April 26, 2011
S&P/Case-Shiller: San Francisco Value Decline Accelerated In Feb
According to the February 2011 S&P/Case-Shiller Home Price Index, single-family home prices in the San Francisco MSA fell 2.6% from January ’11 to February '11, down 40.5% from a peak in May 2006 and down 3.5% on a year-over-year (YOY) basis, a steady slide from the 18.3% gain reported last May and the third consecutive month of year-over-year declines.
For the broader 10-City composite (CSXR), home values fell 1.1% from January to February, down 32.5% from a June 2006 peak as values fell 2.6% year-over-year.
"There is very little, if any, good news about housing. Prices continue to weaken, trends in sales and construction are disappointing." says David M. Blitzer, Chairman of the Index Committee at S&P Indices. "Ten of the 11 MSAs that recorded index lows in January fell further in February. The one exception, Detroit, is 30% below its 2000 price level. The 20-City Composite is within a hair’s breadth of a double dip. Fourteen MSAs and both Composites have continued to decline month-over-month for more than six consecutive months as of February.
"Atlanta, Cleveland and Las Vegas join Detroit as cities with home prices below their 2000 levels; and Phoenix is barely above its January 2000 level after a new index low. The one positive is Washington D.C. with a positive annual growth rate, +2.7%, and home prices more than 80% over its January 2000 level. Other cities holding on to large gains from 11 years ago include Los Angeles (68.25%), New York (65.19%) and San Diego (55.05%)"
For the seventh time in seven months, prices fell across all three price tiers for San Francisco MSA single-family homes on a month-over-month basis. And for the fourth time in four months, home values fell on a year-over-year basis for San Francisco's top two price tiers.
The bottom third (under $316,384 at the time of acquisition) fell 1.4% from January to February (down 4.6% YOY); the middle third fell 2.5% from January to February (down 6.3% YOY); and the top third (over $580,068 at the time of acquisition) fell 2.1% from January to February, down 2.1% on a year-over-year basis.
According to the Index, single-family home values for the bottom third of the market in the San Francisco MSA have fallen back to June 2000 levels having fallen 59% from a peak in August 2006, the middle third has fallen to below April 2002 levels having fallen 41% from a peak in May 2006, and the top third has retreated to November 2003 levels having fallen 27% from a peak in August 2007.
Condo values in the San Francisco MSA fell 2.1% from January ’11 to February '11 for a 6.0% drop in value year-over-year, down 34.7% from December 2005, and 1.4% below the "double dip" that first occurred in January.
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).
∙ S&P/Case-Shiller: Home Prices Edge Closer to 2009 Lows [Standard & Poor's]
∙ S&P/Case-Shiller: San Francisco Value Decline Accelerates In January [SocketSite]
∙ May Case-Shiller: San Francisco Tiers Up But Gains Moderating Atop [SocketSite]
∙ San Francisco’s Condo "Double Dip" Is (Or Was) Here [SocketSite]
First Published: April 26, 2011 6:45 AM
Comments from "Plugged In" Readers
Well, you know, there's only so much a couple of trillion dollars of quantitative easing can do.
Posted by: diemos at April 26, 2011 8:30 AM
"the top third has retreated to November 2003 levels having fallen 27% from a peak in August 2007."
I think the CSI top 1/3 is now a pretty decent proxy for SF proper, with some places doing a bit worse and some a bit better. An example (yeah, I know CSI just records SFRs, but same result if you use the condo index; condos and SFRs move pretty much in sync):
$2,550,000 in 12/07; $1,775,000 in 4/11. Down 30.4% or $775,000.
And this is with all that stimulus diemos notes, which is (or at least may be) ending soon. Prices may stay flat or they may drop substantially, but they aren't rising any time soon.
[Editor’s Note: Royally Short On The 18th Floor At 1750 Taylor.]
Posted by: A.T. at April 26, 2011 8:47 AM
From the CS methodology: "Subsequent sales by mortgage lenders of foreclosed properties are included in repeat sale pairs, because they are arms-length transactions."
And from Dataquick: "Distressed sales – the combination of sales of foreclosed homes and 'short sales' – accounted for just over half of the Bay Area’s resale market last month."
It sounds like the market is skewed towards foreclosure/distressed sales in the winter, and these distressed prices are reflected in the CS datasets. I would guess that as traditional sales pick up in the spring/summer, the effect of distressed sales will be moderated.
Posted by: PostIt at April 26, 2011 9:00 AM
"I would guess that as traditional sales pick up in the spring/summer, the effect of distressed sales will be moderated."
I'm going to guess that "distressed sales" are pretty much going to be the market for several years.
Posted by: diemos at April 26, 2011 9:09 AM
Last night coming into Frisco it cost me $100 to fill up my pickup truck, a personal first.
Bears will have to start arguing prices in 2010 dollars, because nominal prices have only one direction they can go. There is no way any tangible property price will be able to withstand this inflation.
I am an old man. I remember the Carter days. If you put your cash under the mattress waiting for that SF house you want to buy to decline in price, the next time you check on your cash it is going to be worthless.
Posted by: unwarrantedinlaw at April 26, 2011 9:10 AM
Unless wages rise (unlikely given high unemployment), it seems likely that rising gas prices will further depress home prices, as food/gas/etc. will have to consumer a large part of each person's budget, leaving less leftover to spend on housing. I'm not convinced nominal prices for housing will start going up much (although houses near public transport will get increasingly valuable).
Posted by: dch at April 26, 2011 9:17 AM
"I'm going to guess that distressed sales are pretty much going to make the market for years"
I agree that some markets (especially bottom-tier) will be dominated by distressed sales for years, but some markets will not. I would guess that top-tier markets will not be dominated by distressed sales during prime selling season, and, as a consequence of this seasonal change in mix, we will see a disproportionate increase in top-tier CS values vs bottom-tier. Time will tell!
Posted by: PostIt at April 26, 2011 9:28 AM
Regarding fuel prices, I understand the knock-on effects but it cracks me up that I often hear people earning a few hundred grand a year (or more) complaining about fuel prices....especially when they hardly even drive.
For each dollar increase in the price of gas, someone who drives 7,500 miles a year in a 15mpg porsche would spend $500 more a year on fuel...chump change compared to other taxes and expenses.
Posted by: anon at April 26, 2011 9:35 AM
This notion that inflation will boost real estate prices is misguided, IMO. We've been experiencing a modicum of inflation in various categories for a while now, and home prices keep falling despite unprecedented government intervention and easy money.
Those waiting for inflation to cover poor financial decisions are likely to be surprised. Just as they were when the bubble popped. Given the trendline, we appear to be tracking for a double-dip, especially if conforming limits drop and mortgage rates keep rising.
Posted by: Legacy Dude at April 26, 2011 9:38 AM
Don't call it Frisco, please.
Posted by: noearch at April 26, 2011 9:56 AM
Lots of places to put money other than residential real estate and under one's mattress.
Recent commodities inflation has not led to wage growth (wage growth is driven by an undersupply of workers) and thus has simply resulted in less money in people's pockets. That is not a driver of housing inflation but just the opposite.
If "house" and "mattress" were your only two choices, the mattress beat SF housing unless you bought before about 2003 or 2004 or perhaps earlier. Beat it by a mile if you factor in the "renter's discount" that has prevailed during the past 11 years or so.
Posted by: A.T. at April 26, 2011 10:18 AM
In addition to what anon wrote, above, the people who are experiencing a material impact to their savings level or discretionary income by the recent increase in fuel prices are almost by definition not the same people with the financial wherewithal to purchase a home in San Francisco. They're already priced out, and have been for quite some time. The increase in fuel prices just sprinkles a little salt on the wound.
Posted by: Brahma (incensed renter) at April 26, 2011 10:19 AM
Ha ha! I especially like to use Frisco at the excruciating Noe Valley dinner parties my wife forces me to go to. Just say Frisco and watch the dead silence from the snivelling conformists, a precious break from listening to their screeching politics.
Posted by: unwarrantedinlaw at April 26, 2011 10:23 AM
Plenty of SF natives say "Frisco." I kinda like it, myself.
Posted by: [anon.ed] at April 26, 2011 10:39 AM
My weekly gas expenditure has jumped from $50 to $60 as a result of Obama's dollar-destroying, pro-inflation policies. The world is clearly ending ... there's no way I can survive without that extra $10 a week!
Posted by: Jimmy (No Longer Bitter) at April 26, 2011 10:44 AM
Yea, you would say that fluj..typical.
NONE of the long time SF natives I know would ever say Frisco.
Posted by: noearch at April 26, 2011 10:51 AM
I assume you're driving in from where..Stockton, Modesto, Fresno? that your wife "forces" you to go to. well, not everyone can afford Noe V. I understand your pain.
Really? she actually forces you?
Posted by: noearch at April 26, 2011 10:54 AM
But a Vanguard agent told me recently that "The America's Cup is driving tons of Asian and Europeans to snap up San Francisco properties. They can't BELIEVE how cheap the prices are here compared to Hong Kong and London!"
Posted by: mktwattcher at April 26, 2011 10:56 AM
I rarely agree with fluj, but plenty of SF natives say Frisco. I agree with unwarrantedinlaw on the particular crowd that thinks it's improper. If you get into the working class neighborhoods, which Noe Valley is decidedly not these days, it's not uncommon.
Posted by: sfrenegade at April 26, 2011 10:59 AM
Say what you will about inflation and wages, but San Francisco median family income increased from $73K in 2005 to $86K in 2009 (most recently available ACS data)- that's an 18.5% increase in income since The Bubble for an annualized wage inflation rate of 4.3% per year. Median household income increased from $57K to $70K for a 23% increase, or 5.3% annualized wage inflation rate.
In 2000 median family income in SF was $63K. Incomes increased by 36% between 2000 and 2009! This is something often ignored by people staring at the CS graph predicting a return to Y2K pricing. Just keep in mind that 100 in 2000 = 136 in 2009. Does the SF top-tier CS value of 138.79 still seem out of whack? How about the low-tier value of 113.03?
Things definitely slowed down in 2009, and it's likely that 2010 won't be a banner wage inflation year- but the point is that wage inflation has already happened here and will probably continue.
Yes, there is still ~8% unemployment in SF county. One of the problems in interpreting unemployment statistics is that it's easy to assume that the topline number means that there is significant slack in every market. It's a different story today- the majority of unemployed are in the construction and housing-services related industries whose jobs won't be coming back any time soon. This unemployment will be persistent. In contrast, in non-housing/construction labor markets there is considerable demand- think software, biotech, healthcare, etc. Didn't Google hand out a 10% across-the-board payraise last year? These industries are going to continue to grow, and competition among companies for talent will continue to push up wages.
When Apple, Google, Zynga, Facebook, Oracle, Genentech, Gilead, Amgen, et al., start to report losses on their quarterly balance sheets we will know that the ability to ratchet up payscale has been saturated. Until then, the firehose is open for a great many people.
Posted by: PostIt at April 26, 2011 11:00 AM
"NONE of the long time SF natives I know would ever say Frisco."
There's longtime resident, and there's native.
None of your friends say it. Unsurprising.
Posted by: [anon.ed] at April 26, 2011 11:08 AM
always interesting info...and certainly it's clear that housing overall is still facing downward pressure, (which changes in conforming rates and expiring ARMs can only worsen), but i'm not sure what we can say about sf proper, from the data as presented.
the SF MSA by definition does not reflect SF. 70% of the MSA's population is surrounding "bedroom communities" and another large city (oakland) - each with their own unique problems including some towns that have seen 50-80% drops in what were $400-800K/house developments, with liar loans the norm and no public transportation or conveniences in sight.
there just aren't many SFHs in sf proper priced below $580,000; much of our real estate is not only top third, but likely top fifth or sixth, which likely had an even lower rise and fall then the data graphed by CS.
the CS yellow line (top third) seems to be fairly corrected by linear regression charting (if you are a chartist). any further drop would then likely be followed by an upward hump to follow at some future date.
essentially this data is saying what most of us already know, "if you don't have to sell now, don't".
for every 1750 taylor, i'm seeing other homes, at least in my neighborhood, that are still selling at 2007-8 prices (some surprisingly so).
Posted by: modernedwardian at April 26, 2011 11:21 AM
This is an excellent chart to compare markets over at WSJ. Shows supply, yoy trend, delinquent loans.
Not sure if a subscription is reqd. Works great for me.
Posted by: Chartboy at April 26, 2011 11:26 AM
Trouble is fluj..you don't read carefully.
I did NOT say "resident" I said SF natives.
Posted by: noearch at April 26, 2011 11:32 AM
Every day is a sunny day in realtor land. Except when it isn't:
The inflation of the Carter years was a result of women entering the workforce. Every household suddenly became twice as productive. Not happening now.
ACS isn't median "family" income, it's median "household" income. It goes up when people lose their homes and double up. So 2009 is up from 2005 - not surprising. 36%? You're joking, right. My salaries are flat from 2000 and I'm inundated with applicants, which wasn't the case in 2000.
Google gave out raises to partially compensate for not giving out as much stock, their stock was the excuse they had been giving for keeping salaries under market. Even with the raise, the employees make much less than before.
I have a part time job opening right now at Stanford for the summer paying $19 per hour, no benefits. I am getting more graduating seniors, and masters candidates (!) applying than I am sophomores and Juniors. If you are the 5% of the graduating class with a CS degree, you aren't having any problems finding a job. The other 95% of the Stanford graduates are having as a brutal time as they were last year. There is no "firehose" except for maybe 3500 people in the bay area with specialized CS skills. The other millions and millions of people in the Bay Area are not getting huge raises. If you're over 45, your chance of finding any job is slim because there are more than enough 22 year olds willing to work for half.
The reality is that realtor land is looking much more like this these days (courtesy of the steps - warning: foul language):
Posted by: tipster at April 26, 2011 11:39 AM
Regarding inflation the latest Cleveland Fed 10-year inflation expectation released last week is 1.94%/year.
Also note that shelter costs account for around 30% of the CPI so when looking at house prices vs inflation it can be helpful to use CPI less shelter to avoid mixing cause and effect. Importantly too, the shelter costs used in CPI are rent and Owners Equivalent Rent rather then any measure of housing prices.
"but likely top fifth or sixth, which likely had an even lower rise and fall then the data graphed by CS." While I can't support this with hard data, I would also be inclined to believe that looking at higher price tiers would continue the trend of the lower ones with smaller rises and falls as price tiers increased.
Note though that pre-bubble the tiers tracked quite closely.
Posted by: tc_sf at April 26, 2011 11:45 AM
I know you didn't say "resident." I said that. One is either born a native or not. Time is irrelevant. That was my point. But you not knowing folks who say "Frisco" is nothing you needed to tell anybody on here. Of course you don't.
Posted by: [anon.ed] at April 26, 2011 11:57 AM
"ACS isn't median "family" income, it's median "household" income."
Looking at the number of persons per housing unit is interesting. I believe that it's been on a downtrend for quite a while.
If the trend reverses significantly, on the one hand you can get a greater household income, if there is more then one wage earner, which provides more buying power for a house. On the other hand you end up with greater supply of houses as more people pack into fewer houses.
What's particularly interesting about SF is that transaction costs & barriers for modifying the housing stock seem fairly high (Unit splits, DUMs, condo conversions,...)
Posted by: tc_sf at April 26, 2011 11:59 AM
Oh, I get fluj..Thanks for telling me what I don't need to tell anyone here.
No wonder you keep changing your name.
Always hiding on us.
Posted by: noearch at April 26, 2011 12:00 PM
Ohhh, I love that the "don't call it Frisco" debate has come up (please don't delete it editor, it's an important one).
Lived here all my life, 3rd generation San Francisco.
We do call it Frisco. Go to Excelsior, go to Silver Terrace, certainly go to Bayview... go to the places that longtime natives still live. Herb Caen - who I realize is a legend and gets his respect - had to poop all over the popular term Frisco with some bougie, high brow quotes:
"Caress each Spanish syllable, salute our Italian Saint. Don't say Frisco and don't say San-Fran-Cis-Co. That's the way Easterners, like Larry King pronounce it. It's more like SanfrnSISco."
Wealthier neighborhoods, transplants and upscale areas totally fell in line with his recommendations. The blue-collar types who wear 49ers gear 362 days a year out of 365 never did.
Posted by: Longtime-Lurker at April 26, 2011 12:02 PM
This shows the big per capita income decline for SF from '08 - '09 (second worst among bay area counties):
Don't know what 2010 brought but I wouldn't count on huge income gains to drive up home prices any time soon with stubborn high unemployment and continuing weakness in the economy. And Marin far exceeds SF in terms of incomes fwiw.
Posted by: A.T. at April 26, 2011 12:05 PM
whatever. Half the people in town and a lot of young folks use it, especially natives. File that away or not. It's a fact.
Posted by: [anon.ed] at April 26, 2011 12:05 PM
Herb Caen got it right. There was a man with class, style, wit and intelligence.
Posted by: noearch at April 26, 2011 12:42 PM
the people that complain about how you pronounce frisco are usually uptight, no-fun, pain-in-the-asses.
they are also the ones that are overly concerned with appearances.
Posted by: * at April 26, 2011 12:46 PM
""Caress each Spanish syllable, salute our Italian Saint. Don't say Frisco and don't say San-Fran-Cis-Co. That's the way Easterners, like Larry King pronounce it. It's more like SanfrnSISco.""
Yeah, really, I'm surprised that no one started a campaign to go back to using Yerba Buena to be more "authentic." It's funny how consistent the comments are about people who care about this and about people who say Frisco.
Like unwarrantedinlaw, sometimes I'll drop an F-bomb just to annoy the uptight people. Maybe I should do it while eating a Frisco sandwich from Carl's Jr./Hardee's.
Posted by: sfrenegade at April 26, 2011 12:54 PM
Supposedly Herb Caen warmed up to "Frisco" late in life:
Such balderdash dept.: A front-page story in the Daily Afterblatt yesterday assured readers that two fugitives were arrested by two rookie cops in Berkeley because they said they were from Frisco, ``the one word sure to identify them as tourists or rubes.'' The toughest guys on the old S.F. waterfront, neither rubes nor tourists, called it Frisco, and no effete journalist would have tried to correct them, either.
Posted by: anonanon at April 26, 2011 1:01 PM
Good grief. how many other names does fluj have here?
Posted by: noearch at April 26, 2011 1:29 PM
What are you talking about now, oh fake grammarian color master?
Posted by: [anon.ed] at April 26, 2011 1:41 PM
1) I'm not a realtor. I work in biotech.
2) ACS reports both median family income and median household income. Look it up for yourself: http://1.usa.gov/eF0NI4 or http://www.bayareacensus.ca.gov/counties/SanFranciscoCounty.htm
3) In 2005 there were 2.23 residents per housing unit. In 2009 there were 2.26. I don't think that doubling up is significantly affecting household income. Per capita income has increased from $39K to $44K in that period (11%). This is a dangerous stat, as it keys off of average income- a stat that is more volatile than median because of swings in income of very high earners. In 2000 per capita income was 34K- indicating a 27% increase in per capita income since the turn of the millenium. I'd argue the median household income stat is more relevant than the per capita stat, but the point is that both measures show growth in income in SF over the last decade.
4)Congrats on being a more attractive employer today than you were 11 years ago. There is more to recruiting than salary.
5)It's not about "huge raises". It's about 3% increases every year. These really add up over a decade.
A.T.- That's a timely article! I don't think anyone would argue that income growth was strong in 2008-2009, so I'm not surprised to see the pullback in incomes. Strangely median income increased in San Mateo county in this period. Who knows what that means? I try not to take too much from year-to-year observations, but I think trends over the decade are telling.
Just to be clear- I don't expect incomes to drive up housing prices any time soon either. I do expect gradually rising incomes to substantially offset the declining housing market.
Posted by: PostIt at April 26, 2011 1:54 PM
Posted by: noearch at April 26, 2011 1:54 PM
"2) ACS reports both median family income and median household income. "
I believe that the census defines "family" as a strict subset of households. (i.e. a "family" is two or more related people living together in a single housing unit). Non-family households (i.e. unrelated people living together) are presumable less likely to pool resources to purchase a house.
"3) In 2005 there were 2.23 residents per housing unit. In 2009 there were 2.26. I don't think that doubling up is significantly affecting household income."
As you point out, there hasn't been a significant reversal of the trend here yet. And I'm not sure how much of an effect any reversal would have on the SF market. But for the national market it is interesting to look at how much headroom there is.
Looking very long term, in 1940 the average HH size was 3.7 with median new home size ~1,000 sq ft. In 2000 HH size went to 2.6 with 2,135 sq ft. SF currently makes it difficult to re-purpose housing but I'm not sure this is true nationally. And even in SF it doesn't seem uncommon to see 2-3 unit buildings that were obviously a single SFH a long time ago. I also seem to recall reading an article recently about owners of mansions taking to renting out rooms to multiple tenants.
"Per capita income has increased from $39K to $44K in that period (11%)."
Note that I show the CPI increasing 9.85% over that time period:
That gives me a 0.29% annualized real wage growth.
"5)It's not about "huge raises". It's about 3% increases every year. These really add up over a decade."
Note though that with 2% inflation that yields just 1% real wage growth. Which is just about 10% compounded over a decade.
Posted by: tc_sf at April 26, 2011 3:01 PM
I think if all you 'Friscoers want a more acceptable abbreviation, consider calling it 'the Sco'. Oakland native hip-hop artist Zion I will have your back.
Posted by: Gee Ess at April 26, 2011 3:05 PM
CPI inflation will certainly deflate the real value of wage growth. That said, we pay for housing in nominal dollars, not "real" dollars. Your CPI backout doesn't seem to be appropriate in this setting.
Posted by: PostIt at April 26, 2011 3:22 PM
I'm sticking with San Farisco, as Brooke Shields called it in The Blue Lagoon.
Posted by: A.T. at April 26, 2011 3:23 PM
Zumbi is the MC, Amp Live the DJ/producer, and Zion I is the group. Yeah lots of hiphop guys have called it the 'Sco. Don't think it'll catch on, personally.
Posted by: anon.ed at April 26, 2011 3:42 PM
See third article block from an article on CNN today.
Posted by: eddy at April 26, 2011 4:07 PM
do I venture to say ... I'm from "the sucka free" sfc =)
Posted by: born in sf at April 26, 2011 4:11 PM
Something tells me not to many of Noearch's pals call it the "Sucka Free" either. And the guy who wrote the cnn travel article doesn't know his Irish pubs (Danny Coyle's) from his English pubs (Mad Dog in the Fog).
Posted by: [anon.ed] at April 26, 2011 4:16 PM
"CPI inflation will certainly deflate the real value of wage growth. That said, we pay for housing in nominal dollars, not "real" dollars. Your CPI backout doesn't seem to be appropriate in this setting."
Nearly everything is paid for in nominal dollars. The point of calculating inflation is that if I give you a 10% raise, but everything you consume now costs 10% more nominal dollars then you are no better off.
In my view stable consistent inflation around 2% is just fine. But the point of looking at "real" numbers is to disentangle real economic changes from currency devaluation.
Real wage growth of 0.29% per year does not portend any significant change in the local income landscape.
Posted by: tc_sf at April 26, 2011 4:32 PM
"Strangely median income increased in San Mateo county in this period."
Maybe they fixed the chart, but that's not what it says now:
San Mateo 69,562 2 10 -3.5
Posted by: sfrenegade at April 26, 2011 4:40 PM
sfrenegade- those data referenced in the chart are per capita numbers. I was referring to median (household or family) income in San Mateo County, from the ACS website:
San Mateo Median Household Income 2008: 84,684
San Mateo Median Household Income 2009: 85,250
San Mateo Median Family Income 2008: 100,201
San Mateo Median Family Income 2008: 101,737
Granted, the increase is marginal, perhaps even in the noise of the survey, but it certainly suggests that the per capita data might not tell the whole story.
tc_sf- I totally agree that we haven't seen substantial growth in real income, but your argument seems to hinge on the assumption that price inflation happens to everything except housing. Housing isn't special. Housing prices inflate just like any other good.
I only point this out because the CS numbers are not indexed for inflation or wage growth.
Posted by: PostIt at April 26, 2011 5:16 PM
Sorry, typo above. Should have read:
San Mateo Median Family Income 2008: 100,201
San Mateo Median Family Income 2009: 101,737
Posted by: PostIt at April 26, 2011 5:19 PM
"In 2000 median family income in SF was $63K. Incomes increased by 36% between 2000 and 2009! This is something often ignored by people staring at the CS graph predicting a return to Y2K pricing. Just keep in mind that 100 in 2000 = 136 in 2009. Does the SF top-tier CS value of 138.79 still seem out of whack? How about the low-tier value of 113.03?"
It's not ignored. However, neither Case-Shiller nor median income tell the whole story. Median prices don't tell you the whole story either (especially in an abnormal market like right now), but median prices went up 78% at the same time median household income went up 28% and median family income, as quoted by you, went up 36%. See an imbalance there? That means price to household income ratio went from 7.7 to 10.6.
It's also worth noting that 2000 was its own bubble and that inflation from 2000 to 2009 was 24.6% per usinflationcalculator.com.
Data is from here and looks like the ACS/Census numbers for income:
Posted by: sfrenegade at April 26, 2011 5:31 PM
There certainly was a run up in prices between 1997 and 2000. I'm not sure that was a bubble though. The Bay Area was a huge beneficiary of the dot.com explosion and a chunk of the nation's wealth was transferred to our shores in that period. Sure, many poorly conceived companies failed, but ultimately this period transformed the economic landscape of the region.
But let's stick to Case-Shiller numbers for housing prices. It's 1) current and 2) more informative than medians presented in the ACS data. As of February the top-tier CS is 38.79% higher than in 2000. Incomes in 2009 were 36% higher than in 2000. Things have gotten pretty close to normal.
Posted by: PostIt at April 26, 2011 5:59 PM
"but your argument seems to hinge on the assumption that price inflation happens to everything except housing. "
Inflation affects housing as well, but when combined with other factors the net prices may go up or down. But this was not my main point. You were looking at housing prices vs income. During the bubble price to rent and price to income rose sharply above historic levels. Even if all other factors are neutral, inflation does not directly help restore these to more normal values. Increasing price by 2% per year while incomes increase 2% per year is a wash.
Contrast this with the example of buying farmland mostly populated by laborers on the peninsula while silicon valley was forming. While you may have initially bought at an abnormal price to income ration, real wages increased greatly and drove up housing prices.
The "other factors", primarily the investment component of housing is exactly the reason that OER (Owners Equivalent Rent) rather then home prices is used in the computation of CPI. If you expect housing prices to rise at a 10% real annualized rate it makes sense that you'd pay more for a house then you would if your expectation was for 1% real annualized growth. The increased price of the house reflects its presumed increased value as an investment rather then a devaluation of the dollar.
Posted by: tc_sf at April 26, 2011 6:12 PM
"But let's stick to Case-Shiller numbers for housing prices. It's 1) current and 2) more informative than medians presented in the ACS data. As of February the top-tier CS is 38.79% higher than in 2000. Incomes in 2009 were 36% higher than in 2000. Things have gotten pretty close to normal."
Alternatively, let's not stick to Case-Shiller, because it's not isolated to SF. Full stop. :)
My median analysis at least gives a rough idea for historical price to income ratio for SF, even though medians are not really that great because they are subject to mix. Using Case-Shiller does not give us as much detail about SF in particular.
It also ignores tons of other factors like government intervention and the fact that housing prices are sticky and tend to go flat for an extended period of time after a housing bust.
Posted by: sfrenegade at April 26, 2011 6:49 PM
"There certainly was a run up in prices between 1997 and 2000. I'm not sure that was a bubble though."
By the way, even the most hardcore bull usually admits that the dotcom boom caused a local housing bubble. The data certainly reflect it.
Posted by: sfrenegade at April 26, 2011 6:51 PM
"5)It's not about "huge raises". It's about 3% increases every year. These really add up over a decade."
Quite possibly the most ridiculous thing even you have ever said. You are now going to compare the salary of one person at two points, and at the second point the person has ten years more experience, to try to posit that salaries have gone up?
For those who don't follow my point, I paid new college grads $44,000 in 2000. That same person, if working for me, if they got a 3% per year raise, would be making $59,000 per year. Woo hoo, the salaries in the Bay Area are on fire, right?
Wrong, because today I pay $40,000 for college grads right out of school, about 8% less than I did in 2000. My employees make less than they did in 2000. 11 years later. They all do at all salary ranges, even though the same person with 11 years of experience would make more than they did when they were a new college grad.
The 3% per year raises don't affect comparable salaries for the same level of experience. That post, though filled with your usual boosterism, made no sense whatsoever.
Posted by: tipster at April 26, 2011 10:32 PM
My weekly gas expenditure has jumped from $50 to $60 as a result of Obama's dollar-destroying, pro-inflation policies. The world is clearly ending ... there's no way I can survive without that extra $10 a week!
Although many people believe this, your minimal increase in expenditure on your gasoline isn't the problem with rising energy prices.
Energy is an input to almost EVERYTHING. It's an input to your car (gas), but people also pay for energy directly in the way of heating, cooling, and home power. Those costs can go up HUNDREDS (plural) of dollars a month.
Energy is also required to manufacture almost everything. For most products, energy is required for the construction process, packaging, and transportation/distribution. Energy is used as a raw input more than most people realize (such as using oil to make fertilizer or plastic).
Have you noticed how small ice cream containers have gotten? not long ago, they were half gallon. now 1.5 Quarts. Same thing with coffee grounds, sugar, laundry detergent, etc. (obviously not all brands have downsized, but many have).
In other words, rising energy prices lead to price appreciation of other goods, which reduces the consumer's ability to purchase. Since our GDP is 70% consumer driven, a reduction in consumer purchasing ability reduces real GDP.
In THEORY, many estimates (by Federal Reserve, IMF, etc) postulate that there is a 0.2% reduction in GDP in year one, and a 0.4 to 0.5% reduction in GDP in year two for every $10 rise in crude prices. but the numbers don't matter. it is a fact that rising energy prices negatively affects real world output.
Oil prices were about $75 a year ago. They are $112 today. $38 higher.
Many believe that oil prices hitting the $120-$130 was the tinder that sparked the emerging recession in 2007. (obviously the recession was baked into the cake for years before 2007 due to unsustainable debt).
Do you think that the US is prepared to live a prolonged life with oil in the $120+ range?
are you totally immune from a double dip recession? how about a prolonged recession that lasts for 5-10+ more years? How about if the US engages in more wars? (don't think for a second that rising commodity prices isn't IN PART a factor to the uprisings across the globe).
rising energy prices is very destructive to an economy such as ours that is dependent on cheap energy.
so yeah, I agree that few to nobody cares about the extra $10/week that "rich" San Franciscans pay for gas.
But that's hardly the point.
Posted by: ex SF-er at April 27, 2011 6:22 AM
Excellent points, ex SF-er, and right on with respect to the major theme. However, it is not all energy prices that have soared but really just oil. Granted, oil is a (the) key source of energy in today's economy, but natural gas has been at a steady low price for more than a year and coal has gone up a bit over that time but is only about half of where it was 3 years ago. High oil prices do ripple throughout the economy, but moderate prices for other energy sources dampen this effect somewhat.
On your key point that paying $4.25/gal. for gas rather than $3.00 is a huge deal, you are spot on.
Posted by: A.T. at April 27, 2011 7:12 AM
I agree with you. I had another part to my post but deleted it since it was already blabby enough.
my first ever attempt at being concise:
The problem IMO isn't that oil prices are rising. The problem is WHY they are rising. (speculation and concerns about a currency crisis).
The world and US economy is in shambles. The Fed is thus monetizing debt and has no exit strategy. This excess liquidity is (very foreseeably) causing the desired echo-bubble in stocks and more importantly unwanted commodity price appreciation- most importantly in oil, gold, silver, rice, corn. (rice and corn are the primary foodstuffs of billions of subsistence world citizens).
The Fed must monetize. there is no other way for the Govt to continue operating at this time. Fed is buying 2/3rds of Treasuries. without Fed buying, Treasury yields would have to be MUCH higher... over indebted Americans cannot handle even low rates. Our zombie banks can especially not handle them. Nor can our govt. Yet monetization is causing rampant commodity price appreciation. We are not seeing inflation because of global wage arbitrate and excess labor capacity. Thus, we are entering a state of "pseudo-stagflation".
some argue that monetization will lead to house price appreciation. I am ambivalent on that point.
if deflation takes hold nominal house prices will fall.
if inflation takes hold nominal prices could rise or they could fall, all depending on nominal income and access to debt.
If inflation happens and debt markets open up and we get wage appreciation, then nominal house prices can rise.
if inflation happens and we continue with overall wage stagnation or if debt markets do not open up, then nominal house prices can still fall.
oh well, tried to be concise. but I got a lot of info in there! :)
Posted by: ex SF-er at April 27, 2011 8:42 AM
Agree that we're in a terrible quagmire with no simple way out. And the trend toward belt-tightening is probably the worst of all policy options (see UK GDP figures released today).
I'm not as convinced as you that treasury yields will be much higher - or any higher at all - if and when the Fed stops pumping money into treasuries. The end result is just as likely to be flat or lower yields as the money flowing into stocks/commodities shrinks with a flight to safety into treasuries. Of course, this would result in big declines in stocks/commodities.
The failure to enact real bank/financial reform and take over the zombie banks is the biggest policy mistake, imho, but a predictable one.
Posted by: A.T. at April 27, 2011 9:10 AM
sfrenegade- I'll concede that the ACS data is superior to the CS data with respect to geographical scope. Touche! If only CS would report on a county-by-county basis!
I know that some people argue that there was a post-dot-com housing bubble, and by mid 2001 I think they were right. I'm not sure that January 2000 (my 2000 reference point, CS=100) was really at "bubble" levels. It all depends upon reference points I suppose. I'd argue that the runup from '95 to '00 was rooted in fundamental economic growth. Unfortunately, ACS didn't publish annual income data on a county basis before 2000, so we have to rely on other data to test this claim. The only thing I could find in this time from was BLS data from the following: http://www.laalmanac.com/employment/em11.htm
These data state that in 1995 the median household income in SF was 38K. This rose to 55K in 1999 (45% increase). The CS SF top-tier index was at 66.8 in January 1995. It was at 100 in January 2000 (49% increase). These data suggest that the runup in housing prices from 1995 to 2000 was paralleled by an increase in incomes. The continued surge in prices after January 2000 seems disconnected from incomes, so I'd agree this period looks bubbly, but keep in mind that many believe that housing prices were undervalued in 1995, so the true fair value may be somewhere between 2000 and 2001.
The 1995 income data gives another perspective on today's fair valuation. SF median family income has grew by 87% from 1995-2009. A proportional increase in the CS index value of 66.8 in Jan. 1995 would give us 124.9 for 2009. Admittedly, this is lower than the 136 that was predicted from the 2000 data set, but it gives us a framework for discussion. An important factor to keep in mind is that prevailing mortgage rates were at ~7.5-8.5% in 1995 and 2000, compared to ~5% today. That works out to a 26% reduction in monthly payment for the same loan value. Factoring in tax issues, etc., that means you can buy ~20% more house today with the same income as you could in '95/2000. A 20% increase on top of the 1995-based fair CS value of 124.9 brings us to 150! Of course, many of us are aware that there is real risk of mortgage rates rising, and that the 20% mortgage-rate bonus could evaporate rather quickly. Consequently, it's no surprise that the present CS SF top-tier value is 138.79, nicely bracketed by the 1995 income-adjusted lower bound and the mortgage-rate adjusted higher bound. Given that 1995 was pretty much the low point of the last real estate cycle, this could point to a lower-bound for our current cycle.
tipster- I can see that your personal anecdote has powerful meaning to you, but the overall stats show that median incomes have indeed risen in San Francisco. Do you really think that incomes have remained static in the San Francisco area? Do you have any evidence to back this up? Do you think that the census is fabricating numbers?
Posted by: PostIt at April 27, 2011 9:36 AM
Where I'd disagree is that Case-Shiller still doesn't give us the data on SF, so it's extremely difficult to make decisions based on it for SF. Even if we are to accept it as valid for SF, the other issue with Case-Shiller, like all data samples these days, is that it's disproportionately affected by resales of distressed homes as opposed to organic sales. For proof of this, you need look no further than the Morgan Stanley numbers posted quite a while ago.
You also haven't addressed the relative inaffordability issue I mentioned with respect to price-to-income ratio. And you haven't addressed the issue of government intervention or other external factors that have nothing to do with the intrinsic value of housing, although you have approached the issue by talking about mortgage rates and how they are likely to increase from historic lows.
Also, if I had to nitpick, you're saying that a household income increase of 87% is equivalent to a family income increase of 87%. That doesn't seem true by the data you gave for 2005 to 2009 -- family income increased by a significant percent higher than household income. It could easily be 10-15 points lower than 87.
Posted by: sfrenegade at April 27, 2011 11:02 AM
" The problem is WHY they are rising. (speculation and concerns about a currency crisis)."
As noted above the 10-year imputed inflation expectation is fairly low and nominal yields on treasuries are reasonable. By contrast Greece, where there is concern about a crisis, had the 2-year note just go past 25%
Not to say that we won't ever have a problem, but I don't see oil prices right now being indicative of a US currency crisis.
As an aside, as far as RE goes, I think that the exurbs are really going to get killed by higher gas prices. Farther from jobs and amenities requires more driving and the population probably has less disposable income then urban consumers.
" And the trend toward belt-tightening is probably the worst of all policy options (see UK GDP figures released today)."
Depends on what you tighten.
With the obvious caveat that median sq ft of a new home is not the same as average sq ft of all homes, you can make a rough ratio of the data I posted above and see that the 2,135 sq ft median house of 2000 with HH size of 2.6 people could accommodate many more people if we went closer to the 1940 3.7 HH size in 1,000 sq ft.
I don't think that there would be many ill effects for having fewer sq ft per person for people who can't really afford more. Additionally, I think that encouraging denser use of housing is a good way to prop up housing prices since it increases value rather then simply targeting price.
"how that median incomes have indeed risen in San Francisco. Do you really think that incomes have remained static in the San Francisco area?"
The issue here as with houses and cars is that the change in median of a population need not track the change experienced by individual members.
" is that it's disproportionately affected by resales of distressed homes as opposed to organic sales."
If a house is sold through normal channels (i.e. not auction) why should it matter if it was previously distressed?
Posted by: tc_sf at April 27, 2011 11:30 AM
Anecdotal and non-perminant, but here is the article I mentioned above:
Posted by: tc_sf at April 27, 2011 11:54 AM
"If a house is sold through normal channels (i.e. not auction) why should it matter if it was previously distressed?"
The issue is not whether or not a particular house was distressed -- you are correct that a distressed sale can still be a market price sale. The issue is whether the number of distressed houses is disproportionately high and whether that skews the overall data.
If I remember correctly, the Morgan Stanley data showed that distressed houses were selling at up to 18-20% higher YOY, whereas organic sales were selling at 1-2% lower YOY. If distressed houses make up more of the mix than they ordinarily would in a "normal" market, the paired pricing would drop Case-Shiller more than is really the case.
Posted by: sfrenegade at April 27, 2011 12:10 PM