S&P/Case-Shiller Index Change: April 2011 (www.SocketSite.com)
According to the April 2011 S&P/Case-Shiller Home Price Index, single-family home prices in the San Francisco MSA increased 1.7% from March ’11 to April ’11, down 39.5% from a peak in May 2006 and down 5.5% year-over-year (YOY), still a steady slide from the 18.3% gain reported last May and the fifth consecutive month of year-over-year declines.
For the broader 10-City composite (CSXR), home values increased a nominal 0.6% from March to April, down 32.6% from a June 2006 peak as values fell 3.1% year-over-year.

“In a welcome shift from recent months, this month is better than last – April’s numbers beat March,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “However, the seasonally adjusted numbers show that much of the improvement reflects the beginning of the Spring-Summer home buying season. It is much too early to tell if this is a turning point or simply due to some warmer weather.

“Other housing statistics show the same trends. Single-family housing starts were up in May, but still well below their 2010 levels and still very close to their 30-year low. Existing home sales rose in May, but are still about 15% below last year’s pace and about 35% below their 2005 pace. While foreclosures remain a large factor in most parts of the country, the S&P/Experian Consumer Credit Default indices show a small decline in the pace of new defaults since last November. Other reports confirm that banks have tightened lending standards in the past year making it harder to qualify for a mortgage despite very low interest rates.

“In the monthly details, we saw home prices increase in April over March. The 10-City was up 0.8% and the 20-City rose 0.7%. Only seven cities experienced lower prices compared to 18 in March. However, the seasonally adjusted figures saw less dramatic improvement. The annual rate of change for the 10-City remained the same at -3.1%; whereas the 20-City fell further from -3.8% reported for March to -4.0% for April. For a real recovery we would need to see several months of increasing home prices, large enough to shift the annual momentum to the positive side. In short, better news, but still a lot of questions and a long way to go.”

While prices were nominally down for the bottom third of single-family homes in San Francisco MSA, prices ticked up for the top two thirds in April, the second consecutive month-over-month gain for the top tier in eleven months.
On a year-over-year basis, however, values were relatively unchanged for the bottom two tiers and fell just under one percent for the top.
S&P/Case-Shiller Index San Francisco Price Tiers: April 2011 (www.SocketSite.com)
The bottom third (under $314,659 at the time of acquisition) fell 0.3% from March to April (down 5.4% YOY); the middle third increased 1.1% from March to April (down 7.5% YOY); and the top third (over $579,970 at the time of acquisition) ticked up 1.5% from March to April, down 3.9% 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 remain at May 2000 levels having fallen 60% from a peak in August 2006, the middle third remains at March 2002 levels having fallen 41% from a peak in May 2006, and the top third has returned to just above January 2004 levels having fallen 26% from a peak in August 2007.
Condo values in the San Francisco MSA increased 2.5% from March ’11 to April ’11, down 2.8% year-over-year, but the second consecutive month-over-month uptick in eight months. Condo values remain down 31.3% from a December 2005 peak but have reversed a two month “double dip” and 34.7% drop from peak recorded in March.
S&P/Case-Shiller Condo Price Changes: April 2011 (www.SocketSite.com)
Our standard SocketSite S&P/Case-Shiller footnote: The S&P/Case-Shiller home price indices include San Francisco, San Mateo, Marin, Contra Costa, and Alameda in the “San Francisco” index (i.e., greater MSA) and are imperfect in factoring out changes in property values due to improvements versus appreciation (although they try their best).
S&P/Case-Shiller: April Seasonal Boost in Home Prices [Standard & Poor’s]
S&P/Case-Shiller: San Francisco Top Tier And Condos Tick Up In March [SocketSite]
May Case-Shiller: San Francisco Tiers Up But Gains Moderating Atop [SocketSite]
San Francisco’s Condo “Double Dip” Is (Or Was) Here [SocketSite]

47 thoughts on “April S&P/Case-Shiller: San Francisco Benefits From A “Seaonal” Kick”
  1. Last spring saw the 2010 government induced bump. Even healthily rising prices this spring cannot match that and we’re still down y-o-y.
    As always, this is the dovetail of the greatest correction of our lifetimes. There are still very strong headwinds but SF is not doing too bad thanks to a unique micro-economic situation.

  2. Its funny – back in March 2009, CS in SF hit 117.71. At the time, alot of posters here said “nope, not good enough – im gonna wait as im sure we are NOWHERE NEAR THE BOTTOM.”
    As of today, its 132.03, a full 12% above the March 2009 levels. Even though prices are down YOY, I wonder if those bears have revised their 117.71 was NOWHERE near the bottom cries of yesteryear…

  3. It’s funny, back in June of ’05, a lot of potential sellers said real estate always goes up. Prices unsupported by incomes will continue to rrise. Blah blah blah…
    Enjoy the pathetic remains of your government induced mini bubble while it lasts. Because you can see the slope of the graph before and after it, and it isn’t a pretty sight.

  4. Jax,
    Good point. The fight is still going on I think.
    SF is right in the middle of the great global tug-of-war. On one side people who have compensated their declining global competitiveness with borrowing and are now crumbling under said debt. On the other side the world of progress and expansion. On the US scale it’s Red State rear-view-mirror-looking-lock-all-borders decline vs. Blue State progress-and-growth and embracing global competition as a way to reinvent yourself.
    It’s not as simple, but that’s the outline. CA’s deficit is shrinking thanks to growth. Housing will follow pretty soon. SF is leading.
    The big big issue for the next 2 years is whether we’ll have a “shrink-government-until-it’s-small-enough-you-can-drown-it-in-a-bathtub” second dip, or if we’ll try to grow our way out of this the way we always have.
    November 2012 will tell us where we’re going. I sure hope Obama gets the mandate he deserves. This could be Clinton 1996-2000 all over again.

  5. SF MSA at -5.5% YOY compared to -4% for the broad 20-city index. Condo prices from peak: SF MSA down 31%, LA and Chicago down 39%, NY down 13%. Broad SF MSA trend since 1987 correlates very closely with the U.S. composite. Looks to me like the bay area is nothing special as far as housing price trends go.
    June is almost over, and sales volume is looking down about 5% YOY – probably end up flat to a little down. So don’t look for any big changes in the trend in the coming months. Look for a continuing downward drift. Not another collapse in prices but a steady drift lower. No spring bounce . . . again.
    On the plus side, looks like I’m finally going to get rich on my LinkedIn stock buy.

  6. the bay area is nothing special as far as housing price trends go.
    Not.
    No difference between Vallejo’s 65% decline and SF’s 20%? In prime SF you can even see prices at or around peak. Sure you have a few 25-35% outliers in prime SF, but on average prime SF is around 1/2 the national decline, when subprime is usually twice.
    I wish we could all buy a nice updated 3/2 in NV for less than 5 times the median, but it’s tough when grannies hold on to their Prop 13s and tenant advocates vote a cushy deal year after year that keeps shrinking supply. Did I Also mention my 150K+ friends who profit from the current RE downturn and social media boom?

  7. I have been a strongly bearish poster for quite some time here (ok, not like tipster, but that’s perma-bear stuff). That said, I’m turning in my claws (somewhat).
    Unless government policies (here, and, perhaps more importantly, abroad) change drastically, the powerful trends towards income inequality will continue. As such, especially in ‘desirable’ areas, like SF, we are going to see continued long term (modest)upward pressures on real prices, as the landowners gather more property and the serfs find it in their best interests to rent.
    There is no reason to believe that we will see any signifcant real price appreciation in the SF MSA (or even SF proper) for the next 3-5 years, at a minimum. OTOH, there is also no reason (anymore) to suspect that we will see anything more than 5% nominal price declines (if that) in SF proper, and probably not in the SF MSA either.
    The flat line (or scuttling along the bottom) has now officially started. There are, of course, policy changes that could (and will) alter my analysis. Phase out of the mortgage interest deduction, lowering of the GSE limits, runoff of the GSE’s – these are important factors. The mortgage interest deduction will probably be decreased, but not for quite some time – maybe by 2020, and only for high income indivuduals. Some sort of gov mortgage support will always exist (explicit or implict), but it will change.
    Prop 13 is going nowhere fast, and it creates the most glaring distortion in CA housing, even more in SF.
    The bottom line is that we are now in mid 2011, and the housing bust has largely run its course in SF. No bullish signs anytime soon, but being a bear at these levels makes no sense (except for the thrill of permabearness).
    It’s a great time to gather your $, look around, and find that inefficiently priced home that you would like to live in. No rush, there will be no strong upward move for years – patience will rule the day.
    Barring a black swan, the major downward price pressures in SF proper will stabilize and dissipate. The upward price pressures are finally rearing their head. The balance between the too as deleveraging continues will keep prices flat in real terms for a number of years.
    For those waiting the for the Rapture, it already happened. Time to move on.

  8. “No difference between Vallejo’s 65% decline and SF’s 20%? In prime SF you can even see prices at or around peak”
    I will admit, if you told me 5 years ago that prices would be within 20% of what they are in NV I would have said you are crazy.
    I used to buy “no place is different” hook line and sinker. When places like Vallejo dropped 65%, I was adamant – just you wait, prices in prime SF will be down 65% too. And it wasnt just gonna be outliers either. It was gonna be every house in every location in and around SF at 65% off peak. No place is immune. No place is special.
    Well, reality has smacked the shit out of me in the past 5 years. Looking back, I am kinda embarassed at some of my bombasic (65% off) calls from years past. I had no idea that prime SF will hold up as well as it has – None.
    In hindsight, while I am glad I waited, I wish I had listened more to some of the reasonable bulls who said prime SF would not be in for the type of cataclysm the less than prime areas saw. That would have tempered my expectations versus the firesale I envisioned. As it was, the lack of firesale prices has been one of the most disappointing experiences of my life.

  9. Tipster: “It’s funny, back in June of ’05…”
    Thanks, Grandpa Tipster…
    “One trick is to tell stories that don’t go anywhere. Like the time I caught the ferry to Shelbyville. I needed a new heel for m’shoe. So I decided to go to Morganville, which is what they called Shelbyville in those days. So I tied an onion to my belt. Which was the style at the time. Now, to take the ferry cost a nickel, and in those days, nickels had pictures of bumblebees on ’em. Gimme five bees for a quarter, you’d say. Now where was I… oh yeah. The important thing was that I had an onion tied to my belt, which was the style at the time. You couldn’t get white onions, because of the war. The only thing you could get was those big yellow ones…”

  10. I for one am not impressed by the MOM April to March uptick since that happens almost EVERY year. (it’s just seasonal). only in the very worst downturns would April not look better than March.
    I think that the YOY mild decline is also nothing special. it’s minimal.
    we are in the long drawn out boring era of prolonged housing price adjustment that will likely go on for years and years and years, common in balance sheet recessions/credit crises.
    ======
    it’ll be interesting to see what happens this year with the looming Eurozone crisis, possible double dip US recession, possible government shutdown, and the runoff of QE2 which will probably lead to stock market difficulty and thus repeat Fed intervention (QE3, although probably will be called a different name).
    I am quite confident that the eventual resolution of the above issues will be far more important to SF RE than the IPO of a few giant tech firms. (ie: Twitter/Facebook).
    ====
    No difference between Vallejo’s 65% decline and SF’s 20%?
    I’m surprised at this strawman from you, typically your arguments are much more sound. AT specifically stated:
    SF MSA at -5.5% YOY compared to -4% for the broad 20-city index. Condo prices from peak: SF MSA down 31%, LA and Chicago down 39%, NY down 13%
    I’m sorry… how does Vallejo relate to the 20 composite index that was used as an example?
    I think few (even the most staunchest of bears) would deny that there are some differences between real estate markets. however, clearly the dominant effect of most local RE markets is the general macroeconomic climate. The major MSA markets mostly move up and down together with a few differences.
    SF is not unique in that “prime” areas are outperforming “nonprime” areas. This is a general macroeconomic trend as well in most of the major MSA’s. (do you think that Beverly Hills and East LA don’t have different trajectories right now? how about the Gold Coast of Chicago vs South Side?)
    the only “special” markets that I see right now are DC (because it is the hub of everything in our new centralized command economy) and also perhaps LV/Phoenix/Miami because they are being hit so hard and Detroit because it is literally dying.
    otherwise, SF MSA is performing a tad worse than most other MSAs but not too much worse. there are better and worse performing parts of the SF MSA, but that’s exactly like every other MSA.
    In sum, not too much “special” unless you use special to simply mean “not exactly like somewhere else” in which case everywhere is ‘special’. but then when everywhere is “special” then nowhere is special.

  11. And with all the slow-to-no growth in home price forecasts, I think you can still make a profit if you pick the right neighborhood. Some areas are seeing radical change, such as many parts of the Mission. Over the next 5-10 years prices in the mission will probably grow faster than SF average as the area is rapidly redeveloped.
    I’ve lived in or around the mission for a decade — the change is truly amazing, and it is picking up speed. You might not see it if you just visit the mission to get drunk, but if you live there and walk the neighborhoods, change is everywhere.
    local trends can outperform SF average.

  12. I’m sorry… how does Vallejo relate to the 20 composite index that was used as an example?
    The MSA is not SF-city and by far. My point was that within the wide bucket of MSA you have many different markets.
    The upper tier might be a better proxi for SF.

  13. Don’t accuse me of cheerleading, because I’m pretty much in line with polip’s assessment. But I was curious to see how this March to April bump in the CS NSA compares to other years…in other words, just how seasonal is this particular bump? The answer is that this is possibly the strongest March to April bump in a non-bubble, non-government handout year for at least 25 years. Here are the ranked years of March to April performance for the CS SFMSA, with some observations:
    2000 4.14% Dotcom Bubble yr 3
    2002 2.97% Housing Bubble yr 1
    1989 2.52% Late 80’s Bubble
    2004 2.33% Housing Bubble yr 3
    2010 2.22% Government Cheese
    1998 2.07% Dotcom Bubble yr 1
    1999 1.94% Dotcom Bubble yr 2
    1988 1.88% Late 80’s Bubble
    1997 1.88%
    2005 1.80% Housing Bubble yr 4
    2011 1.70%
    1990 1.46%
    2003 1.18%
    1994 1.02%
    1996 0.79%
    1987 0.78%
    1993 0.75%
    2006 0.69%
    2009 0.64%
    1995 0.43%
    2001 0.21%
    2007 0.18%
    1992 0.13%
    1991 -0.14%
    2008 -2.23%
    Only time will tell where we go from here, but I wouldn’t be surprised if we go back down into the low 120’s next winter.

  14. Here are a couple of graphics to illustrate the point I made above:
    http://www.businessinsider.com/home-prices-case-shiller-april-2011-6#san-francisco-down-548-year-over-year-8
    http://4.bp.blogspot.com/-NUH_Mp_MbX0/TeiYl7PegTI/AAAAAAAALfE/oHmrPLJ5c2w/s1600/Case-Shiller%2B2011-03%2BC.png
    So the SF MSA tracks the 20-city composite quite closely since 2000 – a little better during the bubble and a little worse during the ensuing crash. And in terms of actual dollars lost-per-home, the SF MSA is the clear “winner.”
    Re SF proper, not the MSA, note that “Noe Valley” is not all of San Francisco. NV has indeed held up better than the rest of SF, probably only down about 15% from peak, while the rest of SF has done anywhere from moderately to substantially worse depending on the neighborhood and home. Of course, down 15% is still a hit of historic proportions wiping out life savings, and realtors would have laughed in your face in 2006 if you had told them the best performing area in SF would see a 15% price hit in just a few years.
    Polip and ex-SFer make excellent points. I think the nominal drift in SF will be a bit more than 5% over the next few years but we’re in the same ballpark. If you buy now and hold for 10 years, you likely won’t get creamed. If you plan to hold less than that, you probably will take a hit given the transaction costs, and since it is still cheaper to rent comparable places in all but the hardest hit neighborhoods, I’d rent if you think you even might be selling within 10 years, and enjoy life with all the extra $$ you have.

  15. the serfs find it in their best interests to rent.
    I don’t disagree with you, but at least the serfs can now buy a BARTable home for $200k. This wasn’t an option during heyday of the bubble where that home was $500k to $600k. Although you do make a good point that an investor is more likely to buy that home and rent it to the serf.
    At any rate, SF continues to have an urbanization tailwind that keeps it from falling prey to the worst housing deflation, but that hissing sound it the ‘relief valve’ that I talked about above.
    BD, nice job on the ranking. It’s interesting that in the previous months (Jan, Feb) we had some of the worst percentage declines (barring the year of a bubble bust). The SF C/S Index is seesawing between these two poles. I agree with the trend of new (relative) lows come January of next year.

  16. I don’t disagree with you, but at least the serfs can now buy a BARTable home for $200k. This wasn’t an option during heyday of the bubble where that home was $500k to $600k. Although you do make a good point that an investor is more likely to buy that home and rent it to the serf.
    ______________________________________________
    1.) Actually, during the bubble, the serfs could buy a 600k home – largely due to wide open credit spigot. That same home now, at around 200-300k, is often purchased at a short or foreclosed/auction sale. The result is that financing for the ‘serf’ is no longer available (both due to tightened credit and due to the contingencies surroudning these purchases), and instead the ‘strong hand’ all cash noblemen are able to purchase at a steep discount.
    The end result is actually that the serfs not only rent more often in SF proper, but they often also rent in the suburbs, and exurbs.
    The income inequality and movement of real assets to those who have the means, foresight, and liquidity to purchase at a discount has just reinforced the long term trend (or reverted it back to its true course?) of a divergng set of the renters and rentiers. Rentiers have the means to afford the short term negative cost of carry to beget wealth to their own future and future generations. The serfs do not.
    And so it goes…

  17. A.T.
    We mostly agree I guess. I see that SF overall hasn’t lost much more than 20-21%. NV still has held its value at less than 20% loss.
    Look at Zillow’s HVI:
    SF – Top at 823 in 6/07 – Second dip at 651 in 4/11 – A 20.9% dip
    NV – Top at 1.2M in 6/08 – First dip at 967 in 1/10 – Second dip at 973 in 4/11 – A 19% dip
    The next few months could see a stronger divergence at play, especially if the second dip goes further down.

  18. polip, I don’t think the buying power of the “serfs” has been diminished all that much. Sure, anyone with a pulse got a no-down $600k loan in 2005 and never actually needed to make a single payment to stay in the home free a few years. But now you don’t need a whole lot of income or savings to get an FHA loan with 3.5% down on that 200k BARTable home (maybe the same home as the 2005 $600k purchase). The requirement that one come up with that $7000 down does cull the serf buyer pool a bit, but not all that much. Purely anecdotal, but my little girl’s former babysitter and her boyfriend (the sitter’s boyfriend, not my 3-year old’s — $25,000 income between them) just bought a cute Richmond house with an FHA loan. The bar ain’t high.
    Homeownership rates have gone down a few percentage points, but I’d wager that is equal parts serfs being shut out and qualified buyers deciding they don’t want the risks and higher costs of homeownership.
    I certainly agree with your broader point about the growing brazilianation of our economy.

  19. Most of this analysis lacks realistic balance. Tipster says the government created the bubble, but there were many factors involved such as the global savings glut and people betting their savings on housing units as poker chips. Using a Palou Avenue location only highlights the complexity of Bay Area neighborhoods. That area has more in common with East Palo Alto or West Oakland, just as Noe Valley has more in common with Rockridge and the mid peninsula than anything near Palou Avenue.
    All this stuff about bulls or bears has no meaning whatsoever. There is value and price and the rest is just talk. In the mid 1990s is recommending a home purchase based on how price relates to value would be considered bullish, but in the mid 2000s recommending getting out of the market and staying out based on how price relates to value would be considered bearish. When your metric flops around with the shifting wind, then you have only wind.
    Bay Area incomes and rents continue to rise at about 5.5% per year, so some areas will continue to gentrify. Betting big on Palou Avenue still might not be the most rational course of action. Even with homes apparently holding their value asset holders need to deal with upkeep and depreciation. Long term rent-seeking and asset holding only compete with investment and commercial activity and broken economies and societies.

  20. Ex SF er. Perhaps you misunderstood what I wrote.
    I do not deny that in SF, as in most cities, the prime areas have outperformed the marginal ones. In fact, that was in sum my point.
    I dont think I am alone in thinking we would have gotten much better deals in prime areas around SF. You may recall the notorious bear, Chris Thornburg (beacon economics) who accurately predicted that prices would crater nationwide.
    He used to go on and on about the disparity in price drops between prime and nonprime areas, and said in sum “you cant have -10% off in one area and -50% off in another area of the same MSA. The -10% off area is going down!!!
    He doesnt say that type of thing anymore.
    Again, I am glad I waited as I did get some of the price declines I expected to see. Still, had I not listened to the more reasonable people who warned prime SF may not be headed for a cataclysm the other areas are, I would have not been nearly as disappointed as I was.

  21. Over the next 5-10 years prices in the mission will probably grow faster than SF average as the area is rapidly redeveloped.
    I totally agree with Big V. Back in ’09, I thought the Dogpatch would see some good growth in the coming years. But early last year, I’ve changed my mind, and believe that the Mission is a better bet. At least for the next 5-10 years or so.

  22. Narl, yeah anyone hoping for a 2/3 off sale in SF is pretty disappointed (but see the 60% off outlier I cited above). But that doesn’t mean you are not WAY ahead of the game by waiting. Using zillow, lol argues there has been about a 21% nominal decline city-wide. I think 30% is more in-line with apples we’ve seen (some neighborhoods are better and some worse than that). But we’ve also had about 8.5% inflation since the Spring 2007 peak. So take a middle-ground 25% nominal decline and factor in inflation, and you’re still looking at a 1/3 off sale in general in SF. Sure, it’s not 2/3 off, but that is a whopping savings and a whopping loss avoided if you refused to dive into the madness.
    I think we’ve got still more to come, but even if that does not materialize, your strategy paid off handsomely and there really is no need to be disappointed.

  23. “Bay Area incomes and rents continue to rise at about 5.5% per year” (Mole Man)
    Do you have a source for that? And rents where? When you say “Bay Area”, you are including a VERY large area that includes many neighborhoods that have not performed well during this downturn. This gets back to the whole discussion about prime vs non-prime areas.

  24. polip wrote:
    > The income inequality and movement of real
    > assets to those who have the means, foresight,
    > and liquidity to purchase at a discount has
    > just reinforced the long term trend of a
    > divergng set of the renters and rentiers.
    > Rentiers have the means to afford the short
    > term negative cost of carry to beget wealth
    > to their own future and future generations.
    > The serfs do not.
    I know people with a lot of money that are paying cash for well located real estate (and often making a better return than they did wit the money in bonds or CDs), but I have not heard of any “rentiers” buying real estate with negative cash flow since the Lembis (and we know how well that worked out for them)…
    P.S. It is good to remember that a “short term negative cost of carry” can often become a “long term money sucking investment”

  25. A.T.
    Of course inflation comes into play. But affordability is mostly a factor of income. Compare your 2007 paycheck with today’s. For the same job, you’re probably on the same pay give or take 3%. A way many vanilla employers have cushioned the crisis is by freezing most pay raises.
    About opportunity, I believe we’re seeing more and more very decent deals. Things everyone wants are not part of this. But crazy plays like buildings you have to Ellis (low rent + ugly deferred maintenance) are becoming very compelling in terms of $/sf if you have 5-10 years ahead of you.

  26. Mole Man wrote:
    > Bay Area incomes and rents continue to rise
    > at about 5.5% per year
    Then anon94123 wrote:
    > Do you have a source for that? And rents
    > where? When you say “Bay Area”, you are
    > including a VERY large area that includes
    > many neighborhoods that have not performed
    > well during this downturn. This gets back
    > to the whole discussion about prime vs
    > non-prime areas.
    The prime area homes my family owns west of El Camino in Burlingame and San Mateo are all renting for more than they rented for a few years ago. The homes between El Camino and 101 are renting for about the same and the homes east of 101 (Shoreview) are renting for less than we got a few years ago (I wish all rents were going up 5.5% a year in the Bay Area and wish it even more in Sacramento where my apartment rents are DOWN about 5% over the past year)…

  27. I’ve seen a few posts about the Brazilification of America in regards to SF, an idea I have tossed around on SS for perhaps 4 years.
    I’d just like to point out that Brazlification is not necessarily as positive for SF proper as people may think.
    Many people seem to have this idea that SF proper or even SF “prime” will be relatively immune while the rest of the Bay Area or country may or may not decline/stagnate. this is not necessarily true
    As the rampant wage inequality continues, you will see more and more “have nots” which leaves less and less amount RE needed for the “haves”. The middle classes have been under pressure for decades. Next up: the upper middle classes and the high income set.
    case in point: the recent Skype debacle. don’t think for a SECOND that high finance hasn’t seen that and taken notes. the lesson is clear. Underpay a tech worker. Vest their options. Then make those vested options worthless. Anybody ever heard of that before? Anybody think this will be the last time a PE company screws over a tech company? Anybody looked over their option agreement using high priced lawyers?
    as the economic center of the Earth shifts East, will the dominant tech players remain in SF? Or will the Asian Tigers and High Finance start realizing that it’s more profitable to sell high tech gadgets in Asia that are made start to finish in Asia bypassing high cost Westerners?
    Unless government policies (here, and, perhaps more importantly, abroad) change drastically, the powerful trends towards income inequality will continue. As such, especially in ‘desirable’ areas, like SF, we are going to see continued long term (modest)upward pressures on real prices, as the landowners gather more property and the serfs find it in their best interests to rent.
    I find this line of thinking interesting, because I both agree with part of it, and disagree with part of it. There is no question that all our political elites (conservatives/liberals, Dems/Repubs, etc) are captured by big money interests and corporations. There is no question IMO that we will continue the ever lasting march to severe income inequality. Thus I agree with you here.
    where I disagree:
    Although I think SF will benefit compared to other large cities (like Detroit as example), I’m not sure that SF will improve the way that others believe. it is highly possible IMO (no way to prove of course) that we will see what I’ve called the Brazilification of America including it’s uber-cities. Thus, one could see prices shoot through the moon in Pacific Heights, do pretty well in places like Noe Valley, but absolutely plummet almost everywhere else (for instance, Bernal Heights or Potrero or SoMa etc). You could have slums near to luxury homes. You may even see currently prime nabes like Noe fall back down as the elite concentrate in the true elite nabes.
    Very similar to Rio de Janeiro or Brasilia or Sao Paolo. check the prices of RE on Ipanema Beach vs the favela that is just walking distance away. There is tremendous wealth in Rio, but it is assymetrically spread within the city and worsening over time.
    Although tech has been a bastion of economic safety and prosperity for the SF intelligentsia for a few decades now, tech can also be sold down the river just as manufacturing and farming and other fields have been over time. all it takes as an example is a trade war with China and tech will suffer immeasurably. or repeat Skype performances.
    the other concern I have is your first statement “unless govt policies change drastically”. it’s a major qualifier! The most important world currencies are under tremendous pressure right now (dollar, euro, yen, yuan). many important figures are OPENLY discussing the breakup of the Euro! Some even discuss the possibility of a US default, unthinkable even 4 years ago. people in first world countries are rioting, and this will only worsen as austerity plans are pushed onto the masses of first the peripheral Euro countries, and then onto “prime” Western countries (England, US, France, etc).
    this all of course sounds doom and gloom, and I know it.
    however, our economy is still one sick dog. We still haven’t been able to get off of Quantitative Easing.
    Thus: although I personally have felt for some time that the true elite nabes will do just fine (Pac heights, Sea Cliff, etc), I’m not sure that SF proper will do as well or even good nabes in SF such as Noe or Duboce or similar.

  28. “OTOH, there is also no reason (anymore) to suspect that we will see anything more than 5% nominal price declines (if that) in SF proper, and probably not in the SF MSA either.”
    If you look at the scale of the graph of YoY changes it seems that housing has gotten very volatile. In that context I think being euphoric about a 1.7% gain or ruling out a >5% loss seems unwarranted. The gain is certainly nice as prices were on a fairly steep downward slope before that.
    Very little has been resolved via the mortgage market (Fannie/Freddie, bank’s inventories of mortgage bonds/REO’s, extraordinary efforts by the fed,…). Not to say that it’s impossible to make a smooth landing with respect to all these issues, but rather we are still in mid-flight and I think it’s far too premature to call the housing market back to normal.
    If you look at how much of a pop just an $8k tax credit had you can pencil out that higher rates/lower limits could have more then a 5% impact on prices.
    While I do think there could be a strong negative tide against housing nationally, as other posters have eluded to I do think that SF is well positioned to swim against that tide.
    “It is good to remember that a “short term negative cost of carry” can often become a “long term money sucking investment””
    As I posted in the Buena Vista thread, you really need to look at ROI. Long term flat prices with income is very different from long term flat prices bleeding cash.
    ” Anybody think this will be the last time a PE company screws over a tech company?”
    The PE people play by different rules. If your company was expected to produce the kind of growth that VC’s want, you probably wouldn’t be owned by a PE firm.
    ” Bay Area incomes and rents continue to rise
    at about 5.5% per year”
    The thread with the SF stats put out by planning had SF median income flat in real terms from 2000 if I recall.

  29. Thus, one could see prices shoot through the moon in Pacific Heights, do pretty well in places like Noe Valley, but absolutely plummet almost everywhere else (for instance, Bernal Heights or Potrero or SoMa etc). You could have slums near to luxury homes. You may even see currently prime nabes like Noe fall back down as the elite concentrate in the true elite nabes.
    ________________________________________________
    I guess it all depends on your timeframe, and of course your frame of reference (general relativity is everywhere!).
    I would submit that Prime Pac heights has long, long ago seen its prices shoot through the moon. Changes now are mere oscillations compared to the separation that has already happened.
    Likewise, Noe is moving in that direction. The wealth creation centers (and I use wealth, very, very loosely) south of the city have driven property values higher in Noe and parts of Potrero, SObe, SOMA. Yet, right next door to a very expensive house can be a tear down, Block to block differences still exist, and I suspect will persist.
    It’s possible that 50 years from now Noe and Potrero and SOMA and Sobe will be priced at 1/2 their current value in real terms. I doubt it, but who really knows? In the shorter term, say 10-20 years, the smart money is on the fact that (assuming no changes in SF’s restricitive zoning, Prop 13, etc) at worst real prices in many of these ‘nabes’ will do no worse than flatline. Perhaps 1% real return/year is even possible.
    As you well know, when their are artifical constraints and natural constraints, we would expect to see an upward slope to real land/home prices.
    I doubt the Brazilification of SF or America will be as extreme – lots of reasons, and too many third rails to go there, but there is no doubt in my mind that the continued push towards income concentration will have a gnerally positive effect on SF real estate prices, in the short to intermediate term.
    As for the gov caveat – there always should be one. We never have and never will live in a truly non crony capitalist economy, so quite honestly, the ‘this time its different’ bit is mostly rubbish. The government has always distorted the economy to please its masters. The concern now is that we are in a massive deleveraging cycle, and instead of the partial jubilee, we now have policy prescriptions that actually create wealth concentration during deleveraging – the end results will be problematic. Then the pendulum will swing. It always does. Unless it breaks. Then this time would be different 🙂
    My point in all of this was simply that the tipster style permabear thinking played well in 2005. Not anymore. If you want to buy a house in SF, and you think you will live there for a good long time (15+ years), and you can afford it, go ahead. The obvious stuff is over now. Anything that happnes from here on out is mere chance.

  30. “The obvious stuff is over now.”
    Regarding housing finance, what factor can you name that is fixed and over?

  31. ex SF-er: I’m really struggling to understand a scenario where Noe, Bernal, SOMA & Potrero “fall back”. Sure prices may decline but those neighborhoods are unlikely to de-gentrify to the extent of either Brazil or Detroit. Many of the people who currently live in those areas would never consider living in Pac Heights or Sea Cliff. It’s a different product altogether, attracting a different buyer / renter.
    If anything genetrification will continue particularly in the Mission. (I walked Mission St between 30th and Cesar Chavez two weeks ago and I was truly surprised at the amount of new boutique stores opening. My guess is that it’s currently in developmental terms where Valencia St was about 10 years ago.)
    As for Noe regressing…it’s not going to happen! When was the last time you walked around that neighborhood? There is some serious wealth concentrated in that area.

  32. You may even see currently prime nabes like Noe fall back down as the elite concentrate in the true elite nabes.
    I don’t see this happening really. The crowd of the elite will swell in numbers, as will the entitled masses (rent control and prop 13 puts more and more people in golden cages as years go by). The ones that will get squeezed out are the middle class that didn’t have the opportunity to get into the market with a decent price.

  33. Narl – what you missed back then (and some appear to still not get from what I’ve read above) was that the top tier (proxy for SF) didn’t rise as much as the bottom tier. therefore it stood to reason it wound not fall as much either.
    Said another way, $4M Pac Heights homes, and $1M Marina condos didn’t become $12M and $3M in the last 10 years. But $250k homes in Bayview did go from $250k to $750k in a few short years….. so they are down 2/3’s.

  34. Re: The Brazilification of America, I have been always curious that if there was a continued downward spiral, would wealth continue to feel safe in Noe or would they move up to Mill Valley, Tiburon or Ross (like the former mayor did)?
    Despite the money concentration in San Francisco, I have also seen crime continue to move northward into neighborhoods that never used to see homeless or street crime like we have now.
    I am reminded of close friends who live in prime Presidio Heights who had items from their garage stolen in recent years when the lock was cut, or the story posted a while back on SS of the person in Cow Hollow who had removed the hose from their front yard because of a homeless person drinking from it (and leaving it on) only to find feces left on their doorstep as a punishment.
    Is being able to walk to coffee that important to the wealthy?

  35. anon94123….that sounds anecdotal to me. I thought statistics were still showing that crime is down overall. Certainly that’s true nationally, and it is surprising everyone that in a time of GREAT economic upheaval and distress, crime rates (both violent and property) are generally continuing to drop. It’s a bit of a socio-economic mystery. Although I believe crime dropped during the Great Depression too….

  36. Anon94123: There’s very little available housing stock in Tiburon, Ross and Mill Valley. Not everyone living in the A grade neigborhoods in the city could possibly move there even if they wanted to. Some families will no doubt move due to changes in life circumstances but to suggest that it is going to cause an exodus due to perceived safety concerns or street crime is a bit of stretch.
    More importantly, you’re missing the appeal of Noe Valley to a lot of buyers. It’s basically a self contained village in the city. It provides residents with the ideal sub(urban) experience.

  37. @willow et al,
    I have no idea what will happen to any SF nabe. I am really only throwing out alternative hypothetical possibilities. I have said for 2+ years now that forecasts are IMPOSSIBLE and I really mean it. Real estate is not a market economy, it is a centrally planned product. Thus re is political not economic.
    It has been nearly 4 years since the downturn began. I see a lot of posts above about how the worst is behind us, and that SF is special.
    I simply disagree that SF has a stable re future. SF depends too much on the global economy. It is not overly special. This does not mean it will crash. It means it is not stable.
    I will feel more comfortable with re when
    -QE is successfuly unwound and we see where mortgage rates are
    -euro situation calms
    -treasuries rates are stable without fed support
    -fannie and Freddie future is known.
    I can easily imagine mortgage rates jumping to 15% or staying at 6% over the next 5 years. I can imagine a euro breakup. I can imagine a trade war with China. These would severely limit SF re. In a side note, I believe trade wars are inevitable, but have no idea when. Americans will not tolerate austerity.
    Worse, if we don’t control the banks I foresee populist movements leading to possible war. I guess that’s not a prediction since we are already in multiple wars.

  38. So what you’re saying xsfr is that you will feel more comfortable in about 10-15 yrs. That’s about when the can kicking will end in my view.
    So then we agree. SF re is more likely than not to be stable until the can kicking ends and as long as no random chance event occur. Compared to 2006 when every single sign pointed down, that is what I call stability with a side of random chance.

  39. Polip,
    Things could also go the other way. Remember 1992-1994? People were gloomy, we had some sort of “jobless recovery”. The economy was actually mending from the previous boom-bust cycle. companies started going back into the black, hoarded cash, then invested it right after in one of the most prosperous 1/2 decade in history.
    For SF RE, this meant depressed sales and prices and no clear vision of where things would go.
    I think we’re heading for a real recovery. Our economy is still first. SF is in the top tier. We are attracting more and more talent. All we need now is the will to put the right politicians in power to do a Clinton.2 redux. Because crazy-talk Michelle Bachmann is not gonna cut it 😉

  40. Lots of potential causes for an acceleration of price declines in SF:
    Corporate debt is at record high levels
    Unemployment remains high
    The economy is now slowing, thus risking further unemployment
    Continuing housing hangover
    Except in lesser nabes, owning is still far more expensive than renting
    Nice dot-com2 bubble, but we’ve seen how quickly those can burst
    Mortgage rates will rise at some point, driving prices lower
    By contrast, there is little to nothing indicating prices going up anytime soon. As I said, if you find a place that’s priced at comparable rent and you plan to stay at least 10 years, go ahead and buy. Otherwise, rent a nicer place for less money and enjoy all the extra cash you’ll have, and avoid the risk of all of the above.

  41. Lots of good points, but I’m still in the mindset that some simple trends are occurring in a very, very, very slow manner for desirable cities
    – cities are getting safer and cleaner
    – commute costs for the burbs are getting more expensive (gas has no where to go but up, traffic the same)
    – schools, currently bad, likely will get better (very slowly)
    – high rises help, but land is still limited
    – business growth in knowledge-industries and those companies seem to be coming into, not away from, cities
    no idea what the short term will look like but i think the long term still looks good.

  42. So what you’re saying xsfr is that you will feel more comfortable in about 10-15 yrs.
    Not really, I don’t think the current situation can persist that long. There will be many big tests over the next short to medium term.
    I feel like I’ve been pretty straightforward since January 2011 or so when I told people that my next big “Seldon Moment” would be late Spring and early Summer 2011 (in other words, now). as I said back then, I was strongly bullish on stocks and commodities and neutral to bearish for RE until the end of Spring, and that then I wouldn’t have a forecast about after the Seldon moment until the hard political decisions were made. I’m simply agnostic now as I wait for those political decisions to be made.
    My first important data point comes by the end of this summer to early fall at latest. By then we will know about the end of QE2 and what Treasury rates will do without Fed support, and we’ll know if QE3 is needed(which will be called something different of course).
    Our debt limit will be raised by this year, and our current crop of leaders will have their plan for the budget in the next 6-12 months.
    Greece will likely have finally defaulted (although perhaps other lingo will be used) by the next 2 years. Thus, we’ll have more clarity on the Eurozone by then.
    Fannie and Freddie will be even more hopelessly insolvent in just a few years as well, and we’ll see what Congresscritters have in store for them.
    and lastly, by Jan 2013 we’ll have direction as to the Prez and Congress.
    Thus: I’ll make my next short to medium term forecast by the end of this year (when half my concerns are either kicked successfully or blown up), and I’m guessing I’ll have a pretty firm medium to longer term view by 2013-2014, or about 2-3 years from now.
    all that said, we all know that things can go on longer than I can remain solvent so…
    ===
    I know many see me as a hopeless bear, but it really isn’t true. I am a secular bear that sees strong cyclic bull markets within the longterm secular bear market. Thus, I have underweighted RE (espeicially high priced markets) from my portfolio and overweighted assets I feel are more likely to benefit from monetization strategies (ie stocks and commodities).
    For over 4 years I’ve talked about the ka-POOM theory which could lead to rampant asset price appreciation (including housing). I am still waiting for that to occur. I just don’t think that is yet.

  43. “So what you’re saying xsfr is that you will feel more comfortable in about 10-15 yrs. That’s about when the can kicking will end in my view.”
    If there are all these unsettled factors which could have a large effect on housing and we don’t know when they’ll occur that doesn’t really indicate stability.
    Things may settle well or they may settle badly, thats what creates the uncertainty.
    Again, I don’t see how you can think “it’s over” when we can’t think of even one significant factor that has been settled.

  44. NYT report of poll data about people’s feelings on housing.
    Only ~1,000 people so take with a grain of salt, but shows why it is complicated for politicians to pull support from the housing market.
    “Forty-five percent of the respondents say the government should be doing more to improve the housing market, while 16 percent say it should be doing less. On the politically contentious issue of direct financial assistance to those having trouble paying their mortgages, slightly more than half of those polled, 53 percent, say the government should help. And almost no one favors discontinuing the mortgage tax deduction, a prized middle-class benefit that has been featured on some budget-cutting proposals.”
    http://www.nytimes.com/2011/06/30/business/30poll.html

  45. xsfr – where we have disagreed most is the Ka-Poom.
    Will there be a Ka-Poom? Sure, but it could literally be in 50-100 years. Waiting for the Ka-Poom/indicating that it will happen is not really much of a forecast. I know that the US $ will eventually fall from its lofty reserve currency purchase. I. have. no. idea. when.
    What I do know is that we are in a truly epic deleveraging cycle. It started in 2000-2001, got reinflated then superinflated to historic proportions by 2006-2007, and now we are in year 4ish of the real reckoning. It will take many more years to complete the deleveraging of both private and public balance sheets. Soem of the hard work has been done by default/foreclosure etc etc, but all it really did was transfer many of the private liabilities to public (gov) balance sheets. While the state governments were cutting left and right over the past 2-3 years, the Federal gov has not. That too, is now coming to an end (even though it makes no sense at all to do so in the way we will and in the timeframe being proposed, but I digress). A Ka-Poom hyperinflationary blowout/currency crisis for the $ just is not possible in this deleveraging atmosphere. Yes, the day will come when the deleveraging ends, and yes, it will be virtualy impossible for the interventions to be reversed in the right time frame wihout resulting in inflation/recession/both. Nevertheless, it’s not happening anytme soon. Of course, that is unless the idiocracy in Washington decides to default in a month, in which case – well, it would be really, really bad. For the record, were that to occur, at the first sign of panic selling in USTs, I would start becoming a panic buyer. I would not be alone. Which is precisely why after the intial shock of the whole event, a US default would lead to even lower rates just months after it ocurred (oh, and QE sqaured would occur instantly).
    Again, the deleveraging is not going to end anytime soon. The Ka-oom is a speck on the horizon. SF RE is much more stable now than it was in 2006, and on balance, nationally, the pressures on price or positive not negative (in SF prper they are still negative, but only very mildly so, and in individual nabes/bldgs/blocks, they can be strongly negative or moderately positive).
    Within this long secular bear economically, we have hit the sideways phase. Within the secular bear that hit housing we are now in a very mild infant cyclical bull nationally, still cyclical sideways at best locally. Matrket forces swing back and forth, the forth is starting to happen, but housing has many. many headwinds.
    Watch inventory, not mortgage rates.

  46. xsfr. QE2 officially ends tomorrow though the mtge reinvestment portion will continue on an on-going basis. But it’s over and there will be no QE3 because of the move in core inflation. Bill Gross has suggested a cap on the 2y for 2 years as an alternative to qe3 and other suggestions will be bandied about. Equity players and the general populace are looking for QE3 but it won’t happen.
    During the 2000s we went through an extraordinary period where real estate divorced itself from what were previously thought of as fundamentals– income, demographics. People kept calling for r/e crashes but it kept getting put off. First,it was the dot-com crash, then we had Greenspan take FdFds to 1% and the 10y traded down to a then-cyclical low of 3.06% which sparked the mtge and housing boom. When rates bottomed and started higher, it started the next wave of unsustainability– the alternative financing boom– the move to IO’s, neg ams, etc. And again the crash got postponed. While we’ve had the crash in a sense since 2007, we still haven’t really felt the brunt. The govt has done ridiculous extraordinary things to pump money into the economy, keep ARM’s from resetting higher, pump up housing, banks– and the pace at which foreclosures are actually taking place leaves a backlog for decades. Is this good? No, it just stalls the problem and potentially makes it worse. So the real correction still gets put off. Dot-com bubble to real estate bubble driven by rates to real estate bubble driven by alternative financing to a government bubble. . . But . . . while . . .
    Your sense of instability is correct. 7y treasury rates have backed up 30bps in 3 days over 3 terrible treasury auctions going into the end of qe2. The Greek vote today was priced in but the trick is how to have a default without calling it a default which is what the French plan essentially plan is that German banks have been slowly embracing this week.
    But even with all that, it’s unclear to me that SF r/e has to crash even though these extraordinary factors have pumped it up. It certainly could still have a slow and major correction downward and it could take years as SF doesn’t have the same forced selling/foreclosure dynamic in the same numbers as the rest of the country. So it could be a return to fundamentals over a decade. But it is definitely not a given that that ever happens.
    Perception takes a long time to break in r/e. It’s fundamentally an amateur market in that most home buyers only go through the process a few times in their lifetimes. It is inefficient and cycles take a long time to play out.
    My view is that it is painful for buyers and sellers for many years. Buyers want the 50% correction and sellers want the good old days. We’ll have a few periods like this spring where “special” SFH’s on a few blocks in Pac hts can trade higher. And a few softer periods where negative sentiment gains sway. Smoothed, I’d guess at a slow leak for years, slower than anyone might think– and unsatisfying to r/e bears. But . . . I don’t have any more of a clue than the entrenched bears or bulls here. The cycles are long and inefficient . . .
    You do have it right– the risks are huge right now even in the near term. The debt ceiling increase creates a non-trivial possibility of a technical default in august. Geithner said august 2nd was the day but it will be somewhere around the 10th which means the Treasury refunding of Aug 3rd is in jeopardy.
    Tons and tons of risk out there from a macro standpoint– it just doesn’t mean SF r/e has to completely crash though even if these events come into fruition. Sorry if this is sloppy- it’s late, i’m tired . . .

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