November 29, 2011

San Francisco Prestige Index Up 1.0% In Third Quarter, Back To 2004

San Francisco Prestige Index: Q3 2011

The First Republic Prestige Home Index for "San Francisco" homes valued at more than $1 million and averaging $2.53 million rose 1.0 percent from the second quarter of 2011 to the third quarter of 2011, down 1.4 percent on a year-over-year basis, down 17.9 percent from a third quarter 2007 peak and equal to the third quarter of 2004.

As always, keep in mind that the "San Francisco" index includes "a cross-section of luxury homes in Alamo, Atherton, Belvedere, Danville, Healdsburg, Hillsborough, Lafayette, Los Altos, Los Gatos, Mill Valley, Moraga, Orinda, Palo Alto, Piedmont, Portola Valley, Ross, St. Helena, San Francisco, Saratoga, Sonoma, Tiburon and Woodside."

First Republic Prestige Home Index: San Francisco [firstrepublic.com]

First Published: November 29, 2011 6:45 AM

Comments from "Plugged In" Readers

By the way, if you adjust the Prestige Index for inflation, we are still below Q2 of 2000 by about 1%:

6/00 $1,942,700 335.79

CPI has gone up about 31.5% since then.

If you compare to the post-dotcom boom bottom, we're definitely below that, adjusted for inflation -- more than 5% below:

3/02 $2,124,130 367.15

CPI is up about 25.9% since then.

Also, I'm not sure if I had made this observation before, but the Q2 2001 peak is almost exactly the same as the Q3 2007 peak, adjusted for inflation. Less than 1% difference.

Posted by: sfrenegade at November 29, 2011 11:48 AM

And here is a $1mm+ "prestige" home closing today at a bit above the January 2004 sale price (much lower in real dollars), consistent with, or a little worse than, the index:

http://www.redfin.com/CA/San-Francisco/260-San-Fernando-Way-94127/home/1421858

Posted by: A.T. at November 29, 2011 1:25 PM

$50K over it's '04 price, first of all, and I thought we were going to below '00 prices. Second, Balboa Terrace a block off JPS is still prestige.

Posted by: sparky-b at November 29, 2011 2:01 PM

"Q2 2001 peak is almost exactly the same as the Q3 2007 peak, adjusted for inflation"

So are you deducing an error in your figuring, or are you trying to suggest that it was all purely inflation? Hopefuly it's the former. We're talking Q2 01 to Q2 07, locally?

Posted by: [anon.ed] at November 29, 2011 2:54 PM

"and I thought we were going to below '00 prices"

Unclear what will yet happen, but note that even using the upper end of eddie's forecast for top tier SF, +2% in 5 years would give this house a small capital gain ex selling costs, about equal to one year of property tax. With 13 years of owners premiums it would probably end up firmly ROI negative, after a 13 year hold!!

Corelogic today also reported that about 35% of CA is underwater after transaction costs. With years of FHA 3.5% DP's pumped into the market its hard to see how that number wouldn't be much worse after five years of flat prices. Without massive principal writedowns it'll be a very unstable market if prices are flat for half a decade. Seems like the stable points would have prices either going up enough to fix the problems or low enough to flush them out.

Posted by: tc_sf at November 29, 2011 3:58 PM

tc_sf, if prices turn out to be flat for half a decade, then it seems to me that the market will in fact be very stable indeed. Are you defining market stability in terms of sales volume and/or turnover?

Are you assuming that if prices are flat for five years that there's going to be a marked increase in the number of strategic defaults and thus an increase in the shadow inventory?

Even if all of that holds, I don't see it affecting the prestige index level all that much.

Posted by: Brahma (incensed renter) at November 29, 2011 5:02 PM

"So are you deducing an error in your figuring, or are you trying to suggest that it was all purely inflation? Hopefuly it's the former. We're talking Q2 01 to Q2 07, locally?"

Well, I did say Q3 2007, but I must have made an error somewhere because that doesn't make any sense.

I think I may have grabbed the wrong number somewhere or was describing the wrong year, because the Q3 2007 peak is almost 10% above the Q2 2001 peak. Maybe I misread the small (probably seasonal) 2002 peak in Q3? Not sure. I'll try to track down what happened because I'm as puzzled as you are at this point.

The reason I'd probably never mentioned it before is because it wasn't true, as written, duh. :)

I wonder how big this data set actually is, by the way. I have certainly seen some potentially Prestige Index-eligible houses with massive price cuts (outside of SF mostly), but most of them are probably significantly renovated from the prior sale, so they would generally be worth significantly more regardless and would probably be excluded from the dataset as a non-apple. It's hard to find apples in this category.

Posted by: sfrenegade at November 29, 2011 5:17 PM

"tc_sf, if prices turn out to be flat for half a decade, then it seems to me that the market will in fact be very stable indeed. "

Well, in the sense that I'd still expect future price volatility at that point to be high. Somewhat in the same sense that now waking up every day to multi-hundread point swings in the dow indicates some market instability.

I do think that people are far more likely to default when underwater, especially with a monthly loss (owners premium). They certainly have less skin in the game. Even 35% underwater is already a large amount, especially combined with "shadow inventory" in the REO pipeline.

Posted by: tc_sf at November 29, 2011 5:27 PM

Homes are a place to live and not an investment vehicle for speculation. Socket is obviously stuck in that bubble-era mentality that links home ownership to wealth

Socket, please ...

Posted by: hkhkh at November 29, 2011 5:44 PM

SocketSite is merely pointing out that market conditions happen to have wiped out a decade of appreciation. This is relevant to reader interests.

Posted by: Mole Man at November 29, 2011 8:00 PM

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