November 24, 2009

September Case-Shiller: Bottom Tiers Up But Flat At Top For SF MSA

S&P/Case-Shiller Index Change: September 2009 (www.SocketSite.com)

According to the September 2009 S&P/Case-Shiller Home Price Index, single-family home prices in the San Francisco MSA gained 1.3% from August ’09 to September '09, down 7.8% year-over-year and down 38.6% from a peak in May 2006, but up from a 46.1% fall from peak as recorded in March 2009.

For the broader 10-City composite (CSXR), home values gained 0.4% from August to September but remain down 29.9% from a peak in June 2006 (down 8.5% year-over-year).

San Francisco and Washington DC have reported six consecutive months of positive returns. Chicago, Minneapolis, San Diego and the two Composites were close behind with five consecutive months of positive returns. In addition to the two Composites, nine of the MSAs reported positive monthly returns for September and four of those -- Chicago, Detroit Minneapolis and San Francisco -- were greater than +1.0%.
Las Vegas remains the most depressed market. Prices have declined for 37 consecutive months, with a peak-to-trough reading of -55.4%. While Detroit has seen some positive movement in recent months, the market is still at only 73% of its 2000 value. This compares to regions such as Los Angeles, New York and Washington, which have maintained values of 70-80% above their 2000 averages, in spite of the market downturn.

On a month-over-month basis San Francisco MSA single-family home prices rose for the bottom two price tiers for the fourth time since May 2006, but fell nominally at the top.

S&P/Case-Shiller Index San Francisco Price Tiers: September 2009 (www.SocketSite.com)

The bottom third (under $309,497 at the time of acquisition) gained 2.3% from August to September (down 15.9% YOY); the middle third gained 1.1% from August to September (down 7.8% YOY); and the top third (over $577,214 at the time of acquisition) fell 0.1% from August to September (down 11.5% YOY).

According to the Index, single-family home values for the bottom third of the market in the San Francisco MSA are back to June 2000 levels having fallen 59% from a peak in August 2006, the middle third is hovering around May 2002 levels having fallen 38% from a peak in May 2006, and the top third is almost back to March 2004 levels having fallen 24% from a peak in August 2007.

Condo values in the San Francisco MSA rose 0.8% from August ’09 to September '09, down 12.2% on a year-over-year basis and down 27.3% from an October 2005 high.

S&P/Case-Shiller Condo Price Changes: September 2009 (www.SocketSite.com)

Our 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).

Home Prices Show Sustained Improvement through Third Quarter of 2009 [S&P]
August S&P/Case-Shiller: San Francisco MSA Continues MOM Uptick [SocketSite]

First Published: November 24, 2009 6:45 AM

Comments from "Plugged In" Readers

Money quote: "San Francisco and Washington DC have reported six consecutive months of positive growth."

Posted by: sanfrantim at November 24, 2009 8:13 AM

Is this a "dead cat bounce" or the start of a longer trend? I admit to being very surprised by the recent strong recovery in regional housing prices. Government stimulus of the housing market has been more effective than I had expected.

Posted by: NoeValleyJim at November 24, 2009 8:15 AM

@NVJ

Nothing moves in a straight line.

These are the proverbial knife-catchers.

Declines resume next spring.

Posted by: Debtpocalypse at November 24, 2009 8:36 AM

I am as hopeful as the next guy that this represents a stabilization of prices and an upward, albeit more affordable, trend. However, with unemployment yet to peak, 1 in 4 homes in the US having negative equity, and the main leg of price support being temporary intervention through an expanded FHA and tax credit system I am doubtful of the sustainability of the current price trend

Posted by: badlydrawnbear at November 24, 2009 8:36 AM

I say it will be FLAT next year, with some minor peaks and troughs. Just my bet. I have no crystal ball...

Posted by: pumpkin patch at November 24, 2009 8:39 AM

"On a month-over-month basis San Francisco MSA single-family home prices rose for the bottom two price tiers for the fourth time since May 2006, but fell nominally at the top."

Top tier is over $577,214. Recovery in the less expensive areas outside the city which are more likely to be propped up by $8k tax credits and FHA but stagnant in San Francisco?

Posted by: Michael at November 24, 2009 8:44 AM

I'll only start to offer prognostications after the federal government stops extending the "temporary" home buyer tax credit; I also don't have a crystal ball, or a magic 8 ball for that matter.

Posted by: Brahma (incensed renter) at November 24, 2009 8:45 AM

I'm not sure I understand the "the tax credit is artificially propping up SF real estate" argument. Is there any indication anyone in SF is using it? Doesn't it phase out well below the incomes required to purchase even median priced homes in the city?

Posted by: MG at November 24, 2009 8:58 AM

In totally unrelated news, 35% of all mortgages in CA are underwater. And several more are within 5% of being underwater. Too bad about that 6% commission.

http://money.cnn.com/2009/11/24/real_estate/mortgages_underwater/index.htm

Posted by: eddy at November 24, 2009 9:13 AM

you're right Eddy it is too bad...too bad its not 8%.

Posted by: anon$random at November 24, 2009 9:21 AM

Declines resume next spring.

It makes me so happy that you're still a big angry bear, Debtpocalypse. I believe alot of bears have already thrown in the towel.

Posted by: priced_out_with_envy at November 24, 2009 9:28 AM

Don't forget seasonality!!! (surprised no one has mentioned that yet, it was a hot topic over the summer....)

Taking that into account all three tiers rose, and the overall index was up a very significant 1.7%.

Posted by: REpornaddict at November 24, 2009 9:30 AM

I think as long as interest rates remain low the worst of the decline is behind us. It might bounce around a bit but nothing drastic. If interest rates go up in the next two years, then I would expect to see foreclosures ramp up over their already high levels and prices would resume the steep fall we saw second half of last year, first half ot his year.

Posted by: Rillion at November 24, 2009 9:38 AM

The Seasonally Adjusted numbers:

low tier (below $301724): up 2.47%
mid tier: up 1.11%
top tier (above $560948): UP 0.14% (different from NSA)
aggregate: up 1.71%

Seems like it could easily be nominally flat for a while because of the massive amounts of stimulus, but if mortgage rates go up, we'll see a nominal drop.

Posted by: corntrollio at November 24, 2009 9:39 AM

Mg, you're right that the home buyer tax credit probably isn't playing a role in supporting prices in San Francisco proper, but as the editor says in his "standard SocketSite S&P/Case-Shiller footnote", the SF Metropolitan Statistical Area includes outlying areas where it probably does play a role. So the credit is highly likely to play a role in supporting the overall Case-Shiller Home Price Index for the MSA.

And for the most recent extension, the income limit has been increased to $225,000 for couples, so it'll start supporting the lower-end of the market inside The City proper next year, as well.

Posted by: Brahma (incensed renter) at November 24, 2009 9:52 AM

FYI - only single family homes <=$800k are eligible for the $8k tax credit:

http://www.federalhousingtaxcredit.com/faq1.php#11

What types of homes will qualify for the tax credit?

Any home that will be used as a principal residence will qualify for the credit, provided the home is purchased for a price less than or equal to $800,000. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.

It is important to note that you cannot purchase a home from, among other family members, your ancestors (parents, grandparents, etc.), your lineal descendants (children, grandchildren, etc.) or your spouse or your spouse’s family members. Please consult with your tax advisor for more information. Also see IRS Form 5405.

Posted by: geekgrrl at November 24, 2009 10:00 AM

Hey, buddy, you buy my house, I'll buy yours and we'll both get an extra 8K. What a deal!

Posted by: Salarywoman at November 24, 2009 10:44 AM

Salarywoman wrote:

> Hey, buddy, you buy my house, I'll buy
> yours and we'll both get an extra 8K.
> What a deal!

I wonder if any condo owners have decided to swap units with a neighbor so they both get the $8K (now that you don't need to be a first time buyer)?

Posted by: FormerAptBroker at November 24, 2009 11:45 AM

As this data is for September I expect the CS to increase over the next couple of months due to the rush to buy before the "temporary" credit expired combined with the seasonal reduction of inventory we usually see after September.

The acquisition values for the tiers have increased slightly, but I would expect a larger ramp-up more if there are a lot of forced sales going on in the Alt-A and ARM space. Maybe these will begin to show-up in the Spring?

I'll re-post the running stats for the MSA thirds.

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-09..$527K........$298K
Feb-09..$502K........$281K
Mar-09..$482K........$268K
Apr-09..$479K........$265K
May-09..$486K........$267K
Jun-09..$508K........$276K
Jul-09..$533K........$288K
Aug-09..$558K........$300K
Sep-09..$577K........$309K

On a more personal note I have had four friends in the South Bay who thought they were in OK shape a few months ago, but when they went to the HELOC well to get money for holiday purchases they found it dry.

Most are in denial thinking that the bank must be mistaken as their house hasn't lost value (even though Redfin neighborhood trends and Eppraisal.com show substantial declines) for their zip codes.

Only one of them is accepting that it might be a better idea to sell his house and move to a place that is more affordable now his kids are out of the house.

The other 3 might be forced to sell, but are currently looking into the debtor bailout programs.

All 4 are long-time tech workers making $100-$200K but have only been able to sustain their current lifestyle by utilizing HELOCs & Re-Fis, as they didn't correct their spending after 2000 to account for lower bonuses and worthless stock options.

I understand that the plural of anecdote is not data, but I wonder how many others will be "shocked" when they try to tap their equity for The Holidays?

Posted by: HappyRenter at November 24, 2009 11:45 AM

How much did the lower interest rates boost prices? There's been a substantial reduction in interest rates in the last year.

From this site, http://www.hsh.com/mtghst.html , I get that the average interest rate for 30 year mortgages in September 08 was 6.65% and in September 09 was 5.52%.

While calculating cost of ownership in another thread, and playing with a calculator, I was surprised to see how much a lower interest rate reduced an owner's monthly cost of ownership.

For instance, one could purchase a home for $850,000, put 10% down, and all other things being equal, the difference between a 6.65 and 5.52 interest rate is:

$4531/month cost of ownership for the 6.65 rate, and
$4016/month cost of ownership for the 5.52 rate.

A buyer in September of 09 has a cost savings of $515 a month over the September 08 buyer (it's even greater for October).

And the September 09 buyer in San Francisco MSA bought at a price 7.8% less than the September 08 buyer bought at. He got a cheaper house at a lower cost of ownership.

I don't know if the October 09 buyer should be celebrating though. All that stimulus and those historically low rates and there is still a 8% year over year price decline. The stimulus either has to keep increasing or prices keep falling.

Posted by: SFHawkguy at November 24, 2009 11:45 AM

SF Hawk Guy..that 8% YOY decline was very much in the first half of the 12 though.
The index is actually 14% Up since March, so as we say in soccer, "a game of two halves".

Posted by: REpornaddict at November 24, 2009 11:51 AM

REpornaddict,

It is a game of two halves. But all the action happens in one half and not the other and price tends to go up in the one half and down in the other. So it is better to compare the year over year numbers.

Yes, we finally had the positive seasonal surge this year after a couple of years without the seasonal surge. We'll see if all the stimulus can surge us into positive year over year numbers--but judging by how hard it was to mount this season's surge, with historic government support and super-low interest rates, I think it will be hard to get into positive year over year numbers in the future.

We'll see. But we need positive 4% YOY to even get back to normal (we're at negative 8).

Posted by: SFHawkguy at November 24, 2009 12:00 PM

Point taken Hawkguy but the recent bounce is alot more than a mere seasonal surge as you suggest.

Even seasonally adjusted, prices are up 11% since March.

Posted by: REpornaddict at November 24, 2009 12:32 PM

Interesting... the last time (during a downturn) that Ess Eff saw a relative peak in September was 1991 (this was over a year out from the absolute peak in June 1990.) Five more down years followed (with relative peaks each July or August). Time will tell if this a "hope springs eternal" head fake or part of a general upward market trend.

Posted by: EBGuy at November 24, 2009 12:33 PM

Prices may drop 10% or so but anything over 20% means big banks fail...since government won't let this happen they will do everything in their power to keep nominal prices stable. This includes buying MBS well past April 1st to keep rates low. Better to have a weak dollar than no dollar at all!

Posted by: bk at November 24, 2009 12:59 PM

Any of you guys know if "Spencer" and "Newbuyer" made that $250 bet on whether San Fran CS index would be below 110 by March 2010?

With the SF Metro now at 134+, the odds of it getting down to 110 are looking bad for Spencer.

Posted by: I really WAS priced out! at November 24, 2009 1:04 PM

Where is Satchel?

Posted by: anon67 at November 24, 2009 1:10 PM

Sweet! Housing prices are on the rise again!!!!

Now, can someone explain to me why my automated redfin MLS listings keep telling me folks are cutting their asking prices? Average markdown used to be 40-50k, now its 100k min. Hmmm...

Posted by: TallGuy at November 24, 2009 2:24 PM

Goood spot EB Guy, a few things though..
that increase in 91 was a nominal 0.05%, as compared to 1.3% this time around. In fact prior to that increase prices had barely risen, as opposed to the 14% increase we have seen in the past 5 months.
Also, as you said, the peak was 15 months earlier, as opposed to 40 or so months this time around - so hopefully we are much further into the cycle now.
Finally prices only fell a further 8% back from this level, so if the pattern is repeated the fall will not even wipe out the gains from the last 5 months.

Posted by: REpornaddict at November 24, 2009 2:29 PM

Average markdown used to be 40-50k, now its 100k min.

I don't see that. What I see is a pretty stratified market with 1.3M to 2M as the most challening sector, particularly with regard to condos. If you're seeing sub 1M SFRs getting cut 100K on average in decent areas you're alone in that perception.

Posted by: anonn at November 24, 2009 2:33 PM

Sorry in advance for the long post, but I'm confused.

So in looking at the second chart above, it appears that prices for the top third of our MSA began falling in mid 2007. They fell to ~2003 levels and, following trillions of government spending and nationalization of the mortgage market, are now back to ~2004 levels. I'm just visually interpreting the chart, that's all.

In 2007, our national debt was under $9 trillion, or around 65% of GDP. That maps to roughly $28K per person, +/- a bit depending on data sources.

Right now, we're at nearly $13 trillion in national debt, approaching 90% of GDP, and still climbing. That's over $40K per person. If you re-run the number as national debt / working person, the number is obviously higher. I've read it's now around $60K per working person, and this in a nation where the average working person makes $40K/year.

Let's not forget that GDP growth is being largely fueled by government stimulus, which is coming from...you guessed it: more debt. So we incur $1 of debt to create 50 cents of income. And why? Because we must keep the cost of shelter above natural economic fundamentals, of course!

???

My point? I guess I can't figure out why anybody is cheering such absurdity. Your average family of 4 went from owing $112K to owing $160K in just 2 years. Their property is still worth 15% less than the peak according to the above chart, and would probably be worth 30% less if we actually had a free market for real estate in this country. And with foreclosures still increasing, we'll need even MORE debt in the future just to maintain the artificial conditions we have today.

Maybe I'm missing something, but personally, I see no cause for celebration. Could somebody please explain why this is considered good news? For those of you celebrating, make sure to wave at the kids as you take your victory lap...they're the ones paying for this.

Posted by: Legacy Dude at November 24, 2009 3:02 PM

Well, anyone with no kids and a high income (with very minimal taxes) might be celebrating as someone else's kids will be paying for our market stability. Thanks kids!

Posted by: anon at November 24, 2009 4:29 PM

Yep. No kids currently so bring on the government debt! I'll make sure to move out of the country come retirement time.

Posted by: Rillion at November 24, 2009 4:54 PM

Our Gross National Debt for the general fund only is $12T, but if you count the money actually held by the public it is $8T. This is not anywhere near 90% of GDP, it is more like 40%. Even gross debt is at 70% of GDP. The difference is the money in the Social Security Trust Fund, which has been borrowed by the general fund. The real debt owed is $8T.

The stimulus worked to keep the economy from collapsing and overall Debt/GDP is still less now than it was during the Reagan years. You should be focusing on debt/GDP, not the absolute number.

Deficits will have to come down at some point, but not yet, the economy is still too weak.

We are celebrating because the economy did not collapse and turn a recession into a depression, which it threatened to do. Home prices would be down much more than 30% if you had gotten your way LD and unemployment would be at least 20%.

The money borrowed will probably not actually ever be paid back, it will just get rolled over and to the extent that it does, it won't be "the kids" that pay it back, it will be the ones who got $2.3T in tax breaks in 2003. They may end up having to give that money back to the Chinese, who they borrowed it from. Don't worry, it is almost entirely the top 20% who benefited from those tax breaks, so they (we?) can afford to pay it back.

http://tinyurl.com/ybdo32e

Posted by: NoeValleyJim at November 24, 2009 5:30 PM

Okay, my data is from last year and does not include the extra 10% of GDP added on this year, adjust your numbers accordingly :)

Some of that is actually TARP money which is supposedly going to be paid back. I suspect we will get most but not all of that.

http://en.wikipedia.org/wiki/File:USDebt.png

Borrowing all this money just before the Baby Boomers retire is problematic.

Posted by: NoeValleyJim at November 24, 2009 5:59 PM

Itis funny that those happy to see a recovery in prices somewhat are accused of cheering/celebrating...given the tubthumping/schadenfreude/delight in others losses that went on when the index was going the other way.
Lost count of the times someone someone reported with absolute glee than a home owner had lost his shirt, taken a bath etc..

Posted by: REpornaddict at November 24, 2009 6:28 PM

Yeah. Nary a "hee hee" in sight from the "cheer leaders."

Posted by: anonn at November 24, 2009 6:31 PM

Been looking in northern Marin in the 700k-850k range since the beginning of the year for a single family home. I have observed no uptick in prices at all. Inventory has dropped, but that's it. In anything, prices have dropped further since the beginning of the year.

I think the low end probably peaked, but I see continuing softening in the 750k and up market. Wish I was in the 1.5 million range, as that will probably be hit even harder.

I see the same for Lamorinda. I get inundated with price cuts from Redfin all the time.

Posted by: MikeW at November 24, 2009 7:04 PM

From the places I am following (prime SF TIC and condo), it looks like places that have issues seem to linger much longer than 2 years ago. At the time almost anything would sell quickly, although at a small discount. I feel like today's buyers are wiser and are pricing in the flaws seen in a property. I do not see the "happy-go-lucky" buys from earlier. Can someone (professional) tell me if he is seeing a lot more maturity from the buyer pool? Are we back to a market where people buy with their eyes open? Also, any clues as to who is buying? None of my friends are, which is very different from 2003-2008. Who are these buyers?

Posted by: There goes the neighborhood at November 24, 2009 9:29 PM

the prestige index numbers were just released:
http://www.firstrepublic.com/lend/residential/prestigeindex/sanfrancisco.html

"San Francisco Bay Area values decreased 15.7% over the past year and 3.8% from the second quarter of 2009. The average luxury home in San Francisco is now $2.52 million"

index peak was 9/07 at 533
9/09 value is 436

436 is 9/04 pricing (and double 9/97 levels)

the prestige index tracks SF MSA housing that was valued at $1M in 1990 and is currently estimated at $2.5M, so true top tier. it is released quarterly, two months afer the quarter end.

Posted by: steve at November 25, 2009 11:06 AM

NoeValleyJim wrote, "...if you had gotten your way.."

I think you're confused, NVJ. I never wanted a total collapse of the pyramid. In fact, I often criticized LMRiM for his repeated calls to "break the system." I enjoy things like hot & cold running water, electricity, and food on store shelves.

That said, this wasn't/isn't a binary decision. I view it as a spectrum ranging from utter financial collapse to full bailout. The government could have orchestrated an orderly unwind - there's a middle path that could have been taken without creating a double bubble.

Regarding cheerleading vs. gloom & dooming, my main issue from a philosophical perspective is that stupid financial behavior doesn't really carry negative consequences anymore. This is a poor way to phrase it, but when nobody is allowed to lose everything, we all lose something.

Which brings me to the big issue: what is the government's exit strategy here? When do Fannie and Freddie get privatized again, if ever? Or will we perpetually keep throwing billions per year down this rabbit hole until our creditors stop making it viable?

All rhetorical questions that I'm not smart enough to answer. I just find it frustrating that Making Home Affordable = keeping homes unaffordable, and with my tax dollars to boot.

Posted by: Legacy Dude at November 25, 2009 11:41 AM

Fair enough, but I really think this is the most orderly unwinding they could come up with. I don't think we are inflating another housing bubble and expect home prices to lag inflation for a very long time. It is hard to control where all that money blown into the economy is going to end up though. Are people really so stupid as to fall for the same exact bubble two times in a row? I kind of doubt it.

The next big asset class to blow up will probably be commodities, but it is really hard to tell.

I agree on the whole moral hazard thing, I personally would have liked to see more people sent to jail, but that is not the Administration's style. Financial reform is still be wrangled over, we may yet see casino capitalism reformed. Any opinions on the Dodd bill? I asked a Professor of Accounting that I know about it and he said that it was better than nothing. Not exactly a ringing endorsement.

Posted by: NoeValleyJim at November 25, 2009 4:29 PM

"Are people really so stupid as to fall for the same exact bubble two times in a row? I kind of doubt it."

Posted by: diemos at November 25, 2009 4:48 PM

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