Incredible “boomtime”?

Pulled from the comments made by “boomtime” on “636 Steiner, an offer and a UFC style beat down”. We edited slightly and added property links so everyone is on the same page.

I call it the way I see it. It is an incredible Boomtime now, and I can’t wait to get my bonus this year. I have never experienced such a tight labor market, and salaries and bonuses are reaching new record highs. Imagine a 23 yr old, 1 yr out of school, clearing $115,000 in total compensation? Now, imagine the legions of more experienced people in my industry, and what they are getting paid. It is not uncommon for a 28 year old to get paid $300,000 and a 32 year old to get paid $500,000+. This is the prime demographic of home buyers in SF. Add a spouse, and you get another $50,000 AT LEAST + income.

1330 Chestnut St. anyone? In contract after one Sunday open house for $1.495 million purchased last year for $1.025 mil with a $200K remodel.

2255 Steiner St.[we think you mean 2255 Washington], a 2/2 asking $1.498 mil at under 1,500sqft with no view. Impressive! I bet it gets into contract by another $500,000/yr couple.

2249 Washington St., a 2/2 in contract for $1.525 mil. Who’s buying this?

2745 Laguna St., a 3/2 in contract for over $1.55 mil, purchased for $1.20 mil a couple yrs ago? Who’s buying this?

3042 Jackson, a 2/2 in contract for $1.595 mil, who’s buying this?

2865 Jackson, a 3/2, 1700sqft place with $775/month HOAs… who’s buying this?

2138 Beach St., a 3/2 in contract for $1.799+ mil. Nice location, lower unit. Who’s buying this?

The list goes on, and on and on. I’ve never seen so much strength in th $1.3 and higher condo market. Personally, I would look to buy a Single Family Home over a condo in this price range, but maybe these buyers just want simplicity?

The key is LOCATION and distinction of the property. Think about the best properties sitting atop a pyramid. The base, which is demand, gets wider and wider due to rising incomes, inflation, population=demand, as the supply remains fixed. Think of fine art appreciating over time. Same thing, and that’s why I’m amazed people are plunking down $1,000sqft+ for new properties in SOMA where there is an endless supply, and NEW becomes NOT NEW in 5 years. People start screaming the market is falling when a SOMA condo gets reduced. I’m just giddy because prices there, in my opinion, should be no more than $600/sqft, yet people are paying $800-1,600sqft.

Finally, I have met an incredible amount of people in SF who have help from Mom & Dad. Even kids in their late 20’s and older are getting help from Bank of Mom & Dad. Heck, on my block there are two 26 yr old kids living at home with Grandma! One underestimates the wealth in SF.

If you have thoughts or ideas you’d like to share, feel free to comment on this post, or you can also email us your thoughts, or submit them anonymously via our contact form. Either way, we appreciate all the participation from our Stammtisch and growing number of readers thus far. Keep spreading the word! And thanks for reading.

[Because we posted this on the front page, doesn't mean we agree or disagree with the statements made. We simply think it provides an open door to all kinds of topics to discuss/debate.]

-1330 Chestnut…How much for the remodel? [theFrontSteps]

15 thoughts on “Incredible “boomtime”?

  1. Since boomtime was responding to me specifically on the last post, I feel compelled to comment. But look, I’m not going to get into a debate about anecdotes here. That’s a fool’s errand. (How about we look at Andre Agassi’s Tiburon house that just sold for $20m. By the way, he bought it for $23m six years ago… Now, did I prove anything? Nope.)

    Hey, maybe you’re at a hedge fund. Maybe you’re a TV actor. Maybe you’re a real estate agent. Maybe you’re in private equity. (If you’re in private equity, you might need to change your moniker because the debt market just fell apart last week. Look at where Blackstone is trading. IPO at 38; now at 23 and change. But, I digress… with yet another silly anecdote.)

  2. My point is this: the fact that you’ve “never seen this much strength” in one particular narrow band of the condo market doesn’t prove much of anything. (If you are one of these 23-year-olds that you talk about, then you haven’t seen much to begin with. No offense, but I’m almost 35 and have been here ten years.)

    I would counter that I have never seen this much weakness in the (entire) market since pre-NASDAQ bubble. I can’t comment specifically on the “condo over $1.3m” market, but that’s a pretty narrow scope. What I see is an entire market in transition. When I bought my single family home in 2004, I bid on seven places, got into two bidding wars, and even lost a house where I offered 22% over asking. That was strength, by comparison.

  3. Today:

    - I see a market where volume has dropped by 10-20% YOY. Or as Data Quick says, “the slowest pace of home sales in 12 years”.

    - I see (anecdotal examples of) owners listing the same house they bought a year ago for less than their purchase price.

    - I (anecdotally and occasionally) go to some open houses where few people show up.

    - I see an SF median price that barely ticked above inflation YOY at 4.4%, (and this is with all the subprime crap removed? If those low-end buyers have evaporated, shouldn’t median skew more toward the high end?)

    - I see a lending market that’s woken up to risk and clamped down on the no-doc, no-interest, suicide loans that kept us afloat when the dotcom crash happened.

  4. Finally, I would warn people about looking at a slice of the market too myopically. “SF condos above $1.3m” is a very, very narrow slice. If SFRs in Marin or in Berkeley or Burlingame don’t keep pace with this narrow slice, then they become viable alternatives. I can get a pretty nice sized SFR in Burlingame with great schools for $1.3. I can buy a fixer-upper in Palo Alto or Los Altos for that price. And no $800/month HOA dues…

    Again, I digress with the anecdotes. Plus, this is an SF blog so I shouldn’t pollute it with blasphemous talk of the dreaded Peninsula… My point is just that the real “boomtime” is passed. You can very narrowly define the scope of the current one, but people should be aware of the new reality.

    I’m woefully unimpressed today with news of a few select properties selling in 2 weeks at 205 over asking with 10 offers. That was practically EVERY property in 2003 (from Santa Cruz to Sacramento to Santa Rosa). THAT, my friend, was a boomtime…

  5. Dave, I venture to guess you don’t own in SF, or if you do, you don’t own in what’s considered a ‘tier 1′ location? What industry do you work in?

    My industry is showing the most strength over the past 7 years this year, even higher than in 2000/2001.

  6. I’d agree with Dave to some extent. The days of purchasing a loft for 439K and selling it 2 years later for 639K are gone. (unless you are able to snag a foreclosure) That said, purchasing property with the goal of owner occupying and seeing 8% appreciation a MONTH is not what educated clients are hoping to accomplish.

    I see opportunities in this market for people to purchase property — and i shudder to use this term – under market value. I also see some properties and BALK at the price and wonder who in the world would purchase this property. More importantly from my perspective, who are the Realtors advising their clients to write an offer on these properties.

    Dave – you make some valid points and raise some questions — what’s nice is that you do so in a respectful and intelligent manner. Dissent and discussion are great and everyone gains and learns – I’ve “unplugged” from other real estate blogs as the tone has become spiteful and accusatory. This is becoming a great forum for discussion and I look forward to agreeing and disagreeing with you often!

  7. I don’t own in SF. I currently rent but am actively looking. I sold my SFR on the peninsula and enjoyed a nice return for only a couple years of ownership. I work in software and, if it helps, I have a $320K (dual-earner) household income and no kids. I don’t know what tier that puts me in but I wasn’t aware that this was a “Tier-One” blog.

    :)

    [Editor's note: It is not a "Tier-One" blog. It's a tier -20 thru 20+...That ought to just about cover all the tiers. Thanks for your GREAT comments and participation!]

  8. Hi Dave – Fair points. I don’t think the $1mil+ market, or $1.3mil+ condo market is a bad example. Any couple making $100-200K/yr is in this market after saving for 10 yrs (i.e. early-to-mid 30′s). The point is that the $1.3 mil condo market WAS the $1mil condo market a couple years ago. Using the $20million Agassi example is not reasonable, unless this was a $100 millionaire blog [Editor's note: If only...].

    May I ask why you sold in two years Dave and now rent? Was it a job, or personal reasons? Or, did you look at your property as an investment? PErhaps you can shed some light on what percentage you made in two years (2006 i take it)? HQ brings up a good point about owning in SF. Perhaps your market, wherever you did buy, is different as I do hear and see weakness around SF, especially the farther you get. I have just been buying, and buying more since 1998, b/c I know in 20-30 years time, these properties will be worth more, and I don’t need the capital, b/c my income is fairly robust (I’m more than 2X your income solo, but so is everybody else at my company).

    These are two properties that sold LAST YEAR, and that are selling this year. Nothing has been done to them. I have seen both. This is an apples-to-apples comparison, with 2249 Washington St. in contract already. We’ll see what the final price is. 1,200sqft LOWER 2/2 flats boys and girls for $1.5 million. This is AMAZING, but this is what DINKS [Editor's note: Dual Income No Kids] are looking to buy.

    2255 Steiner St.[we think you mean 2255 Washington - CORRECT], a 2/2 asking $1.498 mil at under 1,500sqft with no view. Impressive! I bet it gets into contract by another $500,000/yr couple.

    2249 Washington St., a 2/2 in contract for $1.525 mil. Who’s buying this?

    Boomtime

  9. And another thing, I am of the firm belief that the +4.4% SF Median increase YoY last month UNDERSTATES how much prices are appreciating in SF.

    You want weakness? Go to Vallejo, Antioch, etc. Strength is all around SF, except for maybe SOMA condos which may only be getting $800-900 instead of $1,000/sqft :)

  10. Dave,

    No need to get offended by the tier-1 comment. I think HQ was just trying to point out that in the desirable locations in the city the market is still very hot. I’m following Noe Valley and have seen very similar situation to what Boomtime describes. I do wonder where these people come from, and how they got their money, but they keep coming.

    I work in software as well, and Dave’s compensation sounds more like stuff I’m familiar with.

    Boomtime, what industry allows you to make nearly $1m/year?

  11. No offense taken. (Please note smiley face following my comment…) I sold due to change of jobs and commute. My old neighborhood is one of those that seems to defy gravity. A 1930 bungalow with 2 bedrooms and 1,000 sqft will typically go for somewhere near $1m. We sold our place for about $950/sqft in ’06.

    Hey, I will not argue that there are pockets of this city (or any city, for that matter) where no price will ever be too high. When you have a decent economy chugging along and people making cash, trophy properties will certainly move.

    My whole point is that we are not in the environment we were in 7-8 years ago. There are simply fewer buyers in the market. (Fewer sellers too, it seems, which has kept things pretty stable.) Those currently in the market may be loaded, but there are fewer of them. People seem to be more cautious and less willing to “overpay” (whatever that means). This includes me.

    But the whole thing is a pyramid. You need people at the top and the bottom. People looking for SFRs need other people to buy their 1/1 condos or lofts. The very bottom (think Bayview) is getting crushed. The 1/1 condo and loft market frankly looks a little soft to me. Will it impact the “prime” neighborhoods? I don’t know. (Certainly not if everyone is paying with Monopoly Money…)

    But I’ve just read so many stats on the huge percentages of buyers in the Bay Area who uses things like no interest loans just to combat the affordability problem. Will this come home to roost? Will it impact “prime” property? I don’t know.

    What I can’t reconcile is why volume is dropping off a cliff if everyone is making money hand-over-fist… It’s a mystery to me. Seems like volume would be growing, but I don’t know.

  12. Why volume is dropping — that’s interesting. I think if you look at it in one way you could say that volume is not dropping appreciably, and that is the following. We are a city of little houses and they just don’t cycle all that quickly, or orderly. For tier-1 properties in SF there is only a finite amount of them at any given time. And there has only been a finite amount at any given time. No more than three or four at a time during any month and half long sale cycle. Maybe six at the most. And that’s sort of where it is now, right? I’m talking about flawless properties in tier-1 areas only here. Because that’s the stuff that’s flying off the shelves right now.

    Yeah, Bayview took a big hit. I had a listing in Bayview for 599K that languished and was ultimately withdrawn. Why? Because there were 40 similar SFR’s on the market. Look at Noe right now. There are like two fixers. They’ll last two weeks. There are like three or four high end properties. Their pricepoints are speculative, but they’ll go. Look at Lower Pac Heights. There’s practically nothing.

  13. Hi Someone – There are actually many industries in finance that pay well over $500,000 if you have at least 6-8 years experience. Hedge Funds, Investment Banks, Venture Capitalists, and Private Equity.

    The bottom line is, if you meet practically ANYBODY in any one of these industries with at least 8 yrs experience (to be conservative), they are making over $500,000.

    At any rate, I look forward to an update on all these properties in several weeks time. And I look forward to any listings anybody has during 4Q before bonuses are paid.

  14. Found this great little niche through the wonders of Bing! I’m a very conservative investor myself and I’ve read a few of those investment banking books (mainly Liar’s Poker and The Big Short) – interesting stuff but I wouldn’t dare put my money into risky assets or junk bonds. Look what happened to Milken – off to prison! I’d really recommend reading up on this award-winning article written by Delos Chang about the S&P 500. It meshes really well with a Random Walk Down Wall Street and can really provide you some great guide for your investing career. Once again, I’m no day trader and I don’t have an informational advantage over anyone – but I sure as hell know I want to make a decent return with the money that I put into the market. With all the drug wars going on, who knows when it could disappear?

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