, barring further employment collapse a la Detroit. I’m down $90K on my home purchase when comparing tax effected expenditures vs. comparable rent, and I project I won’t make it back until 2013. But then again, I didn’t have to deal with all the issues my condo had, and I also cashed out a pretty nice car and home furnishings in 2004, so I didn’t lose all of the gains. Fortunately, I can afford the loss, and we are not planning on retiring/selling until 2016, God willing, and after all, it’s just consumption, right?. LMRiM will correct me if I’m off base, I’m sure :{)

  53. Funny how a bull will jump all over the fact that someone bought as indicative of sideline buyers, and yet ignore the fact that they switched OUT of SF when they finally did it.
    Sideline buyers are price sensitive. Someone price sensitive now is going to be price sensitive when they buy. If the sideliners are going to swoop in, it’s going to be in the east bay or areas outside of SF, because the price to value ratio doesn’t work at current SF prices when you compare them to those areas.

  54. BernalDweller Wrote:
    > Time shows that bottoms rarely drag along for years…
    > they tend to spike down and then slowly recover to
    > historical averages…
    Take a look at this graph:
    http://dshort.com/charts/bears/four-bears-large.gif
    And this one that shows how after people were burnt with Real Estate (everyone in Houston knows someone who got in trouble in the early 80’s) tend to wait before rushing back in:
    http://www.housingbubblebust.com/HM/HM-Main.html

  55. BernalDweller,
    Good you take it that way. Any idea on how your real housing expenses compare to equivalent rent? That’s the killer in most cases. People can take a temporary paper capital loss but doing it while shelling out their hard-earned cash up to twice what it would cost in rent pushes the knife a lot deeper. In short, you’re poorer plus your cash flow sends you to the lifestyle of a lower pay segment just as serial refis pushed people one or 2 notches revenue-wise.
    tipster,
    True. The sandcastle was attacked from the sides which got ultimately flushed away. The top of the castle saw its base churned away slowly but now starts seriously tipping over. But this process takes time. Knowing the wealth accumulated in the BA, the top of the market is being balanced from 2 sides: on one side the “pent-up” deferred selling happening slowly at more and more realistic prices. On the other side, people seeing great value for 2-3 times cheaper across the bay are giving up on self-delusional SF. That in itself is sucking more air out of the demand side.
    Patience will be rewarded, imho.
    What is being saved by waiting is much much more than any kind of principal amortization you’d make in the same period. Again, a 15% principal savings is more than 10 years of principal payments on a typical 30-Y mortgage.

  56. BernalDweller Wrote:
    > Time shows that bottoms rarely drag along for years…
    > they tend to spike down and then slowly recover to
    > historical averages…
    The only problem with this logic is that prices are still above historical averages.

  57. I’m busy mining various data source, but wanted to chip in a bit, if prematurely:
    You can decompose a house Value:
    Value/Payment * Payment/Income * Income
    where, Payment refers to the annual mortgage costs, but not property taxes, HOA, etc. Income is the annual household income of that mortgage payer.
    It’s useful to think in these terms, because this tracks the major forces at play in the “Great Inflation” we’ve had since 1982.
    Value/Payment, for new owners, is really Price/Payment and tracks downpayment/mortgage rate effects. For older owners, it simply reflects their perceived appreciation — this is just a survey question, in which owners are asked to estimate their house “value”.
    Payment/Income, for new owners, tracks how much people are willing to divert out of their income for debt service. This tracks “stretching” effects. For older owners, it is mostly a question of how much past inflation they’ve experienced.
    The Income of course tracks how rich we are, and, more importantly, how rich the newest buyers are — since they set the price. When the newcomer owners are wealthier than the existing pool, the city is becoming “richer” and vice versa. When the incomes of new owners matches the city as a whole, we are constant in income and appreciation must come from more stretching or a change in the downpayment/interest levels. Remember — prices are set at the margins!
    There is a lot more to tell in this story, but here are median ratios for the above three items. We can track these ratios historically via census micro-data. Note, this is not the ratio of medians, but the median of the ratios as paid by actual households.
    I’ve included 2 numbers. The first applies only to those who have moved in within the last year. The second is the entire pool. Again, the universe is SF mortgage owners of the appropriate tenure who do not own their home outright, but are making mortgage payments in excess of $100/month.
    (House Value)/(Annual Payment) for new buyers and the entire pool
    1980: 14 29
    1990: 13 22
    2000: 18 20
    2005: 20 28
    2006: 20 29
    2007: 18 25
    Payment/Income for new buyers and the pool
    1980: .26 .13
    1990: .30 .18
    2000: .25 .18
    2005: .26 .22
    2006: .29 .21
    2007: .29 .22
    Household Income for new buyers and the pool
    1980: 31K 30K
    1990: 61K 62K
    2000: 100K 96K
    2005: 119K 106K
    2006: 151K 121K
    2007: 126K 133K
    So, we have strong evidence that the peak was in 2006, and that since then, newer buyers are poorer. Moreover, we have good evidence that, at least for the median household, IO loans with 0% downpayment — or an equivalent point on that (downpayment, interest) level curve — must have been the vehicle, otherwise there is no way to get a price to annual mortgage multiple of 20. Note — these are medians of ratios, so this represents the actual “median” household.
    Note, there is much more to tell here, particularly as you look at the whole distribution, rather than just the medians.
    But, that will wait — for the moment, here is similar data for renters. First, the income of renters, both new and the entire pool. Next, the median of the rent/income ratios.
    Median Income of renters paying positive cash rent > $100/month. For new renters and the entire pool.
    Year New Pool
    1980: 12K 15K
    1990: 30K 33K
    2000: 54K 53K
    2005: 55K 55K
    2006: 60K 60K
    2007: 59K 61K
    Here is the rent/income ratio. This tracks, over time the “desirability” of S.F, or how much renters are willing to “stretch”. The first is those who moved in within a year, and the second is the entire pool.
    Rent/Income ratios of new and all renters.
    1980: .27 .22
    1990: .28 .23
    2000: .26 .21
    2005: .29 .25
    2006: .28 .24
    2007: .28 .24
    Note that, even though rent control was adopted enacted 1979, and so theoretically should not affect the 1980 numbers, the “spread” between the premium new buyers pay and the existing pool was as high then as at any time since.

  58. oh, I manually put in 7 spaces, but still it got globbed into a single space. Editor, how do I make tables here?
    Also, sorry for the typos. Enjoy the data.

  59. Wow, very nice analysis, Robert. A few contemporary mortgage reports from the bubble peak (they’ve been posted here) also found that a substantial number of SF buyers were relying on I/O, neg-am, no-down loans of one sort or another. Your deep mining is nice confirmation that this not only was the case but it simply had to have been the case.
    It’s been said here many times — these loans will re-cast and further swell the supply numbers. But even if they don’t, the fact that this juicing of the demand side is no more will alone bring prices back to levels supported by the fundamentals. The only difference is in the rate of the decline.

  60. @MossySF who claims “It’s an extra 20 miles roundtrip on 280 to commute to SF but the 300K extra for a 2BR SOMA condo would pay for 658 years of gas expenses in my Prius”
    Well…. in exchange for the 300K discount, you are forgetting that you lose about 8000 hours of time (assuming you work 260 days a year, and lose an hour a day in traffic. Also assuming you value time as much as you value money).
    Your stress levels will also increase thanks to that Hummer that is tailgating you and honking at you to get the f*k off your iPhone and off the highway….
    That’s why we city folks who paid this 300K that you are “saving” live in San Francisco 🙂

  61. and before you bash me on the calculations, the 8000 hours is time lost over a lifetime, assuming you are around 30 years of age and work till 60 ( i.e. 1 hour x 260 days x 30 years = 7800 hours = approximately 8000 hours lost in a working lifetime !

  62. Robert said “Again, the universe is SF mortgage owners of the appropriate tenure who do not own their home outright, but are making mortgage payments in excess of $100/month”
    Trip said “a substantial number of SF buyers were relying on I/O, neg-am, no-down loans of one sort or another”
    Really?
    This entire thread is fraught with everyone mis-interpreting each others statements/data…. it’s like the telephone game.

  63. Thanks Robert, lots there and don’t have time to study it now, but a couple things struck me right off:
    I was surprised that new buyers’ income was about same as the pool. I would’ve thought the newbys would be poorer.
    And desireability, as measured by spending whatcha got, hasn’t changed since 1980.

  64. Exactly, Trip, and you could use this type of analysis to predict a target stable price, given reasonable assumptions about interest rates (to get the price/payment multiple), incomes, and owner burdens.
    For example, an amortizing rate of 6.3%, with 20% down, gives a price to payment multiple of 16.6. With a mortgage ratio of .26 and an income of 126K (current level), this gives a median house value of 458K.
    Of course, different assumptions will give different results, but at least you can use this method to check to see if your assumptions are reasonable. Again, there is more to the story, particularly as we are aiming at long run prices, and the short run dynamics are interesting — but this gives the coarse outline.
    Of course, the government will do it’s best to keep housing “affordable” (i.e. really keep it unaffordable, by propping up the price), but it’s really self-defeating, because the government programs to reduce downpayments undermine the efforts to keep rates low:
    A smaller downpayment raises your monthly interest payment, effectively increasing your rate and lowering the value to payment multiple — remember there is a “curve” of downpayment/rate tuples along which you have the same value to payment multiple.
    For example, a 5% downpayment on a 5.3% amortizing loan gives the same value to payment multiple as a 20% downpayment on a 7% amortizing loan. Namely, about 16.
    So, those government programs that allow borrowers to not put money down are going to effectively force that multiple down, which means they will force prices lower. It’s really the ability to not amortize that has allowed the multiple to get so high, and if everyone were forced to amortized, that would immediately drop us from *20 to *16 — an immediate fall of 20% right there.
    I actually believe that the speed of the current fall is due in large part to new borrowers amortizing their purchases.
    Moreover, we’ve already seen a 17% fall in incomes for new buyers. I don’t expect to see another 17% fall in the near term, but I do expect to see those incomes drop further somewhat, say by another 10%. Let’s wait to see what the 2009 ACS shows us.
    Once these two factors are allowed to percolate for a while, the ratio will also come down somewhat, but not a whole lot. I think, the mortgage ratio is a very slow moving beast, but I expect it to be 25% over a long (i.e. two decade) timeline.

  65. Well…. in exchange for the 300K discount, you are forgetting that you lose about 8000 hours of time (assuming you work 260 days a year, and lose an hour a day in traffic. Also assuming you value time as much as you value money).
    10 freeway miles to South San Francisco is a quicker commute than to many neighborhoods in San Francisco. This argument really only works if you plan to buy in the SOMA and are within walking distance of your workplace downtown.
    For me though, I’m a partner in my company and I can work remotely anytime I wish to. I could work from China if I wanted to (and I’m thinking about it).

  66. All you RE bulls on here are engaging in tons of wishful thinking! All this talk about sideline buyers and pent up demand … wishful thinking! How can housing prices… even in SF … go anywhere but DOWN the next few years when the state of CA is going bankrupt… the City of SF is not far behind.. and unemployment is over 11% in CA! Plus there are TONS of Alt-A and Option ARM’s in SF that are due to reset in the next two years. And foreclosures are still going up in SF. No, I am sorry to give all you RE bulls the bad news … but we have at least another 20% down on SF prices in the next 1 to 2 years! Wait to buy … don’t be fooled by the intense media campaign that says we are close to a bottom. It never pays to try and catch a falling knife. Wait til it hits the floor and THEN pick it up.

  67. All you RE bulls on here are engaging in tons of wishful thinking! All this talk about sideline buyers and pent up demand … wishful thinking! How can housing prices… even in SF … go anywhere but DOWN the next few years when the state of CA is going bankrupt… the City of SF is not far behind.. and unemployment is over 11% in CA! Plus there are TONS of Alt-A and Option ARM’s in SF that are due to reset in the next two years. And foreclosures are still going up in SF. No, I am sorry to give all you RE bulls the bad news … but we have at least another 20% down on SF prices in the next 1 to 2 years! Wait to buy … don’t be fooled by the intense media campaign that says we are close to a bottom. It never pays to try and catch a falling knife. Wait til it hits the floor and THEN pick it up.
    Was there even a single bullish post in this thread? LOL @ Buzzword City TM.
    Here’s some wishful thinking: I wish some of you folks would actually engage once in a while instead of this rote stuff.

  68. The essential thing to remember about the C.S Index for SF is that it is misleadingly named. As I pointed out in a post at http://www.pegasusventures.net/wordpressblog/2008/10/27/horror-headline-just-in-time-for-halloween-sf-home-prices-down-248/, the index includes all of Contra Costa, San Mateo, Alameda, and Marin COUNTIES, in addition to little ol’ San Francisco. So the index includes ground zero communities like Antioch and Pittsburgh. Any surprise that the numbers are awful?
    The so-called CS Index for SF may well paint an accurate picture of what’s going on with the Bay Area as a whole, but then you’d think it would be called the San Francisco Bay Area Index, wouldn’t you?

  69. Anonn, if you mean why would I not criticize data distortions caused by using medians as a metric, I would respond as follows:
    Any statistic “distorts.” It’s like using digital compression — some information inevitably gets left out. In return, you get a snapshot or a slice of the total picture that’s useful precisely because it’s an organized compression of the whole.
    Secondly, in my own statistical charts, I use medians precisely because I believe they are less sensitive to “outliers” and therefore a more robust measure than for example, the mean (average). See http://en.wikipedia.org/wiki/Outlier

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