San Francisco Prestige Index: Q2 2012 (www.SocketSite.com)
The First Republic Prestige Home Index for “San Francisco” homes valued at more than $1 million, and currently averaging $2.67 million, gained 2.9 percent from the first to second quarter of 2012, up 6.6 percent year-over-year.
The index remains down 13.4 percent from a third quarter 2007 peak but is back to first quarter 2005 levels, up 7.2 percent from the first quarter of 2011 current cycle bottom.
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]
San Francisco Prestige Index Down 0.3% In Q4 2011, Down 3.1% YOY [SocketSite]

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Comments from “Plugged-In” Readers

  1. Posted by REpornaddict

    Seems to mirror what happened in much of SF itself far better than the Cash Shiller.
    Kind of a top tier top tier.

  2. Posted by tipster

    First republic is a lender who tries to curry favor with the real estate agents. The job of the guy who publishes this index is to make the real estate agents happy. You don’t do that by reporting price decreases unless you have to and then you minimize them.
    Case Shiller is an index whose job is to be as close as possible to correct. They don’t always get it right, but they aren’t a bank trying to get real estate agents to recommend them.
    If First Republic blows it, they get more business. If Case Shiller blows it, they get less. Draw your own conclusions.

  3. Posted by REpornaddict

    Don;t they mirror the Case Shiller methodology though? Migh tbe wrong, but remember sometihng like that.
    But, hey, the index is rising now, so there MUST be something wrong with it. See also Case Shiller 2010. Funny how these flaws are either not seen or not mentioned when the indices are falling!
    When an index ceases to give the desired results they somehow lose their accuracy and relevance too!

  4. Posted by Anon1

    First Republic is a bank with an affiliate REIT that invests in San Fancisco mortgages. Case Shiller displays disparate cities in a large region, using a flawed methodology. The prestige index’s 1m and higher mark is a whole lot more indicative of sf than CS’s lower two tiers. Tipster knows these things. Laughs.

  5. Posted by sfrenegade

    First Republic’s index is based on Case-Shiller data. That doesn’t say anything as to whether their methodology is sound, but thought it was worth pointing out.

  6. Posted by SocketSite

    In terms of which price segments are most representative of the San Francisco market, or at least represented, over the past three years less than a quarter (24 percent) of property sales in San Francisco were over the million dollar mark.
    Over the past three years, 39 percent of property sales in San Francisco were under the $600,000 mark, likely below the top tier for the Case-Shiller index which isn’t based the current selling price of a property but rather the price at which it was acquired prior.
    Over the past three years, 38 percent of property sales were between $600,000 and $1,000,000.

  7. Posted by Anon1

    No problem whatsoever with ole tippy’s nonsensical rant about the (lol) psychology of a prominent local lender then, hey? Figures. I said “indicative” and you chose to parse “indicative” instead. Too funny. Like your site shows properties that are even sub 750k very often? Lol.

  8. Posted by eddy

    This graph could easily be plotted on the CS chart if normalized as it is based off CS data and is most likely a very proper proxy for the ‘real’ top tier in SF.
    From the First Republic website
    This chart shows changing values of a portfolio of homes selected by First Republic, value of each home produced quarterly by Case Shiller Weiss, Inc.
    Unless someone has better information, I’m sure this report was faithfully produced during the down years as well so claiming the authors are skewing the data is just another attempt at FUD. All of these indexes are just proxies anyway and they are all showing the same thing. Only 7% of the CS data for the SF MSA is just for SF, excluding the 2 southern SF districts that vastly skew the data / percentages.
    @Socketsite, what is the breakdown of sales on those tiers excluding the two southern districts (i.e., looking at just the North / Central districts)
    There are other sites available that parse this data pretty well focusing on the high end “luxury” segment. But its taboo to post about them.

  9. Posted by Anon1

    Err, said indicative but you parsed representative. Whatever. That’s my opinion, as I think SFRs drive the market and most are going to be closer to 1m in any neighborhood most people would buy in.

  10. Posted by eddy

    ^^I agree that most readers here are looking at the SFH 1M+ range. But there is still a very healthy market for sum 1M homes/condos/tics out there in SF and they are all trending in the same direction anyway.

  11. Posted by REpornaddict

    First republic is a lender who tries to curry favor with the real estate agents. The job of the guy who publishes this index is to make the real estate agents happy. You don’t do that by reporting price decreases unless you have to and then you minimize them.
    “Case Shiller is an index whose job is to be as close as possible to correct. They don’t always get it right, but they aren’t a bank trying to get real estate agents to recommend them.
    If First Republic blows it, they get more business. If Case Shiller blows it, they get less. Draw your own conclusions.”
    anyway, Prestige is only up 2.9% over the pst quarter, while overall SF Case Shiller is up OVER 10% in the past 3 months alone.
    So if they are being selective, biased, currying favor or flavor or whatever, they aren’t doing a very good job of it!
    I have drawn my own conclusions, and they show that prices are increasing strongly across all MSA areas and at all price tiers!!!

  12. Posted by anon

    Awesome! Higher end places have gone up a couple percentage points more than inflation in the last year after a four-year fall!
    If you want a simple explanation for the recent, small, uptick in prices, here it is.
    http://www.sfhomeblog.com/wp-content/uploads/2012/08/Estimated-Monthly-Payments-22.jpg
    Not tech. Not “SF is different.” Just record low interest rates. Same thing all over the country. I think they will be with us for a while as the economy remains in the dumps. But bad news for those who buy in this environment but then sell in 10 years when rates are much higher. For that tiny, tiny minority who hold for 30 years, these rates are great.

  13. Posted by R

    So if pricing is entirely driven by interest rates as you say, then why did prices and interest rates go up simultaneously between 04-07?

  14. Posted by lol

    Rates are not the only story behind these increases of course.
    But for one second let’s take this from anon’s standpoint. Say 10 years from now rates double to 7%. What could have possibly triggered this increase in rates. Bueller? Bueller? Yes, you are correct: inflation. The core reason behind interest rate increases is inflation.
    Inflation would automatically come with its little sister “wage increase”.
    If inflation goes past 4% and mortgage rates gradually increase from 3.5-4% to 7%, wages will probably have risen by more than 50%, nixing most of the negative effect of mortgage rate increases. Homeowners of today would be in a very good situation, with rock-bottom mortgage compared to income. Buyers from that time will probably be OK. Prices will follow inflation plus or minus local variables, as always.
    This reminds me of my parents who bought in 1970 at a high price and low interest rate but struggled for the payments until the mid 70s when inflation “saved” them from debt. By 1985 the mortgage was almost a rounding error in their monthly budget. We should be so lucky to have a similar situation.

  15. Posted by anon

    “So if pricing is entirely driven by interest rates as you say . . .”
    Boy, there is a realtor strawman if I ever saw one!!
    Never said that. Never. Interest rates had essentially zero affect on prices during the bubble because anyone could buy just about anything with 0 down and they were SURE prices would rise sufficiently to offset any borrowing costs (which were deferred for years anyway).
    Interest rates certainly affect prices generally. Do you disagree with that common sense statement? When interest rates plummet over a short time, as during the last couple years, the impact is greater. It is amazing that prices have just ticked up a tiny bit more than inflation in the last year given the huge decline in borrowing costs. When interest rates go back up (eventually) it will be a big drag on housing prices. Not good to buy during low rates and sell during high rates – better to do the opposite unless you will hold a very long time.
    lol: “The core reason behind interest rate increases is inflation.” Surely you know better than that! That is just a silly statement. Check out the inflation and consumer borrowing interest rates in Greece right now if you want a clear example.
    “Inflation would automatically come with its little sister ‘wage increase’.” Ditto. Have you not followed the last 30 years, when wages failed to keep up with inflation? Particularly true since 2000.

  16. Posted by lol

    This is why I said “core reason”. There are other variables. In the US where we can issue our own currency when needed, inflation and interest rates are closely relatedn as is shown in the following graph.
    Greece is not so lucky. Inflation is pure evil to German savers who have 10 times more weight than the greeks.
    About wage increases, these past 20-25 years have seen mild inflation and milder wage increases. Agreed. But this is not so much a proof of disconnection between inflation and wages than a larger rebalancing of classes both within the western world and between established and emerging countries.

  17. Posted by eddy

    The long time bears contended for a long time that housing at these levels just wasn’t affordable. And that once the neg-am, 0 down, fraud was removed from the market that housing would collapse back to 1996 or whatever… That didn’t happen.
    So now one of the only straws left is to attack the marginal / predictable / calculable impact that low interest rates are having on the market for home prices. Other than some rhetoric, I really don’t see anyone on here predicting that housing it bubbling up again. Just that it’s not cratering and showing very good signs of strength and resilience. This cannot be argued.

  18. Posted by lol

    eddy,
    If the SF market goes on its current trend for another year or so, I could go back to the bear side again. For now it’s a healthy bounce.

  19. Posted by anon

    “once the neg-am, 0 down, fraud was removed from the market that housing would collapse back to 1996 or whatever… That didn’t happen. ”
    Well, OK. It only went back to 2003 prices. Or 1999-2000 prices in real terms, adjusting for inflation. Guess da bears were WAY off.
    eddy, are you really contending that the absurdly low interest rates are not A (if not the) reason for housing prices being propped up in the last year or so? Seriously?

  20. Posted by lol

    There were low rates in 2008 and 2009 and yet prices collapsed. Market cycles, economical context, social mood, etc… They all have an impact. Low rates and availability of financing are the fuel. But you need the right environment for the market to grow.
    As the market keeps recovering, expect 2 things to happen, both working against each other:
    1 – The market will flow much better: banks will relax their lending, people who used to be underwater will be able to trade again. This will increase volume.
    2 – The shadow inventory will steadily come online. Banks have used their very deep pockets (and massive Government support) to hold off from unloading many foreclosures. As conditions improve, they’re probably going to churn through their portfolio of dead weight.
    I think these will be the 2 contradictory forces working through the general market in the next few years. Of course SF will have its specificity. But I think SF is preceding the national trend and we’ll maybe see a controlled and subdued bull market for a while.

  21. Posted by anon

    “There were low rates in 2008 and 2009 and yet prices collapsed.”
    Yes, but the mortgage rates then were 60% HIGHER than they are now. Shows you how extremely low they are now. People would have laughed 4 years ago if you would have predicted rates would plummet this far.
    And the lowering of rates starting in 2008 was designed specifically to prevent housing prices from falling even faster. It worked!
    Sorry, but unheard of low interest rates are the overwhelming factor supporting housing prices today. Period. Same thing being seen in SF and everywhere else. I’m not complaining as the economy obviously needs this extreme kick in the pants and this shows that those with money (inc. banks) can’t find good investments they are comfortable with, but it won’t last forever. And I generally agree with your two bullet point observations.

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