October 15, 2010

2542 Fillmore: Apples-To-Apples (Plus Some Furniture Perhaps)

2542 Fillmore Kitchen

While the recorded deed has yet to make its way into the City’s system (because of a tax lien perhaps), it would appear that the sale of 2542 Fillmore closed escrow on September 28 with a sale price of $3,790,000 or $1,210,000 less than its reported purchase price of $5,000,000 in August 2008.

The 24 percent decline in value for the reconstructed Pacific Height home over the past two years might not be "apples-to-apples," however, as a plugged-in reader reports:

One more "Interesting" thing about this home and the sale is that the sellers were also selling the furniture in the home as well so I wouldn't be surprised at all if the final selling price included much of the existing furniture in the home; or alternatively, if there was a separate, non-recorded sale of the furniture.

And it could have been worse for said sellers, they could have paid the $5,500,000 which was offered and turned down prior to their under asking bid in 2008.

This Ought To Be Interesting On An Apples-To-Apples Basis [SocketSite]
2542 Fillmore Closes Escrow: Still A Big Win (But Still A Whoops) [SocketSite]
Built In 1904 (But "Reconstructed" A Century Later): 2542 Fillmore [SocketSite]
The SocketSite Scoop On 2542 Fillmore: In A Word, Whoops. [SocketSite]

First Published: October 15, 2010 11:00 AM

Comments from "Plugged In" Readers

Cool place.

This reminds of that story we had on here where the realtor came on and bragged about how she helped her client commit fraud by splitting the sale into separate transactions for home and furniture (or something along those lines). I think it was a high-rise in the FiDi, anyone remember that? Fun thread.

Posted by: lolcat_94123 at October 15, 2010 11:07 AM

lolcat:

I believe that was 333 bush.

Posted by: JustLooking at October 15, 2010 11:14 AM

Down 24%. This is not surprising at all. That's about the ballpark we've seen in SF, top to bottom, citywide. Some individual neighborhoods and specific properties have fared better and some have fared worse. But down 20-30% off peak is about the norm.

And the trend is clear. Prices continue to fall. The general populace now clearly comprehends this, which is why sales volume has dropped so much. Why buy now when it will be quite a bit cheaper later?

Posted by: A.T. at October 15, 2010 11:16 AM

It's probably the right price, but after all the hype about this place, I was still surprised it sold for less than $4m. I think it works out to about $1k per sqft for a "done" place. What do you guys think this bodes for future PH sales? How much more per sqft would a view and being on a quieter street have yielded?

Posted by: pacific at October 15, 2010 11:19 AM

BTW, I was surprised when it sold for as high as $5m as well. That seemed to be the height of craziness and this place was the poster child in PH for a while. I was pretty skeptical that this place had even exchanged hands from the developer.

Posted by: pacific at October 15, 2010 11:27 AM

Please note that the furniture comment is purely speculative.

My other quote from the other thread:
Lost in this massive loss for the prior owners is that this home still sold for a pretty eye popping price at nearly $4M. How or why the previous owners ever thought that this home was worth $5M is simply beyond me. In this case, they truly overpaid and I strongly believe that this home in 2008 should have been valued right around $4M; as did Sleepiguy / Denis.

Peace.

Posted by: eddy at October 15, 2010 11:27 AM

Yes, this was clearly a "surprise" at $5M. That's soooo easy to say in 2010 as the long decline is in its first inning. But let's look at the FACTS in 2008.

1. Someone ELSE offered 5.5.

2. The seller, who was no spring chicken, and was advised by one of the best agents in the city, thought it was worth EVEN MORE and turned the 5.5 offer DOWN.

So sure, it's easy to say this seller overpaid when they bought, but in 2008, there were at least two or three people who thought, at the time, it was worth substantially more.

Now that you recall points 1 and 2 above, anyone want to try again at telling us how $5M was an outlier bid?

[crickets chirping...]

Well, OK then. It's down. Hard. It's down about what everything else is down by. No surprise. It's down. It's not even, not 5%, it's down by more than 20%.

And all the spin in the world isn't going to change that: the market is at the start of a very big decline, a lot of people have lost a lot of money and everyone buying now will lose money too.

Posted by: tipster at October 15, 2010 11:59 AM

tipster, you may be right. I'm not particularly invested in which direction the market takes, although I am interested. What is your prediction for the next five years in Pacific Heights? What would this house sell for in 2015? Will more expensive houses (~$7m) come down quicker? When would you suggest buying a house you plan to live in for 10+ years?

Posted by: pacific at October 15, 2010 12:32 PM

Personally, I think the seller agents here did an outstanding job and it's a testament to why having a good agent can make a difference. They created demand and found a fish for this place. No denying the market for this home is down, and down hard, but I don't think I've seen another PH SFH hit more than a few % here and there. There was a place on Broadway that got hit I think, but can't remember. But to imply that this home is going to lose another 25% over the next few years would be a stretch.

Posted by: eddy (can't stay away) at October 15, 2010 2:07 PM

Eddy - it was the same agent (Malin)who was representing the Sellers as Buyers agent when they bought $1.2 mm higher a year and a half ago. Not sure how you can say Malin did an "outstanding job".... This was a disaster for the sellers. They overpaid the first time and look to have sold cheap the second time. But, hey, she got her commission twice, right. That is the only thing outstanding about it!

Posted by: Disagree w eddy at October 16, 2010 8:25 PM

Please check your facts. Simple to do.

2008 Sale: Listing agent Malin. Selling agent Joel Goodrich.
2010 Sale: Listing agent Malin. Selling agent Team Fleming.

Posted by: Jibber at October 18, 2010 9:34 AM

"What is your prediction for the next five years in Pacific Heights?"

The last time we had no bubbles propping up real estate it was 1996.

So as a first assumption, you could say prices are headed towards their inflation adjusted 1996 levels.

But what was happening in 96? Prices in Pac heights were trending down. Everytime I see a place that sold in 1992/1993 and 1996, the 96 price was lower. So, okay, my first is probably too high.

Next, let's look at the inflation component. What caused wage inflation? Two bubbles. Bubbles that misallocated resources. For 14 years, the economy has been misallocating resources, first to dot com companies that did nothing, then to housing and mortgage financing. Productive people built houses nobody needed and mortgage brokers sold loand no one could pay back. What would wage inflation have been without those two bubbles. Zero? Something very low certainly because even with two bubbles, we had very low inflation. But recognize that with misallocated resources, we are actually WORSE off than had there been zero percent inflation.

So I think prices fall by 50% from here, back to their 1996 levels, with no adjustment for inflation because there wouldn't have been much of any inflation without the bubbles and we are in worse shape than had there been very low inflation.

Now if prices fall quickly, no one will pay their loans, so that is simply not going to happen, not even in 5 years. 20% in 5 years? Almost certainly.

The past two years, the politicians have done some things the populace is very upset about bailouts and such: they weren't going to let housing prices fall faster because that would have been the last straw. But my sense is all of that may be ending. There is no more money to do anything: the public doesn't want it spent.

Foreclosuregate will take us through the elections, and then the holidays will stop some things, and then the foreclosures will start in earnest. The delays have all worked their course, and the politicians will want the damage done as soon in the election cycle as possible so that the voters will forget by the next elections. The last government was voted in to "fix" things and so they felt they had to and they did, the current one will be voted in to stop spending. They can simply slap a moratorium on the process, but I don't think there is any current appetite for that.

But there is another component. Inflation. Will the fed screw things up so badly that prices start to rise and cover some of the 50% fall? Possibly. But if that happens, then that will just make it politically possible to drop the price of real estate in real terms faster. I So I think a 20% decline over 5 years would not be a far off guess, unless inflation really takes off.

Posted by: tipster at October 18, 2010 10:22 AM

Thanks Jibber.

@tipster, I don't entirely disagree with you analysis, but have to give it more thought. But it seems this is your analysis for SF in general, not PH specific. I'm not calling bottom by any stretch, but to suggest that homes like 2542 would trade at $2M is far out; and I don't think there is a high probability of this home selling for $3.2 in 5 years (i.e., -20%). I do think there is still some room to fall in the extreme high end as those homes still seep disconnected by reality. There are 9 homes officially listed on the MLS @ ~$10M+ when in the history of SF there have only been a handful of sales over 10M. And I don't think any of the homes on the MLS now qualify as a home worth over 10M except 2901, and maybe 3701 Washington.

Finally, congrats to Team Fleming. Nice pickup for your client. I loved the house on Green St a while back too that you sold.

Posted by: eddy at October 18, 2010 10:42 AM

A good article in the NY Times Saturday about the lingering effects of Japan's deflating real estate bubble. Example of the guy who paid $500,000 for his condo in Osaka in 1993 that just sold it for 1/3 that amount, $100,000 less than he owes 17 years later. Could something that extreme happen here? Certainly. Is it likely to? Probably not. But one would be foolish to buy under the assumption that there is no likelihood of a loooong real estate decline since we've somewhat followed the Japanese pattern pretty closely for the last couple of years. Most likely we'll see a multi-year (rather than multi-decade) decline here that will not reach 67% but still be way into double digits.

http://www.nytimes.com/2010/10/17/world/asia/17japan.html?_r=1&scp=1&sq=japan%20economy&st=cse

As I've oft-noted, the recent crash in sales volume is a pretty solid indicator that would-be buyers have concluded that prices will be lower in the future so they are not buying now. That becomes a self-sustaining cycle.

Posted by: A.T. at October 18, 2010 10:45 AM

That becomes a self-sustaining cycle.

Real estate has a way of self-sustaining itself. It is what it makes it hard predict. You're correct that buying now does pose some risk, but the mentality in SF seems to be slanted towards short 3-6 year investments. Except for the past 6-10 years where there was a bubble it was always a bad idea to buy a home over a short period of time. The reality is that buying a home with a 10 year hold may not be a bad investment. Buying a home with a 5 year hold is almost always a bad investment.

Posted by: eddy at October 18, 2010 10:57 AM

They key difference between us and Japan is demographics. Demographics is like gravity, you can only fight it for so long and then you will lose. Their population is shrinking and aging, ours is growing and thanks to immigration, the average age of our population is not increasing as quickly as theirs. SF is even more skewed towards the young ... despite prop. 13, rent control and all the myriad other policies in place to fleece them out of their hard-earned dollars to the benefit of the old and entrenched population.

Posted by: Jimmy (No Longer Bitter) at October 18, 2010 11:10 AM

One other difference between us and the Japanese is that in Japan, the central bank waited until general deflation was well under way before acting, and then it undertook a series of half-measures that didn't really arrest the problem. In contrast, our central bank started taking action, quantitative easing, immediately after the recession started. You can (and probably should) argue that it was too weighted towards bailing out the banks, but you also have to admit it was effective in arresting the immediate crisis.

Our current Chairman of the Board of Governors of the Federal Reserve System is the author of a very-widely read disquisition on not allowing what happened in Japan to happen in the United States. So I don't think he's going to sit idly by and let a ten year (or even two year) deflation episode go on unaddressed.

Posted by: Brahma (incensed renter) at October 18, 2010 12:45 PM

My analysis has nothing to do with Japan. Did you see the word Japan in my analysis?

What I said was this: there is no reason why real estate prices in the US should have risen beyond their already falling values in 1996. The only inflation we had was caused by the bubbles which are now gone. In the meantime, the country built far too many houses.

The only reason to bring up Japan is as an example of how one can manage a deflation following a real estate bust: you let it decline slowly so that people stupidly use their incomes and savings to pay the powerful rich back as much of their money as possible.

You let prices fall, then people rush in thinking prices look cheap compared to their bubble levels (for which there is absolutely nothing supporting them currently, so the comparison is for fools), then they put downpayments down and make payments until they are underwater again and then another set of fools gets to rush in.

The problem with the financials is that there simply isn't enough earnings and savings currently earned by the living to pay the rich and powerful.

But Obama is a smart man: there is only one entity who can borrow from the not yet born to pay back the rich and powerful today, and that is the US government. So, in order to pay back the powerful rich, the democrats opened the fannie/freddie/FHA spigot and upped the limits. That capped the amount the rich and powerful got stuck with. When the next set of borrowers defaults, and they will (look at Sacramento, Phoenix, Nevada, etc.) the deficit goes up and our children pay it back. It was just a way to transfer money from our kids pockets to today's rich and powerful.

We couldn't have the rich and powerful soaking up too much of that loss.

So leave Japan out of it. Japan taught the political class how to trick people into dumping their savings and income into a hole. A bubble is a bubble and there isn't any reason why prices should be above 1996 prices. I'm sure some realtor will tell us about some "new paradigm", or that this tech company is doing as well as Cisco was in 1996 so "everything is different", but I'm not buying any of it.

As for Japan, you can make comparisons with Afghanastan as far as I'm concerned, they are about as relevant: the only comparison that matters is pre bubble America, 1996. And things aren't much different from that time, I'm afraid.

Posted by: tipster at October 18, 2010 2:19 PM

Dear Jibber,

My facts were correct. Malin had her clients buy at $5 mm and sell at $3.79 mm. If that "outstanding work", I'm in the wrong business. Seems like she should have some very angry clients.

Posted by: Disagree w eddy at October 18, 2010 2:24 PM

"the only comparison that matters is pre bubble America, 1996. And things aren't much different from that time, I'm afraid."

Let's see, GDP is double, inflation is up ~40%, population up more than 35mm people, wages up ~50%...

I'm not sure what your point is?

Posted by: R at October 18, 2010 2:51 PM

@dwe, as Jibber noted clearly, Joel Goodrich represented the most recent sellers when the bought the home from Malin in 2008. The sellers curiously didn't list the home this time around with Joel Goodrich. They chose Malin's team. And they probably got top dollar again in a private deal. And probably negotiated a sweet deal on fees. In any event, you are clearly confused / amused. And Malin (team) did a great job here as they usually do for their clients.

Posted by: eddy at October 18, 2010 2:58 PM

Since nineteen ninety
six, no changes have been seen
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Posted by: [anon.ed] at October 18, 2010 3:18 PM

'96 - '00 was where the real price run-up in SF occurred. That was bubble-driven, but not a real estate bubble. It was funny dot-com money, but it did end up as real money in a fair number of peoples' hands. So as the dot-com stocks collapsed, RE values did not plummet along with them.

The 2003-present situation is a real-estate bubble, which has started to deflate but has further to go. So as this bubble collapses, it directly takes down RE values. It is as if SF real estate were the dot-com stocks themselves rather than the target for dot-com bubble money.

So I don't think we'll get all the way to 1996 unless we get some very long Japan-style situation, which, as I noted above, as quite possible (just guessing -- I give it a 25% chance). 2000 prices are probably a decent predictor of where we're going. We're already about halfway there from the 2007 peak, in terms of medians (imperfect measure). And that's without an inflation adjustor since so much of the last decade inflation, moderate though it was, simply reflected the real estate bubble itself.

Posted by: A.T. at October 18, 2010 3:43 PM

tipster, so it sounds like your advice would be to wait 8-10 years to buy in Pacific Heights. What about buying a fixer? Will builder prices be lower now, or over the next 5 years? Would you advise a family to rent instead? Are all properties doomed, including 2755 Fillmore?

Posted by: pacific at October 18, 2010 3:48 PM

Posted by: A.T. at October 18, 2010 4:30 PM

In the year 2000, what this place had more than money was opportunity. All you had to do to make Million$ was to show up.

It didn't matter what you paid for your house, you were going to be rich, rich, I tell ya, even if you were the secretary, and so who cared what you paid. I don't think anyone believes that now, other than a handful of people at some high profile companies, but it was that way in 1996 too.

So, I think we're going to zoom right past 2000 pricing, sorry. A.T.'s link above is certainly scary. That's a really nice block.

But 8-10 years? I don't have that kind of vision because how the decline is to be managed is in part a political process. We went from Bush to Obama in 4 years: and the process really only turned that far in about a year and a half. The country can turn on a dime.

All I know is there is more declines coming, and the smart thing to do politically is to make it happen gradually so that the pain can be spread by a bazillion buyers rather than a handful of politically powerful investors. But geez, 8-10 years is an awfully long time and lots can happen.

Would I buy a fixer? If you are going to fix it and sell it, yes, next summer. I sense a fairly big step down coming in the next 6 months (Apple just warned and BofA says they are resuming foreclosures soon), and after that time, the builders will factor a 4-5% decline in selling prices during their hold time and bid accordingly. There's always money to be made in that market if you are good and you are smart. Sparky is like that and he'll do well, with perhaps the occasional mistake. But buying to sell in 8 months and buying to live in are two different things.

The downside risk of buying to live in is too great. Unless your 9 months pregnant wife is screaming at you to buy a house, at which point the downside risk of not buying is too great.

Posted by: tipster at October 18, 2010 4:58 PM

@tipster, I agree with those points, except for buying because your 9mo pregnant wife is screaming. It's still not smart to buy if you aren't going to be there for the longer term! :)

Posted by: eddy at October 18, 2010 5:29 PM

Well, I guess if I do buy a house in Pacific Heights, I'm not inviting any of you guys over for the housewarming. Talk about depressing. :)

Posted by: pacific at October 18, 2010 6:52 PM

so what you are saying, 'tipster', is if you did not buy in '96, or at '96 prices, you should rent, and continue to do so for 20 years (say 2000 until 2020).

Posted by: anonee at October 18, 2010 8:31 PM

"So, I think we're going to zoom right past 2000 pricing, sorry. A.T.'s link above is certainly scary. That's a really nice block.

so a $1.1M garage with 1300sq.ft condo above it is "scary". how so??

Posted by: anonee at October 18, 2010 8:34 PM

So, if you have 3-5 million, if you aren't going to buy in Pacific Heights, where should you put the money?

Posted by: pacific at October 18, 2010 9:38 PM

"so a $1.1M garage with 1300sq.ft condo above it is "scary". how so??"

Because the owners paid $1,475,000 for it five years ago! And this is as Real SF as it comes.

From your comments, anonee, I think we are actually in agreement on things. Prices are still insane and will fall further. Prices from 2003-2008 were pure alice-in-wonderland, top to bottom, citywide.

Posted by: A.T. at October 19, 2010 7:13 AM

@pacific,
"So, if you have 3-5 million, if you aren't going to buy in Pacific Heights, where should you put the money?"

a very good question. with the great uncertainty the world's economies face i believe it is wise to put some of that money to work. and we have to live somewhere. and the equity and debt markets are seemingly manipulated and bubblicious...i would look for assets that act as placeholders of value. barbaric relics and housing in the richer enclaves come to mind.

when you look at how few will ever have that net worth you realize that it is silly to ask the hoi polloi for answers that they are unlikely to possess.

Posted by: anonee at October 19, 2010 8:22 AM

"when you look at how few will ever have that net worth you realize that it is silly to ask the hoi polloi for answers that they are unlikely to possess."

hee, hee. You ain't kidding.

My answer to that question would be to stick it in T-bills, retire to flyover country, and spend the rest of my life being a dilettant scholar on an amount of interest that would put me in the top 10% of household income in the country.

You remind me of an old joke.

Q: What is the one thing a rich man can never buy?
A: Enough.

Posted by: diemos at October 19, 2010 8:35 AM

Turnabout is fair play, right? That means amused needs to be called out for the following comment:

.. and the list of posters who boldly predicted it would NOT fetch $5 million:

- Michael, Louis, sleepiguy, inthemarket, eddy

I like revisiting bold, authoritative, pessimistic (and inaccurate) predictions.

Posted by: amused at August 21, 2008 12:57 PM

Why? Because I like revisiting old schadenfreude based on conventional wisdom. For the record, Louis said "i dont think it will close over $4 MIL" back in May 2008. Kudos to him! Right guess, wrong time.

Posted by: sfrenegade at October 20, 2010 7:06 PM

Eddy,

When did you start working for Mailin? Your comments stretch credibility.

Posted by: Observer at November 5, 2010 12:32 PM

@observer, I started working for the team a few years ago. They hired me to waste an inordinate amount of time on socketsite proffering my opinion on real estate in SF. The pay sucks, fyi.

disclosure: i have no affiliation with any real estate professional.

Posted by: eddy at November 5, 2010 1:35 PM

Down a mere 28%. From 2005. Real SF. 2960 Jackson, discussed above, sold.

http://www.redfin.com/CA/San-Francisco/2960-Jackson-St-94115/home/1313490

Posted by: tipster at December 9, 2010 11:16 AM

real sf, huh? an 800sq.ft. condo over a garage?

many scoff at the notion that some overpaid but i think this (and fillmore) are good examples. plenty of places sold for much less per sq.ft. that are more desirable and are certainly not down like these two.

Posted by: anonee at December 9, 2010 4:57 PM

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