According to the Franchise Tax Board, the California statewide median income for all personal income tax returns fell 5.1 percent from 2008 to 2009 ($34,079) while the median income listed on joint returns fell 5.7 percent from 2008 to 2009 ($65,025).
Marin County had the highest median income for joint returns at $108,465, a decrease of 8.6 percent from 2008. San Mateo County ranked second with $95,176, Santa Clara County ranked third with $94,209, Contra Costa County ranked fourth with $85,942, and Alameda County ranked fifth with $83,886.
San Francisco county ranked eighth in the state with a median income for joint returns of $74,348, down 5.1 percent from 2008.
∙ California Median Incomes by County: 2008 | 2009 [ca.gov]
Under current mortgage standards, this means the median San Francisco couple can afford a home of
$262,612 using a FHA loan, with 3.5% down, or
$382,506 using a non-FHA loan with 20% down
The median San Francisco person is a renter, and he’s paying 1/2 what the suckers/new comers are paying.
Fun fact grabbed 2 weeks ago. I met this guy who just got the boot from his 30-year rental. He was paying less than 600/month for a 1/1 in the 94114. He was sub-letting without telling the owner.
That’s rent control for you.
Agree with lol. Median income families in SF are subsidized by their landlords. They do not, have not and never will buy real estate.
Agree with lol. Median income families in SF are subsidized by their landlords. They do not, have not and never will buy real estate.
At least not in SF. A former neighbor of mine was an absentee renter who bought a big place in the East Bay and used his cheap SF rental as a pied-a-terre. We saw him once every blue moon. There’s nothing much a landlord can do about this.
What SFHawkguy is saying is that the median San Francisco couple can’t afford to buy a home; they’re priced out of the market.
And what the rest of us are saying is that San Francisco isn’t a normal market. 70% of the city’s inhabitant rent, compared with, presumably, 35% of inhabitants elsewhere given a homeownership rate of 65% nationally.
So the fact that an average or “median” earner can’t afford to buy an average or “median” house in the city is irrelevant. Or at least, its not news — that fact is captured in the data already.
^^^ Yeah, and it’s self-perpetuating
– market rents are too high compared to the median income
– rent controlled tenants on older leases cannot afford market rents. They cling to their places and fight very hard for the status-quo
– attempts to reform the system don’t even make it to the polls due to intense lobbying and/or activism
– Turnover on places is low, which restricts supply
– market rents are kept high due to low supply
Go back to step 1, rinse, repeat
The same thing applies to Prop 13. Social Engineering works for Social Security or Medicare, but not affordable housing. Younger generations are scr@wed by their elders.
If you think your sensible talk of how the market actually works — in the margins — will stop posters from saying “median income this, population that, therefore nobody has cash enough to buy X,Y,Z” you’re mistaken.
Yeah . . . . agree with most of the above. While the numbers might crunch out to “$262,612 using a FHA loan, with 3.5% down, or $382,506 using a non-FHA loan with 20% down”, the “median income” SF resident is WAY more interested in rent control than they are in buying.
The silver lining is that current buyer who manage to sail through the multiple storms and dead calm winds will be the future entitled masses 30 years from now. I’ll contribute to Howard Jarvis when I’m there 😉
“Median income families in SF are subsidized by their landlords.”
So you can see how this diminishes the attractiveness of being a landlord, accidental or intentional.
“…”median income this, population that, therefore nobody has cash enough to buy X,Y,Z” ….”
The key point is that the high rental population is not pent up demand, at least at current price points.
I don’t believe in landlord-ing anywhere, but particularly not on the Peninsula or in SF. I sold my last house via seller financing and am getting a 40% greater monthly payment than I would have by renting, a sizeable downpayment in advance, plus all maintenance performed by the buyer.
The landlord gig is for chumps.
(In my ever so humble opinion.)
“Median income families in SF are subsidized by their landlords”
That is true for a tiny slice of long-term renters who are paying ridiculously below-market rent. But it really has it backwards for most people. It is true that buying in SF at current prices still costs (in almost all cases) more than renting a comparable unit. But that just means we still have farther to go with this decline. It is also true that a long-term owner can profitably rent out his place, but could likely come out even better by simply selling it. That does not indicate a “subsidy” to the renter. Except for long-term rent-controlled tenants, renters are paying market rents — they would not pay more if landlords decided to stop “subsidizing” them, or landlords would just stop doing so.
“The landlord gig is for chumps.”
Though it works well on properties bought before the big run up and located far from the reach of rent control. And prop 13 sweetens the deal as the years march on.
^^^ Good. Less competing on rental property then.
Landlording can really work in the right context. Low purchase price, good tenant base, favorable timing, cooperative environment (easy eviction of deadbeats and flexible rent law).
My latest landlord is doing just fine, for instance.
Except for long-term rent-controlled tenants, renters are paying market rents — they would not pay more if landlords decided to stop “subsidizing” them, or landlords would just stop doing so.
Sorry, it doesn’t work that way. It’s very hard to get out of the rental business when you have tenants. Ellis evictions destroy resale values, will cripple any hope of condo conversion, plus the city will likely side with the tenants in court before you can do an eviction (like the Jasper Place debacle.
There’s not much freedom for most long-term landlords in SF. Prop 13 does help balance rent control, until maintenance costs become too prohibitive to make it really worth it like Jasper Place.
But someone who decides to landlord outside of SF and Berkeley at a depressed price should do OK. There are even some deals in SF that start to make real sense.
“It is true that buying in SF at current prices still costs (in almost all cases) more than renting a comparable unit. ”
While it’s reasonable to define a subsidy as just renting a unit below market rent, in some economic sense it’s also a subsidy to provide a unit for rent for less then the cost to acquire the unit by owning.
With this it is important to consider that an owner stands to realize a capital gain or loss while the renter does not. So this subsidy is best quantified ex post.
A rent controlled unit also provides a benefit to the tenant over a non rent controlled unit. In theory a landlord could charge extra for this benefit whenever there was a vacancy decontrol. But I’d argue that in practice it is difficult for a landlord to correctly price and mark up rents to account for this.
” It is true that buying in SF at current prices still costs (in almost all cases) more than renting a comparable unit. But that just means we still have farther to go with this decline. It is also true that a long-term owner can profitably rent out his place, but could likely come out even better by simply selling it”
Agree with AT here. Prices still have to come down to become more in line with rent beefore the bubble deflation is officially over. Not saying that monthly rent will be equivalent to monthly mortgage. But currently a mortgage payment is almost double the rent price of a similar unit. In 2007, it was more than double.
Spencer,
Yes, if the market were to function in a vacuum you would be correct. The prices would come down by the pure and unaltered effect of gravity. Prices too high + rent not going high enough due to stagnating wages = correction in prices.
But this world has more than one or two simple parameter. Global first: wage deflation will not go on forever and might be replaced by wages catching up on the now confirmed inflation. Local: a continued influx of affluent workers with cash to park like what we’ve seen from 2003-2009 could maintain the imbalance in purchase prices and would even make rents go up.
In short: prices would not come down to make renting out make sense, but rents would go up with general/local wages while prices stay high.
This would be very frustrating and unfair to many prudent people who deserve a break, but unfairness and frustration are 2 words that we’ve been accustomed to these past 4 years with the Bank/Wall Street bailout/impunity bamboozle.
“The landlord gig is for chumps.”
i honestly can’t believe all the current landlords in sf are a stupider class in general then the population as a whole. context is king, just because it doesn’t work for you doesn’t mean it won’t work for anyone. as a new sf landlord and a past sf renter i really don’t get all the negativity. lol is right “Landlording can really work in the right context”.
my tenants are paying well over half of my rent+taxes+insurance, before any tax benefits from the interest deduction and depreciation/amortization. my contribution is below my prior rent. i only bought after the rent to buy equation came down firmly on the side of buy. while this took several years to find and was likely impossible before 10/2008, there are opportunities out there now.
key issues: 1. buy in desirable rental neighborhoods, 2. buy and live in a 2-4 unit building, 3. don’t buy unless you pay less then a neighborhood’s ave. price per sq ft, 4. realize that the sf declared sq footage per tax records is often off by hundreds of sq ft, 5. buy only empty buildings so you start at market rates and choose your own tenants, 6. renovate to luxury so you are renting to a “last rental” renter (someone who will likely exit to buy in 1-4 years or get a job transfer, ie. professionals, dinks, people with graduate degrees).
yes it requires a lot of leg work and math, and works around the spirit of rent control, but opportunities are out there. if you are waiting for the price of a sfh to drop to the rental value of a sfh you are likely to wait a very long time. and not just in sf, try finding rent to buy neutrality in a sfh in manhattan or brooklyn or on capital hill or back bay boston or santa monica.
my area of noe is chock a block full of current legal sfh to duplex conversions or modest homes becoming mega-homes.
If you think your sensible talk of how the market actually works — in the margins — will stop posters from saying “median income this, population that, therefore nobody has cash enough to buy X,Y,Z” you’re mistaken.
You are being disingenuous. It is a slam dunk easy argument to show that SFers stretch for housing.
I’ve done so before, but you have consistently ignored this argument.
ONLY 38,509 out of 324,588 HOUSEHOLDS made more than $200k in 2009. (11.9%)
ONLY 22,216 out of 144,201 FAMILIES made more than $200k in 2009. (15.4%)
ONLY 5% of people in SF HOUSEHOLDS made more than $298,956
Let’s repeat that a different way: 95% of SF households make LESS than $298,956/year. (let’s call it $300k/yr to make it easier to type).
======
SO NOW LET’S DO THE MATH:
we’ll be generous to you.
15.4% of families make more than $200k/year.
thus: IF they put down $200k
their maximum loan amount (30 yr fixed, 4.5%, $10k/yr in property taxes.) would be $803,000.
$803,000 plus $200,000 = $1,003,000 maximum home purchase.
in other words,
That means the RICHEST 15.4% of families can only afford a home of $1M or more if they have $200k in cash for downpayment.
do you think the richest $15.4% of SFers want a $1M starter home???
hahahahahaha
==========
now let’s see about the richest 5% of SFers.
(30 yr fixed, 4.5%, annual property tax $15000).
maximum loan: $1.2M
plus 20% cash down: $300k
total house: $1.5M.
So the RICHEST 5% of SFers, can afford a home of $1.5M or more IF they have a downpayment of $300k.
do you think THEY want to buy a $1.5M home in SF?
hahahahahahaha.
==========
RE may be a market with valuations based on the margin. But EVEN THE MARGIN OF RICHEST SF FAMILIES/HOUSEHOLDS CANNOT AFFORD EVEN A MEDIOCRE HOME IN SF WITHOUT TOXIC DEBT.
This is why we saw the explosion of IO ARMs and Option ARMs in SF starting in 2000.
This is why we saw the downfall of SF RE when the credit bubble burst (“rich” SFers couldn’t get loans that they NEED to “afford” SF housing)
and this is why we saw a rebound when Mama Govt decided to SUBSIDIZE the SF home that the SF people can’t afford.
Slam dunk.
============
And LASTLY: IF you “need” an IO loan to “buy” your house, you cannot afford it.
you are then just renting from the bank and hoping for appreciation to bail you out.
so don’t try to pull out “well if you use an IO loan they can buy…”
=============
my data sets used are here.
http://factfinder.census.gov/servlet/DTTable?_bm=y&-context=dt&-ds_name=ACS_2009_1YR_G00_&-mt_name=ACS_2009_1YR_G2000_C19001&-mt_name=ACS_2009_1YR_G2000_B19013&-mt_name=ACS_2009_1YR_G2000_B19080&-mt_name=ACS_2009_1YR_G2000_B19081&-mt_name=ACS_2009_1YR_G2000_C19101&-mt_name=ACS_2009_1YR_G2000_B19113&-CONTEXT=dt&-tree_id=309&-geo_id=31200US418600667000&-search_results=01000US&-format=&-_lang=en
====
here is where I did my mortgage calcs:
http://www.dinkytown.net/java/MortgageMax.html
Sorry, ex-SF-er — since when did you start speaking for the “richest 5%” of San Franciscans? Or the 15.4% of households that can stretch into a $1M house if they so choose. Who are you to say that a well-off couple will or won’t buy a $1.5M house if they want one?
For example, a close relative of mine just bought a place in Portola Valley for close to $1.5M (as in, closed escrow yesterday) … this is their “starter home.” People buy expensive houses all the time around here.
Its you who are out of touch … please, stop talking like you know something about San Francisco. The city you left decades ago only exists in your memory.
Jimmy, an interesting anecdote in the middle paragraph. But the other two are snarky and belie “no longer bitter”
A $1.5mm starter home? Portola Valley is pretty nice, but man, I hope he/she did not put much money down. Looks like only about one home a month sells in Portola Valley, but this “apple” I found indicates about a 30% price decline from 2000 . . .
Bubbles are bubbles, even for those with money.
The average house price in Portola Valley is $4.8M. You know nothing about Portola Valley, and as a renter, nothing much about real estate either. Please, spare us your “apples.”
For example “I hope he didn’t put much money down.” OK, no one gets any kind of jumbo loan these days without significant money down. See? Learning already
OK, so from one long-term owner to a new owner, I hope he has a good financial cushion to weather the likely loss of equity. But, as I said, Portola Valley is nice and he should enjoy it there regardless.
Once again, what percentage of houses even trade, citywide? Start there. Next, stop pretending that household income for this tiny group who can afford a tiny sampleset is THE factor. One in seven, all cash. Fact.
Also I was being completely genuine previously and you proved it.
“one long-term owner to a new owner”
you get too many things wrong, too frequently, to have that sound plausible. A few weeks ago you didplayed that you didn’t even know who paid whom in a typical SFRE trancaction.
“The average house price in Portola Valley is $4.8M.”
PV is one of those places where averages are especially meaningless. It began as a town of modest 1500-2500 sq.ft ranch style houses sited on large semi-rural lots which were affordable to the upper middle class. Starting in the late 1980s those small ranch houses were often torn down and replaced with huge luxury homes. There was one new resident who bought up about ten houses, combined the parcels, and constructed a huge (I think it was 20,000 sq.ft. or so) mansion complex. That single home radically skewed the PV average.
Here are a couple of listings showing the difference available at the upper and lower lobes of the Portola Valley bifurcation.
Once again, what percentage of houses even trade, citywide? Start there. Next, stop pretending that household income for this tiny group who can afford a tiny sampleset is THE factor. One in seven, all cash. Fact.
Yes, let us start there.
a small number of homes trade every year.
I’m guessing that the people who buy those homes are in the top 20% of income earners for San Franciscans, yes?
or let’s pretend that EVERY home bought in SF EVERY year is only bought by those in the top 15% of income earners.
Most of them only make $200k-300k/year.
so where are the buyers coming from?
it’s not the same people buying again and again and again. it is a few repeat buyers and some new buyers every year. and many of those new buyers probably make… drumrolll… around or under $200k/year. (certainly most make less than $300k/year).
=======
as for “one in 7, fact”.
that hasn’t changed in quite some time (over a decade).
and that leaves the other 6/7ths of homes.
again: you and I don’t disagree. there are some people with enormous wealth out there.
but that is a very few small number of people.
======
Another interesting factoid;
If you take the RICHEST 5% of SF households, and AVERAGE (not median, mean) their incomes… it only comes to 479,837
given SF income distribution (with a few small number of people making tens if not hundreds of millions of dollars in a year), this average is probably pulled way way up, but I admit I DO NOT have the raw numbers to prove it.
that said: the homes that sell for $20M would bolster my claim.
(if you take one guy who made $100M and 10 guys who make $100k the average income is $9.18M).
so the AVERAGE person in the RICHEST 5% of SF households cannot afford that $4.8M home in Portola.
@Jimmy:
although I see a lot of ad-hominem attacks, not seeing much more to debate.
perhaps I did word myself poorly.
there are most assuredly a few people who are very well off who will purchase a starter home instead of buying a nice house.
you don’t have to prove that to me, I accept it readily, because I MYSELF bought a home well below what I could buy, and I MYSELF have a household income in the top 2-3% of San Franciscans. I bought my home at around 2x income when purchased, which quickly became 1x income (I knew my income would go up after I bought my home). I’m a young guy without a mortgage.
so I get it.
however:
if (most of) the top 5% of earners in SF are buying $1.5M Portola homes, then who is buying the $3M, $5M, $10M, $20M homes?
if most of the rich folk are buying in Portola, who buys all the Noe and Pac Heights and Sea Cliff homes?
see the problem?
sure, a FEW of the richest people can and will buy the cheaper starter homes… but SOMEBODY has to buy the expensive homes too.
if I use your example (or my life) as “the common experience” then it leaves nobody to purchase the high priced real estate…
thus, I will have to assume that most of the “most expensive” homes in SF are purchased by “the richest” of San Franciscans, and I cannot assume that the richest of SFers buy mid range or starter properties.
UNLESS:
it just a small number of people who buy ALL of the Real Estate in SF. (like the Lembi family).
but that doesn’t fit the data because last I checked about 35% of SFers owned their homes, and only 65% rented.
Perhaps now you see why I’m having difficulty finding out where these owners are coming from… if you won’t allow me to use data on the median income earner in SF (which I agree is foolhardy), or the data from the top 15% and top 5% of income earners.
===================
There is one flaw in my argument, that has been discussed here before, but I will bring it up myself.
-If the majority of people purchasing SF RE do not live in SF.
====================
lastly,
I last lived in SF full time in 1999, and left SF “for good” around 2003.
family and friends still live there.
until 2009 when my mother died, I was in SF many many weeks per year and was intimately involved in bill-paying in SF.
that has slowed the last 2 years because I’ve decided to travel more and explore the world and not restrict myself to SF.
not sure if that is “decades” ago, but ok.
Again, you are crunching income. It’s not necessarily about income. It would be interesting to know how many of the 6/7 used a large cash down payment + a manageable mortgage. And yes, as you said, for many of the people buying the types of properties featured on Socketsite they do not live in SF to begin with.
It would be interesting to know how many of the 6/7 used a large cash down payment + a manageable mortgage.
correct.
and I’ve shown you that data before, although I can’t now.
CLTV (combined loan to value) ratios skyrocketed in the country and also in SF from 2000-2007, not unexpected if one simply looked at Option ARM and IO ARM use.
if SFers were putting down big down payments then one would have seen lower CLTV ratios.
the CLTV ratio is the data that I used to predict a major RE crash.
I no longer pay for the data I once used, but you may be able to pull it from DataQuik or from LoanPerformance.
one can also pull historical data on the % of income used to pay housing costs.
it can be found in the census, at the link above, but you’ll have to go back and put that data request in.
one also saw a trend of increased % of income used to pay housing costs throughout the 2000’s, although this was not as striking because of Greenspan’s low interest rate policy of the mid 2000’s and also because of the use of IO/Option ARMs which decrease % of monthly income, however it decreases the rate at which one pays off the loan.
====
so a recap:
– based on incomes, even those with top incomes in SF (like those from the 5-15% category) would struggle to buy anything except starter places.
-loans are obviously an issue, because SF RE tracks loan availability closely.
-many/most SFers used loans and stretched based on affordability indices, loan product data, and CLTV data.
this is also seen by % of income needed for housing (which is at an unhealthy level compared to many places in country).
14% of SFers pay all cash. ok.
but 35% of SFers own a home.
so my questions as always then:
-where do the other 20% of the people come from, if not from the top 15% of SF income earners?
-why does the SF market track so closely with loan product availability if not because people need those loans?
this is where your argument breaks down.
the answer is simple:
SF is a relatively affluent city with a fair number of high income households and families that tended to use high LTV loan products in order to stretch into a home.
as those home loans dried up, SF RE suffered.
it did not collapse like other markets because there are indeed high income individuals there.
however, the story is nowhere near done, because loan product availability going forward is in question.
(how long will FHA/Fannie/Freddie cover jumbo conformings? how long will rates stay at historic low levels? how long will zombie banks be allowed to hide losses? etc).
The fact – regarding cash buyers in SF – according to Dataquick is 21.9% of SF buyers paid all cash, at least in January 2011, not 1/7.
As others noted, that is the LOWEST % in all of California with the exception of Ventura County which was a hair lower. So are we to conclude that SF has the poorest buyer pool or the buyer pool least willing/able to pay all cash? Of course not. Pct. of cash purchases says nothing about the housing market/trend or the wealth of the buyers or demand strength.
Supply and demand sets prices – not the incomes or accumulated wealth of some number of potential buyers. We can see the growing SF supply and we can see the slack demand in low sales volume. People can argue all they want about the potential wealth, etc. of some number of buyers, but the proof is in the pudding, and the results conform a lot closer to ex SF-er’s read of the data than any of the speculators’ opinions.
“14% of SFers pay all cash. ok.
but 35% of SFers own a home.”
does not lead to
“-where do the other 20% of the people come from, if not from the top 15% of SF income earners”
And I’m not sure why you would say that it does. A great many people have owned property for a long time. The market, and ownership, are not synonmyous.
68% of housing units in SF have a mortgage.
32% don’t have one.
A great many people have owned property for a long time. The market, and ownership, are not synonmyous.
very true.
which is why I follow things like CLTV.
CLTV captures how much these people owe on their homes IF they have a mortgage.
I guess I’ll ask you the question this way.
1 out of 7 people buy a house with ALL CASH.
where do the other 6 out of 7 people get the money from then?
(answer, a mortgage of course).
of those 6 out of 7 people who buy a house using a mortgage, where do they get the money from?
I am claiming that most of them get it from their income, and that most of those people are probably in the top 15% of income for all SFers.
Are you arguing that most of the people are
-not SFers?
-buying homes with non-income sources?
are you really trying to argue that most of hte people are Oil Sheiks and debutantes and out of town buyers?
if so, then why did the lack of loan availability hit SF at all? debutantes and oil sheiks never lost access to loans.
heck, even people like me (high income, in top 2-5% of SF earners if I lived in SF) NEVER lost access to loans.
Please elucidate your argument as to why these super rich people making oodles of money where they don’t even need a mortgage stopped buying SF housing when loan access was restricted, and THEN restarted buying again when loans loosened up (FHA, FANNIE, FREDDIE).
I’d like to see your hypothesis.
Yes, many people buy with non income sources. That is the point. You’re making assumptions and inserting language like oil sheiks and debutantes. I’m not interested in going down that snarky road with you.
Ex– you’re way off track here. Where did we stray into a hypothesis about oil sheiks getting loans?
I provided concrete examples of people personally known to me who bought expensive “starter homes.”
You provided … nothing in the way of data or anecdotes just a hand-waving macro-economic hypothesis that, clearly, does not apply in real life.
Start with this: how few homes actually ever sell in SF (or, heck, in the entire country) for >$10M, >$20M etc. That should give you a clue as to who is buying those kinds of properties. (Answer: very rich people).
Big houses are fun to look at but largely irrelevant to the great mass of buyers. Like looking at the price of a Bugatti … interesting, but who really cares?
Now, you suggested early on that at least 15.4% of SF households had the means to buy a $1M home.
That’s over 100,000 people capable of buying a $1M property, assuming 2 per household. I would say that, with that kind of pent-up demand waiting in the wings, that prices will remain high for quite some time.
Actually, he said 15% of families can afford a $1mm home IF they’ve saved $200k. Cuts it way down. And 35% of households already own their own home — assume that includes the lion’s share of that 15% that was already whittled down above. Also, assuming 2 per household means we start off with about 50,000 households, not 100,000.
Bottom line is that supply is rising and demand is low — we can speculate about pent-up demand or look at the facts which indicate there is not much, but a lot of “pent up supply.” Heck, only 4600 homes sold in SF in all of 2010 at any price. Even if we accept the speculation there are all these gold-plated buyers out there, they ain’t buying.
“Even if we accept the speculation there are all these gold-plated buyers out there, they ain’t buying.”
Well, obviously 4600 of them did in 2010 …
Nice try though.
Jimmy:
the oil sheik/debutante comment was snarky, it comes from 2007 when I was told that I don’t know what I’m talking about because most SF people purchasing homes were likely getting money from rich parents or likely were rich foreigners.
We used to joke that it was all debutantes and oil sheiks.
====
That’s over 100,000 people capable of buying a $1M property, assuming 2 per household. I would say that, with that kind of pent-up demand waiting in the wings, that prices will remain high for quite some time.
no.
I think you misunderstand how this data works.
there are exactly 38,509 households with this ability, and 22,216 families. (the 22,216 families make up a big part of the household number).
it is unlikely that a family will break up to buy 2 different lodgings.
For instance:
if you have a household with a dad making $1.5M per year and a mother making $3M per year, it is unlikely they will split to buy 2 SF properties.
If you have 2 parents making $500k/year annually, and a daughter making $200k/year annually, it is unlikely that she will live with her parents. she will live on her own.
thus, this really leaves only 16,000 households.
as for “pent up” supply from households…
when you break households up, their individual incomes may not hit the $200k income level above.
For instance:
if you have a household with one person making $150k and another making $85k, they make $235k/year which is the top 15.4% of households.
but if/when they split neither can buy a $1M property, because individually both are way below the top 15%.
in SF, you do obviously have some high income people who are living with other high income people (like tech workers).
(like 4 google employees all living together. that is one household with 4 potential buyers)
but that is rare, proven by how few households make less than $300k/year.
======
lastly:
I agree only a small number of homes trade hands every year.
however, a lot of the above households already own a home, and thus they are not in the market every year.
I am not sure if this “evens out” or not.
but clearly not all income earners above $200k or $300k are in the market for a home.
a high-income owner who has owned their home outright for 35 years is unlikely to be in the market for another home at this point.
So on the sales side you take the number of homes that are offered every year.
on the borrower side you take the number of people with needed income/savings/loan availability, MINUS the number of people who are not looking to buy.
========
I will stick to my claim.
SF RE will stay elevated if the government is successful at keeping loans available for SFers to use.
“Well, obviously 4600 of them did in 2010”
Well, prices continued to weaken in 2010, so 4600 sales doesn’t seem to tie up to the supply side of the equation sufficiently to keep prices from falling. For comparison, in 2005 when the free-money loans were there for the taking, there were 6400 sales. When those loans evaporated, sales volume dropped a ton and has since stayed at that lower level. Kind of leads one to believe there just may be a connection . . .
Total number of owner occupies houses is 115K.
68% of those have mortgages: 78,200 mortgages.
39,000 owner occupied houses over $1M. If 32% of those are paid off and not on the market then that is 21,760 of these with 30K+ people able to afford them.
Plus, I think there are only like 3000 sales a year in the city. A bunch of those are well under $1M. There is another group of 30K people who make between $125-$200K a year which will be looking in the lower pricing.
It seems to me there are enough people with enough income to support the amount of expensive houses.
Those are all really great numbers guys and I am impressed at how well you can multiply them by percentages to “deduce” the buyer pool. However, you are going to have to contend with these facts:
1. Some percentage of buyers will move to the city from out of town (e.g. corporate relocations).
2. Some (tiny) percentage will be buying second homes.
3. Some will be (misguided?) investors like sparky-b.
4. Some will be trading up.
5. Some will be trading down.
6. Some will be combining households due to marriage.
7. And yet others will be splitting up and buying a new house!
I could go on forever as there’s probably as many stories as there are sales in this market.
Does anyone see the problem with broad sweeping generalizations like “No one can afford a house in this market …”
In 2007, you could make a broad, sweeping, and correct generalization that loans were being made to grossly underqualified buyers all over the country. That was true and widely recognized by myself and many others.
In 2011, things are very different and yet the market is still surprisingly resilient.
It seems to me there are enough people with enough income to support the amount of expensive houses.
In general I would agree except:
1)
if SF borrower income was enough, why did CLTV ratios go up throughout the 2000’s? why the explosion of Option ARMs? do people really believe they were really just doing cash-management techniques?
2)
why does SF RE performance seem so susceptible to loan availability? (remember the sharp and rapid drop off in sales when credit tightened that improved quickly when Fannie/Freddie/FHA were “liberalized”? remember how SF RE bounced when there was the FTHB credit that many said wouldn’t affect RE at all?)
is it all just a coincidence that SF does this? (always possible)
if it is simply an income thing, credit tightening shouldn’t matter so much. Throughout even the darkest days of the credit crunch I always had loan availability to buy RE. sure, it required a high down payment, but that wouldn’t affect me… I have the cash. Other SFers should be the same since they’re rich, right?
individually, many of the arguments I’m seeing in this thread do make a certain amount of sense, and there is no doubt that they contribute to the overall health of the SF market:
-yes, SFers are relatively rich compared to other American cities. some, although very few, are obscenely rich
-yes, some SFers buy homes using money from parents, trust funds, or other non-income sources. etc
-yes, some SF home purchases are bought by out of towners.
-yes, many people bought a long time ago (but that has little to do with current home purchasers).
-yes, some people buy using all-cash.
I agree with all of the above
but I keep coming back to loans. if the majority of people are in the above categories, why is SF so dependent on loans? why does it track the rest of the country so closely in terms of its RE performance and even loan characteristics since 2002? why is it performing much like the other so-called “bubble markets” when its income level so much higher?
this is where I feel anon.ed’s and jimmy’s logic breaks down. because their model (everybody is well off and can afford SF RE) doesn’t fit what we are seeing (difficult RE market that has struggled over last 2-3 years).
my hypothesis (SFers are affluent and/or high income but home prices outshot what they could afford without stretching) not only fits what we observe, but also has predicted before-hand the trajectory of SF RE.
the Jimmy/anon.ed hypothesis simply doesn’t predict forward RE performance. I believe there is a reason for that
(their above categories of homebuyers make up an important but smaller slice of the SF RE market, whereas personal income drives most sales in SF).
In 2011, things are very different and yet the market is still surprisingly resilient.
yes, they are very different.
not sure I’d say it’s “suprisingly resilient”
it was expected (by me anyway) to be resilient in part due to continued unprecedented Federal Govt assistance.
-ZIRP
-QE2, that is targeting Treasuries which will lower mortgage rates, and is likely also targeting mortgage pricing itself
-liberalization of Fannie/Freddie/FHA to allow jumbo conforming loans.
the Federal govt has tried and failed to remove these programs.
as soon as they try, RE suffers immediately, including in SF.
this is one reason why I predicted a probable return to negative YOY numbers in SF RE way back in SUMMER 2010, when others on Socketsite were shouting “18% YOY gains!” from the rooftop.
as i’ve said:
SF RE depends on the actions of a few political heads. that remains true IMO.
the current political wind is to zombify our banking system and to pursue an echo bubble, and to bail out the banks.
======
I will be a strong believer in SF RE when it can do well at the same time that Govt is removing loan supports.
also:
I do anticipate a major surge in SF Real Estate IF our government can keep these bubbles in stocks and commodities going without crashing everything
eventually the surge will get to Real Estate, although it will take a lot of time.
also:
if employment/salary numbers continue to improve, then we may have a “real” recovery in SF Real Estate too!
so i agree with you Jimmy, the winds are changing.
it just isn’t clear to me which way quite yet.
I THINK we’re at a very important turning point, and as I’ve said for well over a month I think the turning point will be this spring.
but I’ve been wrong about turning points before, and I will be wrong again.
I think both sides of this ‘debate’ are right, which means you guys are talking a bit past each others points.
Yes, the availability of cheap high ltv loans(sometimes even over 100%) helped bolster the market and without them we are seeing the market decline. Yes there are a good number of rich people in SF that can afford to buy places and are still doing so, keeping the SF market from seeing as great of declines as some other markets.
To paraphrase your question #1:
“Why did LTVs rocket up in a climate of lax lending?”
Um, well, one reason might be that banks were handing out free, or nearly free money. Money, you know, is hard to come by. If you can get it for next to nothing, why the heck wouldn’t you get as much of it as possible?
Once you take the lid off of that borrowing monster, there’s really no limit on what you can justify buying.
Thing is, the market we see now is fairly normal. Homes take time to sell, people come to the table with significant cash downpayments (minimum 20%) and have good jobs. And yet, sales continue to happen.
There is no frenzy. There’s no special urgency. Its just a normal, boring market made up of individual transactions.
If the collapse you predict was going to happen, it would have happened already. Seriously, its time to start singing a new tune.
To answer #1. The explosion of option ARMs, in part, had to do with it being pushed on the buyer and mortgage broker as the mortgage to get. The best rate was being offered with that type of loan. Sure some people shouldn’t have qualified for it, but it was pushed on people who could as well. I was by far the best deal offered to me. It still is as well since it’s at 2.7.
Also, there are lots and lots of houses under the $1M threshold. I think people were stretching to the 700K and 800K house and those people needed loans and those places were overpriced and they were getting over asking offers and all that jazz. That is where the CLTV numbers, loan activity etc. was much higher.
Finally,
Jimmy are you saying I am a misguided investor? Not cool, I’m trying to have your back.
sparky: I’m not saying you’re misguided but Mr. Ex-SF’er and his cohort apparently are. Let’s not even start on tipster who has mercifully disappeared. I assume he’s off earning his “7-figure” income right about now.
“As others noted, that is the LOWEST % in all of California with the exception of Ventura County which was a hair lower. So are we to conclude that SF has the poorest buyer pool or the buyer pool least willing/able to pay all cash? Of course not. Pct. of cash purchases says nothing about the housing market/trend or the wealth of the buyers or demand strength.”
Actually it does say something about the housing market. It says to me that SF likely had a lower percentage of foreclosed homes being sold in January. The national & california housing numbers in January were greatly influenced by a large percentage of the sales being foreclosed homes, the market for which was dominated by people making all cash low-ball offers on the REO.
I think the trend is likely to continue for a little bit as I know my all cash purchase of a foreclosure (not in SF) won’t hit the stats until March’s numbers are in as we closed on 3/3.
So I always look forward to ebguys distressed market updates as I think the amount of REO on the market is a big factor in how quickly the market will drop or not.
Just playing. I actually don’t think SFer has cohorts either, he thinks for himself and doesn’t really fall in line with tipster, AT and the bear jamboree. Since tipster thinks any buying is bad buying I am sure he thinks I am misguided.
“Actually it does say something about the housing market. It says to me that SF likely had a lower percentage of foreclosed homes being sold in January.”
The issue here is that anon.ed and some others attempt to make the implication that all cash buys are a sign of market strength. While some data indicates that all cash buys are more representative of the low end/distressed sales.
Also note that the median down payment made by buyers with a mortgage hit zero in SF during the boom. So while I’m some people are buying completely from savings, it does seem that lending standards and the income needed to qualify for loans is very relevant when looking at housing prices.
Also note that the census data reports both earned (i.e. wage) and unearned income (interest, dividends and rent) so you can look at the amount of unearned income and deduce some information about the amount of principle needed to generate that.
Re families, I’m not sure I understood the point here, but I believe that the census defines a family as a group of related people living in the same housing unit. i.e. If mom & pop are living in a house and the son is living elsewhere, the census counts that as two families. And the mom & pop income are totaled to make one family income data point. Son provides the other family income data point.
“Thing is, the market we see now is fairly normal. Homes take time to sell, people come to the table with significant cash downpayments (minimum 20%) and have good jobs. ”
The government is backing ~90% of all new loans and the FHA is still offering 3.5% down loans. I’m not sure anyone would consider this a normal market!
Trying to draw a one-to-one correlation between households and potential homes may be trying for too much precision, but it does seem quite fruitful to look at the income distribution of local potential buyers. After all, if something like 50% of SF households made >$200k wouldn’t the situation clearly be different?
Are you trying to claim that people are buying $1M homes with 3.5% down FHA loans? Seriously??
An example of out of towners moving into SF…
“SAN FRANCISCO — In January, Mike Rowland was so broke that he had to raid his retirement savings to move here from Boston.
A week ago, he and a couple of buddies bought a two-unit apartment building for nearly a million dollars. They had only a little cash to bring to the table but, with the federal government insuring the transaction, a large down payment was not necessary.
“It was kind of crazy we could get this big a loan,” said Mr. Rowland, 27. “If a government official came out here, I would slap him a high-five.”
”
http://www.nytimes.com/2009/11/20/business/20limits.html
Note that the FHA lending limits are related to the number of units so that for a 1 unit the limit is currently $729k, you need to go for a triplex to top $1M.
While the above is an interesting single data point, the real issue is that FHA/Frannie lending allows a great number of people to bid upto $729k. And current rumblings being made by the government are to reduce this loan limit, increase fees and tighten lending standards. i.e. Fewer people will be wanting to “slap the government a high-five”
“The issue here is that anon.ed and some others attempt to make the implication that all cash buys are a sign of market strength. ”
No, my point is that you and other posters like you use inapplicable metrics. “Market strength” is something you’ve brought to this thread all by your lonesome.
If the collapse you predict was going to happen, it would have happened already. Seriously, its time to start singing a new tune.
Uh… the collapse I predicted already happened, and it happened much how I predicted.
please read my posts from 2007.
and please remember that I have never ever said that prices would fall 50% or anything close.
if I recall, my original predictions were like 20-30% off, much of it due to inflation. not sure that I was that far off.
it is not “time for me to sing a new tune” because I already stated BEFORE THE DOWNTURN BEGAN that this would take many many many years.
In fact, I even gave a date for the MINIMAL amount of time it would take. the date was Dec 31, 2011. how about that!!!! (and this is what I said before we even HAD the recession).
I am the one who coined the phrase “this will be like watching the paint dry on a painting of grass growing”.
and I meant it.
this will continue to be a very long drawn out process.
(on a side note, I did not expect that our leaders would so readily zombify our banking system. thus, I have actually pushed BACK the date of “true recovery” whatever that means).
I said that the RE downturn would take many years, that a large part of the correction would take place in real terms and not nominal terms, and that the Fed would intervene and try to reblow a housing bubble, but would instead succeed in reblowing a stock or commodity bubble.
all have happened.
if you recall: I also was the one who told everybody here back a long time ago that Stocks and Commodities would surge long before housing did. back then, the stock market was in potential free fall and many were predicting armageddon.
thus: I stand by all of my predictions, IMO they’ve been as accurate as one can be during a pseudo-centrally planed economy.
at THIS point and for the last few months:
I have stated that the market is not “normal” due to the extreme amount of govt intervention (over 90% of mortgages are govt guaranteed, Fed is undertaking Quantitative Easing II, still ZIRP, etc)
I have said there is a “Seldon Moment” that I thought would occur this spring. I have repeated that a “seldon moment” does not mean crash. it means that this is the next time period where I feel that important decisions will be made that will significantly impact US and SF RE.
to be more specific:
QE in theory should wind down this spring. Will the Fed wind it down or not? this is an answer that only a few connected people will know. But it is of critical importance to the marketplace.
how will the “bond vigilantes” and other central govts/banks respond to QEIII?
or how will the markets react to the removal of all that extra money sloshing around in the commodity/equity space?
also:
by this spring Republican lawmakers will be pushing through more of their agendas. this will also have significant impact to the markets.
also:
by this spring we should have better idea if the equity/commodity echo bubble can withstand $100-150/bb oil not to mention the obscene commodity inflation
also:
by this spring we will have more of an idea what is happening with employment.
thus:
I think this spring is the next important time period, although like I’ve said coountless times I could be wrong on that timing
timing is always a b*tch.
======
and last lastly:
I have also said that we will likely have a ka-POOM phenomenon where it starts with a downturn (ka) and then is followed by significant monetary inflation (POOM)>
I have said that at this time (POOM) housing prices may skyrocket in nominal terms, although most likely not go up much in real terms.
that POOM is not yet. But I have been and continue to watch for it.
I think we are much nearer to POOM than we once were. significant inflationary pressures are building IMO. (hence, oil/commodity echo bubble).
thus:
I have been consistent in my views
I have elucidated why
I won’t “change my tune” just because you think it’s Mission Accomplished without any data to support that claim.
It’s hard to see how incomes, CLTV and lending standards are inapplicable metrics for looking at housing prices.
We’ve been over that.
But EVEN THE MARGIN OF RICHEST SF FAMILIES/HOUSEHOLDS CANNOT AFFORD EVEN A MEDIOCRE HOME IN SF WITHOUT TOXIC DEBT.
This is alarmist, untrue, and built on flawed analysis.
Importantly, there’s absolutely no accounting for assets, which is like saying that my corner liquor store and Facebook are identical businesses because they both operationally broke even in 2010.
There’s also no attention paid to the income distribution curve, which is extremely steep at the very upper end. The numbers cited here (e.g. $300k for top 5%) is the price of entry into that particular bracket. The person next to you on either side makes significantly more/less in that section of the curve.
Also, just clinging to a pipe dream that the government will one day remove all subsidies in this (or any!) market is just that: a pipe dream. Are we all still waiting with baited breath for the government to remove the farm subsidies started the 1920s? I’m sure that will happen any second now. (What? It’s now up to $20B/year? Dang. I guess I’ll stop shorting corn…)
The republicans are going to take away the punch bowl? Um, has anyone paid any attention to politics since 1975? Clinton was the only administration that ran a surplus in the last 20+ years.
There’s no doubt that free easy money will goose any asset class but to claim that even “rich” people can’t afford a crappy home here is bullshit. (Disclaimer: My HH income is in the mid 300s and we own a 1,500 sq ft 2/2 SFR in Noe that we bought for $800k and, after a $200k remodel, it’s definitely not mediocre…)
Note that ex-SF used 5x income for his calculations which is at the higher end of pre-bubble affordability calculations. If you lump your purchase price and remodel together to get $1M that puts you around 3x income which is what most would consider a conservative pre-bubble affordability metric.
Consider ex-SF’ers analysis if most people stuck to 3x income home purchases.
On another note relating to supply, CoreLogic just released their Q4 2010 negative equity report with the SF MSA making a very good showing. Only 13% of properties with mortgages have less then 5% equity (i.e. would need cash to close) with 10% having straight negative equity. This is far below the statewide average of 36% and 32% respectively.
The LTV of outstanding mortgages for the SF MSA is 54% compared to a statewide average of 71%. (If you want to see a disaster in the making note that Las Vegas has a 127% LTV!!) Note that this is a measure of outstanding loans not a measure of LTV for newly issued loans.
Also note the MSA includes more then just SF proper.
http://www.corelogic.com/uploadedFiles/Pages/About_Us/ResearchTrends/Q4_2010_Negative_Equity_CBSA_Final.xls