May 29, 2012
S&P/Case-Shiller San Francisco: Condo Prices Jumped In March
According to the March 2012 S&P/Case-Shiller Home Price Index, single-family home prices in the San Francisco MSA gained 1.0% from February 2012 to March 2012 but remain down 3.0% year-over-year, down 42.3% from a peak in May 2006.
For the broader 10-City composite (CSXR), home values fell a nominal 0.1% from February to March, down 2.0% year-over-year, down 35.1% from a June 2006 peak.
"While there has been improvement in some regions, housing prices have not turned," says David M. Blitzer, Chairman of the Index Committee at S&P Indices. "This month’s report saw all three composites and five cities hit new lows. However, with last month’s report nine cities hit new lows. Further, about half as many cities, seven, experienced falling prices this month compared to 16 last time."
"There are some better numbers: Only three cities – Atlanta, Chicago and Detroit – saw annual rates of change worsen in March. The other 17 cities and both composites saw improvement in this statistic, even though most are still showing a negative trend. Moreover, there are now seven cities – Charlotte, Dallas, Denver, Detroit, Miami, Minneapolis and Phoenix – where the annual rates of change are positive. This is what we need for a sustained recovery; monthly increases coupled with improving annual rates of change. Once we see this on a broader level we will be able to say the market has turned around."
On a month-over-month basis, single-family prices fell for the bottom third of San Francisco price tiers but gained for the top two thirds.
The bottom third (under $298,966 at the time of acquisition) fell a 0.8% from February to March (down 3.1% YOY); the middle third gained 0.6% from February to March (down 1.7% YOY); and the top third (over $536,757 at the time of acquisition) gained 1.5% from February to March, down 1.0% year-over-year (versus 1.7% in February).
According to the Index, single-family home values for the bottom third of the market in the San Francisco MSA have dropped to just above April 2000 levels having fallen 61% from a peak in August 2006, the middle third has dropped to February 2002 levels having fallen 42% from a peak in May 2006, and the top third has returned to November 2003 levels having fallen 28% from a peak in August 2007.
Condo values in the San Francisco MSA jumped 4.2% from February '11 to March '12 but remain down 4.9% year-over-year, down 36.3% from a December 2005 peak.
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: Pace of Decline in Home Prices Moderates [Standard & Poor's]
∙ S&P/Case-Shiller San Francisco: Home/Condo Prices Dropped In Feb [SocketSite]
First Published: May 29, 2012 6:45 AM
Comments from "Plugged In" Readers
So the realtors who have assured us that SF prices are up "at least 10%" this year are wrong again! Who would have guessed?
With facebook flirting with $30 and zynga dipping below $6, I guess we're not going to see the promised flood of cash into the local housing market. Well, um, the next big thing that is certain to end the 5 year slump is, well, just trust me . . . you better buy now!
Posted by: anon at May 29, 2012 8:54 AM
"So the realtors who have assured us that SF prices are up "at least 10%" this year are wrong again"
Maybe. Maybe not. But this report doesn't tell us.
"The S&P/Case-Shiller home price indices include San Francisco, San Mateo, Marin, Contra Costa, and Alameda in the "San Francisco" index"
Posted by: R at May 29, 2012 9:27 AM
I'm not going to support your need for faux remedial instruction, "anon."
Posted by: anon1 at May 29, 2012 10:25 AM
OK, "Ken", there's no need for it, so your lack of "support" is not a problem! LOL
Posted by: anon at May 29, 2012 10:42 AM
Ha. You can't even be a bad actor right.
Posted by: anon1 at May 29, 2012 11:14 AM
Well, I don't think anyone is disputing that SF prices have been rising lately - that much is clear to anyone who has recently been out there writing offers, although the amount of increase probably varies widely by neighborhood. My observations are based on Soma, which is the only area I follow.
But it's a weird market in general - tough to gauge how much of the recent bump has been driven by tech hype, which may subside soon.
Posted by: Legacy Dude at May 29, 2012 11:15 AM
Legacy Dude, I agree but prices started rising in SOMA before Facebook announced their IPO, especially rental rates. Rental rates seem to have been driving the bottom end, since it makes some financial sense on some of the more inexpensive units in places like the Beacon.
I guess we'll see in the upcoming months whether or not inventory returns to a more normal level without people trying to 'beat the Facebook' rush.
Although even with the drop in Facebook share prices, it's still probably high enough to make a significant down payment for a large number of employees as their shares vest. I would guess it will help prices more over the long term rather than the large spike so many were predicting.
Posted by: RobBob at May 29, 2012 12:10 PM
When do the shares vest again? How much is an average employee supposed to get? $1M after taxes?
Posted by: anon at May 29, 2012 1:10 PM
@ RobBob: Yes, but I think rents could also fall if the hype subsides, as many of the apartments in Soma have been rented/subsidized by tech companies for corporate housing (again, just my anecdotal observation). We'll see in a few months.
But I agree that, generally speaking, the long-term trends in Soma are pretty positive. At least I'm bullish enough on the area to buy property here, FWIW.
Posted by: Legacy Dude at May 29, 2012 1:21 PM
For you history buffs, the last time the SF C/S Index turned the corner in February (relative minima) was in 1994. At that time, the Feb to March jump was .87%.
Posted by: EBGuy at May 29, 2012 1:41 PM
Lets look at one of those facebook millionaires.
Got granted 30,000 RSUs when shares were trading for $3 in late 2009, took a $30K hit (or more) to salary for the last 2.5 years, $75K hit so far.
15,000 shares vested by the IPO. @38 per share, he had paper wealth of 30,000*38= $1.14M. Woo hoo!! Lets go buy big houses in Pac Heights!!
Not. So. Fast.
He owes 285K in taxes this year and took a 75K hit to salary, so it cost him $360K so far. If he sells all his vested shares at todays price, he gets $29 per share x 15,000=$435K. Subtract his $360K cost. So he ends up with a whopping $75K over and above his normal salary.
This is someone the media would have reported as having more than a million dollars in FB stock.
The reality is quite different. That person has $75K to spend this year from this endeavor, plus a salary.
A really good car costs more. To be sure, there are a couple of hundred people who did as good or better, and many thousands who did worse. Will it make a difference? Sure. Will it be anywhere the hype that was expected? Nope.
Posted by: tipster at May 29, 2012 1:55 PM
Why would you pay $285k in taxes when you sell stock for $435k? Am I missing something?
Posted by: Alai at May 29, 2012 2:18 PM
When it comes to stock options, let's not confuse "vest" with "lock up."
Vest is simply when a stock option can be exercised based on employment duration. Lock up is the 3 and 6 month period after the IPO during which employees are prohibited from selling stock.
Once a stock option vests, the owner of the option has the right, but not the obligation, to pay the strike price and exchange the stock option for a share of equity. But if a company is private, even if the company's market cap has increased, employees rarely exercise their stock options because they don't have the cash on hand to pay the exercise price (or resultant taxes), and there's no liquid market for them to sell their stock to help them raise the necessary cash.
Facebook is different because their employees have had the ability to sell stock in a reasonably liquid fashion for at least three years.
For most companies, stock options vest over a 4 year period. Usually 25% vests at the end of the first year, and then it's monthly vesting for the remaining 36 months. Frequently, employees get new stock option grants every year, but the strike price is usually higher, and the number of options is usually much smaller than the initial grant.
Anybody who has been at Facebook for several years has likely exercised stock options as they've vested, sold the shares, and pocketed the proceeds. They've already bought new homes, vacation homes, and BMWs.
Anybody who has joined Facebook in the last year is likely to have an exercise price above the current share price (called "under water"), so even when the options vest, and even when the lock up is removed, it doesn't make economic sense for them to exercise their stock options.
The lock ups for FB are removed 3 and 6 months after the IPO, but when considering the sheer volume of stock options involved, one must also consider whether they are under water and whether they have vested. Even for options that are slightly above water, it doesn't make sense to sell them if you think there's a good chance the stock will move up strongly in the next 3-5 years.
So this idea that there will be a flood of Facebook money 3 and 6 months from now is not quite right, since all employees have had liquidity for the last 3 years. It's the early employees who have the biggest grants and lowest exercise prices who stand to make the most money, BUT they've already done so selling their stock at steady intervals during the 3 years leading up to the IPO.
Posted by: DataDude at May 29, 2012 2:20 PM
"When it comes to stock options, let's not confuse 'vest' with lock up.'"
When it comes to Facebook, let's not confuse stock options with RSUs.
Posted by: anon at May 29, 2012 2:32 PM
Is $3 RSU in late 2009 a real data point for Facebook, or are you just throwing out there for illustration?
Also, an RSU is a restricted stock unit, which (if I understand correctly), is NOT the same thing as a stock option.
RSUs function like stock options with a $0 strike price. They vest just like stock options, but there's no exercise price, so I'm not sure how $3 fits in to your example.
Posted by: DataDude at May 29, 2012 2:33 PM
Most of FB's RSUs only vest 6 months after a liquidity event.
Posted by: anon at May 29, 2012 2:37 PM
If a FB employee has 20,000 RSUs that have vested, once the lock up is lifted, these shares become taxable compensation that day.
So if the stock is trading at $20, that's $400,000 in taxable compensation.
It might be tempting to wait a few months before selling, hoping the stock goes up, but what if the stock goes down to $10 and then you get nervous and sell?
Your cash proceeds are $200,000, but you still have to pay tax on the $400,000 of compensation that was generated the day the lock up was lifted.
That's why we'll likely see tons of selling on the day the lock is lifted, because for anybody holding RSUs (usually executives only), they will be taxed on the compensation generated that day (even if they don't sell). This will create downward pressure on prices (which is another reason to sell ASAP).
Posted by: DataDude at May 29, 2012 2:48 PM
I don't know the details of FB's RSUs, but this is not necessarily true:
"once the lock up is lifted, these shares become taxable compensation that day."
With many RSUs you can postpone for a period or until you want to sell..
Posted by: R at May 29, 2012 2:53 PM
How Are Restricted Stock and RSUs Taxed?
Restricted stock and RSUs are taxed differently than other kinds of stock options, such as statutory or nonstatutory employee stock purchase plans (ESPPs). Those plans generally have tax consequences at the date of exercise or sale, whereas restricted stock usually becomes taxable upon the completion of the vesting schedule.
Posted by: DataDude at May 29, 2012 2:57 PM
Exactly, good find.
Posted by: R at May 29, 2012 3:00 PM
way more complicated than that. A recipient of an RSU grant can also make a section 83(b) election to have the value fixed, and taxed, at an earlier date. This is common when the recipient expects the stock value to increase because later gains are then taxed at far lower capital gains rates. But this really bites you if the stock falls post-election. Who knows what FB employees did, but it is a fair bet that a significant number made this election at IPO time.
Posted by: anon at May 29, 2012 3:06 PM
The RSUs are taxable as compensation upon vesting. The RSUs earned over time before the IPO vested at the IPO.
In the case of facebook, the RSUs could be traded for stock that was worth $38 at the vesting date.
Thus, they owe $19 per share for the RSUs in taxes (50% tax rate assumed).
See point 2:
You can elect to pay taxes sooner, though not later, than your vesting date. But then you owe the taxes even if they never go public or you quit and don't get the shares. People may have done this near the IPO date, but at $38-$42 per share.
Note that the fb vested RSUs are tradeable for restricted stock. They own the shares but can't sell them until the lockup is over. Normally, that's goodness as you pay taxes on the difference between what you got them for and what you sold them for at long term capital gains rates if you hold them for a year, so you want to hold them as early as possible. Here, it's badness.
They got the compensation but were required to hold it. It's like getting gold bars that you agree not to sell. You still got them, you just agreed you wouldn't sell them. The taxes are due on what you got when you got it.
Posted by: tipster at May 29, 2012 3:41 PM
tipster - Usually the IRS makes an exception for RSUs that are not "substantially vested"
From IRS Pub 525, Restricted Property on Page 13, defined as such:
"Substantially vested. Property is substantially vested when:
• It is transferable, or
• It is not subject to a substantial risk of forfeiture. (You do not have a good chance of losing it.)"
If an RSU cannot be sold (either because it's pre-IPO or in a lock up period), there can be no tax event. It is not transferable.
Because FB had such good liquidity pre-IPO, it's possible the first prong "transferable" was a non-issue. (Transferable means you can sell it to a third party at a market price, i.e., liquidity)
Posted by: DataDude at May 29, 2012 4:03 PM
""Substantially vested. Property is substantially vested when:
• It is transferable, or
• It is not subject to a substantial risk of forfeiture. (You do not have a good chance of losing it.)"
Cant Say I follow all this
But isnt the *or* Key here
Posted by: ReadingForRealtors at May 29, 2012 4:09 PM
Closed March sales reflect Jan/Feb activity, and often even earlier. What's more Case Shiller uses a 3 month moving average. So thanks again SS for sharing 3 to 6 month old data (for the region no less), and the usual suspects jumping on it as proof that Realtors are lying about today's market.
Meanwhile, the inventory report has been missing for almost a year now... maybe because inventory is HALF what it was last year and 25% below the lowest level ever reported this time of year.
Posted by: hangemhi at May 29, 2012 4:39 PM
R for R is correct. It vested on the IPO because at that point, it it theirs. Even if they quit, they get the stock.
They owe $19 per share in taxes for 2012. Sorry. The paper millionaires will get $75K if the price in November is the same as it is now.
Traditionally, at the expiration of the lockup, the share price sinks. Here, the tax bills all but assure massive sales. Other investors will sell off ahead of that. Doubt they will end up with even $75K. Could happen, but I doubt it.
Posted by: tipster at May 29, 2012 4:46 PM
FB will buy the shares of those in this situation when the lock-up expires to avoid a deluge of shares hitting the public market. Just watch. That will blunt the effect a bit, but these employees are still not getting anything close to what they expected. Zynga did not, and could not, do this, as we saw today with the stock diving post-lockup. Their rank and file employees are not getting that much at all, net of taxes.
Posted by: anon at May 29, 2012 4:59 PM
Yes Tipster your repeating of that shpiel is something you enjoy saying. Everyone understands that fact clearly.
Posted by: anon1 at May 29, 2012 5:37 PM
So much misinformation here, it is hard to straighten it all out.
Your cash proceeds are $200,000, but you still have to pay tax on the $400,000 of compensation that was generated the day the lock up was lifted.
This is not true. If you sell the stock for $200k, you have $200k in loss you can use to offset your $400k in gain that you recognized when the stock became tradable. So you end up paying taxes on the $200k in gains.
I am not a lawyer and free advice is worth what you pay for it, so if you are in this situation talk to someone who knows what they are talking about, not some Internet "expert".
Secondly, as I pointed out before, only the first 400 employees were offered stock, the rest have RSUs which are illiquid. What makes you think that RSUs were transferable DataDude? I have some pretty good info, from FB employees in this exact situation, that stated otherwise.
Posted by: NoeValleyJim at May 29, 2012 5:57 PM
According to this article at least, FB is going to sell shares for their employees to pay their taxes for them:
It plans to withhold a big chunk of its employees' shares -- 122 million -- and sell them on the open market to cover the tax hit.
So if a Facebook employee is set to receive 10,000 shares and falls into the 45% tax bracket (including both state and federal charges), the employee will actually receive 5,500 shares and Facebook will sell off the other 4,500.
I wonder if FB is going to sell them on the day they vest, already has sold them at the IPO date or something else. Anyone know? I can ask around if people are curious.
Posted by: NoeValleyJim at May 29, 2012 6:12 PM
In the short-run, it kind of doesn't matter if Facebook is creating new multi-millionaires who are going to pay cash for multi-million dollar homes or if this is not the case at all. It matters that people have the perception that this is going on and thus will be persuaded to get off the sidelines and jump in before it is too late. The story has been sold hard and it adds to the bidding around certain house in certain price points . . .
Posted by: nanon at May 29, 2012 7:22 PM
Everyone, look at the sinking stocks. Ignore the trailing stats on market strength. #bears LOL
Posted by: Lolololololo at May 29, 2012 9:45 PM
"If you sell the stock for $200k, you have $200k in loss you can use to offset your $400k in gain that you recognized when the stock became tradable. So you end up paying taxes on the $200k in gains."
That's not right. In this scenario, the $400k is taxed as ordinary income, not capital gains. You cannot offset it with the $200k loss (it is just as if the company paid you 400k, you immediately bought 400k stock, and then it lost value to 200k; you still pay ordinary income taxes on the 400k, not capital gains rates). You can, however, offset any capital gains you might have with the $200k loss to reduce capital gains taxes, if any. Or you can deduct $3000 per year (for the next 67 years!) from ordinary income.
Because of the tax hit, RSUs are generally a far less favorable deal for an employee than options, but RSUs are the new standard.
But it's all moot as FB is UP 37 cents! ZNGA continues to fall, however.
Posted by: anon at May 30, 2012 7:08 AM
Stepping back, I wonder why people are so sure FB employees will sell any or all of their vested RSUs when they can? Especially if the stock remains below the IPO price.
I suspect many if not most few FB employees have drunk the Kool-Aid and aren't planning on cashing out.
Posted by: anon at May 30, 2012 9:42 AM
Anyway, back to Case-Shiller - condos up 4.2% in one month alone seems a little crazy, no?
Posted by: REpornaddict at May 30, 2012 10:16 AM
The idea that people are foregoing $30k a year for options is ridiculous. People expect options and most competent engineers wouldn't even think about going to a startup without getting options. You might forgo $10-$15K if it's a good company, but the idea that on average people are giving up $30K a year is ridiculous. What a good company with good prospects gets out of options is the ability to pick and choose from the best available talent, and maybe get more hours worked per employee, it does not get them significant cost savings on salaries.
According to NVJ's article
"A typical package for a software engineer joining the company in late 2009 included around 10,000 RSUs, according to a discussion thread on Silicon Valley chatter nexus Quora. Thanks to a 5-for-1 stock split in late 2010, that engineer would now be holding a marker for 50,000 shares, worth $1.8 million at the high end of Facebook's range."
"Tax collectors will be taking a giant bite out of the paper millions that thousands of Facebook employees will soon gain. The average tax hit: $1.1 million per employee"
"For many employees, taxes will consume around 45% of their sudden wealth"
another article said "thousands of lower-level employees became millionaires"
and according to Forbes "Rumor has it that the Facebook IPO will create about a thousand millionaires"
Now these articles may not be exactly correct, and I personally don't believe there will be thousands of new millionaires given that Facebook has less than 4,000 employees right now, but about a thousand sounds reasonable, and 1-2 thousand more that have their net worth increased by several hundred thousand dollars.
Many (probably a majority) of these people will be buying houses in the bay area, which will definitely have an impact on prices, although as others have pointed out many of them have already cashed out at least partially so the impact of the IPO on real estate prices has probably already began. The overall strong bay area tech sector is also contributing to this trend right now. The failure of the FB IPO is not going to change the impact in the short term, but could have significant impact if it depresses further IPOs, but that will take a year or two to really play out.
On the other hand many of facebook's new millionaires are now investing in startups, which may help to keep the tech sector job market strong.
Posted by: lyqwyd at May 30, 2012 2:21 PM
lyqwyd, FB and ZNGA haven't given anyone options for years, so of course engineers (and others) go to startups without getting options. They've gotten RSUs, quite a different animal. This is the huge difference between the latest startups and dot-com 1.0 In 1996-2000, options were given out like candy even to secretaries because companies did not need to expense them. And there were a ton of IPOs, several a month. And with the very common 200% stock pops, scads of people made a lot of money.
Recently, of course hires at startups nearly always accept less pay than at established alternatives in exchange for RSUs. That's the choice in the market, higher pay which means less risk but also less potential reward, or lower pay with RSUs meaning more risk but more potential upside.
Yes, a small number of very early employees made great money. But the numbers making awesome money are quite small. The majority of employees at FB and ZNGA and the like (sales, admin, support, IT) got little in the way of RSUs. The engineers and developers who got any substantial grants number less than a thousand, and with the tax hit from RSUs (much nastier than options) and the poor stock performance as opposed to 200-300% bubbles, even those with RSUs are not making service coin, maybe half a million or so for several hundred people, with a much smaller number making anything more than that. And this is their once-in-a-lifetime windfall. It ain't getting blown on a condo! And northern California sees about 7500 home sales every MONTH. That's why these few hundred lucky souls aren't going to make a meaningful dent in local housing.
That said, I agree with you, and I'm glad that the few dozen people making outrageous money from the recent IPOs are in this area. But it's not like we have a monopoly on good economic trends. Google "natural gas fracking".
Posted by: anon at May 30, 2012 3:54 PM
"maybe half a million or so for several hundred people"
I'll bring this up again, why I don't know... nobody on this site seems to care.
Where do you get this number? Is there any factual basis for it or are you just making it up?
Posted by: R at May 30, 2012 4:05 PM
I'm just accepting lyqwyd's sources, which seem to be about right given the headcount of about 4000 at FB.
Posted by: anon at May 30, 2012 4:13 PM
But his sources are very different than your statement.
"and according to Forbes "Rumor has it that the Facebook IPO will create about a thousand millionaires""
"another article said "thousands of lower-level employees became millionaires""
Posted by: R at May 30, 2012 4:17 PM
Exactly, R. "Anon" does not know that, and is ignoring that by now four or so posters have built in the tax hit aspect of the equation, factored in a stock price of considerably less than today, gotten all of our info off the various published sources, incorporated the flow chart showing that it isn't just engineers from the 2009 era hires who stand to fare well. They do not care to do anything other than argue and misinform newcomers and casual readers, period.
Posted by: anon1 at May 30, 2012 4:17 PM
Yes, Ken, I filtered out the total garbage. Like the linked "source" that touted Bono's $1.5 billion FB payday, which was completely false. And I factored in facts such as FB's standard 4-year RSU vesting, that non-tech people aren't handed RSUs, tax implications, the extreme beating in the stock market for FB and ZNGA, and the large housing market in northern California. If you ignore all those and make up alternative facts, the results are quite different!
Posted by: anon at May 30, 2012 4:22 PM
Bono? "Standard 4 year RSU vesting" ? Non-tech people not handed RSUs? "Ken"? All misinformation.
Posted by: anon1 at May 30, 2012 4:32 PM
So essentially anon you took the sources from lyqwyd, then discarded anything you didn't believe, then came up with your number?
Posted by: R at May 30, 2012 5:12 PM
RSUs and options are not that different, they are delayed compensation. Sure theirs details that are different, but they are similar enough to be interchangeable in this conversation.
I didn't say people will not take less, I said they will not take $30,000 less per year. Startups have almost always paid less, but more like 10% less. And Facebook doesn't even appear to pay less, glassdoor shows Apple, Google, Yahoo paying about $103K per year for a software engineer, while Facebook is paying $110K on average. That of course doesn't tell the whole story, but it certainly doesn't seem like people are taking much less to work at Facebook than at other big and established companies.
I've been working in the industry for about 15 years, working almost exclusively at start-ups, and I have friends that have been doing so for similar amounts of time, and some for not as long. From my experience, even when you do take less than market rate, it's nowhere near that amount, it's only at a ground level start-up (usually less than 10 people), and it's only for 1-2 years at most. After that they either demand a raise up to market rate as they get sick of being underpaid.
From my experience the only people who get underpaid for a significant amount of time do it because they don't know what they are worth, or they really aren't that good and only think they are being underpaid. It has little to do with stock options, or RSUs.
Taxes with RSUs are not much worse than options, particularly since few people exercise their options before an IPO, so relatively few people get them treated as capital gains, particularly in the lower ranks where few people understand the possible tax advantages of options.
Regarding Bono, my link did not say he made $1.5 Billion, it said Elevation Partners, which Bono is named a founding member of. According to wikipedia EP bought 1% of Facebook for $90 million in 2010.
Regarding several hundred people making half a million, provide some evidence, or at least some articles, to support your claim.
Posted by: lyqwyd at May 30, 2012 6:02 PM
Sorry, it's going to take more than an article prominently featuring a photo of Bono with a purported (and wrong) $1.5B payday and a "rumor" that facebook will create 1000 millionaires! You know as well as I do that admin and sales people were not handed bushels of RSUs and that the numbers of developers and engineers aren't that great. And with the stock now down 30% to $27 as I write this, I imagine the FB employees now wish they had been paid in FB put options rather than RSUs. Then we'd really see some bucks going to the rank and file!
Posted by: anon at May 31, 2012 7:53 AM
You are welcome to use your own completely fabricated numbers, and ignore sources because they have pictures of Bono. Until you provide some support for you claims people will consider them to be made up.
Posted by: lyqwyd at May 31, 2012 10:57 AM