December 29, 2009

October Case-Shiller: Up For SF MSA Houses, Down For Condos

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

According to the October 2009 S&P/Case-Shiller Home Price Index, single-family home prices in the San Francisco MSA gained 1.2% from September ’09 to October '09, down 2.6% year-over-year and down 37.8% 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 a nominal 0.1% from September to October and remain down 29.8% from a peak in June 2006 (down 6.4% year-over-year).

"The turn-around in home prices seen in the Spring and Summer has faded with only seven of the 20 cities seeing month-to-month gains, although all 20 continue to show improvements on a year-over-year basis. All in all, this report should be described as flat." says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s.
"Coming after a series of solid gains, these data are likely to spark worries that home prices are about to take a second dip. Before jumping to conclusions, recognize that the one time that happened at the beginning of the 1980s, Fed policy saw dramatic reversals, which is very different from the stable and consistent Fed policy we have today. Further, sales of existing homes – those included in the S&P/Case-Shiller Home Price Indices – have been very strong in recent months, working off the inventories of houses for sale. At the same time, housing starts remain weak, fears that the market will be swamped by a wave of foreclosures are heard and government programs aimed at the housing market will expire in the first half of 2010."

On a month-over-month basis and having skipped September, San Francisco MSA single-family home prices rose across all three price tiers for the fourth time since May 2006.

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

The bottom third (under $317,792 at the time of acquisition) gained 1.0% from September to October (down 11.9% YOY); the middle third gained 1.9% from September to October (down 3.5% YOY); and the top third (over $591,888 at the time of acquisition) gained 0.8% from September to October (down 8.3% YOY).

According to the Index, single-family home values for the bottom third of the market in the San Francisco MSA remain at June 2000 levels having fallen 58% from a peak in August 2006, the middle third is hovering around June 2002 levels having fallen 36% from a peak in May 2006, and the top third is back to March 2004 levels having fallen 24% from a peak in August 2007.

Condo values in the San Francisco MSA fell 0.3% from September ’09 to October '09, down 9.7% on a year-over-year basis and down 27.6% from an October 2005 high.

S&P/Case-Shiller Condo Price Changes: October 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 Still Improving but at a Moderating Pace [S&P]
September Case-Shiller: Bottom Tiers Up But Flat At Top For SF MSA [SocketSite]
A Sprinter's Or Marathoner's Pace? [SocketSite]
Are The Real San Francisco Foreclosures On Their Way? [SocketSite]

First Published: December 29, 2009 8:30 AM

Comments from "Plugged In" Readers

Hmmm, it didn't get mentioned in the summary above, but this marks the 7th consecutive month of increases for the index in the SF MSA. This represents a 15% increase since what Case Shiller is showing (at least for the time being) as the bottom.

BTW - I personally think the top tier is a better indication of SF proper (albeit still not great), and it has also increased continuously after bottoming out in March.

[Editor’s Note: As noted in the summary above, it’s the fourth time since May 2006 that the index increased across all three price tiers with the top tier actually having fallen nominally in September (currently down 24% from peak versus down 30% in March).]

Posted by: Lance at December 29, 2009 8:48 AM

Allowing for seasonality, the figures look even better.
Bottom tier up 1.6%
mid tier up 2.3%
top tier up 1.3%
index up 1.7%
In fact, seasonally adjusted, SF was the best performing area.
Condo prices are also up (0.5%) when seasonality is factored in.

Posted by: REpornaddict at December 29, 2009 9:31 AM

Heeelllooo....sure quiet here. Where is the bear brigade? Oh, busy beating up on a watermark foreclosure...never mind the CS data not supporting their feel good/rent 4ever mantra/mania.

Posted by: 45yo hipster at December 29, 2009 9:42 AM

The beloved/flawed CS MSA is now seemingly showing the very problems in the 1M+ condo market versus the SFR market some of us have been talking about for years. Or talking about in other threads, yesterday.

Don't worry tho. Hang tight. This conversation will turn to the polar opposite of what this chart seems to show before too long. Rate raises will get internalized and spoken about. A future eventuality will be imminent. A possible future of two years from now will be next week. Etc. etc.

Posted by: anonn at December 29, 2009 9:57 AM

That's a pretty tepid bounce. Top Tier went from 190 to 135 and it now back to 145. Regaining ~10 or so out of the 55 it originally lost. No big deal. See you next year for the next leg down.

Posted by: wow at December 29, 2009 10:12 AM

No surprises here, and no reason to make excuses or pretend things are not as they appear. As previously discussed, our benevolent central planners have nationalized our mortgage market, resurrected easy-money subprime, and renamed it FHA. The corner drunk stops shaking once he's had his breakfast beers, but he ain't exactly the picture of health (as default and redefault rates show).

I personally do not believe that the bubble fallout has been mitigated or is "behind us." Furthermore, I fail to see any economic fundamentals supporting an increase in home prices. Maybe somebody smarter could point them out to me?

Local housing prices are going up because:

(a) Throngs of people are flooding into SF daily (i.e. demand increasing).

(b) Existing housing stock is being demolished, and no new housing has been built (i.e. supply decreasing).

(c) Wages are rising, plus SF is rapidly adding high-paying jobs.

(d) The market over-corrected, and it's now cheaper to own than rent.

(e) Other.

Last question for our three intrepid believers above: you state that real SF never fell more than 10%, and that the upper tier of the CSI is the best proxy. Yet the upper tier seems to have fallen over 20% from peak to trough. So which is it?

Socketsiteers should either accept that the CSI is indeed a good proxy for the local market, or discard it entirely. But please, let's all stop cherrypicking results only when they reinforce our tenets.

Posted by: Legacy Dude at December 29, 2009 10:21 AM

Deadcat bounce. Lies, damn lies, and statistics. Even though the government has declared that housing is now preferred over all other asset classes, this is a very weak "rebound."

Soon the government will learn the lesson of their folly. All ahead full, 40 degree dive.

Posted by: scurvy at December 29, 2009 10:26 AM

and that the upper tier of the CSI is the best proxy.

Never said it. Above I call it "flawed/beloved" "seemingly" showing. But you're using the old let me lay out my interpretation and have you explain to me how my rules don't apply technique.

The "Upper Tier" of San Francisco is only a very small part of CSI -- that's what I've said a million times on here. San Francisco, averaged from top to bottom, correlates to the upper tier of CSI. The upper tier of the upper tier, i.e., almost every property shown on SS, never gets depicted in a CSI chart.

I guess seasonality is out the window too. Dead cat bounce. Tepid bounce. Typically October is not as good as earlier fall/ late spring. Oh wait. I know. Every human being who bought in SF was going nuts for that 8K credit.

You're right tho. Throw it out. It's weak.

Posted by: anonn at December 29, 2009 10:37 AM

The market over-corrected, and it's now cheaper to own than rent.

That'll be the day. People have been programmed to pay a 50%-150% premium for the right to rent from the bank while at the same time paying for the bank's property maintenance costs! Did I mention homeowners are also always in first loss position? Banksters love you guys. And salesmen too.

Posted by: wow at December 29, 2009 10:40 AM

never mind the CS data not supporting their feel good/rent 4ever mantra/mania.

Actually, I hate to point this out, but as far as I can tell it is still cheaper to rent than buy comparable properties in SF, although I haven't researched this the last few weeks so could be wrong and am happy to be proven wrong.

I've been expecting this graph to look like this for some time. As I've said before, YOY comparisons would improve partly because the end of last year was so dismal. Comparisons will be a little more difficult again as we get into later next year again.

as I've also said for some time, I try not to make too much of winter time data, as the number sets are just too small IMO.

and lastly, what does one expect will happen with RE when housing is getting unprecedented governmental support? I would say "wait until this spring when the support is phased out" except we all know that all the support will just be renewed and probably expanded anyway. (or made more covert, like the recent decision to remove any cap on Fannie/Freddie's portfolio/losses)

Housing is nationalized. it will therefore continue to be stable so long as our government has the will and ability to continue supporting it. I don't see that changing anytime soon. I don't think they have the ability to cause housing to outperform, more likely just tread water.

of course this comes at a huge cost.

another thing to realize:
the government is favoring other sectors over housing, so I'm not sure that housing would be my top investment now.
clearly they are supporting financials and stocks more than housing as example.
the paltry housing "recovery" pales in comparison to the bear market rally in stocks.

so the question becomes: what will govt support most effectively in 2010 and 2011? will it be housing? will it be municipal bonds? will it be commercial real estate? financials again?

I'm an investor not a speculator, and definitely not politically connected, so I'm as clueless as you are.

my guess is that they'll continue to re-blow bubbles until they can't get anybody to buy their debt, and then it all comes crashing down. we have a LOTTTTT of debt to float next year.

Posted by: ex SF-er at December 29, 2009 10:40 AM

If the 1989 blowout and correction is supersized to modern debtastic extremes then this dead cat almost exactly matches the last one. If interest rates rise just a little bit and deflation and inflation continue working their combined magic then five or so years of relative stagnation should be enough to squeeze remaining junk out of the system.

Posted by: Mole Man at December 29, 2009 10:56 AM

CS SFRs will continue to rise until February.

This month's condo numbers are a blip. Condos will rise next month too.

How can you throw trillions of dollars at a problem, and essentially stop nearly all foreclosures, and not have an effect? Not possible. It's shocking to me to see condo numbers down, even slightly - I wouldn't have believed it if I hadn't seen it.

The effects are not long term, but they are real. The effects have reactions. The reactions can overwhelm the effects after awhile. But the reactions take more time than the effects.

Posted by: tipster at December 29, 2009 10:59 AM

thats a much more bullish outlook than you had back in summer then tipster - I think you had things roughly staying level for the rest of the year back then.

Posted by: REpornaddict at December 29, 2009 11:29 AM

Bullish outlook because they stepped up pressure on the banks under the HAMP program and essentially stopped nearly all foreclosures of people still living in their homes.

What that really does is keep people out of work. People stay in their homes instead of leaving for greener pastures. Or salaries can't fall because housing prices are being artificially supported so employers can't hire at a wage that allows people to have a decent standard of living. So employers don't hire. Not only do people not work, the employers can't make any money either. Everyone loses. Unemployment is "stubbornly" high. That's where we are right now.

So you have a country in which 10% are out of work and another 10% are underemployed and the job creators aren't making any money. A non productive economy isn't good for housing in the long run, because jobs and wealth drive housing, but even a mirage looks pretty good in the short run. Very thirsty people have been known to stand up and start running when they see one.

So it's more bullish in the short run, but I'm afraid it makes things worse in the long run.

Maybe the problem has to get much worse before the public is ready for the bitter medicine that really solves it, so the even bigger problems we've now set ourselves up for might be for the best. We needed the disastrous Carter years for anyone to accept the Reagan Recession and Volker's complete destruction of inflation, but after a disaster that lasted about 5 years, it worked out pretty good for us for the next 20 years.

But boy are the next few years going to be rough. The better they make things and the longer they string it out, the worse it gets. They may be thinking that a rebounding economy will solve that problem, which is true, but the more they do, the less likely the economy is to rebound. High stakes poker: the rush while you're in it feels pretty good.

Same exact thinking gave us the great depression. Shutting off foreign trade helped for a while, but long term the country grew poorer at exactly the wrong time. Hope we're luckier this time around.

Posted by: tipster at December 29, 2009 11:52 AM

Average incomes are up modestly, hours worked are up, unemployment is falling, consumer confidence is rising and now home prices are up.

But the permabears are still insisting that SF home prices will drop 50% in the next year or two. I just don't see it.

The stimulus did what it was supposed to do: it pulled us back from the cliff of a deflationary spiral. It is going to take a long time for consumers to repair the damage to their balance sheets from two decades of living beyond their means. Savings rates are higher than they have been in 20 years though and this increased savings is sticking.

This is really good news for the United States economy in the long run because we will not have to rely so much on foreign savers to finance our deficit.

As boomers retire, we will have a long term structural budget deficit. This is not as bad as it sounds, as long as we can keep the overall debt constant as a percentage of GDP. This means we should be able to run budget deficits equal to the nominal rate of growth with no problem. It is a steadily increasing debt that would be problematic.

I know that many on here strangely believe that the deficits that we ran in 2008 and 2009 during the financial crises are a permanent state of affairs, but this is not possible for a number of reasons, most importantly because we probably cannot obtain that much money to borrow from overseas. As the world economy improves, investors will want to put their money into things other than US Government bonds. Secondly, as the economy shifts from mostly non-productive financial services and real estate speculation to more productive sectors, real incomes and wages will rise and corresponding tax revenues will occur. The latter always has a bit of delayed effect, so I don't expect real repairs to public sector balance sheets until 2011 or 2012.

It is hard to tell how bad off the banks still are, until they repair their balance sheets, lending will be depressed. Something will have to be done about Citibank, it is the most obvious zombie bank. If not, it will be a drag on growth for a long time. I doubt we will see a "lost decade" like Japan, but it is still possible. Does anyone know what the real state of the banks are?

We still will need to address rising health care costs. The Healthcare reform bills both do some things to address this, but neither does anywhere near enough. It was a good start, but this issue will have to revisited in a few years. I expect the Democrats to do better than expected in 2010 as the economy recovers, if they do not, further reform is probably dead.

The rest of the world is mostly out of recession now and growing at a pretty good clip, with the exception of a few basket cases like Greece and Spain in Europe and a few Eastern European economies that were over dependent on "hot" foreign investment money for growth. Trade with the rest of the world will continue to push our economy ahead, especially here in the Bay Area, where we produce so many things that are popular overseas.

Posted by: NoeValleyJim at December 29, 2009 1:32 PM

NVJ, can you provide any links to support your first two sentences above? Thanks.

Posted by: Legacy Dude at December 29, 2009 1:54 PM

tipster said "The better they make things and the longer they string it out, the worse it gets."

Ramming through the correction faster would probably bring property values back in line quicker, but would also most likely take labor markets down farther for longer. The state of the art in market simulations shows this pretty clearly. Being more concerned about markets than people is an ugly sickness with an even uglier cure.

NoeValleyJim said "Average incomes are up modestly, hours worked are up, unemployment is falling, consumer confidence is rising and now home prices are up.

But the permabears are still insisting that SF home prices will drop 50% in the next year or two. I just don't see it."

This overly positive view is way out of line with the official numbers, let alone what one might take from "shadowstats.com". The world economy is on the skids with record levels of underemployment for relatively peaceful times.

The rest is completely unsupportable. There are no permabears--that term simply has no relevance whatsoever to what is happening. This was apparently a reference to the estimate that the top to bottom will see about 50% of the value lost from property markets. Such numbers came out of attempts to calculate the intrinsic value of properties. When markets overcorrect calculations of intrinsic value transition to appearing bullish which is just as meaningless as the earlier categorization.

Posted by: Mole Man at December 29, 2009 2:58 PM

There are a trillion of commercial mortgages coming due in the next 2 years. Many of those loans exceed the value of the property and there are no lenders around to refinance the balance of the loans. If the Feds continue to allow the banks to continue the current "delay and pray" practices, we run the risk of 10 years of stagnant economy that Japan went thru. This is the major cloud on the horizon IMHO.

Posted by: Bill at December 29, 2009 3:06 PM

Posted by: NoeValleyJim at December 29, 2009 3:39 PM

Editor, I wasn't criticizing your summary. With that said, it didn't mention that this is the 7th straight monthly increase. If you want to isolate it to the top tier (which is a somewhat better proxy for SF), it's increased 6 of the past seven months. I just thought it was a point worth pointing out.

Legacy Dude, who said anything about properties only falling 10%? I don't see that mentioned anywhere. As for predictions of 50% drops, I was able to find this one from Diemos without much effort using a google search. You can view it by using the link in my name. There have been others, but it's not worth the effort to find them honestly.

BTW, Case Shiller top tier HAS dropped 30% from peak. I personally think it overstates the magnitude of increases and drops in SF proper, but it's the best we've got unfortunately. I think it's reasonable to assume that prices in SF have dropped in the range of 20-30%, but that's a far cry from 50%. And as for the impact of government stimulus, I said on here years ago that the government was not going to allow prices to just plummet without a fight. I'm not sure why people would think otherwise. There is too much of a vested interest in keeping housing prices up IMO, so I wouldn't count on them pulling back too much if it is going to lead to house values declining more.

Posted by: Lance at December 29, 2009 3:39 PM

And I should have said the top tier dropped 30% from peak to what for now was the March bottom. It has actually regained 10% points since March.

Posted by: Lance at December 29, 2009 3:44 PM

NVJ, unemployment is falling? By what measure? New jobless claims? Well sure those are going to slow down, but that doesn't mean people have jobs and that things are turning around. The real jobless rate is still extremely high for where things should be given the current state of affairs.

The only thing a high US savings rate will produce is a stronger yuan and make Chinese goods more expensive. Good thing we shipped all of our manufacturing there!

Posted by: scurvy at December 29, 2009 4:12 PM

I know that many on here strangely believe that the deficits that we ran in 2008 and 2009 during the financial crises are a permanent state of affairs, but this is not possible for a number of reasons,

and this is precisely why some of the permabears are not optimistic going forward.

Housing has basically been nationalized, with huge national costs. Our financial system likewise. Sure, we have this pretend-capitalism occurring, where we pretend that these institutions are private (Citi, AIG, Fannie, Freddie) and we pretend that they are solvent (Wells, BofA, etc) and we pretend the CEOs are worth millions of dollars in bonuses.

But in the end most of it is all backstopped by the government. At many trillions of dollars of cost.

How much longer can mama govt keep it up? I dunno. History would suggest a long time. However, I still have yet to see an exit strategy. And in fact, I am seeing the REVERSE of exit strategies.

The ink hasn't even dried on yet another stealth bailout- removing the $400 billion cap of the backstop of Fannie and Freddie. why do you think that was done? do you believe the administration when they say that it won't be needed? they just did it hush hush on xmas eve for no reason? ROFL.

Little is moving outside of the government guaranteed/supported space.

this cannot go on forever, as you state. Thus, we should all prepare for the shock when the support is removed.

A lot of this support will go away in theory in Q1 2010. I doubt that will happen though. most of it will be extended IMO. or it will be made more stealth. (can't let the plebes know what's going on).

so we'll dump even more trash on Fannie and Freddie, and also use them to increase HAMP modifications as example. now that those pesky caps are out of the way anyway.

I doubt we'll stop spending until the credit card is forcibly ripped away by creditors. wish I knew what that was, because then I'd be a bajillionaire.

Posted by: ex SF-er at December 29, 2009 4:25 PM

For Frack's Sake NVJ! You say:

"unemployment is falling"

and then link to an article that states:

"Americans are still losing jobs"

Come back to Earth! The only sign of improvement is a decline in the rate of change. It will take many years to get back to 4-5% unemployment with 3% GDP.

http://www.calculatedriskblog.com/2009/12/if-economy-lost-jobs-why-did.html

FAQ: How can the unemployment rate fall if the economy is losing net jobs, especially since the population is growing?

This data comes from two separate surveys. The unemployment Rate comes from the Current Population Survey (CPS: commonly called the household survey), a monthly survey of about 60,000 households.

The jobs number comes from Current Employment Statistics (CES: payroll survey), a sample of approximately 400,000 business establishments nationwide.

These are very different surveys: the CPS gives the total number of employed (and unemployed including the alternative measures), and the CES gives the total number of positions (excluding some categories like the self-employed, and a person working two jobs counts as two positions).
...
[T]he jobs and unemployment rate come from two different surveys and are different measurements (one for positions, the other for people). Some months the numbers may not seem to make sense (lost jobs and falling unemployment rate), but over time the numbers will work out.

Posted by: J at December 29, 2009 5:09 PM

I did not realize when I linked to the WSJ story that you would encounter a paywall, sorry. Hopefully all of you know how to get around the WSJ paywall, just Google the story headline and click on it from the Google results. Alternatively, you can install a referral spoofer and spoof your referrer as Digg, but that is probably more trouble than most Socketsiters want to go through.

The money shot is this graphic though:

http://s.wsj.net/public/resources/images/P1-AS780B_Econo_NS_20091204230311.gif

Yes, hiring is picking up. We are very clearly through the worst of it, CR notwithstanding.

As for the notion that we have nationalization of the banks, the truth is we never should have deregulated the banking system in the first place. That is the Original Sin that led to all of the financial troubles we are seeing now. Financial reform measure are not finished (Congress has been busy with other things) but until it is, keeping the banks on a short leash is a good thing, not a bad thing. It was an over application of Free Market Religion by ideologues that got them confused about what sectors of the economy it makes sense to deregulate and which ones it does not. You can see the same confusion still today amongst many posters here.

Housing *is* a basket case, mostly due to our irrational over investment in exurban McMansions during the boom. Most of this housing stock is going to end up slums in all probability. Until all this overhang is absorbed, the construction sector will under perform. That is fine with me, though it did keep a bunch of blue collar workers employed. We will end up finding other work for them, but probably not until we invest more in the manufacturing sector, not anything I see happening just yet.

There is more to the US economy than banksters and housing though, though given the nature of this blog, I can see why people here focus on them.

Posted by: NoeValleyJim at December 29, 2009 7:04 PM

"Where is the bear brigade?"

Hibernating.

Enjoy your dead cat bounce while it's here. Given the trillions that have been spent to manufacture it, it would be a shame if someone didn't enjoy it.

Posted by: diemos at December 29, 2009 7:35 PM

Damn NVJ, that fifth link was a blast from the past.

Who knew that my views on the GSEs and the coming depression would be so accurate.

"removing the $400 billion cap of the backstop of Fannie and Freddie."

What an interesting number, I wonder where they got that from.

Posted by: diemos at December 29, 2009 7:55 PM

"(d) The market over-corrected, and it's now cheaper to own than rent."

Not by any stretch of imagination. Rent has been falling faster then the price, and it's now headed for anther free fall:
http://mullinslab2.ucsf.edu/SFrentstats/data/time.html

Consider this the peak before another dip:
http://www.nytimes.com/2009/11/25/business/economy/25home.html

Posted by: Fish at December 29, 2009 8:13 PM

I am not sure what the bears need to defend/prove. That chart shows a good ten years of equity wiped out. The latest figures are certainly positive but shouldn't be surprising considering the massive backstop and stimulus being provided by the federal government. Let's hope home prices can stabilize and return to normal growth and real estate agents can go back to selling homes to most american's and stop selling 'investment' vehicles to people who have no idea what they are doing.

Posted by: badlydrawnbear at December 29, 2009 9:01 PM

I am pretty sure I posted this once, but given the topic it is worth repeating:

http://www.nytimes.com/interactive/2009/11/06/business/economy/unemployment-lines.html

The unemployment rate for college educated men aged 25-44 is 4.3%. For white men that age 3.9%. For white women 3.6%. These are the people buying houses and condos in San Francisco, not the masses of unemployed in the non-college educated ranks.

Don't get me wrong, I have great sympathy for blue collar folks, I come from a blue collar background myself, but this is the main reason why San Francisco housing has been relatively insulated.

Posted by: NoeValleyJim at December 29, 2009 9:05 PM

That chart shows a good ten years of equity wiped out.

No, it doesn't. Not for the city this website is based around. Think about the 99-2004 purchases and 2005-2009 sales you sometimes see depicted here. In fact, I doubt we've ever even seen a 2002 and back purchase show anything but a big equity gain. Maybe one 2003. Very rarely a 2004, usually from the earlier part of the year. After all this time you and others like you still want to take Case Shiller and slap it onto San Francisco.

Posted by: anonn at December 30, 2009 8:58 AM

NoeValleyJim, are you aware of the recent demographic changes in San Francisco? College Educated "white" "professionals" are not the majority of recent immigrants to the CITY of San Francisco. I would be happy to provide links but I am sure you will counter with other links, but remember, California is having a massive "brain drain" of professionals as pointed out by "The Economist magazine last October.

Your point about who is buying real estate is correct to a point, but price increases in San Francisco were not driven by increasing demand from wealthy "white" educated professionals, but instead from credit availability that provided the current deflating bubble.

Posted by: anonandon at December 30, 2009 9:22 AM

You don't think that SF is more full of educated whites than previously? Few would agree. Notice I left out the "professional" part.

Posted by: anonn at December 30, 2009 9:28 AM

Sure, point me to the links anonandon I am always interested in some data that supports another point of view. My hunch is that most of the new residents of San Francisco are young white and asian professionals, but if you have data that shows otherwise, I will have to revise my bias.

Asian unemployment rates are not available via that tool, but using "For Asians, American Indians and people of more than one race with a college degree" you can see that unemployment amongst that group is lower than the national average, particularly amongst the college educated.

price increases in San Francisco were not driven by increasing demand from wealthy "white" educated professionals, but instead from credit availability that provided the current deflating bubble.

I think that price increases in San Francisco have been driven by both. The average age, family income and education level of the San Francisco population has been increasing for decades. Obviously there is only so far this can go, but I don't think this has reached its end point yet. No doubt that the credit bubble effected San Francisco real estate prices as well but bears ignore the effects of gentrification.

I must have missed that Economist article, I have been pretty busy lately, please point me to it.

Posted by: NoeValleyJim at December 30, 2009 9:59 AM

Just catching up with comments here. Sorry Jim, but the feeble macro improvements you cited (which themselves are largely products of government stimulus & bailouts anyway) aren't really enough to shift the housing market as a whole IMO. I still don't see sufficient fundamental economic strength to warrant home prices increasing.

Furthermore, to channel flujnonn, we're talking about the local market and you're throwing out national statistics. None of the local indicators I've seen signal any broad recovery in the Bay Area. Stabilization, maybe, but not a 180. And there is no national recovery: the nationwide CSI is basically flat, I believe, with only a handful of markets showing modest gains (SF among them, obviously).

In my personal opinion, there are 3 major things driving home prices up right now:

1) Mortgage rates being artificially held near historical lows by our benevolent central planners - prompts folks to jump in because rates can only go higher.

2) Return of easy money, low-down/no-down financing via FHA - same as above, buy now before they start requiring down payments and good credit again.

3) Suspension of foreclosures to limit supply. Our benevolent central planners now own/control roughly 80% of the mortgages in this country, which is scary.

The key issue here is whether or not this is sustainable policy. Adverse selection and moral hazard are at play here, and the stakes are very high. For now, it seems to be working. But I still believe the odds of a debt/currency crisis are > 0, and the odds of rates being forced up by our creditors are material. Definitely too early to say it's all behind us, especially given how high default rates are.

Lastly, the links above showed 2 people predicting 50% off, and they were over a year old. So let's please dispense with the "permabears" and "all of you" nonsense. Besides, all of you thought home prices here would never fall...see how wrong you all were?

Posted by: Legacy Dude at December 30, 2009 10:09 AM

Besides, all of you thought home prices here would never fall...see how wrong you all were?

I don't know who "all of you" is intended to refer to, but you should not include me amongst that group. I have always said that real estate in California and San Francisco is cyclical, tends to follow the business cycle and that we should probably expect prices to follow the last few cycles, which is a 10-20% initial drop, followed by five to ten years of nominal price stagnation. I predicted a relatively high inflation rate (5-6%) to speed that process along. Flat nominal home price along with moderately high inflation would lead to home prices coming back in line with incomes pretty quickly. I also believed that macroeconomic factors, along with The Fed's likely propensity to overstimulate the economy would lead to inflation.

I admit that there is no sign of inflation whatsoever in the near term forecast, but I still believe that it will pick up in the moderate term. I may have totally blown this one though, in which case home prices will probably be stagnant for a very long time.

Lastly, the links above showed 2 people predicting 50% off, and they were over a year old. So let's please dispense with the "permabears" and "all of you" nonsense.

I don't know where you get the "all of you" in quotes from, those are not my words. Are you telling me that diemos, tipster and spencer have all given revised more moderate predictions lately? I must have missed that.

Not to mention SFS and LMRiM and two_beers and Jorge and all the other gloom and doomers that have moved on.

Posted by: NoeValleyJim at December 30, 2009 12:34 PM

And Trip, and Dude/Legacy Dude himself of course, who admittedly got it real damn wrong himself and is still talking. Now he's on about "don't say all of you bears" while saying "all of you bulls" in the same breath. Whatever. At least Spencer had the good sense to beat it. Man did that guy miss every time.

Posted by: anonn at December 30, 2009 12:49 PM

Sigh...seems no Socketsite thread can be complete without the shrill ostinato of anonn drowning out the otherwise measured discourse. You, who bleat endlessly about context and lack of reading comprehension, ought to take your own advice and re-read my last comment: 2 people predicted 50% off. I was not one of them. I didn't even comment on either of the threads Jim referenced above. I consistently predicted 15-20% off over 2-3 years. According to CSI and a lot of recent apples, I was pretty close if not spot-on (and definitely more accurate than you). Why don't you show us one correct macroeconomic prediction that you ever made back in '07 or '08?

Anyway, perhaps my point above was too subtle: if people want to lump everyone who predicted declines into one bucket, and make generalizations like, "But the permabears are still insisting..." or the "bear brigade" and similar nonsense, then I might as well post rubbish like, "All you permabulls said this would never happen!" and link to a 2-year old comment by MarinaPrime. One incorrect generalization/attribution deserves another.

Back on topic, Jim, I generally agree with your points above. If we do see material inflation, though, I just don't think it'll be the boon to home prices that everyone expects. The government is currently manipulating multiple variables simultaneously, making it difficult to predict the effects of a 1% jump in rates vs. changes in down payment sizes, etc. But it's obvious that they can't run FHA/FNM/FRE this way forever.

I think a tightening of underwriting standards or even a modest increase in rates will trigger another leg down. Key thing to watch now is Treasury market appetite IMO. As ex SF-er said above, it doesn't stop until daddy takes away the credit card.

Posted by: Legacy Dude at December 30, 2009 1:53 PM

In the thread about the Nov 2007 Case Shiller Index, there were a lot of predictions:

"spencer": 20-35 percent correction by Q1 2010.

"amused": A 20% drop in desirable SF neighborhoods seems an unlikely scenario.

"Trip": CSI for the SF MSA to 166 by the end of 2008.

"Dude": 15 to 20 percent down over 2-3 years.

"Satchel": SF down 30 percent on average within 3 years. 5-20 percent for the best neighborhoods.

"diemos": 50% off everything in the city by 2011.

http://www.socketsite.com/archives/2008/01/november_spcaseshiller_san_francisco_msa_continues_decl.html#comments


Posted by: anonanon at December 30, 2009 2:00 PM

You're calling me shrill? Then admitting I was right? I'm experiencing some deja vu all of a sudden.

Posted by: anonn at December 30, 2009 2:13 PM

Great find, anonanon, thanks for digging it up.

"Then again, I've never predicted a 50% hit or any kind of ragnarok scenario, where we all "live off the fat of the land" like Lenny and George. My prediction has always been 15 to 20% down over 2-3 years. And I still think it's realistic in '08 and '09. If it never happens, I can either move to the east bay or rent forever."

Posted by: Dude at January 29, 2008 1:09 PM

"But to those waiting for 50% drops city-wide....I agree that that may be a fool's errand."

Posted by: Dude at January 29, 2008 2:50 PM

Q.E.D.

Posted by: Legacy Dude at December 30, 2009 2:13 PM

It was far more than just two posters Legacy Dude, it was more like a dozen. For a while there, these posters drowned out all other voices, just as during the run up years, the boosters drowned out sanity as well.

Because I consistently challenged their predictions of gloom, I somehow ended up lumped into the "booster" camp. It is certainly true that I am a booster of San Francisco, I have been more pessimistic about San Francisco real estate prices.

Posted by: NoeValleyJim at December 30, 2009 2:16 PM

NVJ seems to have most of this right. Real prices will probably drop a decent amount over time, but nominal prices will probably stay largely flat until interest rate increases show up.

NVJ -- isn't all the credit destruction keeping inflation down? Obviously it won't happen forever, but inflation is increase in money supply + credit, so even if money supply is up, the drop in credit can offset it.

Posted by: sfrenegade at December 30, 2009 2:18 PM

I consistently predicted 15-20% off over 2-3 years. According to CSI and a lot of recent apples, I was pretty close if not spot-on (and definitely more accurate than you).

CSI and apples chosen on the worst streets in good areas by Socketsite, eh?

yeah. Nothing to say to that. Other than the fact that you were on here last month admitting you were wrong due to government intervention. So which is it?

Don't answer that. Make like Spence-bot or Trip instead.

Posted by: anonn at December 30, 2009 2:20 PM

Again with the selective perception, flujnonn? I've defended my previous predictions of a 15-20% drop, as I have here again, because they were essentially correct.

As shown by CSI's top tier.
As shown by SocketSite apples.
As shown by DataQuick numbers.

I did admit, as have many others, that I never thought the government would go to such great lengths to reinflate the bubble. Those aren't mutually exclusive items. My predictions would have proved woefully optimistic sans bailout.

Anyway, please do enlighten us. Show us one of your economic predictions from '07 or '08 that came true. Just one.

Posted by: Legacy Dude at December 30, 2009 2:43 PM

Your data sucks. You don't look at things. YOu pass judment based upon numbers. You don't hold yourself accountable, and you're combative to boot. Um, as far as what I've said, prices for SFRs down 5 to 10 percent in areas of SF anybody who reads Socketsite might ever think about buying within? You mean that one? That one I said 50,000 times? Will that do?

Posted by: anonn at December 30, 2009 3:00 PM

Ha ha...incredible. MY data sucks? I've cited reputable 3rd party sources that publish statistics expressly for such purposes. I guess your pocket collection of a few private anecdotes supercedes mounds of empirical data and a growing collection of apples...no wonder you never lose an argument. How can everyone but you be so wrong over and over again? Might be something to think about as you wage your Quixotic crusade here on SocketSite.

Regarding accountability, I believe I've demonstrated exactly that on this thread, as supported by the link posted by anonanon. Maybe you could follow suit and leave to go "drive content" somewhere else. There's a prediction you made many times which, sadly, has yet to come true.

Anyway, before I leave to start my bender early, I do actually have one last relevant thing to add to the conversation - let's not overlook that taxes are most likely going to increase soon to help pay for all these bailouts, and may also be a factor in any economic recovery scenario, especially here in California.

Happy New Year!

Posted by: Legacy Dude at December 30, 2009 4:23 PM

Dude, after all this time you're still on about CS's top tier as somehow portraying SF. 'nuff said. Well, that and your unwillingness to parse any "apples." Do you read the comments from people wondering why the editor didn't pick the better performing "apple" they emailed, ever? It's a near daily occurrence.

[Editor’s Note: Well, it did happen at least once this year (but don’t let that get in the way of your "near daily" credibility). Everyone can even read the reason(s) why: Apples To Apples To Apples In The Inner Mission (2773 Folsom #301).]

Posted by: anonn at December 30, 2009 4:42 PM

BTW, Case and Shillers view on the latest numbers

http://www.nytimes.com/2009/12/30/business/economy/30econ.html

But others said that the Case-Shiller index showed an increase only because each report is an average of the preceding three months, meaning the strong August market was still a component of the October report. Another factor supporting the index is the seasonal adjustments, which tend to hide any weakness in the cooler months as the pace of home-buying slows.

On an unadjusted basis, the index was flat. A different housing price index, compiled by the research firm LoanPerformance, fell 0.7 percent in October.

Mr. Case, who chided himself for his optimism over the summer, said he now believed “the probability is very high of a serious double dip like 1982.”

Posted by: badlydrawnbear at December 30, 2009 5:09 PM

You cannot talk to me about credibility, thoroughfare man.

[Editor’s Note: The thread to which anonn is likely referring: A Quick Short(er) Sale And Key Word: Pre-Approved.

Keep in mind we’ve never considered, nor ever categorized, 2874 Bush as an "apple." But in terms of some apples being on busy streets (as they were when purchased), it's bound to happen with a cart of nearly 200.

Now back to Case-Shiller...]

Posted by: anonn at December 30, 2009 5:38 PM

Was there any particular reason you bolded that?

Still waiting for everyone to move out to Contra Costa because it got so cheap. Isn't that Schiller's whole thing?

Posted by: anonn at December 30, 2009 5:44 PM

On an unadjusted basis, the index was flat.

Mr. Case, who chided himself for his optimism over the summer, said he now believed “the probability is very high of a serious double dip like 1982."

BDB, on a seasonally adjusted basis, the index showed the sixth straight increase for the SF MSA. As I said earlier, it is a longer timeframe unadjusted. This is still a solid trend up, and it suggests that March was the bottom. I'll change my tune if things start consistenly trending downward again, but there's no sign of that in these datasets. Secondly, I didn't read your link yet, but I'm sure Mr. Case never commented on the SF MSA specifically. As you know, different markets can move different ways, so his commentary isn't helpful for a discussion on Real Estate in SF. Alot of good discussion, but this doesn't erase the fact that the numbers are at least for now trending higher.

BTW, I have said on aocketsite multiple times that I didn't expect prices to drop more than 10-20% nominally in the city. I will admit however that I thought 20% was a stretch, and I also didn't expect things to dry up as quickly as they ultimately did. Time will tell, but I generally don't think I was that off the mark.

Posted by: Lance at December 30, 2009 6:17 PM

It's so nice to see that everyone thinks they accurately predicted the San Francisco real estate market over the past year or two.

anonn at 3:00pm: "YOu pass judgement based upon numbers."

If you think that's a bad thing, that might be why you end up talking past a lot of people on here who believe that numbers, in the form of long-term trends, should predict future performance, provided fundamentals haven't changed. Some of us like to rely on numbers so that we can, hopefully, gauge something's true worth instead of relying on someone who will profit if it sells at the highest possible price.

As we all bicker over individual results - a house here, a CS index result there - this will be played out over the next year or so and the parameter space has only become more difficult to understand/predict/model thanks to massive government intervention.

Of course, that won't stop everyone trying.

Posted by: matlaw at December 30, 2009 8:16 PM

NVJ -- isn't all the credit destruction keeping inflation down? Obviously it won't happen forever, but inflation is increase in money supply + credit, so even if money supply is up, the drop in credit can offset it.

Yes, this is exactly what is going on. I don't want to get into another Holy War over what the definition of inflation means, but when I use the term, I mean a sustained and general increase in the price of goods and labor, not the monetarist definition. But they are both related in that you can't have a wage/price spiral without lots of easy money floating around.

The Fed is promoting kind of a dangerous game by trying to replace all the lost credit with actual money. It seems to be working, but it risks the dollar. As long as everyone -- and that means lots of foreign creditors like China and the Bank of Japan and the Gulf States -- plays along we will be fine. The dollar needs to stay weak for a long time in any case, to allow our trade balance to correct itself.

There is no one interested in changing the status quo, that is why I would be amazed if anyone really upsets the apple cart. The elite in almost every country likes things the way they are. The only dangerous possibility I can see is if the Know Nothing branch of the Republican Party gains power due to the disgruntled American taxpayer. They would assuredly enact a tight monetary policy which would make the recession worse and possibly start a trade war which would turn a recession into a depression.

Posted by: NoeValleyJim at December 31, 2009 12:32 AM

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