August 27, 2013
San Francisco's Top Tier Homes And Condos Within 8% Of Peak
While the pace of price increases has slowed from the record setting gains in April and May, single-family home and condo values in the San Francisco MSA continued to climb in June.
According to the latest S&P/Case-Shiller Home Price Index, single-family home prices in the San Francisco MSA rose 2.7% from May to June 2013. Up 24.5% year-over-year, the San Francisco Index remains 20.8% below a May 2006 peak.
For the broader 10-City composite (CSXR), home values gained 2.2% from May to June and are up 11.9% year-over-year but remain 23.4% below a June 2006 peak.
The Southwest and California have consistently led the recovery with Las Vegas, Los Angeles, Phoenix and San Francisco posting at least 15 months of gains. Looking at the cities, New York recorded its highest monthly return since 2002. Atlanta was up the most at +3.4% and Washington DC had the lowest return at +1.0%. In terms of annual rates of change, San Francisco lost its leadership position with Las Vegas showing the highest post-recession gain of 24.9%.
Overall, the report shows that housing prices are rising but the pace may be slowing. Thirteen out of twenty cities saw their returns weaken from May to June. As we are in the middle of a seasonal buying period, we should expect to see the most gains. With interest rates rising to almost 4.6%, home buyers may be discouraged and sharp increases may be dampened.
On a month-over-month basis, prices ticked up across all three San Francisco price tiers.
The bottom third (under $457,184 at the time of acquisition) gained 5.4% from May to June (up 37.6% YOY); the middle third gained 2.7% from May to June (up 28.2% YOY); and the top third (over $781,428 at the time of acquisition) gained 2.1% from May to June, up 18.1% year-over-year versus 17.2% in May.
According to the Index, single-family home values for the bottom third of the market in the San Francisco MSA are back to September 2002 levels (43% below an August 2006 peak); the middle third is back to June 2004 levels (21% below a May 2006 peak); and the top third is back near April 2005 levels (8% below an August 2007 peak).
Condo values in the San Francisco MSA rose 3.3% from May to June 2013 and are up 28.8% year-over-year, 8.5% below 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).
∙ Home Prices Continue Climbing in June [Standard & Poor's]
∙ San Francisco Home Values Gain At Near Record Pace [SocketSite]
First Published: August 27, 2013 7:00 AM
Comments from "Plugged In" Readers
the slope of that curve on the condo index from jan 2012 to now is pretty amazing. its steeper than the slope from jan 04 to mid 05.
in fact its the steepest slope all the way back to 95. what does that mean? i dont know, but thats one hell of a recovery
Posted by: Jill at August 27, 2013 11:57 AM
Supply Side economic policy - check
Anemic economic recovery - check
Bombing a country in the middle east over WMDs - check
Houses being traded like stocks - check
Stagnate wages - check
Affordability being left in the dust - check
I feel like I have been to this party already and I know how it ends.
2013 = 2003
Posted by: badlydrawnbear at August 27, 2013 1:10 PM
Pffff. 2003 was a blip on the map of SF RE. 2008 was the devil (although the highs of 2007 are soon to be surpassed.)
Inflation. Now that will be interesting.
Posted by: 49yo hipster at August 27, 2013 1:29 PM
once again - remember 3.4% 30-year loans? Those rates drove prices up, in SF, throughout the bay area, and nationwide. They were available until late May, through lock-ins until about late June closings. Within a month, rates were up over a full point and have bounced around there ever since. CSI's "June" report measures sales in April, May and June. The absolute bottom of the record low rates. We'll have about one more month of CSI numbers reflecting this, then you will see the picture change quite substantially, here and nationwide. No crash, but a significant difference as the record low rate party has ended.
This is a very good thing imho as we badly needed mortgage relief, particularly for the millions who were able to refi, as a means of freeing up household dollars to pump into the still weak economy, and as yet another means of rescuing banks from the foreclosure crisis they created. But it has to end before we end up with another bubble. (nb: there were better options available to accomplish all this, but with a wholly unwilling Congress and a somewhat unwilling president, the Fed stepped in with a necessary substitute. Also, don;t forget the 12.5% inflation since that summer '07 peak. We're still well below the real number.)
Posted by: anon at August 27, 2013 1:45 PM
Remember, It's different this time!
Posted by: Diemos at August 27, 2013 2:18 PM
Back in '07 there were a lot of people predicting that prices would fall materially, and they generally did through '10.
Nobody could have predicted that massive bailouts and nationalizations that came afterwards.
But is anyone willing to venture a prediction for SF real estate for the next 2-3 years? Facebook is worth more than Boeing, we're about to invade Syria, the national budget can will need to be kicked down the road again soon, and we have a new Fed chair starting in '13. So what happens now?
Posted by: Legacy Dude at August 27, 2013 2:50 PM
Price appreciation overall levels off in the 8-12% per year range going forward. The huge enthusiasm for property we saw this year can't carry on forever, but I hope it does as I just closed on another house.
[Editor's Note: Keep in mind that prior to the recent bust, the annual appreciation for San Francisco homes had averaged a little over 4% from 1949 to 2006.]
Posted by: Jimmy (No Longer Bitter) at August 27, 2013 3:29 PM
8-12%? I can't tell if you are styling yourself bull or bear from your comments, but 10% avg appreciation doubles prices in about 7 years. Do you think prices can double from where they are now on that timeline? I don't, not for the broad market.
My view on things changed in 2010/2011 once it became apparent to me that the goal was to keep the music playing whatever the cost. I'm no expert on high finance, but bad loans had to be made money good. So banks sat on foreclosures, let people live in their homes without paying, and meanwhile made money in other markets with the help of ZIRP. Now real estate has returned (see linked name) and we are back to situation normal (AFU).
From here things proceed as planned until the next catastrophe. Rates can't rise too much to crush gov't interest expense, so we'll see some undermining of equity markets via taper talk pushing folks back into treasuries. Basic necessities continue to grind higher, automation and low interest rates (used to finance purchase of said automation) continue to hollow out the workforce. But hey, we'll all be real estate moguls so who gives a shit.
Posted by: rabbits at August 27, 2013 3:50 PM
It is different in that the down payments are consistently larger for one thing. People aren't really levering up this time. The money is coming from elsewhere than their real estate holdings. But hey you nailed it with your 50 percent down thing last time so by all means, be snide, you earned it. O. Wait.
Posted by: Anon at August 27, 2013 3:50 PM
I think prices could definitely double. That would put the house I just bought at $900k by 2020. It sold for $750k in 2007 (and obviously I paid less, but I'm extra special) so a net increase of 20% from peak pricing over a 13-year period? 1.5%/yr
Yeah, that's doable.
Posted by: Jimmy (No Longer Bitter) at August 27, 2013 3:55 PM
I almost actually qualified my "I don't, not for the broad market" comment with a "unless you are buying depressed property in the East Bay or Phoenix." If you bought a non-crack house, non-East Oakland Bay Area home for $450k recently then good on you. You might actually see it double by 2020. I don't think many of us are that lucky.
Posted by: rabbits at August 27, 2013 4:10 PM
Predictions 2-3 years out:
Using CSI for SF, June 2014, up 6% YOY
June 2015, up 4% YOY
June 2016, up 1% YOY
Why? Higher mortgage rates will (and already are) dampening things. But the economy is slowly and surely picking up. The price hikes over the last year were rate-driven and already got us back to pretty close to as high as is sustainable given the economy and incomes, and they will just tick up from here. If you haven't bought an SF place already, you're likely too late for any big near term gains. Caveat is there could be a big shock that sends prices down quite a bit (war quagmire in Syria, terrorist attack, oil shock, govt idiocy with the debt or spending). But it's hard to envision a scenario that would bring 8-12% hikes over the next few years. Believe me, I hope I'm wrong because then I will become quite rich as other asset classes would appreciate like that as well.
Posted by: anon at August 27, 2013 5:26 PM
Nobody could have predicted that massive bailouts and nationalizations that came afterwards.
Some of us predicted it. There was no way that "Helicopter Ben" was going to stand aside and let a deflationary depression happen. I knew he would flood the economy with liquidity somehow, using ZIRP and whatever else he could come up with.
It is pretty hard to imagine any country anywhere letting the big banks fail, short of a revolution. I can't even think of one historical example, can you? Though usually bond holders have to take somewhat of a haircut too. Mostly they escaped unscathed in this meltdown.
I expect a cooling off for San Francisco Real Estate, but still a bullish market. I am guessing 5-10% yearly gains for a few more years, before the inevitable down cycle. Hard to say when exactly that will be, but I don't see it on the horizon.
Posted by: NoeValleyJim at August 27, 2013 6:43 PM
Diemos, you're back! We got NV Jim too. All we need is anonn (what was his original handle?), tipster, etc. etc. and it'll be bulls vs bears all over again. How fun!
Quite frankly I think jimmy is being uber optimistic at 8-12% over the next few years. That's crazy appreciation! As legacy dude said, lots of unknowns out there.
Personally I think 30 yr fixed rates will stabilize at 4.25 - 5%. It won't be 3.4%, but under 5% is still really good and won't kill the RE market. That will be offset by better employment and economic growth.
The real wild card IMO will be inflation. If we do get decent economic growth, inflation may be held in check. I mean, who else is going to lead global growth? China is going into serious headwinds (too much infrastructure build up, lower end mfg going to Africa, and a population that wants some human rights.) Rest of BRIC is coming off a high. Europe is/will be weak for a couple more years with euro woes. By default that leaves the USA to be the growth market. And that could temper inflation stateside. OTOH if we do hit inflation, while slowing economic growth, real estate will benefit as an asset class towards the tail end of that inflationary run.
Given the above, yes I'm bullish on SF RE and plan to leverage and acquire another bldg or two in the near future. Irrespective of inflation patterns, It's heads I win, tails I win in the next few years and I want to be sitting on a bigger RE asset base as this unfolds. Of course, I welcome other perspectives that challenge this position.
Posted by: 49yo hipster at August 27, 2013 9:37 PM
That 4.2% has to be real gain, not nominal gain. Check out these charts:
The average home in California cost $3,527 in 1940! 4.2% nominal gain for 60 years gets you to $41,635 nowhere near the actual cost of $211,500.
Now if you use the cost of a 1940 house in 2000 dollars, you get $36,700. Appreciate that for 60 years at 4.2% and you would get $433,240. Now this is more than what the average California home did cost that year, but San Francisco appreciated faster than that.
By my calculations, San Francisco real estate has appreciated at about 7%/yr over the long run. I can't see any good reason why that would be changing.
Posted by: NoeValleyJim at August 27, 2013 11:19 PM
First it was So Cal then Nor Cal followed ...
"Carrie Kangro, a producer and mother of two toddlers, tells me she's lost out on several Venice and Santa Monica area homes over the past year, including one where the realtor or owner would not even allow her husband to view the property until she had put in an offer." (Toils and troubles of a new housing bubble)
Posted by: badlydrawnbear at August 28, 2013 9:17 AM
Stories like that ... are music to my ears!
And to respond to the editors "4% per year" comment, while that may be true, the trajectory is far from steady.
Manic appreciation followed by collapse and despair ... only to see the cycle start all over again.
This market is like a jet engine headed for the moon! Its gonna be a wild ride.
Posted by: Jimmy (No Longer Bitter) at August 28, 2013 10:43 AM
"That 4.2% has to be real gain, not nominal gain. Check out these charts"
It's nominal. The flaw in your logic is that if you bought a median house in 1940 and kept it for 60 years you wouldn't magically have a median 2000's era house. You'd have a small dated worn down old house.
Posted by: anon2 at August 28, 2013 10:58 AM
anonn was originally fluj. i was also here in 07 and defitinitely was a huge bear until 2011. i bought something in mid 2012, so switched, but i think prices have now recovered a little too much too fast. im not again a bear but am pretty neutral. its hard to believe we will gain more than 5-10 % more over the next year and 3-5% thereafter. However, i think the stock market is more important than increasing mortgage rates. mortgage rates are still very very low. if the stock market increases more than 15% again, then house prices will continue to climb. stocks have preceded the housing market and has been phenomonal for 4+ years.
Posted by: spencer at August 28, 2013 11:27 AM
also imho the best poster from 07-08 was something,millionaire. i can't remember what was before millionaire in his name
Posted by: spencer at August 28, 2013 11:29 AM
Hi Spenc, yeah i temember you from back then. That guy you mentioned was LMRiM. Wonder where he went. Fluj was a riot, as was tipster; ying and yang.
I agree with your projectory of SF RE appreciation, but not so sure it's tied as tightly to the stock market as you think. Whatever happends, it will be an interesting couple of years ahead of us.
Posted by: 49yo hipster at August 28, 2013 12:27 PM
anon2, you haven't really thought about the numbers:
Plug in $100 for 1940 and see what pops out for 2000:
So you are telling me that San Francisco home prices (the home prices with the greatest appreciation in the entire nation) went up the same as the inflation rate?
Not buying it.
Posted by: NoeValleyJim at August 28, 2013 12:42 PM
I am not sure why you aren't 'buying it' since the historic trend is that home prices tend to keep pace with wages + inflation.
You see, RE used to be a 'safe' investment. Safe equaling low risk, which equals low return.
You couldn't lose but, once adjusted for inflation, you didn't really win either.
Shiller's analysis shows prices, historically, rise +.5% above inflation and core logic shows prices rising at +1.5% above inflation. This is the + wages portion (since prices cannot outstrip buyers ability to pay for very long, as the global RE collapse recently proved).
RE was never some get rich quick strategy it was a way for individuals to safely stash money away and not see the value eroded by inflation.
While the pieces below are discussing the national trends of home prices we have seen over and over again that despite many individuals feeling the SF is 'special' that all data points show that prices rise and fall basically in line with the national trends
Calculated Risk - The Upward Slope of RE
Will Housing Prices Track Inflation Over The Long Run?
Posted by: badlydrawnbear at August 28, 2013 1:01 PM
I too would love to seee the real source for the 4.2% SF long term price rise.
it suggest the national average = 2.3% which seems crazy low for nominal return given some of the inflation for the time period.
Trust, but verify and all that..
Posted by: REpornaddict at August 28, 2013 1:37 PM
"Hi Spenc, yeah i temember you from back then. That guy you mentioned was LMRiM. Wonder where he went. Fluj was a riot, as was tipster; ying and yang."
Tipster read like some VC's secretary witha bone to pick about being priced out, and pretty often had a wild conspiracy theory type predilection. Fluj was a bullish realtor who knew his stuff and made some overblown statements here and there. Not exactly yin and yang.
Posted by: Anon at August 28, 2013 1:38 PM
Whaddya mean? Tipster = pessimistic/conspiracy, fluj = overly optimistic realtor.
Ying yang exactly! (Entertaining too.)
Posted by: 49yo hipster at August 28, 2013 2:18 PM
Actually yin yang, which means opposing forces coming together, or not.
Posted by: 49yo hipster at August 28, 2013 2:21 PM
I myself an i think mist people tend to think of yin yang as balanced. "Fluj" pretty much got right what happened in noe mission bernal, "tipster" said they were all doomed. Yin yang is too generous to tipster, he was a kook.
Posted by: Anon at August 28, 2013 2:58 PM
They balanced out the site. They were both total jackasses so in that it wasn't yin yang but 2 peas in a pod. I once heard that they are actually good friends and are paid by this site. I might have read that here.
[Editor’s Note: If you did, it wasn’t true (as we'd be willing to bet that you know). And for the record, we've never paid or otherwise incented anybody to comment or play a character on the site. Now back to the numbers at hand...]
Posted by: sparky*b at August 28, 2013 3:17 PM
Speaking of numbers if you actually plug in the correct years (The range the editor's data refers to) in the inflation calculator, 1949 to 2006 then your $100 turns into $847. About 3.8% per year inflation. With the 4.2% nominal gain, that's 0.4% real gain. Right around Shiller's 0.5% per year figure that badlydrawnbear calls out.
Sure, you could think of a lot of questions about how they got that number. SF proper vs MSA, starting and ending years, which CPI to use, how or if to include maintenance and hedonistic changes, but it's not out of line from the results others have gotten for long term housing prices.
The main point is that houses have gotten larger and come with more amenities now than in the 1940s. So you can't look at the change in median price over that long a time frame and call it the investment return.
Posted by: anon2 at August 28, 2013 4:06 PM
@sparky*b, Have you finished the rental rehab? What's the market like...
Posted by: EBGuy at August 28, 2013 4:55 PM
The problem with your logic badlydrawnbear, is that his study was a nationwide study, that showed that real estate prices tended to go up with inflation. The Editor pointed us to an article that said that San Francisco had the greatest appreciation of any city in the country.
So your claim that the city with greatest appreciation in the country should have the same as the average doesn't exactly jibe.
1.5% above inflation, plus an average inflation rate of 4% is more believable as a national average of 5.5%. SF gets some amount above that, due to gentrification, 1-1.5%, giving us 6.5% to 7% in SF.
Real prices have gone up 57% since 1987.
Posted by: NoeValleyJim at August 28, 2013 5:28 PM
Your problem is that you've picked this 7% number for SF out of thin air and are trying to pick parameters, like timeline, or metrics, like median price, to make it work out.
"Real prices have gone up 57% since 1987."
So in that timeframe with that dataset including a huge bubble, only 1.7% per year real increase. But move the end date back one year to 2012 and you're down to 1.1% per year. Move the start time back and your returns flatten even further.
Sure, some different data sets and methodologies give slightly different results but long term it looks compelling that even in SF housing prices have followed inflation.
And think on the fact that these stats use national inflation figures. Do you think the cost of living in SF has risen at the same rate as in Iowa? What about the change in costs to bring a 1940's house up to 2013 standards in SF vs Iowa?
Posted by: anon2 at August 28, 2013 6:25 PM
Move the start time back and your returns flatten even further.
Show the evidence for that claim. Inflation was much higher in the 60s and 70s, so nominal returns would have been higher.
What do you believe the long term return in San Francisco real estate has been?
I based my 7% on some HUD info about average San Francisco home prices, which I will try and dig up. It is no doubt true that the average home in San Francisco is bigger today than in 1940 but probably not by as much as the average home is bigger nationally.
Posted by: NoeValleyJim at August 28, 2013 7:00 PM
Here it is:
Top 10 MSAs by price growth
Annualized growth rate, 1950–2000
San Francisco 3.53
The NBER has San Francisco with a real growth rate in home prices of 3.53%. Average inflation during that period was 5%.
So overall nominal gain would have been 8.53%.
I am going to take the word of the NBER over some reporter from Business 2.0.
Now, have home prices since 2000 grown at a faster or slower rate than from the period of 1950-2000?
All the usual disclaimers apply: this is average home prices, not the same home over time, this is the San Francisco MSA, not San Francisco proper, etc.
Posted by: NoeValleyJim at August 28, 2013 7:06 PM
I too have real doubt in the 4.2% for SF. Same link from SSite has 2.3% nationwide - but inflation above is quoted as 3.8% for same time period.
1.5% annual depreciation nationwide..I doubt it.
Ed, can you provide a link to the raw numbers behind the 4.2%?
Posted by: REpornaddict at August 28, 2013 7:07 PM
Sorry. inflation was 4% over that era, not 5%, I made a math error.
So the overall average home price increase in the SF MSA from 1950-2000 was 7.53%, not 8.53%.
Posted by: NoeValleyJim at August 28, 2013 7:08 PM
^ That table is quoting mean housing prices which has basically the same problem as median.
Posted by: anon2 at August 29, 2013 8:46 AM
Yeah this is not really a good way for an individual investor to estimate his personal gain. I think I have a reasonably good way to make a guess at that though: overall the SF MSA has had home prices increase at a 1.8%/yr rate higher than the national average.
If we take Shiller's value that home prices tend to go up at about 0.5%/yr and add that the Bay Area deviation from the median, you get 2.3%/yr real increases. For the era from 1950-2000 you can add in the the inflation rate of 4.0%, so you would get 6.3%. Which backs out pretty well if you sample some home prices in various neighborhoods.
I anticipate in the longer run going forward that individual SFH in The Bay Area (and SF proper) will increase at about 2.3% plus the inflation rate. I think most economists are predicting 2.5% inflation for the next decade or so, so that would work out to 4.8%/yr nominal gains.
So I am going to revise my initial estimate of 5-10% yearly to 3-6% yearly.
Posted by: NoeValleyJim at August 29, 2013 11:01 AM
NVJ's analysis makes sense to me.
So do the last 10 years still track 5-7% appreciation, given the 2003-07 rise, 08-10 fall, and 11-13 rise again? My gut says they do. Anyone have decent data on that?
Posted by: 49yo hipster at August 29, 2013 11:29 AM
@NVJ - That's closer in my opinion.
One thing to look at is that the 1.8% over the national average from the CNN article is measuring to 2006. Nearly the top of the bubble. If you look at the Economist data you can see that the bubble was quite a bit larger in SF than in the rest of the country.
Looking over the Economist's 1987-2013 data range SF's out performance drops to 0.9%. (Relative to the 10-city index which isn't the complete national data, but which is what they have for that time frame.) Look back to the trough in 2009 and SF and the 10-city index are neck and neck over a 22 year stretch.
SF probably has some appreciation edge over national data, but the recent bubble was so large compared to historical price changes that including bubble time frames in the calculations is going to distort the outcome in ways that I don't think reflect past or expected future returns.
Posted by: anon2 at August 29, 2013 12:43 PM
"Fluj" pretty much got right what happened in noe mission bernal, "tipster" said they were all doomed. Yin yang is too generous to tipster, he was a kook."
In o7,08 and 09, tipster was way more right than gfluj. Fluj had no sense of macroeconomics. He couldnt see the forest through the trees. He was a strong bull even as the market was toping out. Tipster was far out sometime but clearly a smart guy. fluj was not
LMIRM was the man
Posted by: Spencer at August 29, 2013 6:40 PM
So do the last 10 years still track 5-7% appreciation, given the 2003-07 rise, 08-10 fall, and 11-13 rise again? My gut says they do. Anyone have decent data on that?
No, the last 10 years (2003-2013) are pretty flat, and actually down if you include inflation.
Posted by: Spencer at August 29, 2013 6:44 PM
^ definitely not in the mission, and I suspect bernal and noe are up from 03-13- at leat for midrange props. Right now mission prices have surpassed 07 by 10-20%. And things were relatively cheap in the mish in 03. I'm wondering about stats citywide though.
Posted by: 49yo hipster at August 29, 2013 10:55 PM
As for LMRIM, smart and interesting guy. But his idea of renting (not buying) and investing his $$ elsewhere didn't amount to much as a general principal. The stock market also took a huge hit in the great reason. OTOH SF apartment bldgs basically have continued to appreciate since 09, as rents have soared and interest rates were/are very low. Although he got one to think about the macro picture, it ultimately didn't bring home the bacon. (Glad I kept my SF investment props, and planning on leveraging later this year while rates are still good...and I finally found a bank i can work with; i.e. one that is not run by myopic asshats.)
Fluj, while sporting an optimistic realtor persona, knew the micro picture really well. He also intrinsically understood that RE is always highly dependent on the specific property and its characteristics. Almost even deal is an exception, and you can't model it on generic principals, much like the stock investors kept doing. They mocked his "it's all micro bro" perspective, but he was right.
Posted by: 49yo hipster at August 29, 2013 11:09 PM
49yo, surely you're aware of the insane bull market in equities since the crash?
I'm not sure why you're characterizing SF apartment appreciation since 2009 as "OTOH." (the main difference is that housing appreciation is much lower -- the S&P is now nearly *2.5x* what it was at its 2009 bottom).
Posted by: shza at August 30, 2013 10:20 AM
Shza has it right. We can debate all we want about what measure of long-term SF housing price appreciation is the most accurate. Regardless, whatever measure you want to choose, equity gains have dwarfed SF housing gains.
A home purchase is not a good "investment." What it very well can be is a sound, economical means of obtaining a place to live. And, of course, there are many non-economic benefits (and disadvantages) to owning one's home. Financially, (i.e. disregarding intangibles) the calculus is pretty simple. Buy a place if it is less expensive than renting. But do not figure some "investment" or appreciation factor beyond inflation into that calculus or you will almost certainly get it wrong.
Posted by: anon at August 30, 2013 10:30 AM
A- I'm talking about investment props, not homes to live in.
B- apartment bldgs in SF hardly went down in value during 08-09, unlike the stock market.
C- with RE you have leveraged returns.
Given that, I'm sure a good apartment bldg purchase in SF in 09 has a better ROI than the same down payment put in a stock index.
My whole point on the LMRIM strategy is that stocks also went down; it's not as if it was conceptually a better strategy.
Posted by: 49yo hipster at August 30, 2013 12:15 PM
A home purchase is not a good "investment."
Well, I personally have data that can definitively prove that this is not even remotely true in practice.
Posted by: Jimmy (No Longer Bitter) at August 30, 2013 12:16 PM
Fluj nailed the whole micro-market thing. That's the advantage to be out on the street and seeing what's going on. And Spencer? I lost track of the number of times he was flat out wrong about things. Not surprising, given his fear of city parks and anything else outside of the 4 block radius around Pacts apartment.
Tipster was just a complete wing nut, and his absence from the boards these days just illustrates how wrong he was.
Posted by: fishchum at August 30, 2013 12:34 PM
"Fluj nailed the whole micro-market thing."
Not Really. The real story was about how different priced homes fared. Go to the top of this post. Pre-bubble the price tiers tracked each other. Then the bubble hit lower priced homes far harder than high priced ones. Now the tiers are getting closer again. This was macro and fits in perfectly with LMRIM's bank/lending theory of the bubble.
"My whole point on the LMRIM strategy is that stocks also went down; it's not as if it was conceptually a better strategy."
But for many years during the bubble even for investment properties people were committing to mortgage payments much higher than rents. Compound the opportunity costs of those losses over many years and you'll be shocked what you see.
Plus leverage washed out many people during the bust so they never even got to see the capital gains breakeven of the last few years.
Posted by: anonZ at August 30, 2013 1:00 PM
Why couldn't LMRIM ever get it right when it cMe to individual local sales stuff, then? He was always wrong. Tere's a place for micro and a place for macro. So yes, "really."
Posted by: Anon at August 30, 2013 1:08 PM
To add a bit, in SF you also need to pay ~ 1.2% of the purchase price of the property every year in property taxes, and not just on the down payment amount. That sucks out a huge chunk of any long term gains. And let's not even get into maintenance costs. No serious dispute that housing is a lousy investment especially in the long term (yes, of course there are rare exceptions -- and I know people who made 100x their investment in a stock). Overlay an S&P index chart over the housing charts above and you will see this very clearly even with all the volatility.
Posted by: anon at August 30, 2013 2:34 PM
"But his idea of renting (not buying) and investing his $$ elsewhere didn't amount to much as a general principal."
You must be joking. The stock market has consistently outperformed housing. Husing may be a good mix in your investment portfolio, but it doesn't hold a candle to equities. Renting and buying stock in 07 when LMIRM receommended it would have you doing much better now than buying at the time and forgoing stocks.
and honestly, fluj was right <1% of the time. he was a screaming bull in 2007, and didn't have a 4th grade understanding of economics.
Posted by: Spencer at August 30, 2013 3:18 PM
fischum said " Not surprising, given his fear of city parks and anything else outside of the 4 block radius around Pacts apartment."
you are a real classy guy. I was mugged twice in the polk st corridor...once with a bat. My girlfriend was robbed at gunpoint near the western addition, and a close friend of mine was killed in the marina, all in the 06-08 period. so, yes, i was very concerned about the safety of the city at that point. was my judgement biased by my personal experience? yes, of course,
but let me know what exactly i was wrong about mr. nice guy. BTW, i dont remember you at all. were you just a friendly lurker on the site?
Posted by: spencer at August 30, 2013 7:29 PM
Spencer, I'm sorry about your experiences regarding crime in San Francisco - you never disclosed any of this before, so I apologize - but not knowing this, you came off as a real curmudgeon with the classic old man "get off my lawn" attitude. I've lived in San Francisco for 20 years, and I've never had an issue with safety, and I've spent a good part of my time here in some of the seedier parts of town.
What were you wrong about - your predictions about what real estate would sell for was always off. Your prediction on what units would rent for? Sorry to break the news to you, but these were always a high point of comedy for me. They were always laughably unrealistic.
Posted by: Fishchum at August 30, 2013 9:12 PM
You were corrected dozens of times spencer. Always so haughty, fetting every price and rent dead wrong and never learning a doffone thing. Nice to see you never learned anything ... The inverse of your percentage being more accurate.
Posted by: anon at August 31, 2013 9:07 AM
This was always one of my favorite episodes of The Socketsite(TM). It's like the reunion show. Wonder what other characters will come back. What was that guys name again, rhymed with hipster but had a T in it or something? So odd he just up and disappeared never to real the site again. I wonder when they will all be back. Maybe when the dow falls below 11500. As the Market Turns(TM). That's another good show.
Kidding aside :), I do think the best correlation we have here on the SF Market as a whole is the stock market. People are, and feel, flush with cash and equities. We've seen in the past just how quick that can change. The 2016 elections aren't far behind to wonder if this rally can sustain to and through the next election cycle. Hard to know but it is certainly hard to be a raging bull right now without taking it hard on the chin if things go south in a hurry.
Posted by: eddy at August 31, 2013 10:30 AM
revisionist history is great when you are sitting in the middle of a bull market. i called a 30% drop in SF RE coming in 2007 and 2008. not that i am alone or bragging in this. it was patently obvious that we were in a bubble. there were stalwart bulls here in that timeframe screaming that the market was s till rising even after the fall began.
anon is a great name. it allows you to write anything and not have any accountability for it. i'm happy to defend where i was right and that was about the macroeconomic situation. im also happy to admit where i was wrong. rents have surprised me, but it has been a record stock market run so i guess it shouldn't have. i bought a house about a yr ago so obviously the rent vs. buy calculation changed for me. But i was in a 2bd 2ba in the heart of PAc heights with parking for $2100. it was not rent controlled and my landlord never raised it for 8 yrs. so switcher to a buyer was a hard decision for me. Luckily I was heavily invested in equities and made a lot of money investing the money i saved on rent. I made a 60% cash purchase.
and agree with Eddy as have stated many times. the stock market is the driver of all this. The general market weighs more heavily than goodle, apple or twitter, as most SFers considering home ownership are invested in the general market, but not necessarily one of the few in google, apple or facebook.
and fishchum, i did dsclose the personal experience i had with violent crime in 07 and 08, but youve chosen to just criticize.
for any of the anon's of which im sure there are many, please look at any of my previous posts on the macroeconomic or general RE market pictures and find a place where i was wring.
Posted by: spencer at August 31, 2013 10:51 AM
Acting like sfre, SF itself, dropped 30 percent was a good call? Try half that at most. And every outcome you weighed in on you missed by miles. Ha ha. You're a riot.
Posted by: anon at August 31, 2013 11:16 AM
anonymous name and no examples. typical internet troll
Posted by: spencer at August 31, 2013 11:39 AM
Just ducking back in to check in on some old pals. Where is Dude btw? I'll always remember Satchel as Satchel, and not LMRiM or "Laughing Boy", as fluj called him...
Posted by: Brutus at August 31, 2013 12:37 PM
I believe the anon at 11:16am (8/31) is fluj. If not, a perfect impression.
Posted by: shza at August 31, 2013 3:21 PM
I wish. I am only about 4 years in. Bad time to start.
Posted by: Anon at August 31, 2013 7:55 PM
Fluj wasn't anon. He was anonn. I doubt he's here now.
Tipster ran away as soon as the market came back. Can't have that. So he's busy on another form he can pooh- pooh on. Maybe a precious metals form or something.
Posted by: 49yo hipster at August 31, 2013 10:39 PM
Fluj is tipster is satchel is Adam. Fact. The only person I miss is ExSfer.
[Editor's Note: Fiction, actually.]
Posted by: sparky*b at August 31, 2013 10:55 PM
tipster stuck around around 2 years too long as the voice of upcoming doom. Then he woke up and saw the market.
I wonder if this is simply a plateau or the beginning of another down cycle. The economy is still 1/2 way into a recovery cycle, which I think means RE still have a couple of good years ahead. But some local markets have grown at unhealthy levels. Time for a breather.
Posted by: lol at September 1, 2013 1:57 AM
Fluj wasn't anon. He was anonn. I doubt he's here now.
"anonn" was merely the next in a long line of subsequent handles.
I don't understand why people here do that (looking at you, "futurist").
Posted by: shza at September 1, 2013 2:20 AM
Fluj never needed to sign his posts. You could always tell his distinctive style despite his plethora of aliases and alter egos.
Anon at August 27, 2013 3:50 PM is Fluj (Hi flujie!)
Posted by: Diemos at September 1, 2013 8:05 AM
Guys, in your comparisons of real estate vs. asset x, don't overlook the fact that the government borrowed billions of dollars to "save" housing in an unprecedented bailout. Kinda skews the comparison, don't you think?
And yes, I realize that there are a lot of positive fundamentals supporting local real estate values today, but that isn't the whole story since '07. Not that I care much to rekindle the old debates...most of us who were bearish ended up buying when prices fell. But if you're going to rehash history, at least try to be objective in your analyses.
And on that note: Brutus, I'm still here, just not as often. Now why don't you (along with the brood of new anons) point us to some of your insightful comments from the halcyon days so we can see how accurate your predictions were....
Posted by: Legacy Dude at September 3, 2013 9:03 AM
Asset prices are correlated. Higher quality investments (blue chip Pac Hts homes, AAA corporate bonds) went down less on a % basis during the financial crisis than lower quality investments, (Bayview homes, speculative stocks).
Easy money policies have helped all asset classes, and a strategic observer/investor could have anticipated Fed intervention during a financial collapse. Unemployment is still high. Be the new president Yellen, or Summers, we are likely to keep on a path of easy money (even if slightly less easy) until unemployment starts to improve.
The twin evils of macroeconomics are inflation and unemployment. We don't have inflation in the core numbers about which the Fed really cares, and we do have a lot of unemployment. The foot stays on the gas and we have at least 12-36 months of similar easyish money conditions ahead...
The scenario that could change this notion would be if the economy really started going gangbusters (and unemployment dropped), in which case it would seem RE prices would continue to be well supported by non-monetary policy factors.
Posted by: soccermom at September 3, 2013 9:34 AM
speaking of gloom and doom, Dr Roubini got in a little trouble for his naked parties with young models. if everything is doom, you might as well party while things go to shit around you:)
"Nouriel Roubini has been ordered by New York City to remove his hot tub — often the site of wild parties with younger models — from his Manhattan penthouse's roof, according to a New York Post report.
The economist, nicknamed 'Dr. Doom' for his forecasts of the financial crisis, failed to get approval for the tub and roof deck from the Department of Buildings, the New York Post reported.
"Now Roubini has been slapped with a violation and was ordered to remove the Jacuzzi, the deck and a party room he built, complete with a bar and bathroom, on the roof of his party penthouse," the paper wrote."
Posted by: jill at September 3, 2013 4:48 PM
No, the last 10 years (2003-2013) are pretty flat, and actually down if you include inflation.
Not for me. My place just appraised for a just a bit over double what I paid for it 10 years ago. I did about $100k of improvements, but it went up much more than that.
Posted by: NoeValleyJim at September 3, 2013 11:26 PM
Re: roubini, he was a valuable asset for a long time but he failed to switch positions and it was fairly obvious, more so now in hindsight, but obvious in real time as well, that he began marketing / profiting from his position of 'authority' on the matter. He over extended his projections and missed-read it as well. I credit this site for helping to keep a focus and allow others to stay plugged into the trends.
One thing is very clear, the observant ones who watched the market and waited, and bought at the trough are the ones being rewarded. Unfortunately for many of the permabears the penalties for not paying any attention at all weren't nearly as severe as they had hoped. I do think that many many people were bailed out but I guess the lesson here is to never underestimate the will of the government to keep the country solvent at nearly any cost.
Posted by: eddy at September 4, 2013 7:29 AM
"the observant ones who watched the market and waited, and bought at the trough are the ones being rewarded.Unfortunately for many of the permabears the penalties for not paying any attention at all weren't nearly as severe as they had hoped. "
That's the kicker though. The bubble hit the low end of the housing and income spectrum most. A lot of those people were very overextended and lost jobs, homes or wages during the bust. Very unlikely that banks would give out money to those people during the trough. The bailouts aren't free either and they will take a toll too mostly on the low end of the economy.
Posted by: anonZ at September 4, 2013 10:28 AM