Today is another day of stellar reporting on the state of the San Francisco market in one of our largest publications. We’re not trying to brush the whole “subprime debacle” under the rug, or hide the fact that foreclosures are definitely on the rise, or that sometimes real estate can go south, but we’d like to point out something about this article that ran today in the San Francisco Chronicle as well as SFGate. The focus of the article can pretty much be summed up in the opening paragraph:
The number of Bay Area homes lost to foreclosure during the second quarter hit the highest level in almost two decades, and the region’s homeowners also received a record-high number of mortgage default notices
Here’s the interesting part…at least to us. Both publications come out of San Francisco, but there is only one tiny little sentence that applies to us, and our market:
Underscoring that thesis, three affluent Bay Area counties stood out as having the least likelihood of default notices: Marin, San Francisco and San Mateo counties.
We’re just putting this out there as something to pay attention to, and to make it clear that we aren’t the ones pumping the market. If you actually read the “guts” and “fine print” of a lot of these “bay area housing reports”, you’ll find that San Francisco is still doing pretty damn good.
–Foreclosures go through the roof [San Francisco Chronicle]
1. It’s a Bay Area paper that lots of people read. Even people outside of SF.
2. San Francisco is not an island. We can actually pick up our stuff and live in nearby areas pretty easily. In fact, there are highways, trains and ferry boats that allow us to live pretty easily in the East Bay, the Peninsula or Marin. So, like it or not, this news is still relevant. This is not Florida. This is our backyard.
3. Yes. Really. 100%+ growth rates (even in small, absolute terms) is something worth paying attention to. That qualifies as “through the roof”.
4. It’s ok to look at trends. The market tanked in Florida 2 years ago. The market tanked in San Diego last year. The market is tanking now in Contra Costa. Let’s not put our heads in the sand. This is reality. Will it ultimate tank San Francisco? Maybe. Maybe not. But this is happening all around us so let’s pay attention to it and not sh*t our pants because of the headline in the paper. You guys seem overly paranoid when you react in this way. [Editor’s note: No paranoid, just pointing things out, and you make very, very good points. Thank you.]
If rates are still low and the job market is still hot, then we are obviously seeing the impact of people buying too much house and taking on too much risk in anticipation of too much appreciation.
Dave, nice post.
I agree that even small stats are interesting here. While I contend that most buyers here are of the variety that can withstand a prolonged period of stagnation it doesn’t mean that some people are in over there heads. The stats I’ve seen state that 49 properties were foreclosed in Q2. Not sure this is meaningful but that is off of a base of 120 foreclosure notices sent in Q2 of 2006. Again, I’m not saying there is a direct relationship here, just an observation. So now its being reported that there are 257 notices sent out in Q2 07. So maybe we’ll see 125 foreclosures this time next year for Q2 08. Annualized, this is about 400+ properties foreclosed upon, assuming the #s hold consistent (even though its clear they are growing). At some point this becomes meaningful. Doing this same sort of scenario planning on the outer regions of SF and its not hard to fathom a crash.
Still, I don’t really see a crash coming here. People here will just wait it out….
And not to be a conspiracy monger, but the local papers do have some interest in not over hyping the issues with the local RE scene.
Thanks, eddy. I guess the point is that none of us know whether or not a crash is coming. We can all speculate, but that’s why they call it speculating… And whether or not the paper is hyping it, is up for debate. You could definitely argue that they hyped it all the way up just by publishing stats and anecdotes.
I think it’s worth paying attention to these stories because even if SF is a fortress, we still have to get financing from “the market”. With countrywide reporting big delinquencies in prime home equity yesterday (and tanking the stock market), we could see liquidity dry up in a big way. That would be a killer blow, even to SF, especially when you have all that new condo inventory coming online.
I personally don’t think we’ll crash here but I think people should buy and live in a place without expecting 20% YOY appreciation. We’ve all been programmed to expect it, but those days may be behind us.
I think ‘tanking’ is a word that can be interpreted in many ways here in sf and I agree with what is said above. I am probably sit ‘in the middle’ and am not on the ‘doom and gloom’ side nor on the ‘happy happy joy joy side’.
To some here in SF the market has already ‘Tanked’. There are many people who live in ‘soma’ for instance who bought lofts in the last few years that are under water now or who can not even sell them or if so would sell at a big loss, especially when leveraged. Then there are other neighborhoods like Noe and Bernal where a dumpy house will sit for a long time but a nice Home will sell like hotcakes.
Another thing SF has which is good or bad, depending on who you ask, is just the sheer amount of money floating around. There are a lot of people that got some good money from tech jobs or whatever so that plays into effect. Then there are a lot of people who just seem to have a ton of money, be it from their parents or some other source. Go to open houses in Bernal Heights, GLen Park etc. and you will see a lot of 30 to mid 30 year olds in BMW’s, trendy clothes looking at million+ houses. These are a lot of the same people being ‘arty’ in the mission a few years back. When that type of money is being thrown around a lot of people can honestly ‘absorb’ a market decline. And the more people the can handle it the tighter inventory becomes.
It seems that houses, as usual, are very desired but condos, as in ‘loft like’ condos really have the potential of becoming a disaster, esp if multiples of demand come online soon. And it also seems that a lot of people who ‘could not afford a house’ bought condos in the last few years as a way of ‘getting into the market’. It would be interesting to see comparisons of mortgage types/down-payments vs type of property here in sf. That would be very telling of where a lot of the risks lie.
http://www.inman.com/inmanstories.aspx?ID=63974
Money quote:
“On a loan-by-loan basis, mortgages were least likely to go into default in Marin, San Francisco and San Mateo counties. The likelihood was highest in San Joaquin, Merced and Riverside counties.”
duh
I work for CurrentForeclosures.com, a foreclosures site and have seen a huge increase in the number of foreclosures in the past 7 months. I believe it is a combination of not only sub-prime and ARM mortgages, but also the high number of people who have gotten loans with interest rates at an all time low… in addition to the rapid depreciation in some areas and the difficulty some are experiencing in selling their homes.