San Francisco Median Home Sales Price and Volume

Bay Area home sales were relatively flat in April, dropping 0.9 percent year-over-year.  The number of homes sold in San Francisco last month was relatively flat as well, dropping a nominal 0.5 percent versus April of 2013.

That being said, based on normal seasonality over the past decade, home sales in San Francisco have increased an average of 1.8 percent from March to April and last month’s gain of 13.8 percent did represent an above average gain, driven in part by recorded closings in new condo projects (see last paragraph below).

The median price paid for a property in San Francisco was $922,500 in April, down 2.3 percent from a record $945,000 in February but 13.2 percent higher year-over-year, driven in part by an increase in the mix of higher priced home sales. As always, keep in mind that while movements in the median sale price are a great measure of what’s in demand and selling, they’re not a great measure of actual appreciation despite what the headlines might say.

Having peaked at $665,000 in July of 2007, the median sale price for a home in the Bay Area increased 5.4 percent to $610,000 in April, up 19.6% year-over-year and the highest median price since November of 2007. The median price had fallen to $290,000 in March of 2009.

While sales dropped in five of the nine Bay Area counties last month, sales increased 14 percent in San Mateo.  At the other end of the spectrum, sales dropped 14.9 percent in Sonoma. The two biggest changes with respect to median sale prices were recorded in Alameda (up 26 percent year-over-year) and Solano (up 26.1 percent year-over-year).

As always, keep in mind that DataQuick reports recorded sales which not only includes activity in new developments, but contracts that were signed (“sold”) months prior but are just now closing escrow (or being recorded) and any properties that were sold “off market.”

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Comments from “Plugged-In” Readers

  1. Posted by poor boy

    When will this madness end? I have a feeling it may not increase rapidly in the future, but it will NEVER go down again for sure.

    • Posted by lol

      Markets always go up or down. Just like the economy, or a region’s relative health.

      • Posted by sf

        Today’s high could be tomorrow’s down. Prices will never go down to 1990 levels.

        • Posted by san FronziScheme (formerly known as lol)

          How much was a dollar worth in 1990? What were the local incomes in 1990?

          What counts is how many people can afford a home. Prices are going much faster than the median income, which is due to the nature of the SF market:
          - less than 40% owner-occupied
          - very low turn-over

          This means the market is made at the margins, by higher income individuals, on a very limited property pool.

          Demographics could play a role in supply in the next decade. The oldest Baby Boomers are turning 70 soon and they’ll think about giving their house to their heirs (along with the prop 13 benefit), or scale down (I know how improbable it sounds with Boomers), etc… That could be the big story of the 2020s in RE.

          Tech could crash, or at least could become “mature” (think boring like Microsoft). The BS tech (yes, a small chunk of the current tech boom is total BS) would vanish. The BA could become too expensive for some tech firms to set up shop. This means less demand.

          Then there’s the natural cycle, with banks becoming overconfident and letting us live through another hell like 2008-2009.

    • Posted by Poor Boy's Mama

      I’m sure they said that in Detroit up until the 50′s. It’s so funny how soon people forget that we just went through the largest financial crisis 6 years ago and NOTHING has changed.

    • Posted by Louis Bois

      Everybody in tech has learned to DIVERSIFY their wealth into real assets.

      With companies like Twitter and FB providing millions in windfall, it’s logical these thousands of employees want to buy property as these companies might not be as valuable or around in the future.

  2. Posted by REpornaddict

    Is the mix really that different in SF from a year ago though??

    To be honest 13% doesn’t seem like a bad approximation of how much prices are up in the past year given apples I’ve seen. And it probably understates it in many areas.

    I just think that an assumption that when medians are up mix always distorts this one way only is potentially overly simplistic. I can see how it was so in comparing 2013 vs 2012 and certainly 2012 vs 2011 but not so sure now.

  3. Posted by eddy

    @poorboy, I’ve been saying that for the past few years. Hasn’t worked out all that well to be honest.

    @rep, i’d argue that the mix is fairly consistent in so far as that we traditionally see a fair bit of old, moderate, new (ie, refurbushed) homes sold at any point in time here in San Francisco.

    Historically, there has been either an omission or disregard for D10. May be time to rethink that strategy. “It’s beginning to look a lot like Noe.” (said in song format)

  4. Posted by REpornaddict

    It’s beginning to look a lot like Noe(l) indeed

  5. Posted by Sam

    Ha I actually looked at a house in Bayview off 3rd. Nice home but you can’t imagine the number of people that showed up to see it. I liked it but it was a non-starter with the woman as since we looked at there has been several shootings in a not too big radius around it. Which is fine if it was West Oakland and selling for 150k, but at 600k, mm nah.

    • Posted by 94114

      Is that the house on Innes?

      • Posted by Sam

        no comment

      • Posted by poor.ass.millionaire

        That’s the one…dwellified. Mobs of peeps last week too. $599 list. I’m sure it’ll top 700k.

    • Posted by lol

      I recall houses for sale for around 300K in the BV in 2008-2010. Timing is everything.

      • Posted by poor.ass.millionaire

        Yup, dem days are loooonnnggg gone. Tiny ass 1story cottage fixer just sold for $477k. Bayview is back, and this time for realz…I think.

        • Posted by san FronziScheme (formerly known as lol)

          You should put a disclaimer if you have a vested interest in the Bayview…

    • Posted by poor.ass.millionaire

      Btw, more violent crime in the mish than bayview. Just run crime stats and see. Bayview has a pretty low population, as well as density, which helps. Just avoid the two nasty projects; all the lower income housing up on the hill (suburban type curvy streets up there) are okay.

  6. Posted by 94114

    it just went into escrow. Brave souls.

  7. Posted by MissionGal

    Innes is gone with $300K plus over asking.

  8. Posted by 94114

    Wait. 900K + to live in that neighborhood? Wow.

  9. Posted by MissionGal

    Oh I meant $200K over :)
    Math was off.

  10. Posted by Sam

    Ha no chance it went that much over asking

  11. Posted by MissionGal

    I know for fact. Mine was one of the offers.

  12. Posted by Sam

    Jesus, alright Im definitely getting out of the bay area.

    • Posted by lol

      Do like me:

      rent out SF,
      move and rent in LV, NV,
      use the difference to pay for a Villa with a view over the Mediterranean

      • Posted by Sam

        I can’t afford a place in SF to purchase. Also theres no way market rent would cover the montly payment on that house in Bayview.

        I’m starting to seriously look at Austin though, I can keep the same job and just switch offices. I just feel like its tough going from such an interesting dense city to such a huge spread out city, which is supposedly interesting. Portland is becoming a city of yuppies, seems silly to move there now. Maybe Detroit ha

        • Posted by lol

          Yeah, I got lucky and bought in 2010. The place is almost paid off now. Gotta catch the market when everyone’s afraid.

          • Posted by MissionGal

            You bought in 2010 and almost paid off now? OK, gotta tell me your secret.

          • Posted by san FronziScheme (formerly known as lol)

            I put 60% down, bought about 1/2 of what I could afford, and made massive prepayments in the first 3 years.

            I have been doing this for 17 years now, buying, holding, selling. Buy one place after the other every 2 years, rent out, etc…

            I was caught off-guard in 2013 with the big ramp up and decided to go overseas for my next purchase.

          • Posted by MissionGal

            Very smart. I wanna be like you when I grow up.

          • Posted by san FronziScheme (formerly known as lol)

            Well, you know what they say about best laid plans. I thought I had this market figured out when 2012-2013 happened. The key is never to participate into any collective hysteria.

            You can also follow the numbers but it’s not as sexy as making a winning overbid.

        • Posted by MissionGal

          Buy in the EB, build equity. Commute to SF by bart,not too hard. Once you have equity, you can buy in SF.

          • Posted by Sam

            Eh, why?

          • Posted by san FronziScheme (formerly known as lol)

            Or simply sit back, save money and wait for the next dip.

        • Posted by 94114

          Sam, the Bay Area is great but it’s not the only place to live and it’s hardly worth spending 800+ to live in a dangerous neighborhood. I’m lucky I could buy years ago. I could certainly never afford to buy now. You can have a nice life in Portland or Austin or wherever for a lot less money.

  13. Posted by eddy

    #1) What is the address of the home on Innes?

    #2) Can we agree to not use the nested reply function? :)

  14. Posted by lol

    800/sf in the BV. Congrats to the biggest fools.

    • Posted by poor.ass.millionaire

      No, I love it! Just got a killer deal on property there, and these comps are fantastic for my future value. I got in at 2012 prices, and it cash flows positive, so a definite keeper. Bayview only started going bonkers 13-14.

      Like you said, timing is everything!

      • Posted by gribble

        My wife and I put two offers on houses on Innes back in 09. I don’t remember exactly the offers but they were somewhere between $350K and $400.

        One deal got scuttled because the moron selling had no clue that they couldn’t just kick the tenants out. The other we got screwed on as the selling Realtor hid our offer and steered the sale to somebody in her church. Just as well, about eight people moved into the house between the time we first looked at the property and when we did our inspection.

  15. Posted by san FronziScheme (formerly known as lol)

    That’s it. In light of the latest insanity on Innes street, I am officially resurrecting my bear alter-ego San FronziScheme

    I am now officially a bear. It might take 3-4 years to play out, but it will, believe me…

  16. Posted by eddy

    @sfs(fka-lol), so by this metric the best time to buy will be in 2018 with the crash coming in 2017. Sounds about right. Then again, maybe not. Density is only going to get more dense and for every failed zynga there are 5 other companies blowing up. Is D10 Brooklyn? #brooklynization

  17. Posted by san FronziScheme (formerly known as lol)

    yeah, 3 years, 5 years, but I think we’re not far from – or already past – the inflection point. Insane behavior in the lesser desirable areas is probably the telltale sign.

    But it will get crazier, I am sure.

  18. Posted by EBGuy

    @lol/Fronzi. I’m not understanding your aggressive paydown of the mortgage on a couple of levels.
    1. Better ROI with more leverage (and you can expense the interest)
    2. Less equity at risk from an earthquake with a mortgage.
    That said, I’m willing to learn.

    • Posted by san FronziScheme (formerly known as lol)

      EBGuy,

      One reason is that I always go variable now, to pay as little interest as possible.

      Also, in September I showed up at the international client branch of my French bank on the Champs Elysees. I said: I own n places, I have essentially no debt, I collect x EUR per year in rent, y USD in income salary, I have z millions in net worth, and I want to purchase a summer home on the Mediterranean. Please lend me money. The answer was “absolutely”. And you need to understand the lending conditions in Europe today.

      It’s not about what the lending conditions are today, but what they are when the good deals abound. This is what compounds crisis: people hurt and banks stop lending. You want to capture the good deals, but are you in the right conditions yourself?

      It’s a bet, and so far it was a good one. I can tell you I have never been happier to be debt free.

      • Posted by hangemhi

        now THAT is good advice. I didn’t get your heavy cash idea either – but now i do. trying to get a loan in 2009/2010 was all but impossible, unless you were as prepared as you were

        • Posted by san FronziScheme (formerly known as lol)

          I was lucky to have cashed out in 2005-2008 on property in Europe to build that seed money. That was its own crazy story. The cycle in France is 5 years late and it looks like 2009 in there, compounded with the idiotic austerity.

          The villa I purchased was roughly similar in price to the place that sold in the BV. 1/4+ acre lot. Mediterranean view, pines, olive trees, cypresses, fig trees, almond trees, and soon an infinity pool.

  19. Posted by rabbits

    We are pretty well insulated from an all-on crash by the underwriting standards for loans, which remain fairly high. Near as I can tell 80% LTV or lower seems to be the norm, and that is a healthy market.

    • Posted by san FronziScheme (formerly known as lol)

      Yes, this time it’s different

      • Posted by lob

        Your comparison is apples-to-oranges. The previous housing bubble was predicated on free money for buyers that never had the money to purchase that were speculating on value. These days people aren’t able to get qualified for loans that they can’t actually afford.

        Even if tech dies a swift death in the bay area, there won’t be a big popping sound in prices + foreclosures, etc. due to precisely this.

        • Posted by san FronziScheme (formerly known as lol)

          Yes, exactly, this time is different. We think we have figured out what went wrong in the last cycle and we make sure we do not reproduce the SAME mistakes.

          The problem is that we know we are safe from issues that created the previous crash, and therefore we can go full speed into speculation just, because, you know, we didn’t do this mistake again…

          So many things can fuel a RE bubble. Yes there’s plenty of cash. Yes unemployment is at a record low while the net worth of the typical buyer is probably at a record high. Yes rent levels do somehow justify these prices in terms of ROI (though the link I have shown earlier shows it’s not THAT interesting to buy to rent here).

          A false sense of safety is what fuels bubbles. But one could ask some questions, like “where is this cash coming from? Isn’t that a bubble in itself inflating another bubble?” or “will rent keep staying high once the dust from the tech boom settles”?

          Legitimate questions, and I think they should give pause to people ready to bid up everything and anything under the sun.

          Wow, I love my new bear skin!

          • Posted by lob

            Simply asserting it’s a bubble repeatedly doesn’t mean it’s so. What do you think is fueling this proposed bubble? How will it burst?

            People want to buy homes in SF because they want to live in SF, and inventory is VERY tight.

            A little birdie told me Innes had well over 20 offers; the home was completely redone and in great shape. Bayview inventory is growing and money is talking. Keep your eyes on Bayview and see how long things stay on the market there in the next month and that will show you whether this is a bubble or the SF renaissance underway.

        • Posted by san FronziScheme (formerly known as lol)

          I’ll add that the last bubble came at the heels of the Y2K bubble which came at the heels of the late 80s S&L bubble, etc. All these bubbles were at the same time similar and different. Different in that the source of the speculation was different. Similar in that we really thought we had fixed this bubble thing once and for all…

  20. Posted by lob

    Innes went for far more than $200k over ask and the $ / sq foot was more like $625+ — not $800k.

    D10 is going to blow up.

  21. Posted by rabbits

    If 2/1′s in the Bayview are going for over $800k then I don’t know what this world is coming to.

  22. Posted by rabbits

    Oh. Ok, that’s fine then.

  23. Posted by pacheights bdlg owner

    I’ve always had a conservative / contrarian bent and was buying when no one wanted to touch real estate but this current upwave is breathtaking in that it is almost exclusively a cash market in the traditional “desirable” neighborhoods and pricing has compressed in the “2nd tier” neighborhoods with nice/new stuff trading up toward $800-1k sqft in Richmond, Inner Sunset, etc.

    Put it this way, if we still haven’t exhausted the demand from the leading-edge cash buyer market I don’t know what prices we need to hit before cash buyers are out of the market and we move to the next tier of buyers: cohorts with 50% down, then 20% down, etc. down through the credit quality / net worth spectrum. It could take years to exhaust demand.

    I’ve always been cautiously bullish on the north end of Bayview and the sales are starting to confirm it. Bayview is the next Bernal – maybe they can rename it Bernal Valley.

  24. Posted by san FronziScheme (formerly known as lol)

    we move to the next tier of buyers: cohorts with 50% down, then 20% down

    These have been probably priced out already. That’s the paradox of the current situation.

    Bayview is the next Bernal

    If this ever happens, expect some fierce resistance from the locals. You loved the anti-gentrification actions from the Mission in the past 2 years? You’re gonna love it when the Bayview corner kids get involved. LOL.

    In any case, if that’s the 2014 growth story from the SF Realtor book, fine. See you in 2 years when the gentrifiers see the reality of things.

    • Posted by Futurist

      There will be no “anti-gentrification” action in the Bayview.

      Money talks.

      Next story.

      • Posted by poor.ass.millionaire

        Exactly.

      • Posted by san FronziScheme (formerly known as lol)

        Good luck with this theory. 1 – It would require 100s of houses changing hands within the little time this bull cycle has to live. 2 – If you think community organizers are vocal in the Mission, wait until you meet the ones that will inevitably come out in the Bayview.

        The new people coming in are very different from the locals. This will be a race issue of much greater proportions than the Mission. In the Mission, one could point out that many of the gentrifiers are non-white (southern asian, eastern asian, latino). But in the Bayview, very few of the gentrifiers will be African Americans. They will see it as a case of forced displacement and a very painful reminder of what happened in the Fillmore and the poorly managed extraction of the African Americans not long ago. I give it maybe 1 or 2 years before we see articles in the SFBG or SFGATE describing how landlords are cashing out on the back of the poor.

        But I could be wrong. Maybe the locals will welcome the new yuppies that will follow their eviction notices!

    • Posted by poor.ass.millionaire

      You’re misreading the RE boom. Bay views gentrification isn’t like 2005-07. It’s on a one way road up. And if the SF RE market dips in 3-4 years, it will dip like the rest of the city. Why do you expect a major crash? We just had a major crash in 08-09. I just think the market will go up up, and correct at some point. But probably not a crazy crash like last time.

      • Posted by san FronziScheme (formerly known as lol)

        I don’t know. But following the typical cycles we seem to be in the euphoric phase. Paying top $$$ for very poor location is a telltale sign we’re in the stupid money phase.

        • Posted by poor.ass.millionaire

          Bayview is not a poor location, or as poor/good as the mission. There are many intrinsic positives- the weather, nice wide streets, housing stock quality/variety, T light rail line, culture, quaint neighborhood feel, freeway access, proximity to soma and DT. You can’t easily manufacture those.

        • Posted by gribble

          Innes is the northern border of the Bayview. For somebody working in Mission Bay it is minutes away from work with barely any connection at all to the rest of the Bayview area. Some of the houses on the north side of the road towards the eastern section have some wonderful bay views out the back.

          They do need some more trees on the streets but otherwise Innes is a pretty decent place already.

      • Posted by san FronziScheme (formerly known as lol)

        In any case, I could be wrong, or too early. But this euphoria needs a bear voice just for the sake of entertainment ;)

        • Posted by poor.ass.millionaire

          I agree we are entering euphoria stage, and some stupid money is helping to fuel it. I’m predicting the boom like this: 2012-13 phase 1 is it real? 2014-15, euphoria, 2016-17 value is just not there/when will the music stop?

          I’m hoping to stabilize my latest consequent in 4-6 months, and if I’m lucky, I can pull another trick/deal this year before it will be impossible. (My moto is expansion: always and in all ways.) At any rate, I’m thrilled to be into a new project, with prospects of another. It’s 2005 all over again!!

  25. Posted by anon2

    The problem with euphoria is that eventually people have no limits at all.

    No neighborhood is too bad, no $psf to high.
    “but it will NEVER go down again for sure.”
    Prices will NEVER go down again.

    For tech, no PE is too high. Or even no earnings are required. Or even no plan to make earnings are required.

    Now if prices will never go down again, why not stretch as much as possible and buy as much house as you can get? Eventually, some banker who only makes money when he makes a loan starts thinking: There’s no downside if prices never go down and why need 20% down if prices will rise that much in a year or two.
    Who defaults in a rising market?

    Why worry about working at or funding only companies with solid business plans if investors will eat up anything thrown their way?

    Why worry about creating a profitable company if workers and investors don’t care?
    What’s the supply limit on creating a money losing company?

    What’s the supply limit on average houses in marginal neighborhoods?

    • Posted by san FronziScheme (formerly known as lol)

      One phenomenon I have noticed is the despair of many SFer owners or prospective owners in seeing the good deals disappear. Some are just priced out of any new local investment and are shopping around in other counties, other states.

      If we recall how the last bubble propagated, I can see a few similarities. SF investors started to buy in the EB, which made the outskirts look cheap. Suddenly previously dormant areas started to go up, and this got the attention of banks and the government. They noticed that less affluent areas saw big equity gains which was the beginning of the subprime craze. People could unlock “their” wealth to invest more and consume. Soon enough we were all hooked on refis and never ending price increases.

      The EB increase phase has already happened (a huge catch-up happened in Oakland in 2013 with a 60% jump). The propagation to the less desirable areas like Vallejo or further places like Modesto IS happening with more than 50% increases since the trough, though they are starting from very low.

      Of course every bubble is different, and middle America is seeing a flattening after a very decent catch-up. This could prove to be a bubble similar to the 2000 dot com run up, with very localized bubbles.

      After all the big story of the past 10 years is how the wealthy (both areas AND individuals) reaped all the fruits of the growth. This could be one of those “resetting the clock” bubble where people with too much new money squandered it and hopefully redistributed it to the lower layers of society.

  26. Posted by Absolut

    So if you look the speculative bubbles over the last 100 years, none of actually caused a substantial decrease in *housing* prices when they popped, until this very last one which was primarily focused on RE. The dotcom bubble popping did cause a small dip in bay area prices, but it didn’t last very long nor was it very pronounced in most areas (maybe 20% off, rather than the 80%-90% off peak that we saw in the most distressed areas in 2009-2010).

    What’s happening right now is pretty much local to San Francisco and the closer in suburbs of the bay area. Exurbs like Vallejo are still probably 50% off peak. Most part of the country are also well under the peak bubble prices.

    This price surge has been mainly caused by increased demand from people with high paying jobs relocating here from other areas (and lack of supply to accomodate). It’s going to take a drastic decrease in demand or a drastic increase in supply to stop it. The latter is certainly unlikely the happen. The former will likely happen slowly over time, but I doubt it would happen quickly. There’s a general shift towards urban areas, as well as a trend towards money being made by tech companies. These companies may well eventually decide to move elsewhere due to the high costs here, but Stanford and Berkeley aren’t relocating anytime soon and there will always be demand for the talent that is produced there.

  27. Posted by anon2

    This is very wrong.

    The recent housing bubble may well have been the first global housing bubble in a long time, but there have been many many regional bubbles and busts.

    Rents declined substantially after the first dot com bust. And most notably Detroit and Japan experienced very severe and long lasting real estate busts.

    Remember that when looking over long time periods you absolutely must look at real not just nominal prices.

    The “nothing can go wrong at any price” attitude is exactly what fuels bubbles.

  28. Posted by Absolut

    sure there have been regional bubbles. But we certainly aren’t in global/national housing bubble 2.0.

    As for if the local market is in fact a bubble, I think it depends on how you define that. Perhaps a reasonable measure will be if current prices experience a correction in relative terms to the national housing price. Of course if there is WWIII or if the stock market tanks 90% or what-not, we will have an collapse of housing prices here. But that would crush housing in other regions as well.

    Note that even after the last national housing bubble, SF proper fared a lot better than anywhere else in the area and most counties nationwide. The reason is mainly that supply has always been tightly restricted here, unlike in places like Stockton or Tracy. Also, another difference I notice between the market now and back in 05-07 is that I don’t get the sense that most buyers are looking to flip their purchases in 2-3 years for a profit. Back 8 years ago, everyone and their grandma was trying to get into real estate for a profit. Everyone I know now who are looking to buy in the city are doing so because they want to live there indefinitely. No one has any delusions about trying to make a huge profit in a couple of years. Also, you need at least 20% down, period.

    I’m not saying that nothing can go wrong at any price. But that price will be more than where demand meets supply and at least in SF, the desirable supply has never been very abundant. It’s one thing to get into bidding wars with other people’s money (100% loans) as that can cause prices to skyrocket with no ceiling for as long as the loans are available. But clearly that’s not the case here.

    I guess for the time being, I see a lot more macro risk (e.g. broad stock market selloff for any reason) than anything associated specifically with san francisco (e.g. tech companies broadly failing or employees all deciding to abandon sf). manhattan real estate seems to be going for 2k-3k+ sqft, so it’s not like prices can’t possibly go higher in a specific city. Seems like this area is catching up to wall street as far as minting new millionaires.

  29. Posted by san FronziScheme (formerly known as lol)

    Many good points. As a newly re-minted bear (I just found my old hide and slowly adjusting to it) I feel that every bubble is specific to our times.

    Yes there is a lot of cash. Some of it is accumulated over a relatively long time, and some of it was just created. Where is that cash coming from? Tech company valuation, either through IPOs or other monetization vessels. This is where the risk is. Remove the cash from SFRE and people will have to use mortgages and therefore paychecks. Things could be a bit different if that happens.

    Basically this is my main worry for ow, but I’ll let you know if I can see more as my bear synapses wake up ;)

    • Posted by Absolut

      I think the most bubbly part of the market is in pre-IPO companies like Box or Pinterest. But not even the employees of those companies can actually cash out at the purported valuations. I think most of the wealth has been created by larger public companies like GOOG, FB, LNKD that are profitable and will be around for a long time. Also note that many of the new hotness growth tech stocks (TWTR, DATA, SPLK, FEYE, NOW, have fallen 50%+ in the last few months, and that has yet to put a damper on housing. This is because to use the wealth created, the employees have to sell the stock, and either diversify into a managed portfolio and get a line of credit on it, or just use the cash directly to buy the house. So it’s not like having these stocks crash is going to cause all these “all-cash” buyers to have to sell the house.

      • Posted by Louis Bois

        Have you seen Apple stock lately? It’s over $615 and it employs more employees than all those companies COMBINED.

        Don’t underestimate big companies who pay big salaries. Those are the steady eddy buyers.

  30. Posted by poor.ass.millionaire

    I guess this post opens SS’s official bulls vs bears debate! It’s like 2005 all over again. Should be entertaining!

    • Posted by san FronziScheme (formerly known as lol)

      Prices today make SF almost the lowest ROI rental market in America. If you’re priced out of your next SF investments like me, you should join the fight!

      • Posted by san FronziScheme (formerly known as lol)

        Here are numbers to support my claim.

        • Posted by Absolut

          That’s deceptive because for rental property you have to look at total return, which includes price appreciation. That’s why desirable places like SF and NYC have much higher price/rent ratios than less desirable places, even 20 or 30 years ago.

          I think looking at price/rent ratio only to judge the value of an investment is stupid. It’s like looking only at P/E ratios or dividend yields for stocks. You have to consider the total expected yield, even if you can’t be sure what the future appreciation is.

          • Posted by san FronziScheme (formerly known as lol)

            Stupid? Au contraire!

            If anything a value investor should look at raw numbers instead of speculating about growth. Yes things can trend up in dynamic cities. Yes the quality of tenants can be much higher than in high “apparent” ROI. But for a boring mom-and-pop investor, in a safe quiet area these ROIs make sense.

            My strategy has worked so far.

            1994-2002: purchased flats in Paris with high ROI (mid-90s local crash)
            2002-2006: prices more than doubled in Paris. ROI didn’t make sense to me.
            2005-2008: sold flats in Paris when ROI cratered
            2010: purchased in SF when ROI was highest

            An ROI can be a good way to determine value. A speculator will either precede a run-up, or follow it. I tend to think that following an ROI helps you precede the run-up. Plus it’s good cash-flow!

          • Posted by Absolut

            I’m not saying you ignore P/E, but it has to be only part of your overall equation. The P/E in Detroit has been much lower than in SF over the last 20 years, that means that Detroit would have been the better investment, right?

            If you are looking only at ROI, why didn’t you buy rental property elsewhere in this country? The GRM for rentals in many other parts of the country are significantly lower than 10, where it is hard to find a place in SF with GRM < 16.

            I think you chose SF and Paris because they are generally considered desirable places to live, and therefore you are implicitly making a judgement about future appreciation.

          • Posted by san FronziScheme (formerly known as lol)

            Absolut,

            This is why I added “Yes the quality of tenants can be much higher than in high “apparent” ROI. But for a boring mom-and-pop investor, in a safe quiet area these ROIs make sense.”

            About my investments, I also have another rule which is to invest in what I know. It takes work to learn about a new market, but you are correct that I do have my judgement coming into play.

            I would not buy in Paris today. I would not buy in SF today. Both have horrible ROIs, even if I could probably make it up in appreciation.

            I had the very same questions last year when it was time for me to look for my next investment. I pointed to a few places I loved and searched ROIs. Southern Spain was very high on the list. Next were some areas in Southern France with incredible value (and not swamped with Russians or Brits or Americans). Spain was not only in a RE crisis, but a legal crisis in regard to the legality of many permit on the Costa Del Sol. French Mediterranean it was. It was 80% ROI, 20% gut feeling.

    • Posted by Absolut

      By the way, I wouldn’t consider myself a “bull”. I definitely don’t think the current rate of appreciation (15-20% yoy) is sustainable. However, I also don’t think it’s truly a bubble where we will see a quick 20%+ drop in prices. I think most likely when this “exuberance” ends you will see price growth go flat or low single digits for a few years, unless the macro environment becomes very unfavorable.

      • Posted by poor.ass.millionaire

        Exactomundo.

      • Posted by san FronziScheme (formerly known as lol)

        The thing about economic and RE cycles is that they tend to move together. Softness in one can cause softness in the other. What I have seen in the pat 3 downturns is the fact that we were always in denial until they hit us in the face. Not that I think we’ll see anything brutal as in 2007-2009, but Fannie and Freddie are going to relax their guidelines, Dodd-Frank is going to be discarded, all in favor of helping revive the weakening housing recovery (that IS one of the main stories of the week I think, and mostly unreported). I have see this one before…

  31. Posted by san FronziScheme (formerly known as lol)

    For the few here that followed the last cycle on SS, we learned that the market can work in mysterious ways…

  32. Posted by anon2

    “That’s deceptive because for rental property you have to look at total return, which includes price appreciation.”

    That’s partly my point. People base their decisions based on expected price appreciation. And a lot of the expectations of future price appreciation now seems to be based on recent price gains and a nothing can go wrong mentality. More so than people suddenly discovering that they want to live the rest of their life in the Bayview or their career at the latest fad du jour cloud company.

    “I think the most bubbly part of the market is in pre-IPO companies like Box or Pinterest.”

    I agree, but although not in the sense he probably meant, when the poster above said that for every Zynga there are five more like it (and likely more than five) out there. A good chunk of demand on the rental side is most likely coming from pre-IPO employees. Both in small under the radar startups and in bigger names bulking up headcount to show a growth story for the IPO. Now, if the VC’s get a good exit, they probably care little about post IPO stock performance. And as long as investors are willing to line up for 50%+ losses, the party can keep going. But if sentiment turns many of these proto-Zynga’s and filler employees won’t have a long lifespan.

    “I think most of the wealth has been created by larger public companies like GOOG, FB, LNKD that are profitable and will be around for a long time.”

    Linked in has swung to a loss and was at a fairly high PE when it was making money and at a PE of 75, FB has a great deal of growth expectations priced in.

    • Posted by san FronziScheme (formerly known as lol)

      I agree with anon2 that there’s a lot of new blood coming into town working for start-ups and who need a crash pad while they shop for a rental. Wide-eyed kids who cannot believe their luck at their shot in beautiful SF. Most of my airbnb guests are in this category which makes my business very very good right now. No down time. Nobody even bothers to negotiate.

      • Posted by MissionGal

        Do you mind telling me where your airbnb rental area is? Just the area, nothing specific :)

        • Posted by san FronziScheme (formerly known as lol)

          94114

        • Posted by poor.ass.millionaire

          Hey missiongal- I gather by your namesake that you live in the mission? And given your recent bid on the Innes home, I’d be curious about your perspective and interest in the bayview. Is it just affordability, or do you see some commonalities between the neighborhoods? Also, are you looking at other areas in D10? Appreciate you perspectives, cheers!

          • Posted by MissionGal

            BV is attractive since there are lots of development plans in the area. And like you said, it’s a great neighborhood with nice views, so the future is there as long as the dev keeps continuing. Currently only looking in bv although Excelsior could be another option.

            Bought the mission pad quite a few years ago when it was not as hip and doubled up in value.

          • Posted by poor.ass.millionaire

            Good for you on your early mission purchase. It’s gone bonkers now!

            So are you selling and planning to upgrade to a larger place, and you see the value in BV? I think a lot of buyers are doing that, as you can get a pretty awesome home there for the price of a small mission condo. I think that’s a safe purchase too, as nice SFH’s in the city are becoming a rarer and rarer commodity.

            FYI, I recently purchased a nice duplex there with an inlaw, which I plan to eventually legalize and have three units.

    • Posted by Absolut

      Be careful of looking at the P/E numbers for fast growing companies. You should instead be looking at a discounted free cash-flow model. There are nuanced accounting reasons why these companies official GAAP profit and revenue than would be indicated by how much cash they are generating. Mainly, stock-based compensation counts against profit, and revenue recognization often has to be deferred.

      Investors that look towards recent price gains as a gauge of expected future appreciation are indeed misguided. Or else stocks that fall would eventually go down to 0 and stocks that rise would always go to infinity. What investors generally do speculating, based on growth rates and trends, is more or less how many money you expect a business to generate over the coming years, regardless of their stock price. Then you apply whatever multiple you feel is appropriate to value the business. In this case, if you understand a company’s business, you can indeed have some confidence of whether or not they will maintain growth rates, based on the competitive landscape, market penetration, etc.

      I wish investing were only as simple as looking for low P/E stocks.

  33. Posted by San FronziScheme (formerly known as lol)

    As a born-again bear I am looking for contrarian signs in the news. One of those can be found in the november ballot initiative to create a rainy day fund from the now healthy CA budget.

    This is a telltale sign I think. When a state known for its relative inefficiencies virtually swims in money from tax revenues this is a sign things are going better than anyone expexted. I would compare it with the us government surplus at the end of the Clinton regime. We all know how that one turned out.

  34. Posted by Louis Bois

    Here’s an anecdote for you guys. I’m buying a new property that’s valued about $1 million below my existing home in the Marina. I’m downsizing. But, I’m renting out my Marina home for $8,700 a month. The internet on my mortgage is $2,000 a month and my taxes are about $1,700 a month thanks to prop 13. In other words, I’m about $5,000 a month positive in cash flow, while my new home in Golden Gate Heights has a mortgage of less than $4,000 a month.

    The rents are sticky and are supporting the housing market.

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