Weekly Fluj: “Everybody’s Redheaded Stepchild”…the Sunset

As you know by now, we caught the Fluj, and those of you that are familiar with his opinionated writing about San Francisco real estate know that he is nothing short of extraordinarily gifted at firing people up, not to mention a wizard with MLS and various other stats to support his arguments about San Francisco’s resilience in this time of national doom and gloom.

So let’s see how it goes today:

I would like to show the surprising relative strength of the Sunset market [not the Sunset Super]. It seems to be everybody’s redheaded stepchild, you know? But it isn’t exactly tanking, is it?

-Fluj

We would have to agree with “the Fluj” on this one, but we’ll leave it to y’all to debate.

19 thoughts on “Weekly Fluj: “Everybody’s Redheaded Stepchild”…the Sunset”

  1. Here’s what I found, YoY, o Y, o Y, um, o Y.

    2008: 1/1/8 – 5/14/8: 133 sales, $574 psqft, ~878K SP, 41 DOM, ~871K LP

    2007: 1/1/8 – 5/14/8: 148 sales, $589 psqft, ~900K SP, 42 DOM, ~868K LP

    2006: 1/1/8 – 5/14/8: 163 sales, $580 psqft, ~825K SP, 35 DOM, ~797K LP

    2005: 1/1/8 – 5/14/8: 176 sales, $588 psqft, ~867K SP, 27 DOM, ~774K LP

    2004: 1/1/8 – 5/14/8: 187 sales, $504 psqft, ~717K SP, 23 DOM, ~648K LP

    I used SFRs only and all of areas 2. Why? Because if any neighborhood in the city is composed of SFRs it areas 2, the greater Sunset. I have to say that this surprised me. Reading R.E. blogs one would assume that the Sunset is getting absolutely creamed.

    Granted, more properties are getting withdrawn these days. But it is sales that we discuss. And there were only 15 fewer sales so far this year than last year? An average of 53K more per sale than 2006, this year? 11K more than 2005? One day less DOM than last year?

    (Remember, at this point in time last year all the bears in r.e. cyberspace were also talking about how the Sunset is tanking, about how DOM is manipulated, and about how many properties were languishing. It was the exact same story in May of 2007.)

    Well, they’re wrong. What we see here is subtle change. A generally slow decline in volume, yes, but since 2004. That’s well before the avowed highwater mark. Nowadays people are not clamoring to overbid. The price point is now nearly what the sales point is. And the list price has continually ticked higher. It is now higher than it has ever been. Most sellers are pricing at what they want to get now, it would seem. (We have seen that the underpricing technique is still being used for the better properties and for probates, however.)

    In a nutshell, volume has ticked down as price point has ticked up. That makes a lot of sense I think.

    But what do you think?

  2. My belief is that we are seeing more and more people going for ‘value’ in properties. The wealthy are picking up the pristine llistings and the thrifty are buying the best house they can afford in san francisco. For many, that is Sunset and other less than prime SF locations. Prices are not wavering us much as we “bitter renters” would like and families that ‘need to buy’ are spending their money wisely.

  3. Is there any demographic data, like ethnicity, of buyers in the greater sunset area? Also data on how many purchases are financed with regular loans instead of funny loans?

    My read, at the risk of sounding stereotypical, is that SFRs in sunset is popular with a certain demographics that are generally recession proof, financially conservative, tend to appreciate value, and generally comfortable buying in that area. The shortage of good inventory in that area balanced by a ready set of buyers who are comfortable to buy in that area and financially ready to buy may have created this ‘micro climate’ in the sunset that fluj was talking about.

    … I mean, I am just sayin’ :)

  4. Why on Earth would anybody buy in the Sunset? Haven’t we learned that location and originality and lifestyle is tantamount? I would just save for 2-3 more years to buy in Russian Hill/Pac Heights etc than live in the Sunset!

  5. ResortAtSquawCreek, do you have kids? Ever plan to have them? Want a yard you can send them out to, or a level street they can ride bikes/scooters on?

    That’s why people buy in the Sunset and the Outer Richmond (says the Outer Richmond homeowner with 3 kids under 10). I LOVE that I live near the beach and the park, can park fairly easily, and don’t have to save up $200-500K for a RH/PH house whose property taxes I could never afford.

    Despite what you hear, there are families galore who would LOVE to stay in the City. We’ll buy where we can afford, and where we can have certain amenities for our kids. Plus, in the hot weather, I can still sleep on falnnel sheets!

    [Editor’s note: If I could put that little Chronicle movie review guy who stands out of his seat and applauds right here I would. Well said.]

  6. ResortAtSquawCreek,

    Sunset and Richmond has parks, beach, commerce (Irvine, Taraval, Clement, Geary), easy parking, and easy commute to the SV (just take Sunset Blvd instead of 19th).

    If it wasn’t for the fog and wind, they would be the best location in SF.

    And another thing – to raise a family, a basement is almost necessary, to keep all the kids stuff which you don’t use but may still want one day, to keep family supplies etc. Condos are OK for DINKS, but once you have kids, stuff piles up and you run out of storage quickly.

  7. Maybe we are looking at different numbers.

    I see non stop decline in volume. Just about 30% of decline over 4 years.

    Even worse, the rate of decline is increasing:

    2004-2005: 5% less

    2005-2006: 7% less

    2006-2007: 9% less

    2007-2008: 10% less

    $PSF doesn’t tell us much. Adding a bedroom, opening a kitchen, etc. can change the value tremendously without neccesarily changing the square footage. There’s just too much “flip this house” going on over the past couple years to get any true sense of apples to apples. Even one or two major remodels (and I’m sure there were more then that!) can throw these stats way out of whack with a sample set of just 133 houses. Are people paying more for houses, or paying more for stainless steel appliances, recessed lighting, new floors, new kitchen, etc.? It’s like the condos maintaining their comps by throwing in a car and free mortgage for a year in the deal.

    DOM we already know is highly manipulated. Still, even with manipulation, we see a steady climb upwards: it’s nearly doubled from 2004-2008.

    The increase from list price to selling price is the tightest it’s ever been:

    2004: 10%

    2005: 12%

    2006: 3.5%

    2007: 3.6%

    2008: .08%

    Finally, as for the price itself, I think it’s the nice properties that actually sell that are keeping the median artificially high. It’s an illusion and you can’t drink from it any more then an oasis in the sahara.

    I’ve explained this countless times, but I’ll try again: prices can go down substantially across the board, sales volume can go down across the board, and yet median can still go up! It’s a mathemetical quirk. In the face of declining volume, it’s meaningless.

    See this phennomena explained in detail here: http://submedian.blogspot.com/2007/11/what-hell-is-median-and-why-should-i.html

    Yep, I don’t see the same “strength” you do at all, and when I actually look at what’s selling in the lower end, we are seeing plenty of evidence that homes are selling for 2004/2005 prices and falling. Homes that are priced more are becoming stale fish.

  8. Missionite,

    People who bought in 2003 flipped in 2004. People who bought in 2004 flipped in 2005, and so on. It is a SF constant, and it permeates all years I’ve shown. The only way $psqft “doesn’t show much” would be if one year had flips and another didn’t. That’s farcical. San Francisco has long been known as “Carpenter’s Paradise.” This will continue. Don’t think for a second that HGTV and the like made everyone hip to flipping in 2005. It was and is ongoing.

    Some of your points were already made, by me. Yeah, there’s a steady decline in volume. But it ties to a steady increase in price.

    To your four year volume point, look at 2004. The next year saw an enormous leap in price. Price went up in 2005 and it never really came down.

    Difference between list price and sell price is slight, true. And LP is at an all time high. Can we not deduce that folks are now setting prices at their hoped for numbers?

    To your last point, I’m sorry, but no. 133 sales is 133 sales. We are not talking about stalefish. We are talking about whether something is “tanking.”

    I’m using average, not median. We have all read about mix by now whether we understand it or not. That said, the swing between high dollar amount and low dollar amount is significantly less pronounced in the Sunset than in other areas.

  9. By the way, two more properties sold yesterday afternoon. So 2008 to 5/15 is now 135, 575, 878, 4, 569.

    To the point that homes are selling at 2004/2005 prices and falling, I set a cutoff at 700K.

    2008 has seen 24/135 sub 700K sales, 2007 18/148, 2006 22/163, 2005 15/176, and 2004 94/187.

    So no, that’s not fair to say. 2004 was its own animal entirely and very distinct from 2005-2008 in all ways. The number of sub 700K sales so far this year looks most similar to 2006.

  10. its not that amazing that everyone likes to talk his book. fluj sells houses; others try to talk the market down. the difference is fluj is actively succeeding while the bears are active but without success.

    if the conventional wisdom is correct (real estate is crashing!) then you would expect it to be easier to buy something cheap. and even though crappy condos in soma grand are falling in price they are still going for close to a half million bucks…which is not cheap.

    so my question is this- are the bears actually potential buyers or just pundits? i would think buyers would be telling stories about lowball offers and success with that…

  11. “To your four year volume point, look at 2004. The next year saw an enormous leap in price. Price went up in 2005 and it never really came down.”

    OK, so we would expect to see a drop in volume in 2005, and then a leveling off in volume. Instead the volume keeps dropping. What’s happening? Do you have any theories?

    Another point: without upgrades we would expect to see the PSF rise as the value of the homes rise. If a 1000 sq ft home sells for $500k, then that’s 500 per square foot. If the same home sells for $750k, then we are at $750k per sq foot. But the PSF is not keeping up: between the lowest priced year in your sample (2004) and your highest priced year (2007) we saw prices increase 25%, but the price per square foot only increased 16%.

    2008 has seen 24/135 sub 700K sales, 2007 18/148, 2006 22/163, 2005 15/176, and 2004 94/187.

    So no, that’s not fair to say. 2004 was its own animal entirely and very distinct from 2005-2008 in all ways. The number of sub 700K sales so far this year looks most similar to 2006.

    Sub 700 homes represented as a percentages of sales:

    2004: 50%

    2005: 8%

    2006: 13%

    2007: 12%

    2008: 17%

    So, according to your figures, we are seeing a greater percentage of homes sell below $700k then anytime since 2004.

    But where I get my “SFH in the Sunset returning to 2004/2005 prices” is by simply looking at the list prices of homes in 2004 selling for less then $800k, which I did here.

    Here’s the key quote:

    “Among homes showing a prior sale price, anybody selling a Sunset home purchased within the past five years is showing negative appreciation.”

    Paco to answer your question, assuming you are thinking I’m a bear and assuming I was one of the people you were referring to, I am not only a potential buyer, I wrote an offer last week (it was a foreclosure, I didn’t get it, I actually lost out to a *lower* bidder thanks to an outstanding counteroffer from the bank….) .

    Anyways, I’m not trying to spin the data, or be a “bear” and sell anybody on anything one way or the other. I don’t want to even buy in the Sunset, I’m looking in the North Bay right now (school district reasons). Nor am I saying the market is “tanking”” in the Sunset.

    I’m just saying “strength” is not a word I would use to describe the market in the Sunset right now, or at least that’s what I am getting from the data. Your mileage may vary.

  12. What I notice is that condos in sunset that are asking 800K-900K (move-in-ready condition) are not moving. Why would anybody want to buy a condo for that price when you can get a single family home?

    The thing that I can’t understand is, why would these condos price at almost $650/sqft when SFRs are priced at around $570/sqft?

  13. Missionite,

    You said, “OK, so we would expect to see a drop in volume in 2005, and then a leveling off in volume. Instead the volume keeps dropping. What’s happening? Do you have any theories?”

    Yeah, I do. List price has continued to climb. This has given buyers pause.

    I picked 700 because obviously lots of houses were to be had sub 700 back in 2004. (And somehow sub 700K seems to scream “great deal” in this town.)

    But as to sub 700 … another one sold yesterday, 1986 31st Avenue. It sold for under asking. The property actually started at 685K, was reduced two weeks later to 665K, and got into contract within two weeks. It sold for 650K. It’s sort of typical. 1040 sq ft plus probably another 150-200 in an unwarranted 1br 1 ba down, and it needs updating throughout.

    So that’s 650K for a cosmetic fixer, pretty deep in the Sunset, 31st and Pacheco.

    Let’s bear that in mind and look at 2004. The 65 properties sold for under 650K in ’04 average 1140 square feet … that’s 100 feet larger, and you know, most houses out there do have some sort of extra space down as well. Whether it’s a larger garage or some sort of apartment or what have you that’s a pretty standard Sunset house feature.

    Anyway, I said “relative strength.” Not to seize on one property too much but 31st and Pacheco for 650K and sweat equity needed — that’s sort of a typical deal these days. And it ain’t cheap.

  14. those who know the sunset understand that 46th and ulloa is one thing,

    8th and kirkham is another.It has been tested and proved in the down

    markets that started in 1972,1979,1989 and 2005: You need a shotgun to

    sell that lo-quality trash west of 37th avenue.

  15. and proved in the down

    markets that started in 1972,1979,1989 and 2005

    Mate … I question that. For real. From where I’m sitting the outer Sunset has kinda done its own thing. Great Highway 48th Ave on to like 45th or so. At some point in the last few that has become more desirable. (Ducks head explosions occur.)

    Sorry mate. I don’t know why. My own theory is down to surfing … the internet has made surfing accessible and it wasn’t before. Man. hate if you want. That’s my take. But do not tell me the outer Sunset has gotten cheaper. Because every single person who lives there will tell you that’s a lie.

  16. my own theory is down to surfing.

    I think the abundance of halfway houses and slackers (w/ no money) at

    the beach has kept Outer Sunset prices low. Oh and there is the poor

    quality construction and the weather that corrodes metal in a few days.

    do not tell me sunset has gotten cheaper. Ok, I won’t. June,’05 $800,000

    May, “08 $625,000.

  17. Halfway houses and slackers? I agree with some of your points, some I do not. And I could throw a few numbers out too if I wanted. In fact, I already have.

  18. Living in the outer sunset off of OB is also about a lifestyle choice too. I would say that surfing is a big part of that, but Ocean Beach is also a great place for those who generally enjoy the outdoors. GG Park, the SF Zoo, Fort Funston and Fort Miley are all relatively close for folks to enjoy. It’s not for everyone, but there are enough people in a city of 800,000+ residents who seek this kind of life style. Contrary to popular belief, many of these people are productive human beings who do well financially. They work hard and want to enjoy some of the simple things in life such as a great south swell or the ability to watch the sun set on the pacific from their living room window. We have a few MD’s, a few financial services guys, some techies and a few entrepeneurs who live on our block. All of them are very mellow and share the common interest of wanting to “have a life” outside of work.

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