May 25, 2010

March Case-Shiller Index: Mixed Messages For San Francisco MSA

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

According to the March 2010 S&P/Case-Shiller Home Price Index, single-family home prices in the San Francisco MSA rose 1.5% from February ’10 to March '10, down 37.4% from a peak in May 2006 but up 16.1% year-over-year.

For the broader 10-City composite (CSXR), home values fell 0.4% from February to March (the fifth consecutive slide) and remain down 30.9% from a peak in June 2006 (up 3.2% year-over-year).

Looking at the monthly statistics, 13 of the 20 metro areas showed a decline in March compared to February. Boston was flat. Eight MSAs posted new index lows in March – Atlanta, Charlotte, Chicago, Detroit, Las Vegas, New York, Portland and Tampa. Las Vegas and Phoenix have peak-to-current declines of 56.3 and 51.8%, respectively.
On a more optimistic note, Los Angeles, Minneapolis, San Diego and San Francisco have shown recovery from recent lows of +7.2%, +7.4%, +10.9%, and +16.2%, respectively. San Diego, in particular, has stood out with 11 consecutive months of increasing home prices.

On a month-over-month basis prices fell nominally across the bottom two price tiers but rose for top tier single-family homes in the San Francisco MSA.

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

The bottom third (under $324,798 at the time of acquisition) fell 0.1% from February to March (up 10.3% YOY); the middle third fell 0.2% from February to March (up 8.9% YOY); and the top third (over $589,259 at the time of acquisition) gained 1.6% from February to March (up 8.2% YOY).

According to the Index, single-family home values for the bottom third of the market in the San Francisco MSA are just below September 2000 levels having fallen 57% from a peak in August 2006, the middle third is hovering around May 2002 levels having fallen 37% from a peak in May 2006, and the top third is back to February 2004 levels having fallen 25% from a peak in August 2007.

Condo values in the San Francisco MSA fell 1.7% from February ’10 to March '10, up 1.5% on a year-over-year basis and down 31.7% from an December 2005 high.

S&P/Case-Shiller Condo Price Changes: March 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).

First Quarter of 2010 Indicates Some Weakening in Home Prices [Standard & Poor's]
February Case-Shiller Index: San Francisco Falls Across All Price Tiers [SocketSite]

First Published: May 25, 2010 6:30 AM

Comments from "Plugged In" Readers

Its a little crazy, to me, that the steepness of the YOY% recovery is actually, for now, steeper than the decline.

anyway, good to see the top tier continuing to do so well.

Posted by: REpornaddict at May 25, 2010 8:27 AM

You never took Calculus, did you?

Posted by: J at May 25, 2010 8:47 AM

More than 95% of all mortgages are currently being originated by the Government. They don't give a damn about the actual value of the collateral, but private players using real money are not fooled...

Anyways, it's pretty clear the market is stabilized. The yearly rate is high but that's mostly a statistical result of the 1-Y moving range. Things are stabilized as it seems. Now that the stock market is going south, I wonder what the effect will be when it mixes with the end of the spring bounce. 2 big unknowns: 1 - is how much shadow inventory will come back online. 2 - foreclosures are still going strong. Everything points to a pause in the bounce between now and End of Year.

[Editor's Note: Fannie Follows Freddie And Takes Another Quarter In The Shorts]

Posted by: lol at May 25, 2010 9:04 AM

I did, yeah. Kind of a pre-requisite for becoming an actuary.
Still find it surprising though.
I didn't expect double digit price inflation to return so quickly to the SF MSA.
I doubt many here did, but maybe it's just me.

Posted by: REpornaddict at May 25, 2010 9:14 AM

I didn't notice above if these are seasonally adjusted or not. Hopefully the data above is the non-seasonally adjusted data.

Case Shiller came out with a warning a few months ago that the Seasonal Adjustment is not reliable due to various peculiarities with our current RE market.

-----
regardless, there seems to be little question that the massive Governmental intervention helped to slow (and partially reverse) the collapse in RE. RE also benefitted from the major governmental support to other non-RE related markets (like equities).

the big question now is what will happen when the effects of this governmental intervention wear off. (the intervention is stopped, but the effects haven't worn off quite yet)

a secondary question is how RE will do as market turbulence returns to the forefront.

we should have a better idea later this summer when the effects from the various stimuli (fed purchases of MBS and Treasuries, firt time homebuyer credit, federal stimulus dollars) wear off, and also as we have more direction of what is going on in Europe.

I've said for some time that forecasting is impossible due to all these moving parts, many of which are political and not economic. I stick to that point.

I still believe that housing will continue to do poorly in Real terms, but nominal prices are a completely different matter.

FWIW: one thing I totally didn't expect was that our various world govts would be as willing to risk a currency crisis and sovereign default to bail out the zombie banks. I knew some countries would go down (specifically Spain and Ireland), but am dumbfounded that the UK, US and Germany want to tempt this fate as well.

my failure to see that led to my failure to anticipate that mortgage rates could be so low again. I'm getting mortgage quotes for 4.25% on a 30 year fixed... amazing.

Posted by: ex SF-er at May 25, 2010 9:58 AM

I should clarify:
clearly only some of the Federal support of housing has stopped (FTHB credit, fed purchases of Treasuries/mortgages).

the majority remains (Subsidized mortgages through Fannie/Freddie, HAMP, altered accounting rules for the banks, etc)

Posted by: ex SF-er at May 25, 2010 10:00 AM

I didn't notice above if these are seasonally adjusted or not. Hopefully the data above is the non-seasonally adjusted data.

As always, non-seasonally adjusted. We've never bought into Case-Shiller's seasonally adjusted numbers.

Posted by: SocketSite at May 25, 2010 10:28 AM

Nothing surprising about mortgage rates. Our government, through its myriad of bailout tentacles, is the only mortgage lender out there right now. Economic jitters have pushed investors into treasuries again, slightly lowering the government's borrowing costs and mortgage rates accordingly. As has been said here many times before, the subsidies come at an alarming cost to the nation, are unsustainable, and our government has no clear exit strategy.

But human beings are naturally short-sighted and generally keen on remaining blissfully ignorant of larger systemic problems. From my anecdotal observations, the mentality among many potential buyers today seems to be one of getting into the market while both prices and mortgage rates are relatively low. Relatively being the operative word - prices in many places, including most of SF, remain above what fundamentals would dictate, while mortgage rates are obviously an artificial construct generally detached from underlying credit risk. So realtors and other pundits are pushing the "great time to buy" mantra. Get in now before the government raises lending standards and rates go up, inflation hits, etc.

But when you ask the same people, "What do you think will happen to home prices when rates go up or lending standards tighten?" you tend to get a vapid gaze in response. Can our government keep the mortgage market nationalized forever? Make home loans a government service, just like education, highway construction and border protection? Maybe. But the tradeoff will likely be higher taxes combined with those austerity programs that are all the rage in Europe right now. Pick your poison.

Posted by: Legacy Dude at May 25, 2010 10:30 AM

I still believe that housing will continue to do poorly in Real terms, but nominal prices are a completely different matter.
Over what time period are we believing? Since core inflation is actually falling, and the CS price index is up 16.1% year-over-year, I don't know how far specifying "Real terms" gets you. Even using the full CPI-U, without seasonal adjustment, only gets you 2.2% over the last twelve months.

Posted by: Brahma (incensed renter) at May 25, 2010 10:40 AM

"What do you think will happen to home prices when rates go up or lending standards tighten?"
--------
Prices and rates aren't going to significantly increase unless the economy is doing much, much better. I don't think anyone is forecasting tighter credit standards...probably the opposite as more and more funds are available for investment.

Posted by: anon at May 25, 2010 10:54 AM

The buyer of the Laidley house got 5.25 % fixed on a 1.5M loan from Northern Trust. Counting insurance and property tax, that probably works out to 8000 a month out of pocket. You think that award winning house would rent for 8K a month? Well it would, easily. For people with good down payments real estate in SF is not a bad value buy right now by some metrics.

Posted by: anon at May 25, 2010 10:55 AM

As I said earlier, the YoY increase compares with the March '09 dismal plunge. There's no big surge MoM, but a realization in the yearly numbers of something that happened between April and October last year.

Again, a statistical event more than a real one.

Posted by: lol at May 25, 2010 11:00 AM

Someone comparing mortgage expenses to a rent! We're back to 2006! Buyer market, hurry up!

Sorry anon(n?), we all know there's a multiplier between mortgage payments and total cost. 2X, 2.5X, 3X. The numbers depend on the property but I defy you to find a property where your only expense will be a mortgage!

Posted by: lol at May 25, 2010 11:05 AM

Heck, I'll add that if you buy a 3M property with 2.8M down, your mortgage will be less than the rent of a studio! Idiotic salesmen sending all that good cash to money heaven.

Posted by: lol at May 25, 2010 11:09 AM

The numbers depend on the property but I defy you to find a property where your only expense will be a mortgage

Insurance plus tax was mentioned. Utilities are utilities whether rented or owned. The studio comment was silly.

Posted by: anon at May 25, 2010 11:18 AM

"Prices and rates aren't going to significantly increase unless the economy is doing much, much better."

Rates can rise regardless of how our economy is doing. We're the world's largest borrower, and there's only so much real wealth out there for us to destroy pretending our mortgage market is still solvent. The problem is exacerbated when other nations go to the global trough to fund their respective bailouts, increasingly so if we begin to print more money to pay off the debt we've already taken on.

"I don't think anyone is forecasting tighter credit standards...probably the opposite as more and more funds are available for investment."

Ummm...what funds, and where are they coming from? Given where default rates and redefault rates are vis-a-vis mortgage rates today, I don't think one could make the argument that current lending standards are sound in a long-run, sustainable context. If they were, why are Fannie and Freddie bleeding billions every quarter?

Regarding 147 Laidley, $1.5MM at 5.25% is $8,300/month of P&I. Sales price of $2.82 million implies property taxes of $2,350 per month for an all-in monthly payment of well over $10,000, not accounting for taxes. In any case, some multi-millionaire put $1.3 million down on a trophy house, which is hardly representative of the national or even local markets. There's probably less than 1% of the population which falls into that category - about as good a proxy for the overall SF market as a $300K foreclosure in Bayview selling for 60% less than bubble peak. But it obviously makes good fodder for realtors to dole out on Sunday afternoons.

Posted by: Legacy Dude at May 25, 2010 11:22 AM

Actually, the studio comments wasn't silly. You DID mention insurance and taxes, so it is a good point that monthly costs may be similar. However, not to mention the opportunity cost of the huge downpayment is a bit disingenuous.

Posted by: curmudgeon at May 25, 2010 11:25 AM

or even local markets.

Like this site has much to do with Bayview?

Posted by: anon at May 25, 2010 11:30 AM

Well, I feel as if to pretend that this 5.25% loan from a trust is not an example of a commonplace purchase tactic for the MAJORITY pf the properties featured DAILY on this website is much more disingenuous. People wonder, "What's going on with the market?" "Why are houses again selling for so much this spring?" Someone gives you an answer. Guess what happens? LOL.

Posted by: anon at May 25, 2010 11:34 AM

"Like this site has much to do with Bayview?"

Well, I don't read it every day, but I've seen several properties in Bayview, Sunnyside, and other "suboptimal" neighborhoods featured here before. Maybe these aren't first choice locations for many San Franciscans, but they are part of our market, as are the gazillion dollar trophy homes that get lived in for 10 minutes a year and flipped every 24 months when some millionaire's ennui sets in.

My point is that both categories are statistical outliers. Most of us aren't interested in $300K Bayview properties, nor are we able to buy $3MM collectibles on a whim. Ergo, neither subset is a good representation of the overall market. Do you live in a $3MM home, anon? Did you put $1.3MM down as well? I bet your fellow realtors all did the same thing, right?

Anyway, the latest stats indicate a median home price of ~$700K for SF, with 25% of loans coming from FHA, which requires a whopping 3% down (and you can even get "assistance" with that). I view that as the broad market. Lastly, Northern Trust isn't "a trust," it's an institutional and private bank catering to companies and high net worth individuals.

Posted by: Legacy Dude at May 25, 2010 11:49 AM

Welcome back, fluj!

Some people are paying too much for property, please tell us something we don't know.

What's silly is mentioning that someone pulling 40+% of his own money is paying close to rent! Sales pep-talk of the month award. His cash is frozen solid in property, removing opportunity cost, property taxes, yadayadayada, you know the drill. You're a salesman trying to attract people into a very expensive market, just saying.

You had nothing to bring anymore than the same old nonsense. Why are you back?

Posted by: lol at May 25, 2010 11:51 AM

"The buyer of the Laidley house got 5.25 % fixed on a 1.5M loan from Northern Trust. Counting insurance and property tax, that probably works out to 8000 a month out of pocket. You think that award winning house would rent for 8K a month? Well it would, easily. For people with good down payments real estate in SF is not a bad value buy right now by some metrics."

They also had to depart with over 1.3 million in cash ("good down payment") to get the rental equivalent down to merely 8K per month. Come on. You can't be serious...

Posted by: Willow at May 25, 2010 12:12 PM

no i'm not a salesman, and you're not interesting to me. this is a common thing, a common mentality, and you disagree. fine. but your lack of civility is boring.

Posted by: anon at May 25, 2010 12:16 PM

Why is reality not serious? When I presented the fact, I said, "by some metrics." Meaning, different strokes for different folks, but commonplace. Think what you will. But "serious" ? Um, it happened. So yes, it was serious, as in, real, as in, not just a poster's hypothetical opinion on a website.

Posted by: anon at May 25, 2010 12:20 PM

It is quite possible the buyer prefers to park the 1.3M in property instead of stock market.

I am just curious, how's everyone else doing with your net worth? Bear is coming back.

Posted by: John at May 25, 2010 12:22 PM

no i'm not a salesman, and you're not interesting to me. this is a common thing, a common mentality, and you disagree. fine. but your lack of civility is boring.

Nice try. Still not convinced you are not fluj/anonn. The "I am better than you" talk reeks of the salesman's self-importance.

Posted by: lol at May 25, 2010 12:30 PM

Welcome back, fluj!

I'm with Legacy Dude and ex SF-er here. Still lots of stimulus into housing, and I'm not sure what we think we're accomplishing by that. Selling and re-selling existing will never grow this economy like education or infrastructure. This is a huge failure by our government.

The recent flight to Treasuries has lowered loan rates more than would have been expected otherwise. It just makes no sense. Risk premiums should be higher than they were during the boom, and yet we haven't seen it yet because there's still too much fake money out there.

Posted by: sfrenegade at May 25, 2010 12:38 PM

You say self importance. I say self value. In my opinion your type of caustic talk only exists on the internet. It is possible to disagree without hostility. Yes, even on the internet.

Posted by: anon at May 25, 2010 12:39 PM

Trying to start with a blank slate, fluj-the-master-of-insults?

Nope. You've been outed.

Posted by: lol at May 25, 2010 12:44 PM

Not trying to start anything. Nor be a persona on here. Curmudgeon asked a question that I was interested in answering, so I answered it. Predictable results ensued from people more interested in arguing than anything else.

Posted by: anon at May 25, 2010 12:46 PM

The only Curmudgeon post I see is about the studio comment that you found "silly".

What's silly is taking one property paid with more than a million in cash and make a point it's in par with rent. Now THAT's silly and you know it. Nice restrain I must admit. The "old" fluj would have thrown insults. You're trying the high road but we can see the teeth behind the polite smile.

Posted by: lol at May 25, 2010 1:01 PM

Btw, in this article about the FHA having more loan volume than Fannie and Freddie, there is one interesting item that I hope happens -- it would be wonderful if the GSE loan limits went back to $417K (even if that's still too high a limit):

Issuance of so-called non-agency home-loan securities will eventually revive because “the government can’t continue to be 95-plus percent of the market,” John Herbert, a director at Credit Suisse Group, said at the conference. One policy change that’s likely in the future is an unwinding of the boost in recent years to the loan limits for Fannie Mae, Freddie Mac and FHA, to as much as $729,750 in high- cost areas currently, he said. That should then spur more private mortgage-bond deals, Herbert said.


http://www.businessweek.com/news/2010-05-24/fha-home-financing-volume-sign-of-very-sick-system-update2-.html

Posted by: sfrenegade at May 25, 2010 1:03 PM

fluj/anonn/anon, you're pretty transparent. Couldn't stay away, huh? Disingenuous even in pretending to stay away.

Sure, lots of people make RE decisions that are not smart financial moves. Nothing new there. I suspect that if these 147 Laidley buyers had $1.3M to put down, they are not worried about a further decline in property values. Good for them. The point is that this buy nevertheless far exceeds the rent on a comparable place, and your sleight-of-hand with the numbers does not change that.

Posted by: A.T. at May 25, 2010 1:03 PM

not flujanonn. curmudgeon made a point about noe valley in another thread. i thought the laidley property was applicable in several threads. the studio comment was legacy dude's. (do you read these threads?) laidley would rent for 8K+, easily AT. it also is not a sign of decline in that area, or any area. values for spectacular houses only started seeing 2.5+ up there in late 2008.

Posted by: anon at May 25, 2010 1:10 PM

or rather, lol made the studio comment. curmudgeon found it apt. i found it a bit drastic and silly.

Posted by: anon at May 25, 2010 1:13 PM

Bloody fluj wasting everyone's time again. I started the studio comment, then you called it silly, then curmudgeon backed me, then you're quoting legacy dude out of nowhere. I think you're a 12-Y old posing as fluj.

A 3M property renting for 8K? Sure. Bad business decision? You bet.

Posted by: lol at May 25, 2010 1:20 PM

I did indeed make a statement on the Jersey Street thread that said I kinda missed flujanonn for his current market insight. I am now kinda regretting that comment.

Really, and I meant to say this even before he left....I do appreciate fluj's understanding of exactly what is selling in the market. He's generally been correct about trends (where most of us have to wait 30 days out to see them).

Not saying he understands....or, probably more precisely, VALUES the macro-economic stuff that Ex-SFer and others discuss. He doesn't care whether people SHOULD be purchasing real estate. He's only concerned the metrics of what people actually DO. That is a valuable contribution to this board.

If it weren't so snarky all the time, it would be alot more welcome.

Posted by: curmudgeon at May 25, 2010 1:28 PM

Um, I said Legacy Dude by accident, admittedly. Even that typo warrants hostility in your e-world? Yes, i found it extreme to go for 1.3M down to 2.8M down, and to talk about studio versus what something might otherwise rent for. Most people would think that extreme. But as for the hostility, maybe you should switch to decaf.

Posted by: anon at May 25, 2010 1:29 PM

Regardless of who said what, the salient point is that 147 Laidley is a red herring given the high price + large down payment. Overlooking the fact that 99% of Bay Areans could not afford this home, if the buyer had put down the traditional 20% (traditional referring to pre-bubble, pre-bailout loans), their monthly nut would have been over $15K for just PIT, nearly twice the cost of renting based on the $8K rent estimate. Still not a good financial play for anyone who cares about money.

Alternatively, one could state that paying cash for real estate is the best way to buy because your have no monthly payment, so it's infinitely cheaper than renting. Mathematically defensible, but logically wrong and also not a good financial play.

Out of curiosity, does anyone know what the average down payment % is for new loans these days? I'd wager it's well below 20%.

Posted by: Legacy Dude at May 25, 2010 1:43 PM

Can we get back to discussing Case-Shiller?

Personally, I continue to be surprised at the relative strength of the top-third of the C-S index.

Posted by: Amen Corner at May 25, 2010 1:55 PM

Legacy Dude,

I think 20 is probably the most common, sure. But the more expensive ones -- and they're commonly featured here, let's face it -- are getting decent rates on jumbo loans. So the idea that jumbo loans are dead is not what's actually going on. Five and a quarter for a 1.5M loan is pretty good historically, regardless of how you feel about real estate.

Here's one. 469 27th st. It's a 2006 to 2010 apple. Sold for 1.175M in Jan. 2006, and sold for 1.206M in mid April of this year. They got a superconforming first for 729,750, a second for just under 300, and put 15% down. Often we see a superconforming first and the rest cash in this range. I wonder what their second's rate is at. Can't see it.

Posted by: anon at May 25, 2010 2:00 PM

The condo numbers sure seem to show a 2009 dead cat bounce. March 2010 numbers are back down to 2003 levels (which are the same as 2001 levels) and now just a tad above the March-April 2009 nadir. This is the MSA, to be sure, but as has been oft-noted, SF is not an island and is part of its MSA. Condos make up 1/2 the home sales here. It will be interesting to see how this segment is affected by the disappearance of the direct gummint payouts.

Lots of reductions and distressed inventory in the MLS. But still a few surprisingly high sales as well. I'm betting we'll see sales volume fall pretty substantially now that the payouts are over, but we'll also see medians rise as disproportionately fewer low-end sales are included in the mix. And realtors will tout the higher medians as a rebound (and ss readers will dispute that). And the lower sales volume will -- as it always does -- drive prices lower. Strange times. Picture will be a little clearer by end of summer.

Posted by: A.T. at May 25, 2010 2:12 PM

and now just a tad above the March-April 2009 nadir

About two months ago you argued vociferously that spring 2009 was not the bottom so far. And that YoY the market is actually down since then. What changed your mind?

Posted by: anon at May 25, 2010 2:18 PM

OK, definitely fluj. Who else would remember who else said what in some other thread many months ago? ;-)

Welcome back.

Posted by: John at May 25, 2010 2:21 PM

fluj/anonn/anon (who oddly denies the obvious) -- we were not arguing whether prices bounced up a bit in late 2009; you were insisting that prices were higher in SF now than a year ago. CS, which reports in arrears (and applies to the MSA not just SF) is some indication that prices did bump up a bit YOY for low-end SFRs, but not for condos. And it really doesn't say anything about higher-end SFRs.

Posted by: A.T. at May 25, 2010 2:33 PM

you were insisting that prices were higher in SF now than a year ago

They are higher now than a year ago. Especially higher end SFRs.

SF, SFRs 1mm+, 1/1/9 to 5/25/9: 165 sales $1.425M median

SF, SFRs 1mm+, 1/1/10 to 5/25/10: 244 sales $1.585 median

That's 1/3 more volume and a 160K higher median.

[Editor's Note: Be very careful when dealing with medians (Medians Are Up, But Don’t Confuse That With Increasing "Prices"), we see the same mix effects within neighborhoods and price tiers as we're seeing between.]

Posted by: anon at May 25, 2010 3:32 PM

"this can't go on"

In the interest of scientific inquiry I have to ask myself, "Why not?". What, exactly, is going to stop them?

Once upon a time I thought that the bond vigilantes would show up, but far from being vigilant they are buying US treasuries like they are going out of style.

Once upon a time I thought that our trading partners would tire of giving us money so we could buy stuff from them. But their enthusiasm for enslaving their workers in order to add to their pile of US IOUs seems endless.

So what, exactly, is Ben Bernanke going to see that's going to cause him to slam on the brakes and pull the rug out from under the housing market?

While we're in a world of competitive devaluation and mindless mercantilism I don't see why this is going to end anytime soon.

OT: Nice to see that the ghost of fluj's dermatologist's second cousin has decided to make an appearance.

Posted by: diemos at May 25, 2010 5:37 PM

"What, exactly, is going to stop them?"

Kind of an open-ended question, diemos, and I assume at least partly rhetorical. But our government has nationalized the mortgage market and ostensibly put a temporary pricing floor on residential real estate. This is being done at a huge cost through institutions like Fannie, Freddie, and FHA, all of which continue to lose massive amounts of money. Where do people think that money comes from? Taxes?

Some napkin math: nearly half of every dollar our Federal government currently spends is borrowed from other nations. Of that, nearly half is borrowed from China. For those who prefer 7x7 to The Economist, the U.S. and China ain't exactly BFF right now. Currency manipulation not withstanding, consider the growing need for bailout money in Europe. Add in our growing CRE problems. Add in China's own massive bubble in equities and real estate, which their government has been largely unable to deflate despite meaningful efforts.

How do people honestly think this will play out over the next decade? No crystal ball here, but I just can't see a future where Treasury yields don't rise. And if you're borrowing at 6%, you can't give people 4.5% mortgages for very long...especially when 10-30% of them aren't paying the loans back.

Posted by: Legacy Dude at May 25, 2010 6:09 PM

diemos wrote:

So what, exactly, is Ben Bernanke going to see that's going to cause him to slam on the brakes and pull the rug out from under the housing market?
Less than 7% headline unemployment at the same time as a CPI over 3%, that would do it; I'd bet money on that. Bernanke's not going to sit idly by and let another asset price bubble blow up the way that Greenspan did after 2001, so it doesn't even have to be inflation per se that'll prompt him to pull the trigger. Course, the second part of your question was when will this occur. I agree with "not anytime soon."

Posted by: Brahma (incensed renter) at May 25, 2010 7:35 PM

Brahma wrote:

…at the same time as a CPI over 3%, that would do it; I'd bet money on that.

First paragraph From 10:32 p.m. EDT post at MarketWatch:

Federal Reserve Board Chairman Ben Bernanke said Wednesday it would be risky for central banks to move away from inflation targets of around 2%, according to reports.
"Central banks of the world over many years now have established a great deal of credibility for inflation rates in the vicinity of about 2%. And it would be a very risky transition if we in any way reduced our commitment to …an approximate 2% inflation target," he said, according to Dow Jones Newswires.

Of course, actually having enough activity to raise the threat of 3% inflation is a problem we'd like to have right now, or anytime soon, for that matter.

Posted by: Brahma (incensed renter) at May 25, 2010 8:20 PM

Geez, where are all the people (i.e. realtors) who used to tell us the MSA is not the city?

The only apple I know of in the city is this house, which didn't sell at around 10% above its price last year and is now listed lower.

http://www.socketsite.com/archives/2010/04/1409_20th_street_apples_2005_to_apples_2009_to_apples_2.html

It's wasn't exactly a highly competitive market last year, so I doubt the buyer "overpaid". If prices were up 16%, it should have gotten multiple offers and sold for about $929K, well over last year's price of $799. It was listed for 865 and didn't sell and the price was dropped to 849 and it's still available. Nearly every guess about its sale price is wrong, at least so far.

I realize it's only one data point, but it isn't looking like a 16% gain for that one data point.

I'm wondering if the 16% gain is for homes in the jumbo conforming nothing down and cash back plus tax breaks FHA land. The above home is one of the cheapest ones available and the closest to the FHA sweet spot and it isn't moving.

Maybe this one sells but it isn't exactly flying off the market, and the seller is almost certainly going to have to give the buyer 6% back. So if you want to pretend that a sale at asking will represent any appreciation, go ahead, but I'm not seeing any 16% one year appreciation in the city of SF. Maybe in Antioch. The MSA isn't the city.

Posted by: tipster at May 25, 2010 11:32 PM

for anyone who is intersted Calculated Risk has posted an inflation adjusted National CSI here

http://www.calculatedriskblog.com/2010/05/real-case-shiller-national-house-prices.html

Posted by: badlydrawnbear at May 25, 2010 11:54 PM

Bernanke's not going to sit idly by and let another asset price bubble blow up the way that Greenspan did after 2001

what are you talking about? Bernanke was one of the ARCHITECTS of the last RE bubble, and is personally doing everything in his power to create another bubble. Bernanke will more than sit idly by, he will pump and pump and pump and won't stop until we are firmly entrenched in bubble land. Read his papers, man. He didn't get the moniker "Helicopter Ben" for nothing. (and remember, he got that name prior to the downturn).

Even if he did want to pull the punch bowl away, he is powerless to do so until the economy is FIRMLY in "recovery". It would last about 1 second before the Senators and President squawked. Just like 2003-2006. The Fed left the punchbowl spiked like crazy for at least 1 and possibly 2 years too long. You can read Bernanke's statements and Fed Voting record to see how willing he'll be to take any punch bowl away this time. ROFL.

it will not be Ben who takes any punchbowl away. I've said for years that the govt will spend until the credit card is pried from it's cold dead fingers. I don't know why people can't see that.

as for the bond vigilantes: Diemos: I agree this can go on for a LONNNGGGGGG time. I, too, was expecting them to wake from their slumber at some time. however, this process was slowed greatly by the govt guaranteeing everything in the kitchen sink.

this is why we've morphed this from a financial crisis to a sovereign crisis. Sovereign crises take a while to play out (years). That was even the case back in the Great Depression... remember that took around 10 years to play out.


======
to answer a question from way above:
I said: I still believe that housing will continue to do poorly in Real terms, but nominal prices are a completely different matter.

and Brahma asked: Over what time period are we believing? Since core inflation is actually falling, and the CS price index is up 16.1% year-over-year, I don't know how far specifying "Real terms" gets you.

I was specifically thinking more long term with my statement. yes, SF RE bumped in aggregate around 16% YOY from near its trough. However, that was over the same time period that the stock market rose 70% plus. I consider these both to be short term artificial trading bumps triggered by massive governmental intervention. A so called "bear market rally" or a "cyclical bull in a secular bear market", or as some say "a dead cat bounce".
Bear market rallies are typically VERY sharp and significant in severity, just as we saw in stocks. but the gains do not hold.
I could be wrong of course.

Posted by: ex SF-er at May 26, 2010 6:58 AM

Geez, where are all the people (i.e. realtors) who used to tell us the MSA is not the city?

Well, clearly it isn't. The top 1/3 in this MSA barely begins with a below average SF price. So that's why I provided 1mm+ numbers from the sfarmls. Clearly SF is going to lead the field in the 1mm+ category. (By the way, 2mm+ also shows volume way up, but price only up about 60K.)

And as far as being "careful" with median, if I had delivered the averages which show a similar result, what would have happened? Six bears would have written four posts each calling me names, and calling that a sham. So I used median.

Posted by: anon at May 26, 2010 8:34 AM

fluj (let's drop the charade -- it's old already), that is simply because, as you are well aware, averages distort even more than medians, particularly with such a small dataset. And I note that, once again, your attempt to narrowly define "the market" as solely SFRs, and particularly higher-end SFRs, is flawed. If one eliminates 80% of the market from the definition of "the market" then any analysis is pretty worthless.

Posted by: A.T. at May 26, 2010 8:58 AM

Oh, so median with sets of 165 and 244 garners criticism also? Nobody said it's "the market." It's clearly one cross section of a market, SFRs.

Posted by: anon at May 26, 2010 10:03 AM

"And "anon," pick a name.
Posted by: anonn at April 26, 2010 11:10 AM"

"Pick a name. Posted by: anonn at February 16, 2010 5:16 PM"

"pick a name, Posted by: anonn at March 31, 2010 4:25 PM"

Posted by: tipster at May 26, 2010 10:40 AM

"The only apple I know of in the city is this house {1409 20th], which didn't sell at around 10% above its price last year and is now listed lower."

Don't forget this high end apple featured in SS a while back: 3570 Washington - http://www.redfin.com/CA/San-Francisco/3570-Washington-St-94118/home/1484112 - perfect 1-year apple 4/09 to 3/10. Definitely not up 16% - looks to me like the sellers lost at least $600k buying the "bottom"....

Posted by: El Bombero at May 26, 2010 11:50 AM

Well, clearly it isn't. The top 1/3 in this MSA barely begins with a below average SF price.

How many times do you have to be reminded that the tiers are based on the price at time of purchase, which could have been 5,10,15,20+ years ago (especially considering the disincentive to ever sell due to Prop 13 *see other thread*).

Posted by: badlydrawnbear at May 26, 2010 2:49 PM

So explain the relevancy, if you would.

Posted by: anon at May 26, 2010 4:21 PM

For those that enjoy thinking about the chart patterns, that 1987-2010 chart looks like a perfect head and shoulders top in the making. Let's hope we don't see those knees and toes, knees and toes. Interesting times!

Posted by: ts364 at May 26, 2010 4:37 PM

I am kind of late to this thread, but I will chime in with my two cents. China is no longer financing our government deficit, they have not been doing so since last September. If you look, they have decreased their holdings of treasuries by $40B since September, this is about 5% of their holdings. The total US government deficit is only about 1/3 of our spending, so I don't know where people get the idea that foreign governments are lending us half our total spending. 2/3 of it this year was collected in tax revenue. Most of the rest was financed by domestic bond buyers. If you notice, since the Chinese stopped buying US bonds and The Fed stopped buying Fannie Mae bonds, 30 year mortgage rates have actually gone down, due to the worldwide demand for US Treasuries. So the apocalypse is certainly not imminent, in spite of all the doom and gloom posted here.

As long as we borrow in dollars, there is no risk that we cannot pay back. Remember the only reason the government needs to tax at all is to keep inflation under control. Governments aren't like you and me, which have to finance spending via revenue and borrowing, they always have the third way, which is to run the printing presses. Too much of this and you end up with runaway inflation, but in deeply recessionary times like these, the government needs to monetize the debt to keep deflation from taking hold. Ben is called "Helicopter Ben" because he rightly said the the Great Depression could have been prevented with a loose enough monetary policy (eg throwing money out of helicopters). He is proving this now in fact. Our debt crises in 2009 was much larger than the one that we faced in 1932. The difference this time around was that we had a much better policy response.

The history of capitalism is one of booms and busts, I doubt that current times are any different. I don't see anything worldwide that looks like a "bubble" to me, with the possible exception of the Chinese property market in a few cities. This is very unlikely to cause major problems for the Chinese economy mostly because they have not set up a whole casino shadow banking system that makes side bets on the housing market, the way the United States did.

In the longer run we will have to reduce our deficit with a combination of spending cuts and tax increases. Just reversing the Bush tax cuts would cut the deficit in half. Right now it would be a really bad idea to either increase taxes or reduce spending, as it would probably send us back into a recession. It might increase confidence in our lenders if we had an actual realistic plan to clean up our national balance sheet. I am pretty sure the "bi-partisan deficit commission" is going to come up with another round of Social Security tax increases, just like the one Reagan pulled together recommended.

Posted by: NoeValleyJim at May 27, 2010 10:39 AM

NVJ, isn't interest rate risk one of the problems with the current debt being issued? My impression is that most of the recent government debt is extremely short term, so it may be rolled over into much higher rate debt in the near future.

I do also wonder whether housing is being put back into a bubble. Charles Hugh Smith, for those who read him, has a good post on this:
http://www.oftwominds.com/blogmay10/root-of-housing-bubble05-10.html

Beyond that, I agree with several of your points.

Posted by: sfrenegade at May 27, 2010 10:47 AM

Great post NVJ. You make a nearly incomprehensible (to me) subject almost comprehensible.

Posted by: sanfrantim at May 27, 2010 12:15 PM

From the Journal Friday:

Luxury Sales Bounce Back

For years, Jennifer Metz and her husband John yearned for a bigger home in San Francisco. Three months ago, the couple started looking, figuring that in this shaky economy, their $3 million budget should provide them a pick of attractive homes and accommodating sellers.

They were wrong. Hours after seeing a 5,000-square-foot fixer-upper in Presidio Heights with an asking price around $2.7 million, the Metzes put in a bid—and lost. Soon after, they made another offer on a four-bedroom in Russian Hill. Their bid was rejected.

Last week, the Metzes rushed over to a large, dilapidated home in Pacific Heights that needed a lot of work but was asking the (relatively) low price of $2.25 million. The Metzes put in their over-ask bid the next day, but lost that one too: There were nine offers; the winning bid was $2.56 million.

"It's frustrating," says Ms. Metz, a 44-year-old stay-at-home mom whose husband works in finance. "You think you put in a good offer but, no."

-----

This sucks for me personally, btw. I was looking at open homes this weekend and found one I kind of liked in the neighborhood. It is a bit more than we need or even really want, but not too much more. Except for the price. At $2.25M it is probably at least 30% higher than what we could afford and probably double what we can really justify. Adding a floor to the current place looks better and better.

Posted by: NoeVallyJim at June 1, 2010 12:02 AM

And from the Chron today: "Foreclosures shifting to affluent ZIP codes"

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/06/01/MN3M1DKGLM.DTL

Posted by: A.T. at June 1, 2010 7:02 AM

NVJ, I think Canada and Australia also have their housing bubble.

I mean, Canada and Australia!
That anyone would think that these 2 almost empty behemoths might have a shortage of land for housing anytime soon is clearly not thinking right. Wherever you have an unlimited supply of land, property prices are in proportion to replacement costs. The disconnect with housing prices can only be attributed to a culture of bubbles and a policy to accomodate that.

Housing bubbles abound all around the world. Governments are absorbing more and more debt to keep them inflated with cheap debt of straight bubble money.

Posted by: lol at June 1, 2010 7:31 AM

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