CATEGORY ARCHIVE: Bubble (Or Not)
April 7, 2008
Forget About Foreshadowing, We Served Up the Forewarning
Two months ago we let you know to be prepared. Others are now learning the harder way.
[Brent Meyers] owns a substantial investment portfolio and a million-dollar house in Moraga. He pays his bills on time and has no credit card debt. His credit score, he says, is around 800, a rating more or less in the stratosphere. But in mid-March, Bank of America cut off his home equity credit line of a little more than $180,000, citing a decline in the value of his property.
∙ When Hell HELOCs Freeze Over... [SocketSite]
∙ Lenders retreat as housing market plummets [SFGate]
Posted by socketadmin at 8:30 AM | Permalink | Comments (18) | (email story)
April 4, 2008
JustQuotes: Food For Foreclosure Thoughts (Including Data Lag)
"Borrowers in California who fight foreclosure can stretch the process to 18 months, said Cameron Pannabecker, chapter president of the California Association of Mortgage Brokers and president of Cal-Pro Mortgage Inc. in Stockton.
That doesn't take into account the woman he knows who hasn't made a mortgage payment in eight months and hasn't heard from her lender, Pannabecker said.
'Now she's afraid to mail in a payment for fear it'll come to somebody's attention,' he said."
∙ Lenders Swamped By Foreclosures Let Homeowners Stay [Bloomberg]
Posted by socketadmin at 10:14 AM | Permalink | Comments (8) | (email story)
March 27, 2008
Are We Detached From More Than Simply The Fundamentals?
An interesting chart of California MSA home price appreciation as measured by the OFHEO*, put together by the Public Policy Institute of California (pdf), and by way of a plugged-in tipster. And an important observation which shouldn’t catch any plugged-in readers by surprise:
While California’s previous housing crisis (southern California in the early and mid‐1990s) was part of a broader economic slowdown, the relationship between housing and economic conditions today is less clear‐cut. In 2007, employment in Merced and Stockton grew more than 2%, despite crashing housing prices, whereas employment grew only 0.6% in California overall and even fell in Los Angeles, Orange County, Ventura County, and Riverside-San Bernardino – where home prices are holding up better than in the Central Valley.
*Note: For those who are unfamiliar, the OFHEO Home Price Index (HPI) is based on data from repeat single-family home sales, or refinancings, that involve conforming mortgages. Data from transactions involving either condominiums or non-conforming loans (two major components of the San Francisco market) are excluded from the Index.
∙ The California Economy: Crisis In The Housing Market (pdf) [ppic.org]
∙ OFHEO: U.S. House Prices Don't Fall (But Do In CA And The SF MSA) [SocketSite]
Posted by socketadmin at 9:38 AM | Permalink | Comments (55) | (email story)
March 26, 2008
Going Once, Going Twice...“Sold” For $700,000 (41 Federal #42)
With around sixty people in the room, but only a few active bidders, the high bid at today’s auction for 41 Federal #42 was $700,000 (and apparently it wasn’t “outbid”). As a plugged-in ex SF-er correctly surmised, however, the bank now has seven days to decide whether or not to accept the bid (which we’d be surprised if they didn’t).
A recorded sale at $700,000 would represent a drop of $180,000 (20.5%) from the original purchase price in December of 2006, and would also establish a new building “comp” at $760 per square foot.
That being said, keep in mind that the unit looked like it had never been occupied, and the reported sale price of $880,000 in 2006 was $5,000 over the original list price of $875,000 which had subsequently been reduced down to $825,000 prior to going into contract (i.e., something’s not quite right with respect to the original sale).
And tip of the hat to ex SF-er ("I think this sells for $700k+ or not at all"), Lance ("$685K"), and Nicole ("$679,000") who were all on record with their pre-auction predictions and within 3% of the highest bid (as well as to FSBO for filling in a few holes with respect to #42's official MLS history).
∙ Going Once, Going Twice (For Real?*) At Shore|Line: 41 Federal #42 [SocketSite]
Posted by socketadmin at 5:53 PM | Permalink | Comments (39) | (email story)
March 10, 2008
And What Happened Seven And One Half Years Ago In San Francisco?
As we’ve often pointed out, sales volumes and home price appreciation have been falling in San Francisco over the past couple of years despite the fact that that by most accounts our local economy remains strong, employment and wages are up, and the cost of borrowing remains near historic lows. And this has been in marked contrast to our last real estate decline (2001-2002) which directly coincided with a local economic meltdown (a.k.a. The Internet Bubble).
And now, both the national economy and Bay Area Business Confidence Index are faltering and Federal rate cuts are failing to spark sales (but are doing a great job of weakening the dollar). In fact, The Bay Area Business Confidence Index “tumbled to its lowest level in its 7 1/2-year history, based on results of a survey conducted in late January and early February.”
Let’s see, 7 1/2-years ago would be right around...
∙ Record low Bay Area business confidence [SFGate]
∙ U.S. Economy: Payrolls Unexpectedly Decline for Second Month [Bloomberg]
∙ Bay Area “Notices Of Default” Heading North? (So To Speak) [SocketSite]
∙ February S&P/Case-Shiller Index Decline Continues For SF MSA [SocketSite 4/07]
Posted by socketadmin at 9:55 AM | Permalink | Comments (14) | (email story)
March 6, 2008
JustQuotes: Might It Draw Demand From Way Over In San Francisco?
"The developer of the recently opened Eight Orchids condominium mid-rise in Oakland hopes to auction off nearly a third of the units, with some starting bids $300,000 below prior asking prices, as builders struggle to unload new properties in the current housing climate."
"The auction of 41 units is scheduled for March 30....The minimum bid for one-bedrooms is $245,000, down from as high as $520,888; two-bedrooms will start at $325,000, down from as high as $630,888; and three-bedrooms will begin at $475,000, discounted from as much as $805,888. There is no "secret reserve," meaning any unit that receives at least the minimum offer will go to the bidder."
∙ Prices cut for Oakland condo auction [SFGate]
∙ 8 Orchids (Oakland) [8-orchids.com]
Posted by socketadmin at 10:00 AM | Permalink | Comments (37) | (email story)
February 12, 2008
Paulson Sets The Stage As "Project Lifeline" Details Start To Emerge
The question we posed five months ago: “Forget Subprime, Will That Apply To Alt-A As Well?” The answer today (in short): Yes (and prime too).
∙ JustQuotes: Forget Subprime, Will That Apply To Alt-A As Well? [SocketSite]
∙ JustQuotes: Consider The Why, Not Just The What ("Project Lifeline") [SocketSite]
∙ Paulson, U.S. Banks Forge Foreclosure-Freeze Deal [Bloomberg]
Posted by socketadmin at 5:01 PM | Permalink | Comments (3) | (email story)
February 1, 2008
JustQuotes: Crunch Goes The Construction Captial For Condominiums
"While a dozen amenity-packed deluxe condo projects have vied for attention over the past three years, financing for new construction has dried up in recent months. Instead of the 10 to 15 percent equity common in past few years, lenders now look for developers to put in 40 percent of construction costs, and few banks are willing to lend more than $50 million for new condo projects, according to Michael Joseph of Kearny Street Capital, a commercial mortgage broker who worked with Jackson Pacific on [One Hawthorne].
'A lot of banks are licking their wounds right now and they are not interested in more speculative development,' said Joseph."
∙ New S.F. condo project will be a rarity in 2008 [Business Times]
∙ One Hawthorne: The Design (And Some Details) Of What’s On The Way [SocketSite]
Posted by socketadmin at 3:15 AM | Permalink | Comments (4) | (email story)
December 28, 2007
JustQuotes: National New Home Sales Drop To 12-Year Low
"Sales of new homes in the U.S. fell to a 12-year low in November, pointing to bigger declines in construction that will hobble economic growth throughout 2008."
"Purchases fell in three of four regions, led by a 28 percent plunge in the Midwest. Sales dropped 19 percent in the Northeast and 6.4 percent in the South. They rose 4 percent in the West."
∙ Sales of New Homes in U.S. Dropped 9% to 12-Year Low [Bloomberg]
Posted by socketadmin at 7:45 AM | Permalink | Comments (2) | (email story)
December 20, 2007
Their Mascot Might Be A Bull, But Merrill Lynch Is Anything But
The title of yesterday’s Economic Commentary from Merrill Lynch: “Housing deflation could be a multi-year process.” And the executive summary:
Both the near-term and longer-run outlooks for the housing market remain clouded in what is a severe downturn in starts, sales and prices that has become national in scope. As we saw in the November housing starts data, the builders are now frantically cutting production.
But with the sales backdrop still softening, they may have to slice their construction plans by another 30% before we hit bottom on a cyclical basis. And, that bottom could be as long as a year away. Beyond that, weak demographic fundamentals point to years of sluggish real estate activity, particularly in terms of the “price”. The looming dominance of the “move down” buyer suggests that home values will continue to soften long after the building industry mops up the current excess supply. In fact, real estate pricing in general can be expected to be in the doldrums through 2012.
The need to save for retirement will have to increasingly come “organically” in the form of setting aside an extra nickel or dime from every dollar earned in after-tax wages and salaries as opposed to what we as a society have been doing for the better part of the past decade, in essence, blurring the distinction between real estate as a “consumption good” (place to live) and real estate as part of the “portfolio” (investment) that was going to experience sustained double-digit appreciation and emerge as a fountain of cash-flow in the future.
Expectations are already in the process of being deflated and we are at the early stages of a savings revival in the traditional sense of the word, and this will (i) be deflationary for the aggregate demand curve; (ii) be bullish for Treasury bonds; (iii) act as an underpinning for the dollar insofar as this process continues to foster an improvement in the current account deficit (which, excluding energy, is down to a six-year low).
See the chart [above] – at the height of the bubble, almost one in four households who were contemplating a move into real estate based their decisions on future price appreciation. This “investor class” that dominated the housing market for so long has now seen its share dwindle to a record low of 4%. This is a very big deal as it illustrates just how far the speculation has been expunged, and it also heralds a major (and healthy) shift in how the public now perceives real estate.
And while the report is national by nature, there are obviously themes that might resonate right here at home. And of course, there’s the punch line:
Here is what we really “do not get”. There are still economists out there talking about how the housing recession is still local and not regionally broad based. We have no idea who their data vendors are. In our view, this clearly goes down as the most national real estate downturn since the 1930s.
Posted by socketadmin at 2:00 AM | Permalink | Comments (13) | (email story)
December 17, 2007
JustQuotes: We’re Equally As Interested In The Other Four-Fifths
"The Chronicle analyzed ownership information for 6,557 Bay Area homes and condos repossessed by lenders in the first nine months of this year. Those represented 94 percent of all Bay Area foreclosures during the time period; full records of past ownership were not available for the remaining foreclosures.
Of these, just under 1,000 were owned by 439 people who had multiple properties foreclosed upon from January to September. An additional 349 foreclosures were owned by people who listed mailing ZIP codes different from their property's address at the time of purchase - suggesting the properties were an investment, not a primary residence.
The vast majority of these properties were bought with little or no money down, according to an analysis of DataQuick's loan information. About 69 percent of the investors got 100 percent financing, meaning they did not put down a dime of their own money toward the purchase prices. An additional 12 percent made down payments that were less than 5 percent of the purchase price. Only 10 percent of investors put down the standard 20 percent.
Some 80 percent of the investor-owned Bay Area foreclosures were purchased at the height of the real estate market in 2005 and 2006, public records show."
[Editor’s Note: “Investment” properties are often undercounted due to buyers self identifying their purchases as being owner-occupied in order to benefit from more favorable mortgage rates/terms.]
∙ Investors own about one-fifth of Bay Area homes in foreclosure [SFGate]
Posted by socketadmin at 2:50 AM | Permalink | Comments (13) | (email story)
December 6, 2007
JustQuotes: A Preview Of The Federal Subprime Freeze To Come
“President George W. Bush today will announce a [five year] freeze on some subprime mortgage rates in an effort to stop a wave of foreclosures undoing the six-year expansion.”
“The agreement addresses homeowners unable to afford higher interest rates once starter rates increase, and offers help in one of three ways, a White House official said. The options are freezing rates or refinancing into either a new private mortgage or a Federal Housing Administration-backed loan, he said on condition of anonymity.”
“The freeze will apply to mortgages issued between January 2005 and July 2007 that are scheduled to reset between January 2008 and July 2010, said the people familiar with the plan. To be eligible, borrowers must not be more than 60 days behind in their payments, have less than 3 percent equity in their property [and have a FICO score below 660].”
∙ Bush Aims to Prolong Expansion With Subprime Freeze [Bloomberg]
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November 26, 2007
JustQuotes: It’s That “Other” That We’re Really Keeping Our Eyes On
“While many accounts portray resetting rates as the big factor behind the surge in home-loan defaults and foreclosures this year, that isn't quite the case. Many of the subprime mortgages that have driven up the default rate went bad in their first year or so, well before their interest rate had a chance to go higher. Some of these mortgages went to speculators who planned to flip their houses, others to borrowers who had stretched too far to make their payments, and still others had some element of fraud.
Now the real crest of the reset wave is coming, and that promises more pain for borrowers, lenders and Wall Street. Already, many subprime lenders, who focused on people with poor credit, have gone bust. Big banks and investors who made subprime loans or bought securities backed by them are reporting billions of dollars in losses.”
“Besides the $362 billion of subprime ARMs that are scheduled to reset during 2008, $152 billion of other loans with adjustable rates are set to reset, according to Banc of America Securities. The other resetting loans include "jumbo" mortgages of more than $417,000 and Alt-A loans, a category between prime and subprime. The latter category is the riskier, in part because it includes borrowers who provided little or no documentation of their income or assets.
The number of borrowers facing higher payments isn't growing merely because the amount of loans with resets is higher. Another factor is that those with a looming reset now have a tougher time sidestepping it by refinancing or selling their home. "There is a large amount of borrowers who are in products that either no longer exist or that they no longer qualify for," says Banc of America Securities analyst Robert Lacoursiere.”
[Editor's Note: Keep in mind that in 2002 less than 20% of property purchases in San Francisco utilized interest-only mortgages [which are typically adjustable rate]. In 2005? Nearly 70%.]
∙ Rising Rates to Worsen Subprime Mess [Wall Street Journal]
∙ Interest-only loans meteoric rise in the Bay Area (May 2005) [SocketSite]
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November 12, 2007
S&P/Case-Shiller Home Price Index For San Francisco By Price Tier
While it’s still not the county level detail we’d all love to get our analytic little hand on, Standard & Poor’s has started publishing its S&P/Case-Shiller Home Price Indices by price tiers.
Each tier represents approximately one-third of the number of sales transactions recorded in each respective market. For example, for each market, Standard & Poor’s defines low, medium and high by defining breakpoints in one- third intervals for all sales found at each point in time. The methodology looks at the first sale in a given sale pair to define the price level.
Two things that caught our attention: the divergence in the performance of properties between price tiers in general (which shouldn't catch anybody that's plugged-in by surprise); and the time at which the divergence occurred in specific (easy money anyone?).
And while tempting, we wouldn't go so far as to assume the top third is a better proxy for San Francisco as a whole.
UPDATE: And we somehow managed to forget our standard S&P/Case-Shiller footnote: The HPI only tracks single-family homes (not condominiums which represent half the transactions in San Francisco), is imperfect in factoring out changes in property values due to improvements versus actual market appreciation (although they try their best), and includes San Francisco, San Mateo, Marin, Contra Costa, and Alameda in the “San Francisco” index (i.e., the greater MSA).
∙ S&P Publishes Low-, Mid- and High Price Homes Indices (pdf) [S&P]
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November 9, 2007
JustQuotes: Sometimes It's Simply About The Readers' Comments
"From the mortgage crisis to the plunge in home sales, dark clouds continue to threaten San Francisco's seemingly endless real estate summer. And yet remarkably, local Realtors I know seem as cheery as ever."
∙ What's happening now in the reportedly stormy San Francisco housing market? [SFGate]
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November 5, 2007
The Fortune Forecast For Where Home Prices (And Rents) Are Headed
As a plugged-in reader notes, Fortune Magazine looks at historic Price to Rent ratios (pages 76-88) across 54 major metropolitan areas in an attempt to forecast where home prices are headed.
In most markets people won’t lay out much more in monthly costs to own a house or condo than they would to rent a similar property unless they expect a huge profit when they sell. Indeed, speculators chasing quick profits did a lot to inflate the recent bubble. But once the fervor fades, prices must fall to restore their normal, long-term relationship with rents. Rents exercise a kind of inevitable gravitational pull on prices. The ratio of prices to rents “behave much like price/earning rations for stocks,” says Yale economist Robert Shiller. “Like P/Es, price-to-rent ratios are mean-reverting.” In other words, while prices soar from time to time, sending the ration to exceptional heights, sooner or later the relationship is bound to return to its historical average.
Of course, rather than prices falling rents can rise. And while Fortune forecasts a 28.3% correction in the Price to Rent ratio over the next five years for the San Francisco MSA, they’re forecasting it's derived from a 10% drop in prices along with an 18% increase in rents. Over in the East Bay, however, the Fortune forecast is a bit more grim as they're calling for a 38.1% correction driven mainly by price declines of >30%.
And of course, the concept of a housing P/E (and rising rents) shouldn't catch any plugged-in readers by surprise.
∙ Real Estate: Buy, Sell, or Hold? (Pages 76-88) [Fortune Magazine]
∙ Not The “P” But The “E” [SocketSite]
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September 17, 2007
Alan Greenspan Flip Flops On A National Bubble (But Not Local Froth)
According to the Financial Times, Alan Greenspan (as in the former chairman of the Federal Reserve) now acknowledges a national housing “bubble”; that price declines will be “larger than most people expect” (good thing you’re not most people); and that “froth” was a euphemism for a bubble (no kidding).
He said he still thought froth – a collection of bubbles – was a better description, because of the variation in house price appreciation in different local housing markets. But he said “all the froth bubbles add up to an aggregate bubble”.
As some might recall (or could find by searching SocketSite), it was a little over two years ago that Greenspan acknowledged local housing bubbles but dismissed the idea of a national one. And it was soon thereafter that his testimony on “exotic forms of adjustable rate mortgages” caught our eye.
UPDATE: And speaking of British news, the conversation quickly turns to the run on Northern Rock (the UK's fourth-largest mortgage company) and LIBOR (a bit closer to home).
∙ Greenspan alert on US house prices [Financial Times]
∙ Greenspan Sees Local Housing Bubbles [SocketSite]
∙ Greenspan Speaks [SocketSite]
∙ Northern Rock Stock Tumbles Further Amid Run on Bank [Bloomberg]
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August 22, 2007
JustQuotes: Is This A Blip, A Bump, Or More In The Mortgage Market?
“FBR Research said on Wednesday that $150 billion to $250 billion of permanent capital is needed to normalize pricing in the depressed market for mortgage-backed securities.
However, in a note to clients, the research arm of securities firm Friedman, Billings, Ramsey & Co Inc said the process would take up to a year and will be painful for mortgage investors and originators. FBR Research said the new capital is needed to compensate for the massive "deleveraging" underway among companies that hold mortgages.
More than $20 billion worth of mortgage bonds not backed by mortgage finance companies Fannie Mae and Freddie Mac [Editor’s Note: think Jumbo] have been offered for sale in the past few days.
Mortgage investors increasingly question the underlying value of mortgage-backed securities given that orginators' lax lending standards which led to a jump in defaults. Also, many economists expect weak home prices to drop further."
∙ Mortgage mkt needs up to $250 bln of capital [Reuters]
Posted by socketadmin at 1:20 PM | Permalink | Comments (23) | (email story)
August 9, 2007
Housing And Credit Concerns Abound (Here And Abroad)
While credit concerns once again rocked the equities market ("All the things that had been denied up until this point are unraveling. On top of this, retail sales were mediocre, which shows that indeed, the housing collapse is affecting the consumer.”), President Bush spoke out against federal bailouts for individual homeowners that have some concerns of their own (i.e., foreclosure). We note, however, a careful choice of words: "If you mean direct grants to homeowners, the answer would be `No, I don't support that.'"
UPDATE (8/10): And no, we weren't being flippant about "abroad."
∙ Stocks Fall; Dow Down 300 Points [SFGate]
∙ Bush: No Bailout for Pinched Homeowners [SFGate]
∙ U.S., European central banks step in to contain mortgage crisis [SFGate]
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July 30, 2007
Eyes Wide Open: Looking For Lessons In Other’s Unfortunate Mistakes
SocketSite has never been about schadenfreude. At the same time, we've never shied away from asking and addressing the tough (and sometimes uncomfortable) questions. And yes, there are often lessons to be learned (or trends to be spotted) by observing other’s unfortunate mistakes.
Some observers say that many of those facing foreclosure should never have bought a house. To be sure, many consumers were seduced by the American dream of homeownership and so financially unsophisticated that they didn't apply due diligence. For Bay Area residents, more than a decade of consistently rising home prices may have led to a mob mentality of people overeager to jump into the real estate market, confident they would quickly gain equity.
Words we like: due diligence and financial sophistication (okay, and possibly seduction). Words we don't: mob mentality.
UPDATE: And not too surprisingly, the conversation quickly turns to borrower bailouts.
∙ Living The American Nightmare: Foreclosures On The Rise [SFGate]
∙ We Know You Can, But Will They? (Actually Accept It That Is) [SocketSite]
Posted by socketadmin at 2:30 AM | Permalink | Comments (55) | (email story)
July 25, 2007
San Francisco Notices Of Default/Foreclosures Are Way Up (Sort Of)
We’re just going to pretty much parrot what we wrote three months ago: While a 102.4% year-over-year increase in San Francisco Q2 “Notice of Default” activity sounds quite dramatic, in absolute terms it still represents relatively few properties (257). Within the greater Bay Area, however, Contra Costa hit a record level of Q2 default activity (2,316 notices, up 219.4% year-over-year) as did Sacramento (3,840 notices, up 184.0% year-over-year). And Alameda isn’t too far behind (1,612 notices, up 148.4%).
According to DataQuick, “[m]ost of the loans that went into default last quarter were originated between July 2005 and August 2006. The median age was 16 months. Loan originations peaked in August 2005. The use of adjustable-rate mortgages for primary purchase home loans peaked at 77.8% in May 2005 and has since fallen.”
And while the actual number of foreclosed upon homes in San Francisco jumped a whopping 444.4% last quarter (on a year-over-year basis), that represents a total of 49 properties (versus 9 in the second quarter of 2006). In Contra Costa, however, 778 homes were foreclosed upon last quarter (versus 62 in the second quarter of 2006).
Keep in mind that long-term interest rates remain near historic lows, and according to most, the Bay Area economy and stock market remain strong (and incomes are up).
UPDATE: As a reader notes below, some great perspective from the Chronicle with regard to the relative number of Bay Area defaults/foreclosures over the past twenty (or so) years. In summary: we’ve already surpassed the early 90’s.
∙ Bay Area “Notices Of Default” Heading North? (So To Speak) [SocketSite]
∙ California Foreclosure Activity Continues to Rise [DQNews]
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June 27, 2007
National Inventory Numbers Out - Highest In 15 Years
The National Association of Realtors reported on Monday that the national supply of previously owned homes with respect to sales has reached a 15-year high. The last time the inventory numbers were this high was in 1992 at the end of the last big real estate bust.
While median prices have declined somewhat over the past 10 months, the large excess inventory suggests that maybe they haven't declined enough. This could be especially true with mortgage rates continuing to climb and a potential credit crunch [from a tipster] resulting from the collapse of the sub-prime mortgage market. Is this sellers denial? Is the big price plunge finally coming? Does this matter in San Francisco?
∙ May Existing-Home Sales Show Market is Under Performing [NAR]
∙ Inventory of Homes for Sale Hits 15-year High [MarketWatch]
∙ San Francisco Housing Inventory Update: 6/18/07 [SocketSite]
∙ From ‘Bubble-Proof’ To ‘Bubble Territory’ In Six Short Months [SocketSite]
∙ Report: U.S. Banks To Curb Lending, Call in Existing Loans [The New York Sun]
Posted by SFEditor at 6:16 AM | Permalink | Comments (45) | (email story)
April 24, 2007
JustQuotes: What’s Perception And What’s Reality In Realty?
"Buyers come to us and are obviously very distressed when we tell them they're going to have to compete against quite a few people to purchase any property that is exceptional," [agent Peter Goss] said. "That's not the perception that one has. The perception that one has is very different.
"Last year's big story was the housing bubble. People finally got to the point here of realizing, 'You know what? This isn't happening here.' Now you pick up the paper and what's the story? It's the subprime market problems. That's this year's story. Here again, there are so few subprime loans in San Francisco -- it's a very different situation here than in other Bay Area cities." (Picking Up Steam)
∙ Picking Up Steam [SFGate]
Posted by socketadmin at 4:00 AM | Permalink | Comments (14) | (email story)
April 23, 2007
JustQuotes: Investment Bankers And Their Wacky "Fundamentals"
“Median California home prices are still creeping up, and the state's strong employment trends should support the real estate market. But Goldman [Sachs] is worried that surging prices in the state in recent years weren't driven by traditional factors such as strong employment and income growth. Instead, the bank reckons an increase in ARM mortgages offered to borrowers who were already stretching to buy high-priced homes fueled the boom.” [Editor's Note: Inconceivable!]
∙ California home prices to weaken further: Goldman says [MarketWatch]
Posted by socketadmin at 3:41 PM | Permalink | Comments (13) | (email story)
April 17, 2007
Bay Area “Notices Of Default” Heading North? (So To Speak)
While a 67.4% year-over-year increase in San Francisco Q1 “Notice of Default” activity sounds dramatic, in absolute terms it still represents relatively few properties (216). Within the greater Bay Area, however, Contra Costa hit a record level of Q1 default activity (1,969 notices, up 225.5% year-over-year) as did Sacramento (3,234 notices, up 184.7% year-over-year). And Alameda isn’t too far behind (1,578 notices, up 179.8%).
According to DataQuick, “[t]he number of default notices sent to California homeowners last quarter increased to its highest level in almost ten years, the result of flat appreciation, slow sales, and post teaser-rate mortgage resets,” and “[m]ost of the loans that went into default last quarter were originated between April 2005 and May 2006.”
And while most homeowners “emerge from the foreclosure process by bringing their payments current, refinancing, or selling the home and paying off what they owe…about 40 percent of homeowners who found themselves in default last year actually lost their homes to foreclosure in the first quarter.” That’s up from nine percent at the same time last year.
Keep in mind that long-term interest rates remain near historic lows, and according to most, the Bay Area economy remains strong (and incomes are up).
∙ California Foreclosure Activity Jumps Again [DQNews]
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February 22, 2007
Just Quotes: The Downside Of Getting Aggressive
“Aggressive lending allowed people to buy homes who otherwise could not have, and that increase in demand is part of the reason home prices soared in the first half of the decade. In a December 2006 paper, "Aggressive Lending and Real Estate Markets," Wachter and co-author Andrey Pavlov of Simon Fraser University concluded that neighborhoods and cities that had high concentrations of aggressive lending suffered the largest home-price declines after the market cooled.
They focused on neighborhoods in which disproportionate shares of loans were ARMs -- adjustable-rate mortgages. "For each one-percent higher share of ARMs in 1990, the price decline increases by 1.3% for that neighborhood," they write.”
∙ Could Tremors in the Subprime Mortgage Market be [a Sign] [Knowledge@Wharton]
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January 16, 2007
The Economics Of Apartments Versus Condominiums In Washington
The New York Times looks at the struggling new condo development market in Washington D.C. and the impact of developers changing course from sales to rentals.
“After six weeks of failing to lure more than a couple of dozen buyers, Mr. Franco and his partner, Jeff Blum, joined the builders of nearly 6,000 condominium units in the Washington metropolitan area who have decided in the last three months to recast their projects as rental apartment buildings.”
“The latest salvage operation on the part of condo developers is far from a sure bet, however. Condominium buildings generally cost more to build and operate than those built for apartments from scratch. And while rents are high and rising in most cities, in many cases they still are not sufficient to turn a profit.
Industry analysts also point out that rents may start sagging if too many condos are converted into apartments too quickly.”
And while we’re not suggesting that Washington is the best barometer for the San Francisco condominium market, with 188 King reverting to rentals for their unsold inventory, and rumors of The Palms and a number of other higher profile buildings considering following suit, it’s simply additional insight into the impact and implications of local developers changing course.
∙ Buyers Scarce, Many Condos Are for Rent [NYTimes]
∙ 188 King Street: The Rents [SocketSite]
∙ The Palms: Financing Incentives And Inventory Update [SocketSite]
Posted by socketadmin at 7:44 AM | Permalink | Comments (11) | (email story)
December 22, 2006
It’s Not Only The Leaves That Appear To Be Falling In San Francisco
A “plugged in” tipster forwards an autumn to autumn comparison of listed (MLS) condo/coop/TIC/loft sales in San Francisco. Yes, they’re averages. Yes, seasonality is in full effect. And no, the majority of new construction isn’t included.
That being said, we do find the year-over-year drops in average sales price – down ~4% for resales – noteworthy. Or as our tipster writes, “[e]ven though those of us in SF arrogantly talk about the local market as one that doesn't see dropping values (but rather diminished appreciation), this data says otherwise.”
And it begs the question, is this “the drop” sidelined buyers have been waiting for, or is it simply the start of a longer, and larger, fall? (And yes, pun intended.)
UPDATE (12/27): The chart we originally received was incorrectly labeled “condos” as opposed to “condos, coops, TICs, and lofts,” but the data is correct (compiled by SFARMLS). We are, however, attaching an additional “mix” disclaimer.
Also, keep in mind that “sold” data only includes properties that actually closed escrow in the given month (as opposed to entering into contract). Adding pending sales to the mix (below) is probably a more accurate reflection of the market and brings the average change closer to -0.5%. We’d attach a “timing” disclaimer, but this is starting to get ridiculous…
Posted by socketadmin at 2:50 PM | Permalink | Comments (29) | (email story)
December 18, 2006
Just Ignore The Word “Bust”
“Bust” or not, we think Fortune’s “6 strategies” are generally sound advice:
1. Lower your expectations
2. Drive a hard bargain
3. Consider renting
4. Step away from the exotic mortgage
5. Shop for a rate drop
6. Keep an eye on your equity
∙ 6 strategies to survive the real estate bust [CNNMoney]
Posted by socketadmin at 12:15 AM | Permalink | Comments (0) | (email story)
We’re Losing Faith (And Not Necessarily In The Market)
We asked the obvious two months ago when Economy.com predicted 3.6% home price gains for San Francisco, San Mateo, and Marin over the next two years despite analysis that suggested “prices in the three counties were…7.5 percent higher than Economy.com predicted they should be based on historical comparisons.”
This week, Fortune “asked Moody's Economy.com and Fiserv Lending Solutions to crunch the numbers for the top 100 markets in the United States.” Their forecast for home prices in San Francisco-San Mateo? Down 0.2% in 2007 and up 1% in 2008. That’s still no “crash,” but that is an effective two year swing of -6.5% as compared to the Economy.com prediction of just two months ago. We’re losing faith (and not necessarily in the market).
∙ Economy.com Weighs In On San Francisco [SocketSite]
∙ Hot spots, cold spots: Chill on the coast [CNNMoney]
Posted by socketadmin at 12:10 AM | Permalink | Comments (4) | (email story)
November 28, 2006
Expectation Setting: San Francisco Appreciation
It’s not the “bubble-proof” moniker that caught our attention, but the measure of San Francisco’s long-term (1949-2006) average annual home price appreciation (4.2%).
∙ Business 2.0: Bubble-proof markets [CNNMoney]
Posted by socketadmin at 1:18 PM | Permalink | Comments (3) | (email story)
Existing Home Prices Fall Nationally (And In The West)
While it's the local housing market that you really need to "plug in" to, it's worth keeping an eye on the broader market trends as well.
The National Association of Realtors said Tuesday that [U.S.] existing home sales edged up 0.5 percent to a seasonally adjusted annual rate of 6.24 million last month. It was the first increase after seven consecutive monthly declines.
However, the median price for a home sold dropped to $221,000 in October, a decline of 3.5 percent from a year ago. That was the biggest year-over-year price decline on record.
It marked the third straight month that median prices have fallen compared with the same period a year ago, the longest stretch of such declines on record. The median is the point where half the homes sold for more and half for less.
David Lereah, chief economist for the Realtors, said he expected home prices to continue falling for the rest of the year as sellers, accustomed to the booming market conditions of previous years, reluctantly cut their prices.
"Many buyers remain on the sidelines," Lereah said. "After a period of price adjustment, we'll see more confidence in the market and a lift to home sales should be apparent in the first quarter of 2007."
It's also worth noting that U.S. housing inventory is up 34.4% as compared to October 2005 which puts “months of available supply” at 7.4 (up 51% year over year).
And we have to wonder, will falling home prices actually buoy buyer confidence? While a downward price trend might aid in affordability, we can’t imagine it will inspire too much near-term confidence in terms of housing as an “investment.”
∙ Existing Home Sales Rise, Prices Fall [SFGate]
∙ Existing Home Sales Rise in October, Market Stabilizing [realtor.org]
Posted by socketadmin at 12:25 PM | Permalink | Comments (4) | (email story)
November 13, 2006
Just Quotes: So Is San Francisco Hot Or Not?
"Do not be afraid of falling prices. It's sales that are important," [David] Lereah said. "We needed prices to fall. We had a balloon and we are deflating it. It got to the point where homes were unaffordable and we reached a breaking point. That's the reason we are in this contraction."
"It's the hot boom cities -- that is where the problem is," Lereah said. "But these were the boom markets because they had good economic fundamentals, and for the most part that is still true. This is a temporary correction in these hot markets -- but how you define temporary I just don't know."
Forget temporary, how do you define “correction?”
∙ Housing Market Showing 'signs Of Recovery' [Morningstar]
Posted by socketadmin at 12:07 AM | Permalink | Comments (5) | (email story)
October 31, 2006
San Francisco's One Thumb Up
BusinessWeek gives San Francisco real estate a “thumbs up” in terms of "Value for the Long Run." And while we agree, the jury is still out with regard to the near term. From BusinessWeek:
Housing has gone from a sure thing to a complete muddle. Median prices fell nationwide for a second straight month in September, the first time that has happened since 1990, according to a report on Oct. 25. Homeowners don't know whether to sit tight or bail. They have no idea whether they're experiencing the beginnings of a deep bust that will leave a permanent hole in their wealth, or a small hiccup.How do you know if your own local market is the kind that will snap back or the kind that will languish indefinitely? One key factor is the ease or difficulty of building new homes. Places where new home construction is a long and expensive process, such as Boston and San Francisco, tend to experience big price movements, both up and down. "Restricted supply leads to more volatility in prices," says Edward L. Glaeser, a Harvard University economist who has studied big-city housing markets.
Key word: volatility. And then there’s that second to last paragraph: “Sure, [restricting housing supply] can make current owners richer by increasing the scarcity value of their homes. But it's murder on first-time buyers. And in the long run, it's bad for the local economy. As Glaeser notes, companies tend to migrate away from areas with costly housing to avoid paying the higher salaries needed to compensate employees for their home costs.”
∙ Boom! Bust! Boom? [BusinessWeek]
Posted by socketadmin at 12:25 AM | Permalink | Comments (12) | (email story)
September 13, 2006
The President Of N.A.R. Goes To Washington
A couple of quotes from the testimony (pdf) of Tom Stevens, the President of the National Association of REALTORS, at today’s U.S. Senate hearing on “The Housing Bubble and Its Implications for the Economy” (emphasis added):
"Sales are down significantly in Florida, California, Arizona, Nevada, Virginia, and Maryland. These regions experienced the greatest rise in home prices in recent years and affordability has become a major issue. The sharp decline in sales have resulted in a much higher housing inventory (tripling and quadrupling in some cases) and these areas are vulnerable to outright price declines, particularly if interest rates were to rise further."
"Contrary to many reports, there is not a “national housing bubble.” All real estate is local. For example, the housing market in California is extremely different from Oklahoma. Home price-to-income ratio, home price-to-rent ratio, and more importantly, mortgage debt servicing cost-to-income ratio have greatly increased in some markets to worrisome levels. Markets in Florida, California, Arizona, Nevada, Virginia, and Maryland exhibit trends far above the local historical norm, thus it would not be surprising for these markets to experience a price adjustment."
"Due to very high home prices, interest-only, adjustable rate, and/or option-ARMS became the only way to enter the housing market for some homebuyers. In essence, the homebuyers in the coastal markets are at their financial capacity. With rising mortgage rates, homebuyers are becoming exhausted financially, which explains why sales have tumbled in high priced regions of the country."
So ARMs and affordability are pressing problems, sales are slowing, and we're "vulnerable to outright price declines" and “adjustments”? Who could have possibly seen that coming (last November)…
∙ Witness Testimony: Mr. Tom Stevens, President N.A.R. (pdf) [senate.gov]
∙ The Housing Bubble and Its Implications for the Economy [senate.gov]
∙ Top O’ The Market To You! [SocketSite]
Posted by socketadmin at 3:11 PM | Permalink | Comments (18) | (email story)
August 11, 2006
A Sign (Quite Literally) Of The Times
File this under lagging indicators. Apparently Trump has been dumped and shock is in. And just to be clear, we’re definitely not advocating attending. (That is until the Learning Annex starts throwing a bit of that “Wealth” our way - at least we learned something from The Donald.)
∙ Oh! Donald! [Curbed]
Posted by socketadmin at 12:01 PM | Permalink | Comments (2) | (email story)
August 4, 2006
One Free Pass
If you seek insight into what’s really happening in the local real estate market (and not just the same old industry rhetoric); if you value the inside scoop on new developments, interesting new listings and opportunities, and intriguing (or abhorrent) architecture and design; and if you actually want to make an informed decision about buying or selling a house, condo, or property in San Francisco, then we hope that you’ll continue to “plug in” (and contribute) to SocketSite.
If, however, you simply feel the need to single-mindedly debate (and we use that word loosely) the merits (or “superiority”) of buying versus renting (or vice versa), or the impending crash (or boom) of the local real estate market, then you’re probably wasting your time here. (Might we suggest the real estate forum on craigslist?)
That being said, this is your one free pass. And to get things started, we’ve moved the thread that started with an off-topic comment on our follow-up post on 2760 Sacramento to the comments section below. So have at it. Rant and rave or call each other (or us) names (within reason). Hell, this is the one time we really won’t care whether you’re on-topic or off. Just try to get it out of your system.
Posted by socketadmin at 12:04 PM | Permalink | Comments (18) | (email story)
June 22, 2006
How Will It Read In 2007?
The Bubble Meter provides a side-by-side comparison between the 2005 and 2006 book covers for David Lereah’s “Real Estate Boom.” It just begs the question: how will it read in 2007?
∙ David Lereah's Book: How the Cover Changed [Bubble Meter]
Posted by socketadmin at 12:00 AM | Permalink | Comments (1) | (email story)
June 14, 2006
Bottoming Out In 2009?
According to a study by Global Insight/National City, San Francisco has gone from being “fairly valued” in 2001 (well okay, 4.8% overvalued) to being over-valued by 40.8% in 2006. Interestingly enough, that doesn’t even put us in the “Top 50” of “over-valued” metro areas (Naples, Florida leads the nation at 102.6%). And it's nothing we haven’t heard before.
One new twist, however, is that based on a “historical examination of 66 actual metro area price corrections” (including a drop of 11% in San Francisco from 1990-1994), the study suggests that when/if "prices do fall from overvalued levels, they typically fall by about half the overvaluation” but that a “correction usually takes three and a half years.”
∙ Global Insight/National City Study: House Prices in America – pdf [globalinsight.com]
∙ More housing markets overvalued [MarketWatch]
Posted by socketadmin at 11:27 AM | Permalink | Comments (1) | (email story)
June 12, 2006
Those Damn Fools
The Motley Fool pounces on the National Association of Realtors (NAR), the press, and housing as an “investment”:
These are people who want us all to believe in housing as an investment, and they just happen to take a cut on the deals. Of course, housing, over the long run, is not a good investment, except for a very savvy few. It's a roof over your head that tends to keep pace with inflation, but not in a straight line. But if you can't afford your place because you made a bad deal based on reports of the never-ending happy housing story, that cozy home could be a personal finance time-bomb waiting to explode.
Damn Fools.
∙ I Want My Bubble Back! [Motley Fool]
Posted by socketadmin at 12:00 AM | Permalink | Comments (0) | (email story)
May 30, 2006
No Pop (But No Appreciation?)
While it’s an "old” speech (February ’06), it’s still a good one.
Christopher Thornburg, senior economist at UCLA's Anderson School of Management, offers his perspective on whether the recent cooling trend in residential real estate indicates an imminent bubble burst or just a lull in California's otherwise booming housing market in this edition of the Economics Roundtable at the University of California, San Diego.
Our favorite quote and topic: “People don’t think about fundamentals, they think about trends” (minute 37:08). A couple of other key segments in the 58 minute speech: California real estate (21:11); The bubble (30:15); When is it going to end? (45:15); What does this mean to you? (49:37); The punch line (51:48). (A tip of our hat to the Bubble Meter for the link)
∙ Economics Roundtable: The California Economy -- Housing Boom or Bubble? [Google]
∙ Google Video: "The California Economy: Housing Boom or Bubble?" [Bubble Meter]
Posted by socketadmin at 11:26 AM | Permalink | Comments (0) | (email story)
May 25, 2006
From Bull To Bear?
You could actually hear the collective nodding of heads when Christopher Mayer, an economics professor at Columbia University, referred to San Francisco as a “superstar” city and argued that “land shortages and rising populations would translate into ever-rising prices.” Well, now Mr. Mayer is changing his tune.
Yes, we’re still the a superstar city, but Mr. Mayer is conceding that “prices in the most expensive markets could drop 15 percent in the next year” (that’s us). He’s obviously never been in San Francisco on a day like today.
∙ Can you still get rich in real estate? [CNNMoney]
Posted by socketadmin at 8:47 AM | Permalink | Comments (0) | (email story)
May 11, 2006
Uhh...
Not too sure what to say about this one. (Other than we didn’t sign up…)
Posted by socketadmin at 1:28 PM | Permalink | Comments (1) | (email story)
May 9, 2006
New York Times Not Fact Checking?
The New York Times pronounces “A Chill Is in the Air for Sellers,” especially in San Rafael. In principle we agree, but based on what we know about the market, something just didn’t jibe with at least one part their article. So we did some quick fact checking. From the Times:
A house at 57 Marina Boulevard in San Rafael, across the bay from San Francisco, was originally listed at $1.45 million. The owner recently dropped the price to $949,000 when a competing house on the same street lowered its price to $959,000, from $989,000.
It’s true, the list price of the house at 57 Marina Boulevard has been reduced (in fact, twice). But the original listing price, back in March, was $1,045,000 (not $1,450,000). After a month on the market it was reduced 4.5% to $997,500, and then again by 4.9% to $949,000 last week (for a total reduction of about 9%).
And yes, a 9% reduction is noteworthy, but it’s a far cry from the 34% drop the New York Times is reporting. As far as the rest of the article, it seems right, but we're still checking...
[Update: Rest assured, the principal in charge of proof reading for SocketSite will be reprimanded for not catching that 'principle' blunder...]
∙ A Chill Is in the Air for Sellers [NYT]
Posted by socketadmin at 5:28 PM | Permalink | Comments (4) | (email story)
May 6, 2006
What’s This Guy Know About Investing?
Another one of those crazy investor types spouts off about the real estate market this weekend:
"What we see in our residential brokerage business [HomeServices of America, the nation's second-largest realtor] is a slowdown everyplace, most dramatically in the formerly hottest markets. . . . We've had a real bubble to some degree. I would be surprised if there aren't some significant downward adjustments, especially in the higher end of the housing market." (Warren Buffett)
And yes, it’s a general statement. And no, he didn’t mention the Bay Area specifically.
∙ Buffett: Real estate slowdown ahead [CNNMoney]
Posted by socketadmin at 12:53 PM | Permalink | Comments (0) | (email story)
May 4, 2006
Fortune’s Real Estate Survival Guide
Fortune rides the bubble wave this afternoon with their self described real estate survival guide. The three chapters: ‘Welcome to the dead zone’, ‘Unmaking the myths of the housing boom’, and ‘Who will be hurt the most?’.
The timely quote from ‘Who will be hurt the most?’: “The most troubled sector of the housing market, the one that will fall first and fastest, is the condominium market.” Must...build...faster.
∙ Real estate survival guide [CNNMoney]
Posted by socketadmin at 10:42 PM | Permalink | Comments (1) | (email story)
April 6, 2006
Heads You Win,Tails You Lose
Perhaps we’re just getting soft in our old age (we didn’t make a big deal about it, but SocketSite recently turned one). We had access to the much ballyhooed PMI report on Tuesday and chose to ignore it this time around (we must admit, however, that we came very close to posting it under the title “San Francisco Breaks Into The Top 10!”).
Why did we choose to ignore it? An email from a reader provides some insight:
My favorite line [from the Chronicle coverage]: “The chance that real estate values in the region's three major metropolitan areas will fall during the next two years stands at 55 percent or greater…”Personally, I think the market will go either up or down…thus there is a 50 percent chance it will go up, 50 percent chance it will go down. This doesn’t say anything!
Great point, but not entirely true. What this does say is that there is uncertainty in the market. And with uncertainty comes increased risk.
∙ Study: Home prices more likely to drop [SFGate]
∙ Here We Go Again [SocketSite]
Posted by socketadmin at 11:12 AM | Permalink | Comments (2) | (email story)
April 4, 2006
There Is No Bubble! (Unless You Live In San Mateo)
Gary and Margaret Hwang Smith, two economics professors at Pomona College, recently concluded that there is no national housing bubble ("Bubble, Bubble, Where's the Housing Bubble?"). In fact, they suggest that numerous cities across the nation are actually undervalued.
“They argued that the value of a home is determined by the rent it could fetch. Calculate the future rents, subtract mortgage payments, taxes and other costs, factor in a good annual rate of return of 6 percent or more, and one should be looking at the proper price of a house or condo.”
Before you take too much comfort, however, realize that their study was based on data from ten (10) US cities. And out of the ten, only one Bay Area city (San Mateo) was included in the study. And out of the ten, only one city (San Mateo) was determined to be overvalued. And based on their calculations, this one city (San Mateo) is overvalued by between 42 and 54 percent. No word on San Francisco.
∙ Some New Math on Homes [NYT]
∙ Bubble, Bubble, Where’s the Housing Bubble? (pdf)
Posted by socketadmin at 9:39 AM | Permalink | Comments (0) | (email story)
March 14, 2006
Bubble (Not Baby) Sitting
Bankrate “talked to experts, studied public and private databases, analyzed market trends and examined the analyses of many others” in order to arrive at their list of ten "bubble blowers" (appreciation should continue to grow), "bubble sitters" (appreciation may have peaked), and "bubble busters" (values expected to decline).
San Francisco? Deemed to be one of the ten bubble sitters:
“With a median home price of nearly $720,000 at the end of 2005, according to the NAR, San Francisco remains one of the country's most expensive cities to live in, outpacing even Honolulu and New York City. Housing prices are unlikely to decline because of short supply -- surrounded by hills and its famed bay -- there's just nowhere else to build anything less expensive in the city. But realistically, there aren't that many people who can afford to buy at those prices, which should keep prices from going much higher.”
Our big question: what’s the impact on buyer behavior should the market flatten out? At a minimum it will be much hard to justify a new investment, or to rationalize an interest only or short-term mortgage product (which will only compound the affordability problem).
∙ Going up, down and sideways: Top 30 cities to watch [Yahoo!]
Posted by socketadmin at 4:24 PM | Permalink | Comments (1) | (email story)
March 13, 2006
The Bull
Okay, so who’s the genius at NAR that decided that a “balloon is a much better image” to represent the strength of the real estate market?
Are we the only ones who remember week-old birthday balloons lying shriveled on the floor? Or popping balloon after balloon in failed attempts to overfill those little water balloons? Regardless, David Lereah, chief economist of the National Association of Realtors, seems to be firmly on board.
“His prediction for the housing market's future is, with a few exceptions, a remarkably sunny one: low interest rates, continued annual appreciation, a lean supply accompanied by demographics guaranteed to produce a strong demand.”
"The factors that have some real estate economists worried, which include a decline in sales and appreciation, higher interest rates and reduced affordability, Lereah says, are merely signs that some air is slipping out of the balloon.”"More air will come out in some areas than others," says Lereah. "But you can't sustain double-digit price increases forever. You need a cooling-down period. It's healthy for the market. It's still a sound balloon."
"The fundamentals haven't changed," Lereah says. "It's still a great time to invest in real estate."
We agree, air is slipping out of the balloon and double-digit price increases are not sustainable. We do, however, disagree that the “fundamentals haven’t changed.”
The fact that the majority of new Bay Area housing “investments” would lose money on an income producing basis challenges a basic fundamental of investing. And widespread speculation (i.e. banking on asset appreciation) in the housing market signals a fundamental shift in "investor" behavior (and risk).
∙ A BULL, A BEAR AND THE BUBBLE [SFGate]
∙ Why the Real Estate Boom Will Not Bust
Posted by socketadmin at 12:15 AM | Permalink | Comments (2) | (email story)
The Bear
A loud "Amen!" with regard to reducing your exposure to "variable-rate or interest-only loans”, but damn, even we’re not as bearish as financial consultant, and author (Sell Now! : The End of the Housing Bubble), John Talbott:
“According to San Francisco's LoanPerformance.com, half of all Bay Area home buyers used interest-only loans to make their purchases last year. With so much of their income already relegated to their mortgage payment, says Talbott, even a small rise in interest rates will push many to -- and beyond -- their limit. For others, a divorce or job loss will spell financial ruin.”
“The problem, he says, is that home prices are way overvalued -- just as Internet stocks were during the 1990s before that sky collapsed. As evidence, he points to the growing discrepancy between Bay Area home prices and rents, an indicator commonly used by economists to determine a property's true value.”
“People should protect themselves, Talbott says, by divesting themselves of any investments in real estate, including stock. They should sell their vacation homes. They should get out of any variable-rate or interest-only loans. They might even consider selling their primary residence, investing that money in something other than real estate, and renting for awhile.”
Here’s what we say: if you won’t be able to afford your “investment” (i.e. property) should interest rates rise and/or the market turns, then now might be a good time to either consider selling, or to reconsider any irrationally driven (e.g. “prices always go up” or “if you don’t buy now, you’ll be left behind forever”) urges to buy.
Otherwise, just don’t worry about it (too much).
∙ A BULL, A BEAR AND THE BUBBLE [SFGate]
∙ Don’t Fear The Bubble [SocketSite]
∙ Sell Now! : The End of the Housing Bubble
Posted by socketadmin at 12:05 AM | Permalink | Comments (1) | (email story)
March 10, 2006
Weekend Update: Sales Follow-Up
Lots of questions with regard to sales activity for three of the New Developments we’ve recently profiled, so let’s do a quick rundown to kickoff the weekend (and help you plan your open house stops this Sunday):
1. 1725 Washington: Three (#3, #9, #14) of the fourteen units we profiled a month ago have sold, eight units remain active in the MLS, and three units (#4,#7,#12) have yet to be added to the MLS. (And yes, #2 and #6 remain "Sold" BMR units.)
2. 1625 California: Of the seven “2ND Release now available! Going fast!” units we featured two weeks ago, one (#55) has gone pending, while the other six remain available (a couple after 3+ months).
3. 1551 Filbert: After 45 days, one (#1) of the three “truly special & will not last” TICs has garnered an offer (#2 and #4 remain Active).
And no, we're not implying that the market has "popped", "crashed", or "tanked". Just that it has changed. And that "if you build it they will buy it (regardless of the design, price, or marketing)" thinking might just be a thing of the recent past (along with "guaranteed” double-digit appreciation).
∙ Update: 1725 Washington Street [SocketSite]
∙ 1635 California Street [SocketSite]
∙ For Sale By Owner Listed! [SocketSite]
∙ San Francisco Sales/Prices Trend Down [SocketSite]
Posted by socketadmin at 12:56 PM | Permalink | Comments (1) | (email story)
March 2, 2006
Don’t Fear The Bubble
As one of the New York Times “Most E-Mailed Articles”, chances are you’ve already read David Leonhardt’s Don't Fear the Bubble That Bursts. But if not…
…instead of panicking, most homeowners should be taking a deep breath. The real estate slump of 2006 offers a fresh chance to puncture the No. 1 myth about the nation's No. 1 topic of conversation: the idea that we should all be rooting for high house prices. The myth is good for real estate agents, but it creates needless anxiety for everyone else. It's time that most of us learned to stop worrying and love the bursting bubble."Even in the most vulnerable markets, most people just have to look through it and ignore it," said Mark Zandi, the chief economist of Moody's Economy.com, "because it's of very little relevance to them."
Amen. Now read the rest of the article (especially if you plan to comment).
∙ Don't Fear the Bubble That Bursts [NYT]
Posted by socketadmin at 12:00 AM | Permalink | Comments (0) | (email story)
February 19, 2006
Fiserv Says San Francisco Home Prices To Drop 1.9%
Fiserv Lending Solutions (a provider of mortgage and consumer lending services) is forecasting a 1.9% drop in home prices for the San Francisco MSA in 2006.
Unfortunately we’ve never heard of Fiserv Lending Solutions, have no insight into their methodology, and have no idea how accurate any of their forecasts have been in the past (or if they even have a “past”). It’s just another data point (but from within the industry).
∙ Price forecasts for 379 metro areas for 2006 [CNN/Money]
Posted by socketadmin at 7:29 PM | Permalink | Comments (2) | (email story)
And We Definitely Agree With Sir Issac Newton
An evenly balanced follow-up from the Chronicle with regard to the their coverage of the most recent DataQuick report:
This spring, Bay Area homeowners are likely to know whether the housing market has merely paused before resuming its upward climb or has truly downshifted to the slow lane and, if so, how dramatically.Last month, the number of homes sold declined for the 10th month in a row and hit its lowest level since 2001, and price gains slowed markedly as well.
Now, the question is, will the market simply cool or will it dive into negative territory?
Each housing cycle in the past has had its own set of twists and turns in which a multitude of factors comes in to play.
As the current housing frenzy exhausts itself, variables ranging from interest rates and employment growth to affordability, new home supply and sellers' willingness to part with their No. 1 asset will help determine the swiftness and magnitude of any downshift.
"Making this cycle more unique ... is that there's been a big increase in homeownership since the early 1990s," said Celia Chen, director of housing economics at Moody's Economy.com. "We've brought a lot more people into the market, and it's uncertain how these people will react in a down cycle."
Here’s where we definitely agree with Sir Issac: “I can calculate the motions of heavenly bodies, but not the madness of people.” (Sir Issac Newton having lost his shirt in the South Sea bubble, 1721)
∙ HOUSING -- JUST COOL OR GOING COLD? [SFGate]
∙ Rates Cheap. Houses Not Cheap. [SocketSite]
∙ Real Estate Vs. Real Behavior [SocketSite]
Posted by socketadmin at 1:22 PM | Permalink | Comments (0) | (email story)
February 16, 2006
Rates Cheap. Houses Not Cheap.
According to the most recent DataQuick report, Bay Area home sales plunged last month while prices held steady. From the Chronicle:
Bay Area home sales tumbled to their lowest level in five years last month, and prices hovered well below record territory, further evidence that the region's seemingly unstoppable housing boom may have peaked with the blistering market of 2005.What remains to be seen is whether the new figures amount to a hiccup or the beginning of prolonged slowdown.
Rising interest rates, and tighter lender standards, seem to be taking a lot of the blame. A quote from the director of the Center for the Continuing Study of the California Economy in Palo Alto: "People chose to bet on future appreciation by choosing loans where they knew payments would go up by a lot -- but they got in cheap…There are no cheap loans now."
The scariest thing? Current mortgage rates are still well below historical averages (second to last graph).
∙ Home sales falter, hinting at slowdown [SFGate]
∙ Interest Rate Trends [Mortgage-X]
Posted by socketadmin at 11:07 PM | Permalink | (email story)
February 14, 2006
“Marin Home Sales and Prices Plunge”
Ron Parks of Vision Real Estate, and publisher of The Marin Report, definitely caught our attention with that headline. The first three paragraphs of his most recent monthly market trends report:
“What a way to start the year. Home sales in Marin County, while not at their lowest level ever, are certainly close to it. With only 114 homes sold in January, sales were off 28% from December and 24% from January 2005. This is the third lowest number of sales in any one month since we've been keeping records: January 1998.
The median price of single-family homes in Marin County also took a nose-dive in January, falling 8.6% from December to $877,500, and, gasp, down 5.7% from January 2005. This is the first year-over-year drop since June 2003. Also, it's the first time the median price has been below $900,000 since December 2004.The question becomes, is this an aberration, or the start of a new trend? On one hand, the depth of the plunge in January is an aberration. On the other hand, the trend is towards a buyers' market. Looking at pending sales, we see an increase of 13% for homes and 29.6% for condos this month. This portends increasing sales in the month's ahead.”
Foreshadowing, or simple red herring for the San Francisco real estate market? The next CAR report is due out on 2/28/06, so be sure to stay tuned...
∙ The Marin Report [website]
Posted by socketadmin at 12:00 AM | Permalink | Comments (0) | (email story)
February 10, 2006
Learning From Past Mistakes
A tipster passed along some interesting Friday afternoon reading. A couple of excerpts from a New York Times story published in 1984:
“My pal Jerry P. just bought a condominium in Century City, in Beverly Hills, for 60 percent of what it sold for in 1980. Down the street from me here in the Hollywood hills, four houses have been on the market since 1981. The asking prices now are about one-third less than they were three years ago. Up and down Sunset Boulevard in West Hollywood, apartment houses that were converted to condos lie empty, boarded up, not one unit sold, in bankruptcy, with banks holding title.”
“The Southern California residential real estate boom began in about 1974. It was not just a boom. It was a superboom, with miserable bungalows in Santa Monica running up from $40,000 in 1974 to $400,000 by 1980. Two-story colonials in Beverly Hills went from $200,000 to $800,000 and then over a million. One-bedroom condos in Hollywood were built and sold for $100,000 - what a house in Beverly Hills had been five years before. Every day, home buyers would look at the prices and say, ''It can't go on.'' But every day, for five years, it did go on. Middle-class families were priced out of the market, and the brokers said, ''But the rich will always be able to buy.'' Ordinary rich people were squeezed out of the market in some areas, but the brokers said, ''Never mind, the music business people will buy anything.'' The music business fell into a depression in 1979, and the brokers said, ''The foreigners are buying. Compared with Paris or Teheran, real estate in Holmby Hills is a bargain.''Everyone wanted to get in to the game, get the down payment on a house, somehow struggle with the payments for a year, then sell out and get rich quick. Inflation pushed housing prices into the stratosphere. But even when inflation stopped, brokers said, ''The prices have nothing to do with inflation. Everyone on earth wants to live in L.A. The price will go up forever here, no matter what else happens in the rest of the country.''
Then the music stopped, some afternoon in 1980. As if a spell had fallen over the city, suddenly things began to stay on the market for three months, six months, a year, two years. Buyers disappeared. Asking prices stayed high, but nothing sold.
The great Southern California real estate boom was over. Prices had gotten so high that they could no longer be justified by inflationary expectations, or the influx of foreigners, or the climate, or for any other reason.
Now, four years later, those brokers who are still in the game tell sellers to expect that their houses will be on the market for two years. Other brokers have sold their BMW's and are now working as ''financial planners'' or public-relations people, dreaming of the days when they worked for 6 percent of infinity.”
At least we learn from our mistakes (right?). Now get outside and take full advantage of a beautiful afternoon/evening in this amazing city. It is days like today that justify paying through the nose to live here.
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