March 30, 2010

January Case-Shiller Index: Bottom Tier Up, Middle And Top Tiers Fall

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

According to the January 2010 S&P/Case-Shiller Home Price Index, single-family home prices in the San Francisco MSA fell 0.6% from December ’09 to January '10, up 9.0% year-over-year for the third year-over-year gain since September 2006 but down 37.9% from a peak in May 2006.

For the broader 10-City composite (CSXR), home values fell a nominal 0.2% from December to January (the third consecutive slide) and remain down 30.2% from a peak in June 2006 (flat year-over-year).

Los Angeles and San Diego showed slight improvements in actual index levels from the previous month to the current month. All other metros and the two composites showed a slight drop from their December 2009 levels. Of that, four markets – Charlotte, Las Vegas, Seattle and Tampa – posted new index lows as measured by the current housing cycle where, depending on the market, we saw peaks in 2006 and 2007. The peak-to-current declines for these MSAs are -13.8%, -55.8%, -24.6% and -42.0%, respectively.
On a relative basis, Washington DC, Los Angeles and New York have held up the most, with each of those markets still 70% above their January 2000 levels. Las Vegas, which once stood 135% above its January 2000 level, is now showing price increases about 4% above that same level. Detroit remains that one market whose average value is below 2000, approximately 28% below that value.

On a month-over-month basis, San Francisco MSA single-family home prices rose for the bottom price tier but fell across the middle and top tiers.

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

The bottom third (under $324,055 at the time of acquisition) gained 0.6% from December to January (up 1.9% YOY); the middle third fell 1.2% from December to January (up 3.6% YOY); and the top third (over $593,499 at the time of acquisition) fell 0.9% from December to January (flat YOY).

According to the Index, single-family home values for the bottom third of the market in the San Francisco MSA are back to September 2000 levels having fallen 57% 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 slipped back to February 2004 levels having fallen 25% from a peak in August 2007.

Condo values in the San Francisco MSA fell 1.8% from December ’09 to January '10, down 1.4% on a year-over-year basis and down 28.7% from an December 2005 high.

S&P/Case-Shiller Condo Price Changes: January 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 in the New Year Continue the Trend Set in Late 2009 [
December Case-Shiller Index: Bottom Tier Up, Nominal Slips At Top [SocketSite]

First Published: March 30, 2010 7:45 AM

Comments from "Plugged In" Readers

I have been waiting for a germane SS post to put this in, and it looks like I got one: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/03/27/BUG61CKCG4.DTL In the link, the Chron uses looks at per-zipcode changes in price per square foot since the overall peak in 2006. The graphic is really something to look at.

One SF zip, 94117, which includes haight/NOPA/buena vista is up 30% YoY and up 10% since the peak in 2006. Now, Chron claims PSF numbers tend to avoid the shifting medians caused by mix. I tend to think that some kind of mix shift is going on, but don't have access to the data stream I would need to do the analysis. Can anyone speculate why this zip code would be singularly doing so well?

Posted by: rr at March 30, 2010 8:02 AM

rr, I saw that article. Worthless. 94117 is my zip code and I know it well. There is no market strength around here (although it has not tanked as badly as some areas), and prices certainly are not higher than Summer 2006 (or 30% YOY!! What a joke). Take a look at this graph of $/sf from redfin (click the two $/sf boxes). It does not go back to 2006, but you can see there is so much variation/noise that comparing two isolated points, as the SF Comical did, is nonsense. $/sf is a better measure than medians, but it is only useful when you see the whole trend, and the Chron screwed something up in any event.

http://www.redfin.com/zipcode/94117

http://www.altosresearch.com/paragon/latest/paragon_market_update_zip_based_cmid_55_zipd_94117.html

Posted by: A.T. at March 30, 2010 8:19 AM

This is looking at December + MSA? What's it got like six transactions?

Posted by: anonn at March 30, 2010 8:24 AM

I see about 350 transactions in San Francisco in December.

Posted by: anon at March 30, 2010 8:40 AM

A.T.

Even more interesting on the Redfin graph: we are back to the 2009 bottom in terms of sales volume which makes stats hard to analyze whenever we go too macro. One outlier sale (either low or high) will alter the trend.

From the Case Shiller graph, we can see that last year's bounce hasn't done much more than temporarily stabilize the market.

So many billions in mortgage subsidy, so much stock market cash influx, so much soveign debt created to bail out mortgage lenders. For so little result.

Posted by: lol at March 30, 2010 8:40 AM

This current situation is very much like what was seen during mid to late 1991 when prices appeared to be rebounding. What happened at that time is markets headed slowly down for the next two years and then stagnated for a few more years. Until conjured capital from bubble times is squeezed out of the system any strong recovery will be difficult to sustain.

Posted by: Mole Man at March 30, 2010 8:41 AM

Even with the disclaimers that are standard with C-S, its interesting to look at.

Does anyone know what comprises the 'middle-third', 'bottom-third', 'top-third'? I thought that the break-out for those categories were odd, since everything in SF would be considered top-third.

Interesting to note that single-family homes in the SF MSA is up y/y for years in a row.

Posted by: SFRE at March 30, 2010 8:52 AM

Everything in SF is pretty much top third.

And Mole Man, What happened at that time is markets headed slowly down

"Markets" ? First, I think the "markets" are not doing that at the moment. The RE market is definitely not showing evidence of going slowly down at the moment. Whatever this chart shows of what happened in December for the region at large ... that' the traditional slowdown period. We're in the traditional uptick period.

Posted by: anonn at March 30, 2010 9:23 AM

We are back at the 2009 bottom in terms of sales volume? In SF? Right now? That's not even remotely possible.

Posted by: anonn at March 30, 2010 9:25 AM

Good observation on 91-96 moleman, and I agree that a combined tech expansion and easy credit fueled the RE boom. But I also think the same thing will happen again, especially in SF and at least partially so for the entire bay area. Hard to say when but my guess is 4-7 years from now.

The whole point of making large equity gains in RE is to be able to hold it during the down cycle. I'm speaking from a POV as a RE investor, so it means holding properties thst cashflow/sustain themselves until another boom comes along.

This applies less so to homeowners for two reasons. One, if you must sell due to relocation, you actualize your loss. Two, even if your home appreciates greatly, unless you're willing to cash out and move to a cheaper area, all the other properties in your proximity have also become more expensive. I will note however that I know several long time Noe owners who cashed out, and are happily retiring in the sun in AZ and FL.

Posted by: 45yo hipster at March 30, 2010 9:27 AM

Two frivolous observations:

Mole Man: me likey your usage of "conjured capital"

45?yo hipster: I believe I've been reading, and enjoying, your posts for over a year, so...

Posted by: Rubicon at March 30, 2010 9:44 AM

Seasonally adjusted shows prices are still increasing in the MSA - +.6% (not sure about the individual tiers.

Definitely interesting things afoot in LA, up a whopping 1.8% seasonally adjusted this month alone, on top of a 1.2% gain last month.

Posted by: REpornaddict at March 30, 2010 10:05 AM

Posted here in June
______________________________________
"from newbuyer.
"(CS will not go below 110 from hereon-out is my prediction)."

Want to make a friendly wager?

I bet CS index for SF MSA goes below 110 before march 31, 2010.

Wager $250 to local charity? If I win, I choose charity. If you win, you choose.

Posted by: spencer at July 28, 2009 10:40 AM"
________________________________________

did Spencer ever pay up

Posted by: cogo at March 30, 2010 10:52 AM

Another blast from the past:
____________________________________________

"Newbuyer, anyone who thought it would go straight down forever was off their rocker. Even the Dow in the great depression went up at times. In this case, it's tough to tell whether this means anything or not, because the amount of the uptick is under the margin of error. So the graph can tick up, while the actual ticks down, but I'm sure we'll have a few genuine uptick months until February, when it will start strongly down again.

UnwarrantedInLaw, that stupid technique ("Be a man and make something happen") may have worked on stupid buyers in the past (and possibly you), but I doubt it will work again. Real men know when to stand up to a collapsing market and watch the wussies who can be suckered into buying, do so. Anyone who buys now is a fool, uptick or not.

Posted by: tipster at July 28, 2009 9:26 AM
________________________________________________

Tipster might want to rethink that strongly down in February" part again

Posted by: cogo at March 30, 2010 11:04 AM

annon says We're in the traditional uptick period.

Exactly. The problem is that traditionally there are a series of these before things really turn around. The index was recovering in early 1991, then it slid back down. Then the index was recovering in late 1992, then that flattened back out. Then the index was recovering from early 1994, but in early 1995 that turned around and everything dropped back down. Those years of relatively stagnant nominal prices brought real costs down with only modest inflation.

Posted by: Mole man at March 30, 2010 11:08 AM

And then theres this gem:
____________________________________________

"Newbuyer said...The unambiguous evidence suggests that thing's[sic] have leveled, and are possibly improving. Yet, you won't hear that on Socket Site."

Bet you NewBuyer will eat those words when we see fall/winter data when nothing is selling and we'll see this is a seasonal blip (I'll even suggest that some of the seasonally adjusted prices will go up for June and maybe even July data). The high end will continue to fall, and again, as people have mentioned, median prices might go up because the mix of houses changes.

Nothing to conclude here, move along.

Posted by: corntrollio at July 28, 2009 10:18 AM

________________________________________________

Looks like corntrollio might be the ones eatin those words!!!

Posted by: cogo at March 30, 2010 11:10 AM

Maybe. Like I said yesterday it might be a big ole W. But your "markets," plural, comment still left me scratching my head. People are buying right now precisely because markets have been headed up, and for some time now.

Posted by: anonn at March 30, 2010 11:14 AM

cogo,

First you have to put them into the context of 2009. Many things happened since.

You could have said in November 2008 that the wave of foreclosures had been stopped. But the Fall 2008 collapse in number of foreclosures was due to the moratorium. The same applies to this quickly evaporating uptick: How many Hundreds of Billions have moved to the US balance sheet to support RE and the stock market in one year? With CDs sub 1%, the US lending at 0.25% to banks, buyer credits, FRE/FNM, FHA etc...

They went full speed ahead and all we got is this lousy blip!

Posted by: lol at March 30, 2010 11:23 AM

@lol: In all fairness to cogo, it would have been a no-brainer to predict that the support of RE would have continued, and that should have been factored into the predictions.

As such, cogo is right on calling them out, and someone should be sending a check to charity.

People have a tendency of taking only the most recent info and stretching it out to infinity, which is why the predictions were wrong.

Posted by: SFRE at March 30, 2010 11:41 AM

"Tipster might want to rethink that strongly down in February" part again"

Yup. Tho this data was January, and so the Feb numbers haven't come in, it isn't going down again until the elections are over. The administration and this congress are going to make sure of that. It will be mostly up until November. Some ups, some downs. Mostly ups.

We're in a socialist society now and the socialists are going to cement their power by making the economy absolutely hum for the next 6 months to get reelected.

We have more houses than we need, so the socialist solution is to provide tax credits to build more houses. Not hard to see where that leads! But it does mean more union jobs and that is the name of the game right now.

To get people to buy the houses that we're building on top of the too many we already have, is to pull out all the stops to subsidize more new buyers buying houses. The existing houses get a drag along benefit.

The tax credit is "expiring" again (ha ha) and so April will be strong as well.

So expect to see 6 months of gains. At that point, either the socialists get thrown out, or it becomes impossible to predict anything, and ex SF-er wins the prediction game when he said you cannot do it. I sure can't.

Posted by: tipster at March 30, 2010 11:46 AM

Tipster is turning into a bull with a very safe prediction of things going up over the next 6 months, despite off all the foreclosure talk, "pent-up" housing supply at all time highs, etc.

And then in 2011, SS can say 2010 was abnormal year, and we need to compare to 2006/2007 (again).

I do agree with his comments surrounding the socialist society, and wish there was a lot less new construction, and more urban redevelopment.

Posted by: The Cheese at March 30, 2010 11:54 AM

Tipster just totally switched to nationwide macro there. The thread is anchored by MSA, which hasn't moved in lockstep with SF. ("Everyone will move to the surrounding areas once the price differential gets drastic enough" ring a bell?) The site is about SF, and SF and expiring tax credits aren't moving in lockstep with SF r.e. either.

Posted by: anonn at March 30, 2010 12:09 PM

tipster,

Your so-called "socialism" started a long time ago with:
- Greenspan's cheap money
- The disappearance of most lending and regulatory standards (blind belief that people's and institution's self interest would create a perfect society: all people and companies are good and government should help them achieve their goals by paying it forward)
- Bernanke's free money (paid by taxpayers)
- The first bank bailouts

Bush started the "expand and pretend" after the start of the collapse of RE and the banking system. Obama simply followed suit.

Posted by: lol at March 30, 2010 12:21 PM

Tipster writes: "To get people to buy the houses that we're building..."

Tipster, residential construction is at historic lows, well below replacement level and not coming back until the overhang is gone. They can try with the credits and such, but it's not happening now...just want to clarify, as your post makes it sound like construction is humming along...

http://www.calculatedriskblog.com/2010/03/residential-investment-stalled.html

Posted by: BernalDweller at March 30, 2010 12:31 PM

tipster, you don't know what socialism is.

Sweden, now that's a somewhat socialized nation; we're nowhere close to that.

When you transfer wealth from the lower classes and give it to the Wall St elite, as the Democrats are now doing at even a faster pace than the Republicans, that politico-economic system is called fascism.

We have one party in the US, the Corporate Party, and it has two wings: the mommy-wimp Dems, who appeal to people naive enough to think that Wash DC cares about the little people; and the daddy-mean Repuglicans, who appeal to little white boys afraid that brown people are going to take their jobs and have sex with their women.

Both wings serve the same corporate masters (banks, pharma, arms, oil, etc.)

Obama just mandated that all citizens purchase insurance from private companies. That's fascism, not socialism.

Posted by: two beers at March 30, 2010 12:31 PM

@lol: I couldn't agree with you more on this one. Everything on your list, though factual, infuriates me, especially the lending to low-income people or people with bad credit who should have never qualified for mortgages by Fannie/Freddie.

Posted by: SFRE at March 30, 2010 12:32 PM

I think there might be some fundamental confusion over what 'socialism' means.

Posted by: R at March 30, 2010 12:33 PM

Socialism (my definition): Public ownership of business/utilities/etc, and 'spreading the wealth around'.

Examples: GM, Bank Bailouts, Government Healthcare, AIG, Fannie/Freddie, etc. 1984-like society.

Posted by: SFRE at March 30, 2010 12:41 PM

I don't think there's any confusion as to what socialism means, healthcare tangent notwithstanding.

For example, you can buy a car made by GM, the nation's largest car company, which is owned by the government. You can get the car loan through Citibank, the nation's largest bank, also owned by the government. Get car insurance through AIG, the nation's largest insurer, also owned by the government. And park it in the garage of your new house, financed by Fannie Mae, the nation's largest mortgage lender, also owned by the government. If you fail to pay the mortgage, nothing happens. You live rent-free for a while while your fellow taxpayers subsidize the GSEs.

You're bound to get good rates on that debt, too, as indices are artificially set (i.e. price fixing) by a handful of guys back east, none of whom were elected by anyone. And it's all paid for courtesy of a spiraling national debt over which voters have no control.

Sounds like socialism to me.

Posted by: Legacy Dude at March 30, 2010 12:58 PM

Tipser: "so the socialist solution is to provide tax credits to build more houses"

Yeah I know everytime I hear someone talk about providing tax breaks I think "socialist!" Cause we all know how reducing government revenue leads down that slippery slope to socialism.

Posted by: Rillion at March 30, 2010 12:59 PM

Legacy Dude, the government is getting ready to sell its common stock in Citigroup (it will still have some warrents and preferred stock but overall a drastically reduced stake in the company).

http://online.wsj.com/article/SB10001424052702304370304575151560212869470.html?KEYWORDS=citigroup+stock

Posted by: Rillion at March 30, 2010 1:09 PM

Yes, we had a socialist takeover started by that notorious Marxist, George W Bush, when he bailed out the banks.

And a socialist takeover of health care, when the Democrats eschewed an expansion of government-run Medicare, long-championed by Ted Kennedy, and instead passed an expansion of private health insurance, championed first by that famous socialist Richard Nixon, and later by comrade Mitt Romney.

Some folks have been watching too much Fox News.

Posted by: Dan at March 30, 2010 1:14 PM

Rillion,

I don't understand the purpose of the Govt announcing the sale of Citi stock so long in advance. It has triggered a pretty significant sell off which goes counter to the taxpayer's interests. Maybe they were afraid the taxpayers would benefit too much and they couldn't have that: the money pump works only one way! In the almost zero-sum game, one more dollar in the taxpayers pocket has to be taken from somewhere.

Posted by: lol at March 30, 2010 1:16 PM

Dan, That's the purpose of the distinction when I said "so-called 'socialism' ". What we see here is a diversion of public resources for the sake of a few with the official misguided purpose of preventing a natural correction.

players/banks overextended. They got called to their bluff. They lost. Now is time to either fold or bring real money to the table.

Instead, they go pick the pockets of people who were sitting on the fence watching. Yeah, that's some successful recovery! So much debt in our name and almost nothing to show for it apart from a miserable temporary "uptick".

Posted by: lol at March 30, 2010 1:24 PM

Legacy Dude-

The govt bought those companies out to prop their stocks up, assume the losses, and tey prevent the CDS horror from unwinding. The govt has little or no say on the boards of any of those companies. The buy-outs were engineered for the sole benefit of Wall St, at taxpayer expense. This is a transfer of wealth from the bottom up. This is not socialism. This is quite simply the merger of corporation and state, ie FASCISM.

Why is fascism such a dirty word that we can't use it in its accurate sense to describe what's actually happening to out political economy? Instead, we use terms like "socialism" to describe the enforced mandate for all everyone to buy PRIVATE health insurance. That is not socialism; it is FASCISM.

Please, try saying the word with me: "fascism"

See, that wasn't so hard, was it?

Posted by: two beers at March 30, 2010 2:02 PM

Fascism is not just pro-business government. Fascism is an authoritarian ultra-nationalist movement. It is hyperbole to call our state fascist *or* socialist. We have a state aspiring to many values of classic liberalism, but which has tilted towards excessive concentration of wealth and corporate power.

Posted by: Dan at March 30, 2010 2:53 PM

Transfer of wealth from bottom up? I must have missed something when doing my taxes. It seems that I am paying more for less services, and pay a disprortionate share of all taxes, meaning I increasingly subsidize the lower income-levels.

If anything its a squeeze, the bottom taking from me on one side, and a President/Congress that seems to be in love with Goldman Sachs Types taking from me on the other side.

Oh well, a democracy can survive only up until the time the people realize they can vote themselves a share of the public's money...and the fact is that the Goldman Sachs types will always pay for re-election campaigns, and the bottom-dwellers always vote them in.

Posted by: SFRE at March 30, 2010 3:04 PM

Dan: How can you solve the problem (excessive concentration of power and wealth in corporations) by giving them more money and bailing out banks, wall st, car companies, REITs, investors, gamblers?

Posted by: Sfinvestor at March 30, 2010 3:27 PM

wow, out-of-touch-city on this thread. i sympathize with some libertarian views, but the idea that the poor are benefiting is ridiculous. SFRE you are so out of touch it's unimaginable. you're discusted when a homeless person is near you, and yet you believe that person is robbing you blind.

good god, open up your social circle, your news sources and your mind, and you might see the world for what it really is.

turn off fox news and go visit a soup kitchen to see how wonderfully happy they are with your so-called subsidizing. the poor are getting poorer and services are being cut, not expanded.

Posted by: hangemhi at March 30, 2010 3:37 PM

Whoa! What's up with the attacks? I'm only saying that society is rigged to always favor the extremes.

I have no problem with the homeless (though I question the location of some of their housing), and I thought I mentioned that services are being cut, so what exactly is your problem?

And I did volunteer recently at a soup kitchen, and was peeved when I saw some dude whom I just served food to, answered his cell phone.

And for the record, I hate Fox.

Posted by: SFRE at March 30, 2010 3:44 PM

Sfinvestor: The government *isn't* solving the problem of excessive concentration of wealth and of excessive corporate power. The Supreme Court this year created new rights for corporate influence on government. Congress couldn't get the votes for a public option to keep insurance companies honest. Wall Street insiders still guide government bailouts to corporations.

Posted by: Dan at March 30, 2010 4:27 PM

Re: the LA price gains, one of the economists quoted in the LA Times article describes the underlying trends as follows:


"If you look at the last two big real estate bubbles in the late 80s and 70s, you didn't see the market rebound for five years," said Christopher Thornberg, principal of Beacon Economics. "It's amazing to me that people can look at a rebounding market after the largest bubble ever and possibly think this could be sustainable."....Thornberg said most of Southern California's housing gains are a result of fewer foreclosure properties on the market, which is pushing prices up on lower-end housing. Home prices continue to fall in pricier neighborhoods.

"The bottom has been surging up," Thornberg said. "It really is about the low-end."

Similar to what we're seeing in the Bay Area, but probably more extreme (in SoCal).

Posted by: anonm at March 30, 2010 5:27 PM

Thornberg said most of Southern California's housing gains are a result of fewer foreclosure properties on the market, which is pushing prices up on lower-end housing. Home prices continue to fall in pricier neighborhoods.

"The bottom has been surging up," Thornberg said. "It really is about the low-end."


Similar to what we're seeing in the Bay Area, but probably more extreme (in SoCal).

This is not true re LA.
The top tier has outperformed the lower tier in the past year. (in fact, lower tier is down YOY, top tier is up).

Posted by: REpornaddict at March 30, 2010 5:45 PM

Wow. Only a SocketSite tangent can successfully commingle Marxist dialectics with fallacies of false attribution. I doubt anyone here watches Fox News, but I could be wrong.

Anyway, to come back on point, if this country should have learned anything from the recent bubble implosion, it's that unsustainable economic structures, by definition, are destined to unravel eventually.

Posted by: Legacy Dude at March 30, 2010 5:54 PM

ex SF-er wins the prediction game when he said you cannot do it

bingo. call it what you want, but our housing market is effectively nationalized. Thus, I still believe its future depends more on politics than economics.

the US has already telegraphed their intentions. They will keep spending until the credit card is pulled from their cold dry fingers by the bond vigilantes. It hasn't happened yet, although there are a very few number of small cracks in the bond market.

there are a few positive signs in the world economy, and some very scary things. I have absolutely no idea what is going to happen.

anybody who claims to know how this will play out is either a liar or a fool IMO. I, like everybody, have my reasonable guesses- but it's just that... a guess.

Posted by: ex SF-er at March 30, 2010 7:52 PM

And I did volunteer recently at a soup kitchen, and was peeved when I saw some dude whom I just served food to, answered his cell phone.

@SFRE,

The fact that a soup kitchen patron had a cell phone bothered you? Seriously?

Cell phones aren't just for the rich and middle class, just like soup kitchens aren't just for the homeless. Homeless, poor, or otherwise, people need to communicate. A cell phone makes even more sense for the homeless, since there's no way for them to have a landline.

You might think a cell phone is a luxury reserved for those who have their essential needs covered, but try finding a job without some form of communication.

Also, just because one is poor or homeless doesn't mean that they don't have distant loved ones that they need to keep in touch with.

Posted by: joh at March 30, 2010 9:01 PM

@joh: You can't be serious. But I suppose you are.

The only place in the world, where someone homeless is given a cell phone to keep in touch with loved ones!

Another waste of money.

Posted by: SFRE at March 30, 2010 9:28 PM

joh is right. A cell phone is not a luxury for someone trying to get back to work. Homeless people don't have landlines. For chronically ill people, a cell phone may be the only way for health providers and social workers to reach them. There are cheap pre-paid plans as well as Metro PCS.

Now if guy in the Soup Kitchen were downloading apps to his iPhone, you might have a point.

Posted by: Dan at March 30, 2010 9:57 PM

It is pretty funny to watch the crackpots go off the deep end. Are you going to turn into a Tea Party member next tipster?

The original sin was deregulating the financial sector, the rest was pretty much an inevitable consequence of that. If you want to complain about the greatest theft in history, you should go back and look at that. In 2007, we had the choice of letting the financial system collapse and have another Great Depression, or bail out the banks and suffer with a protracted recession. We wisely chose the latter course.

America has a long ways to go before we have a really good social welfare state, the way the Northern European democracies have. We have made some baby steps in that direction, but much more is needed. You notice that they only suffered a mild recession and are already growing again. The quality of life there is much better overall than in the United States and if you were paying attention, you might notice that except for England and Iceland, no European financial systems teetered on the edge of collapse. England followed the American model of deregulation.

I think it is pretty obvious what is going to happen next: a gradual withdrawal of government stimulus to the housing sector as the real economy recovers. It is hard to give exact dates, but it will probably take a few years as massive debt fueled bubbles don't get cleaned up overnight. The Federal balance sheet is pretty messy mostly a result of overspending during boom years, but it is nothing close to a danger level yet. We are not even having to borrow from the foreign savers anymore to finance our deficit, so this is a big improvement.

In the middle term, we are going to have to grapple more with government deficits. I imagine that it will involve trimming DoD expenditures, increased taxes broadly, but mostly on the wealthy, and trimming away at the growth of Medicare. None of these are going to be popular, but we can't run deficits much higher than 3-4% forever.

A few weeks ago I would have said that we simply don't have the political will to make tough decisions anymore, but after watching Obama take a big political risk and win, I see that we have some hope and leadership. The Democratic Party has turned into the Big Business party while the Republicans have simply gone off the deep end. They may pick up a few seats in 2010 (this is by no means assured) but they are pretty much finished as a group that will significantly have any impact on public policy for the foreseeable future, at least at the national level.

Posted by: NoeValleyJim at March 30, 2010 10:40 PM

NoeValleyJim,

Amen to that.

BTW: There is no Tea Party.

The "Tea Party" is just another name for the Republican Party loose cannons (plenty of those after 8 years of a moronic born again extremist in power). They lost the election. They are angry, nothing surprising. What they hate most is seeing the winners actually doing what they are supposed to do: govern. Because the leadership of America is a Republican God-given right, everyone knows that;)

Out of ideas, they are calling for a new American Revolution, which is pretty damn ironical when you remember they almost tore our sacred constitution to shreds during these shameful Bush years.

Glad the Dems found their balls back.

Posted by: lol at March 30, 2010 11:05 PM

@NVJ: "Hope and Leadership"?

Unethical war in Afghanistan = Hope and Leadership
Drilling for oil off the coast of the US = Hope and Leadership
"Big Business Party" = Hope and Leadership
Spending money to bail out friends in Wall St = Hope and Leadership
Obama=Bush = Both incompetent = Hope and Leadership

Your comments normally seems bright, but if you can't see the game of 2 card monty, then you need a double espresso. There is no difference between the democrats and the republicans - same schools, same circles of elitists, both choose former Goldman Sachs types for key treasury positions, etc. The differences are really so very small, that a vote for one is essentially a vote for only a different face to raid the treasury. If you think about the 100s of billions they have wasted bailing out companies, the good they could have done with it and the wasted opportunity [education, infrastructure, green initiatives, etc]. I can't be the only one who sees it that way, but maybe I am.

Posted by: SFRE at March 30, 2010 11:45 PM

I realize Republican and tea party rhetoric is on more news sources than Fox, but i find it hard to believe that San Franciscan's don't have a more expansive and informed view. To say Obama or the current policies are "socialist" or "marxist" is simply repeating the buzz words designed to dumb down the argument so non-thinkers like Sarah Palin followers can grasp onto it and "believe" and repeat. Republicans loved themselves some massive deficit spending in the 80's because it was their party doing it. Now they hate it because a guy who looks like so many homeless is running the country.

there are many arguments for and against the current government policies on this site that are focused on the actual policies and i've expanded my views because of them. but this thread??? well, I don't find it funny when the crackpots go off the deep end. our country is getting fatter and dumber... and mostly poorer... and the crackpots are dealing with it by spitting out rhetoric that is hateful and vile. If the rhetoric were the other way around they'd be screaming "unamerican" to the hilltops.

and SFRE, try asking the next homeless person you meet how they got that way. you might learn something. or try watching "minimum wage" by Morgan Spurlock for a look at what it's like to be poor and totally and utterly stuck.

i've got a guy in my building on meds. his wealthy parents bought him a condo so he's off the streets. if he didn't have that family he'd be homeless. thanks to his family's charity he isn't a scourge to you. but lots of people don't have family like that and are STUCK. stuck, stuck, stuck. so try some sympathy... or better yet, empathy, for a change.

Posted by: hangemhi at March 31, 2010 12:31 AM

The top tier has outperformed the lower tier in the past year. (in fact, lower tier is down YOY, top tier is up)

I don't think Thornberg said anything about YOY. Certainly I did not.

Regardless, this thread clearly has nothing to do with real estate, here or in LA, at this point.

Posted by: anonm at March 31, 2010 7:52 AM

lol,

It's been a while!

Posted by: Sunny Jim at March 31, 2010 8:23 AM

NewBuyer Here!

Sorry I missed this thread for a day, I was too busy enjoying the tears of my ancestors with parsley for Seder.

But this is the first Passover where I will also feast upon the tears of my fellow SS-ers, all of whom were wrong in their predictions, and therefore owe me a huge "you were right, NewBuyer."

Let's face it, I was right, and it would have been nice for Tipster to just have some backbone and admit that (s)he was wrong. Oh well...

The suggestion that Obama is keeping this SF market afloat is just absurd. As if $8,000 is jack squat for a new homebuyer in San Francisco. That is less than 1% of most homes' values here.

The low interest rates help, of course, but I don't think any reasonably-informed investor would buy in a bad market just because of low interest rates. Appreciation is necessary for a house to be a good buy. If people didn't think that appreciation was going to happen in the near-term, they would not buy. Even a fool knows that.

Face it -- the bubble burst, and housing prices sank 20% - 60% across this nation.

We're done falling very far.

The CS will move +/- 10 points between now and year's end, but will be mostly flat. Rebound won't happen until economy goes full blast in 2011.

Posted by: NewBuyer at March 31, 2010 9:19 AM

@hangemhi: I don't understand where are you going with that rant. I'm not a Republican, and I couldn't care less about Sarah Palin. So I dont know why you try to lump me into that category. But whatever, sometimes people need to label people because they like to make stereotypes based on their biases (seriously, aren't we beyond that in the year 2010?). Perhaps you are a sheep who follows everyone with a "D" at the end of the their name, and you try to put an "R" at then end of people you disagree with, but your wrong in doing so.

As for empathy, I would like to think I'm empathetic. I would much rather have spend those billions and billions of dollars that Obama/Bush spent on things like infrastructure, wind farms, and improving life for the average person.

And finally, your comment "now they hate it because a guy who looks like so many homeless is running the country", is a completely bigoted comment. Homelessness affects all gender, races, and ages. But there you go again labeling people and stereotyping.

Posted by: SFRE at March 31, 2010 9:37 AM

The top tier has outperformed the lower tier in the past year. (in fact, lower tier is down YOY, top tier is up)

I don't think Thornberg said anything about YOY. Certainly I did not.

So what time period were you/Thornberg claiming the lower tier has done better in LA over, then?

Posted by: REpornaddict at March 31, 2010 9:58 AM

NewBuyer wrote:

The low interest rates help, of course, but I don't think any reasonably-informed investor would buy in a bad market just because of low interest rates. Appreciation is necessary for a house to be a good buy. If people didn't think that appreciation was going to happen in the near-term, they would not buy. Even a fool knows that.

Well, the market is not all "reasonably-informed investors", as 2002-2007 tought us. With the moral hazards of bailouts, debt reduction and other government interventions I would say that unsafe behavior is now not only tolerated, it is implicitly welcome (for the sake of stopping the recession).

We all know SF is not investment worthy as far as rent to cost is concerned. You'll find 3X better returns in Merced with much less local government meddling. As you said, expectation of appreciation is a key in this market.

The only 3 supports for high prices in SF are
1) - natural attraction to SF's many many assets,
2) - little turnover due to government hyper-regulation,
3) - the expectation that Items #1&2 will cause further appreciation.

#1 and #3 are moderately irrational. #2 is the result of irrational thinking.

Remove one of the 3 and you're going for a correction. Remove #3 and investors will look at real numbers: How much a place rents for. How much is left after all expenses. Is my investment giving me the returns I am looking for. That's the baseline. Everything extra is irrational exuberance.

Posted by: lol at March 31, 2010 10:24 AM

UPDATE: The price tiers for the San Francisco MSA in January were under $324,055 at the time of acquisition for the bottom third, over $593,499 at the time of acquisition for the top (a drop for both as compared to December).

Posted by: SocketSite at March 31, 2010 10:30 AM

@lol: I would much rather pay a premium than to live in on the Peninsula or East Bay. For some its a choice of city or suburban living, and the only city worth living in is SF, especially SF proper.

Its cheaper to live in suburban NJ or CT and commute to NYC, but people would rather have a small studio apartment than a house in the suburbs, its just a life choice. So I don't see how #1 is irrational.

Posted by: SFRE at March 31, 2010 10:30 AM

Eating those words I am, but only because of government stimulus, not because the housing market has improved. We still need a lot more short sales and foreclosures to get "conjured capital" (as someone said) out of the system.

I will still stick with my original prediction of largely nominally flat (with real losses due to inflation), as in other housing busts, and likely a noticeable downtick when interest rates go up. People stretch to buy houses and monthly payments matter. But the level of government support here is ridiculous, and we're just throwing the money away now.

Posted by: corntrollio at March 31, 2010 10:32 AM

I thought it was around that for the top tier. It makes no sense to look at anything else when looking at SF real estate. So what it the graph shows is that the majority of SF real estate did better than the cheaper, surrounding areas (i.e. drop from peak).

Posted by: SFRE at March 31, 2010 10:32 AM

@joh: You can't be serious. But I suppose you are.

The only place in the world, where someone homeless is given a cell phone to keep in touch with loved ones!

Another waste of money.

A waste of whose money?

Well, "loved ones" wasn't my main argument, but I'll make my point anyways.

Is it that difficult for you to understand how one's social network can contribute to their better mental health? It's bad enough to be poor or homeless, but to lose the ability to be contacted by loved ones would drive most to insanity (many homeless already are).

A cheap pre-paid calling plan might be something like $20/mo. It's a very good investment for someone trying to improve their life, just like an internet connection is essential for anyone trying to get ahead.

Posted by: joh at March 31, 2010 10:48 AM

SFRE,

That's not really contrary at all to what I said. The most rational behavior would be to graduate college, get married at 23, , buy a 4/3 house with a huge garden in a good school district, and make 2 kids before you're 27. SF doesn't allow any of this today (except for a few trust fund babies and a very few lucky Google-type b@stards). The fact that we give up on some of these elements shows we can make non-rational decisions and can be perfectly OK with it.

Posted by: lol at March 31, 2010 10:50 AM

@lol: I guess you're right. SF by and large caters to an irrational crowd. There are no programs or support for those in the city who want to be the typical middle-class family. Support is give to fringe elements - either the super rich or super poor, because that is how politicians get reelected, and the answer to those in the middle-class who want something better is always "Move Out". How sad.

Posted by: SFRE at March 31, 2010 10:57 AM

And if they "Move Out", they don't vote there anymore. Problem solved!

Posted by: lol at March 31, 2010 11:03 AM

So what time period were you/Thornberg claiming the lower tier has done better in LA over, then?

My own personal sense is the last six months or so. And if we're talking about CS index, then certainly you see that pattern (bottom end outperforming the top end over the past 6 months) in both areas (see here for LA and above for the Bay Area).

More importantly, if you're thinking about prices going forward, the prices for a lot of the bottom end properties actually look supportable by fundamentals (e.g. price-to-rent ratios or price-to-income ratios). The same cannot be said for many top end properties. But who knows, maybe "it's different this time around, for this particular type of property." You never know!

Posted by: anonm at March 31, 2010 12:47 PM

even at 6 months for LA the difference isn't that big, I don't think - seasonally adjusted the increases are 9%/7%/5% for three tiers. And you only have to go back 9 months for the top tier to outperform the bottom.

I do agree that going forward it may well be the bottom that does better, but I don't think it represents what has happened so far,at least in LA. Certainly more so in Bay Area.

Posted by: REpornaddict at March 31, 2010 2:17 PM

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