September 25, 2012

San Francisco Home Prices Gain In July, Condos Up 8.1 Percent YOY

S&P/Case-Shiller Index Change: July 2012 (www.SocketSite.com)

According to the July 2012 S&P/Case-Shiller Home Price Index, single-family home prices in the San Francisco MSA increased 1.9% from June 2012 to July 2012, up 4.8% year-over-year but 35.1% below their May 2006 peak.

For the broader 10-City composite (CSXR), home values increased 1.5% from June to July, up 0.7% year-over-year, down 30.5% from a June 2006 peak.

Digging into the numbers, 15 cities and both Composites had stronger annual returns in July’s report. New York was the only city with a worse 12-month decline in July than June. Dallas and Washington D.C. saw no change in their annual rates. Cleveland and Detroit saw annual rates decelerate in July versus June, although they remain positive for both cities.
The news on home prices in this report confirm recent good news about housing. Single family housing starts are well ahead of last year’s pace, existing home sales are up, the inventory of homes for sale is down and foreclosure activity is slowing. All in all, we are more optimistic about housing. Upbeat trends continue. For the third time in a row, all 20 cities and both Composites had monthly gains. Stronger housing numbers are a positive factor for other measures including consumer confidence.
Among the cities, Miami and Phoenix are both well off their bottoms with positive monthly gains since the end of 2011. Many of the markets we follow have seen some decent recovery from their respective lows – San Francisco up 20.4%, Detroit up 19.7%, Phoenix up 17.0% and Minneapolis up 16.5%, to name the top few. These were some of the markets that were hit the hardest when the housing bubble burst in 2006,

On a month-over-month basis, prices increased across all three San Francisco price tiers.

S&P/Case-Shiller Index San Francisco Price Tiers: July 2012 (www.SocketSite.com)

The bottom third (under $349,250 at the time of acquisition) rose 2.5% from June to July (up 3.2% YOY); the middle third rose 2.2% from June to July (up 5.7% YOY); and the top third (over $636,666 at the time of acquisition) rose 1.1% from June to July, up 4.3% year-over-year versus 3.7% in June.

According to the Index, single-family home values for the bottom third of the market in the San Francisco MSA are back to August 2000 levels (57% below an August 2006 peak), the middle third is back to June 2002 levels (37% below a May 2006 peak), and the top third is back to just below June 2004 levels (21% below an August 2007 peak).

Condo values in the San Francisco MSA rose 2.1% from June to July, up 8.1% year-over-year but still 27.5% below a December 2005 peak.

S&P/Case-Shiller Condo Price Changes: July 2012 (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: Home Prices Increase Again in July 2012 [Standard & Poor's]
S&P/Case-Shiller San Francisco: Home/Condo Prices Continue Gains [SocketSite]

First Published: September 25, 2012 6:45 AM

Comments from "Plugged In" Readers

Looks like the housing recovering is on solid footing.

If the trend holds true this is very very good news for the broader economy and could do a lot to help offset the slowdown in China.

Posted by: badlydrawnbear at September 25, 2012 7:33 AM

badlydrawnbear,

Indeed, an economical recovery is in progress. The question is whether this recovery is fueled by RE or the other way around. I think it's 50/50.

Helping a recovery by pushing for Real Estate growth is a bit like wagging the dog.
I think the broader economy would benefit more from having this money invested into infrastructure (we're still moving around like in the 1960s/1970s), education (stopping the student loan bubble), technology (the US is now ranking very low in internet speeds globally).
The benefits of RE price increases do not propagate evenly into the economy and are generally limited. Some people can consume more, but this often benefits imports. Cue the 2000s.

Then again, the stalemate in DC is mainly to blame. Obama didn't/couldn't push too aggressively for his pro-growth policy. He has the Fed doing the job for him through cheap money. I hope WS and people benefiting from a RE recovery will trickle-down their profits...

Posted by: lol at September 25, 2012 8:19 AM

@lol -- you nailed it -- if the [republicans] in congress would stop obstructing everything useful we would actually see smart pro-growth policies and infrastructure investment. They seem happy to torpedo the country in order to blame obama in the sick hope of clawing even more power for themselves.

So, with few options left, its pretty impressive that we are getting a rebound at all. With luck the republicans will be discredited in this next election and we can enact some useful pro-growth infrastructure policy in the next term.

Posted by: bigV at September 25, 2012 11:39 AM

Another month of gains in the bag - another kick in the nuts for our early 2009 bears who confidently declared that we were NOWHERE near the bottom...

Man, I look back on those calls now and I just laugh and laugh and laugh...

Posted by: topo at September 25, 2012 1:11 PM

Indeed. At this rate the index will suggest we are again in an era of double digit price inflation. Back to the good old days of 2010 again, with 2011 increasingly looking like the 'bear trap' year.
Certainly looks like it trapped many on here!

Posted by: REpornaddict at September 25, 2012 1:56 PM

heads and shoulders pattern until proven different

Posted by: gyuppy at September 25, 2012 6:15 PM

If those are what your shoulders look like you should get a check up.

Posted by: sparky*b at September 25, 2012 7:22 PM

"another kick in the nuts for our early 2009 bears who confidently declared that we were NOWHERE near the bottom..."

Really??? So 3 years of no nominal growth that translates into 3 years of real, aka inflation adjusted, price declines and it was the bears in 2009 who were wrong???

I would argue it was the people who were still feeling the effects of annual inflation deflating the value of their homes for 3 years who got the kick in the nuts.

But it is nice to see things finally turning around 5 years after housing went into the toilet.

Posted by: badlydrawnbear at September 27, 2012 8:06 AM

bdb,

From the 2009 trough, prices have gone up by roughly 12 to 20% depending on the tranche.

Even with a 2% inflation for 3 years, this is still a gain.

But yes, this is what a recovery looks like. I hope this one is more subdued than the last one. The last thing we need is another over-top speculating wave, because the systemic issues with Wall Street and the financial world in general haven't been resolved.

Posted by: lol at September 27, 2012 8:29 AM

a speculating wave like needing to spend $1.4M+ on a fixer in D5 or single lot houses asking over $4M in Noe. Boy I sure hope we don't see that over the top spec. wave. oh wait...

Posted by: sparky*b at September 27, 2012 8:58 AM

If one is going to accept that 12-20% rise from the 2009 trough, one has to accept that trough was 46% below the peak a few years earlier. Maybe. Personally, it looks to me like the trough was about 30 or 35% below peak and we've come up about 8-10% from that -- i.e. stayed about even with inflation over the last couple of years. Better than the steep dive, but hardly stellar. Thank ridiculous interest rates for cushioning housing from further declines. The Fed did exactly what was needed to keep us out of a depression.

Posted by: anon at September 27, 2012 8:58 AM

sparky,

Well, if there's cash and income to fuel these 3-4M prices, it's as much speculation as the market finding its footings in a very specific environment. And yes, fixer selling prices are crazy. If a redone house that was selling 2.5M 2 years ago would sell at 3.5 or 4M today, then a 700K fixer 2 years ago can sell at 1.4M today. There's still room for someone to do business.

anon,

Are you going from bearish to neutral? I find your latest posts rather mild, almost optimistic.

Posted by: lol at September 27, 2012 9:23 AM

lol,

I agree with you on the "finding its footing" part. I would just like it to find a slightly lower footing for fixers. Buying at $1.4M on a 2 year big build means you need to sell it at $3M+.

Posted by: sparky*b at September 27, 2012 9:37 AM

I've said it months before and I'll say it again.
The bear is over. The recovery will be weak and choppy.
Expecting consistent yoy real gains of 2-% on RE is just not realistic over the medium term.

For a year maybe.

The end of the bear in nominal prices does not equal the beginning of a bull in real prices.

IMHO, the editor has been a bit slow to this train, and since it is his blog, he can do whatever he likes. But the bear, for all intents and purposes is dead. It's replacement isn't a bull.

And for those screaming about interest rates, historical relationships between interest rates and home prices in the US have been noisy and inconclusive. Yes money is cheap now nominally, but in real terms - well that remains to be seen... see the links below for something better than just speculative analysis and intuitive feel
the world didn't end (this time)but alot of people got punished and some severely. credit bubbles are very ugly events. worldwide, this one is still just getting ro(i)lling

http://economix.blogs.nytimes.com/2010/09/07/mortgage-rates-and-home-prices

http://www.calculatedriskblog.com/2010/09/mortgage-rates-and-home-prices.html

Posted by: polip at September 27, 2012 10:08 AM

Yes, surprise, the bear is dead in an election year. In its place isn't a bull, it's a purposely artificially depressed interest rate that not only props up real estate artificially, in the same way that artificially depressed lending standards did in 2004-2008, but also allows an asset bubble to form like 1998-2001.

Thus, rather than 1998-2001 or 2004-2008 in which we had one artificial inflator of real estate, now we have both types operating at the same time!

It isn't hard to see how this ends. And end it will. It's just that this time, the ending will be twice as hard.

Is there money to be made in the interim? Absolutely. Will you be better off for the long term. Doubt it. But in an election year? No question, things will continue to go up.

And I think the economy is now an addict. There isn't any way to get the economy to stop its addiction. At some point, a Paul Volker-type will show up and decide that the band aid needs to be ripped off. When that happens, downpayments will be lost amid much gnashing of teeth. Until then, I think the fed has figured out the formula for what it wants and is going to stick to it as long as it can.

One of the forces that will stop it is retirees running out of assets to sell. In the past, retirees moved into conservative investments and lived off the interest. There is no interest, so retirees are now selling the capital to live off of or holding on to risk assets longer than they should and selling them slowly. That keeps the economy going and masks what's happening under the surface, but at some point it runs out and the whole system of artificially depressed interest rates collapses on itself. It isn't the only thing, but it's one issue. It's the analogue to ever decreasing lending standards until you finally run out of people to pretend to lend to. Artificial systems always collapse.

How long can it last? Who knows. Will it collapse? Absolutely. Plan on it.

And that calculated riskblog article is simply stupid, polip. It posits that people will not take advantage of lower interest rates to bid housing prices up because they will fear that the artificially low interest rates will end and then they'll be stuck holding the bag. That didn't stop people from bidding up prices in the last two bubbles and it isn't stopping them here either. How many people are so financially stupid and require immediate gratification that they carry credit card interest every month? Those people are suddenly going to look past the monthly payments and posit the economic effects of interest rate increases? Not. Gonna. Happen.

Most businesses are still struggling. With operation twist, things turned up, leveled off and are now up and down. Most of us business owners are not expecting good things next year when it is no longer an election year.Enjoy it while it lasts. The down cycle is going to be twice as hard in exchange for a not twice as strong up cycle.

Posted by: tipster at September 27, 2012 11:20 AM

"Most of us business owners are not expecting good things next year"

Speak for yourself. I am expecting next year to be amazing.

Posted by: sparky*b at September 27, 2012 11:28 AM

"And for those screaming about interest rates, historical relationships between interest rates and home prices in the US have been noisy and inconclusive."

This makes a lot of sense since the Fed tends to meddle with interest rates in response to home prices. The result of the imperfect feedback system is bound to look noisy.

Posted by: The Milkshake of Despair at September 27, 2012 3:02 PM

Saying lending standards are the same as 2004 - 2008 is ridiculous. Tipster deigning to speak for others us ridiculous too. Square peg, round market. The radio silence was a better idea.

Posted by: Anon1 at September 27, 2012 4:33 PM

Good thing there is an election every 4th year. Phew. All of that said, I would agree that there are some concerns out on the horizon. But it's proven that it takes a pretty major event to jolt the makrets. LTCM, CDO MBS AIG Lehman, DotCom Bubble, ?????

It's the ????? that is unknown (obviously). I'm not convinced that we're in a broad market stock market bubble and housing isn't the problem. There is usually some outlier making a "crazy" statement about what will bring things down that gains steam and then comes to fruition, but what is it this time? Is it retirees running out of assets to sell? No. The best thing I can fathom is something totally unexpected out of China. There does seem to be a massive black hole of unknown as it relates to the economy in China.

Real estate is just one tree in the global macro economic forest. Right now things are fairly healthy. Are there external forces pulling the strings a bit? Maybe. Are those forces going to stop pulling the strings to send housing into a tailspin? History says no.

Posted by: eddy at September 27, 2012 6:27 PM

Glad to see Tipster is still alive and kicking. He is his doomy gloomy self.

Someone calls the Rapture guy. He should hire tipster for arguments on why the end of the world has been postponed - once again - this time due to being an election year or whatever that means for housing.

Posted by: lol at September 27, 2012 7:43 PM

@Tipster, I don't believe lending standards are particularly low, but your other points are spot on. The cheap $$ has to end sometime, and when it does, there will be "much gnashing of teeth" (perfect phrase!)...Again.

Posted by: Sonnyboy at September 27, 2012 8:48 PM

I never said lending standards were currently low. What I said was that when they WERE low, it distorted prices, and those prices corrected when the lending standards did.

Currently the culprit is interest rates, which the Fed is obviously pushing down. They are buying mortgages. That distorts interest rates down.

So I am not saying lending standards are low, but what I am saying is that the effect of too low mortgage interest rates will be the same as too low lending standards because they are both market distortions. When interest rates or lending standards rise, prices fall.

In our local market, the bubble effect of too low interest rates hits housing twice as hard both up and down because the low interest rates not only make houses cheaper to buy, but they cause increased demand for other assets. So not only are housing prices distorted upward because interest rates are too low making the monthly mortgage payments low, but housing is distorted EVEN FURTHER upwards because people are piling into other asset classes, which also temporarily rise, like they did in 1998-2001. Because local housing prices are *also* affected by stock prices in the bay area, this is going to be much more amplified here when it's over. Not only will interest rates go up making home ownership more expensive, stock prices will go down, and at the very same time. This will have a disproportionate effect in the bay area.

But just in case my point was not clarified: the problem is not lax lending standards, the problem is too low interest rates. The effect will be the same, prices will fall. But the effects will be amplified in the bay area because it will hit the primary source of wealth in the bay area at the same time it makes homes more expensive.

But trust me, I was not so stupid as to point all this out in 2006 when prices were going up. No one would have listened to me and I doubt many people will listen now. However this much is clear, there will be a fall, and when it happens it will hit here much harder than elsewhere.

But by then, the mortgages will have been transferred from private hands to the government, and no one rich will shed a tear when it all falls. And therefore, they won't try to stop it from happening either, like they did before. Instead, they'll be better positioned to benefit from it when the inevitable occurs. And that to me is the scariest fact of all.

Posted by: tipster at September 27, 2012 11:07 PM

Yes you did. You said the following:


"Thus, rather than 1998-2001 or 2004-2008 in which we had one artificial inflator of real estate, now we have both types operating at the same time!"

The 2004 - 2008 period being low standards, and what's more you emphasized "both@ with italics.

Easy backing up, there.

Posted by: Anon1 at September 28, 2012 8:59 AM

Yes, this is all very predictable. It is just like 2009-10 when the govt literally handed out free money to anyone who bought a home. Prices ticked up a little bit. The uber-bulls were shouting "bottom" but, of course, the decline hit hard again as soon as the free money was yanked away, and a lower bottom was soon reached. We have the same thing now with the really, really low interest rates. The little tick up will end and prices will fall again. Regardless, both the free money and interest rate policies are the right move to fight a recession that was caused by plummeting housing values in the first place (okay, it was caused by the housing bubble, but the bursting of it was what created the real problems).

Posted by: anon at September 28, 2012 9:13 AM

I partly agree with tipster's general view that low rates do have an impact on prices. overall.

I am not sure if borrowing rates really affect the high end that much. It will affect the lower and some of the middle range. The lower end is almost non-existent in SF. Middle range in SF means 700 to 1M where people have to bring roughly 200K on the table. Median household incomes are at 90K which is 60% of what's required to purchase a median home in SF. The median buyer family is more in the 150K+ income with good savings. We're not talking about deadbeats.

One way low rates do impact people's decision to purchase in SF is the artificially low rates on any "safe" investments like CDs and money market accounts. If you're looking to invest your 200K, 500K, 1M, all you're left with to stay ahead of a 2% inflation is either the stock market or Real Estate. None of which is guaranteed...

Much of the current recovery in SF has to do with 1) the fact that a big enough chunk of the population is flush with cash and looking at where to put it and 2) prices had taken a hit while rents shot to the moon.

Posted by: lol at September 28, 2012 9:29 AM

reading this, days later, I am reminded of the RE truism "home prices, historically, rise with inflation and wage growth."

I cannot remember the number of times I wrote that during the RE bubble years but it seems like I need to start typing it again.

While wages for the tech sector might be growing, wages for everyone are basically flat. Unless there is broad wage growth across a number of sectors home prices will eventually hit a ceiling and either stall, waiting for wages to catch up, or correct (aka fall).

Sky high stock prices for google and apple can juice the market but mostly just drive down affordability for the vast majority of residents.

Posted by: badlydrawnbear at October 2, 2012 12:21 PM

bdb,

Sky high stock prices for google and apple can juice the market but mostly just drive down affordability for the vast majority of residents.>/i>

This is correct except the vast majority are either:

- Renters and most likely rent controlled
- In a property with very low property prices

None of these will create significant supply anytime soon. And they will not generate any demand either. For them, current rental/purchase affordability is meaningless.

Overall the market is made with very little turnover. A few 1000s of well paid workers will have a disproportionate impact on this market.

As prop 13 and rent control are alive and kicking, I do not see how could market prices revert to affordability for the majority. For instance people who purchased before 2004 and between 2009 and 2011 are most likely benefiting from prop 13.

The same thing for renters. Someone who rented 3 years ago probably pays 20 to 30% less than today's market rates. The market has created a new generation of untitled owners/renters.

At the trough of the market, the median home was at roughly 6.5 times the median income (90K). This is not cheap by any measure. And yet the market has taken off from there. It is counter-intuitive, but this is what happens.

Posted by: lol at October 2, 2012 2:10 PM

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