The Bottom Is Near Or Here

We have already made it clear that we are not calling a real estate rebound, and we’re certainly not calling the switch having been flipped, but we are telling you we’ve received multiple calls and emails regarding the prospects of us being at or near the bottom of this economic cycle. As soon as we get some of these articles sent to us, we’ll gladly post them. But for now, you’ll have to trust us. Believe it or not, when we get a call about the same thing from more than three people in different industries, we have to think there is some truth to the statement.

So what do you think? Did we hit bottom?

24 thoughts on “The Bottom Is Near Or Here”

  1. There are more seriously delinquent loans, foreclosures and REO’s now than anytime in the current crisis. No, we’ve not hit bottom.

  2. I don’t think we’ve hit the bottom of the market in San Francisco. I agree with mortgage analyst and raise him a still unstable financial system worldwide — that problem isn’t fixed yet, I don’t think we can have a bottom until the fundamentals are re-established.

    Rather, I do think we are all a bit bored of being worried. We want to be optimistic about the future AND if you look on the MSM and other blogs, the headlines are trying to instill some hope — AC360 is doing a week of “Road to Recovery”. And yesterday, CNBC’s website had “American Economy Finally Showing Signs of Recovery”.

    What may be recovering is a sense of hope or a desire to see an end to the economic fear.

  3. @ReallyAnExpert?

    You make a good point and that’s exactly what we need and what will likely turn this thing around. If you remember, the media was hammering the bad news into us daily and continues to do so. If they begin to spin the story the other way, more an more people will see the light at the end of the tunnel and maybe we’ll claw out of this mess. It seems to me sometimes like a lot of the commenters want the economy to keep sliding downward. I think it is in everybody’s best interest for it to turn around. The rest of the nation has hit an alltime low in terms of real estate values, sf probably won’t get that low, but cheering it on to keep sliding is detrimental to everyone. I want to see property values decrease too, so I might someday be able to buy, but i don’t want to lose my job before that day comes because the economy won’t recovery. It’s about time the media spun some good news. It’s exacly what we need to help recover.

  4. Very sorry to say, but all economic factors clearly indicate that values in SF have further to fall. Of course Realtors will continue to try and create demand by presenting skewed data, but I believe now San Franciscans know better.

    Wait till next year; we’ll get through this.

  5. I do believe we have hit the bottom of real estate market declines on a national scale. But, until the oversupply of inventory reduces and demand returns to the market, we’ll still be stagnant.

  6. Bottom of what? On a number of blogs, there seems to be a disconnect between those working in the real estate industry and their customers. I think that has to do with perspective.

    Customers (buyers and sellers) care about price. Buyers want to buy for as little as possible. Sellers want to sell for as much as possible. Although timing does play a role (e.g., I need to buy/sell by the end of next month), price is generally the most salient point. From the perspective of customers, the bottom is reached when prices have stopped falling.

    Real estate professionals, on the other hand, care more about volume. The higher the volume, the higher the number of transactions, commissions, etc. Although pricing does play a role (e.g., if I can sell for higher, my 1.5% cut is a little more), volume is the most salient point. From the perspective of professionals, the bottom is reached when sales volume has stopped falling.

    The end result seems to be two groups of people using the same words, but having different meanings.

  7. no where near bottom.
    this has been the biggest run up in real estate history.
    the fallout from this won’t last just a few months and then dissapear i SF.
    SF still has the bulk of its declines to come I believe.
    It’s going to be last in, last out, not last in, first out in my opinion.

  8. D,

    You make an interesting point about language. On the one hand, volume has clearly shifted up about 20 % YoY for the lowest priced sector. This was the real story behind that CBS 5 piece. However, they framed it like, “Hold The Phone. Stop The Presses. Hot Diggity. THE MARKET SHE’S BACK, BACK, BACK.” And it incensed people. It ticked off Adam Koval of Socketsite so badly he ran with it three times, and created two different charts from it.

    Because what preceded the run-up? A big time price shift. Those neighborhoods are down 10 to 20%, and individual properties even more. (The houses in the piece were not REO, REO’s are going to be down more.) So people are looking at that and saying, “Whoa. Wait a minute. This isn’t the true story. The true story is prices are down.”

    Both things are true. Fluff though it was the piece does get to that, albeit halfway through. After the anchorman set it up the way he did. After the graphics were created. After the lede by Hank Plante. Whatever. It was pretty much garbage. The interesting thing was the aftermath, and the underlying story about D-10’s market.

    So anyway, both right. But is this volume shift a beginning of a bottom? That’s the question. Somebody on another blog said that it’s the beginning of capitulation merely. Maybe it is that. Maybe it is not. Maybe the city is so variegated that it’s really hard to put a fine point on any of this. I’d argue that in a personal finance sense, these areas actually more expensive now. Folks are putting their own money, and 20 percent down, in the same areas that got ran up with funny money loans.

    I don’t know. My take is the following. (OK, and yeah I’m a real estate professional with a multi unit building in an area that some have deemed vulnerable, but not me.) My take is that 600K for the Exelcsior district is not going to have much downward pressure on 700-800 for the Sunset, is not going to exercise much pressure on 800-900 for Bernal, is not going to put do much to 900 to 1.1 for Glen Park, and so on. Because FHA and superconforming lending is likely going to prop all these up. The most vulnerable are going to be 1.5M to 2M, 3M+, and new condo developments. In my opinion.

    However, there are every day examples that challenge the notion of “capitulation.” It should be noted that simultaneous to all of this there are properties continuing to sell at peak levels in nearly every area. Every single area, and how can capitulation occur if something is nearly endemic?

    They are not 10 a day like the last few years. But they are occurring daily, and it wasn’t happening with the same frequency in November, December, or January. 140 Clarendon just went for $3M. 226 Fairmount went for 942.4, maybe like 5% off peak, maybe, but probably about what it would have been priced like four years ago. 4216 26th just went for 1.059M … that’s down 100K from list, but it’s a pretty small house too. I bet it sold at around ~900 a foot.

    So can “capitulation” be striated? Bears will say, no. Just sit back and wait. Bulls will say, yes, just look at Fortress SF’s performance over the last few years compared with nearly everywhere else. Time will tell, I guess. (Boy I wrote a whole lot just now to arrive at “time will tell.”)

  9. my theory is all this recovery talk is driven by better Spring weather — the stock market and the real estate market. The sun is coming out. It’s getting warmer. People are out from hibernation. Lazarus rises again. But watch out. April is still the cruelest month.

  10. I think there will always be a spring bounce,
    the question is, for a sign to the market, is whether it is a bigger or smaller bounce relative to past years.
    and of course, we are bouncing right off a truly awful winter here – it would be crazy to see just any spring bounce as a sign of recovery in my opinion.

  11. Fluj,

    I have to disagree about 4216 26th St. That is a 4 bedroom, 2 bath house–– not small for that price. Last summer 2/1 SFR of 900 to 1100 sq ft were still selling for over $1M. I can’t get on Property Shark to check the sq ft, but I’d say it is at least 1500 sq ft.

  12. i’m curious to hear how far some of you think real estate “still needs to fall” to get within this “more realistic price range for SF”?

    i’m also wondering when inflationary pressure will start to kick back in with all of the money that the federal reserve has been printing over the past several months.

  13. I think prices are down maybe 15-20% from peak now in SF. (real price declines). varying district by district, of course.
    I think at least another 15% is to come, probably more. more to come in districts which have seen the smaller declines to date.
    And I am talking real price declines – so inflationary pressures don’t really apply.

  14. Renter Again,

    You might be right. That lower master, which if memory serves is the addition to the tax records ~1000 sq ft, didn’t seem like 400 feet let alone 500 to me but it had been a while.

  15. “so inflationary pressures don’t really apply”. do you live in another dimension do the math?

    inflation is one of the main reasons why housing and other core goods have gone up in price over the past 30-40 years. i also think this is one of the strategies that the federal reserve is employing right now to help buoy the market. there’s a fantastic book that explains this…check it out:

  16. what i meant was that i am interested in how much the real price of things increases. so i would factor inflation out of this.
    if after this period of falling price, inflation hits 20% in a year when prices bounce back by 10% i would still consider that a real fall of 10% in house prices.

  17. dothemath. you’re absolutly right, but you also need to factor inflation in the past when you sell, and compare to some index like S&P.
    You also need to factor the ratio of downpayment and mortgage etc etc.

    if inflation is 20% a year, prices bounce back 10%, and S&P falls 16%. Is the price of the house a loss of 10%, or a better investment of your downpayment of 6%?
    (and vice versa: the stok we sold to pay for our house fell 60% while our equity in the house fell only [whatever number you want here, but not 60% not in SF])

    It’s VERY IMPORTANT to do the math inside-out. But cold calculation won’t help you take a risk. It will only help you choose the “risk you can live with”.

  18. The agent for 4216 26th St told me that the 2nd story was added in an 80’s remodel. That seems to mesh with the 80’s facade. Property Shark still lists the property as a one-story 2/1, but it is now a two-story 4/2. I don’t know if all permitted work makes it into Property Shark, but I haven’t found the actual sq ft anywhere. (Even on Zillow, where the property info was updated, but the new sq ft was not given.)

    Sigh–– the lack of sq ft always makes it a bit difficult to categorize a sale. IMO, the buyers got a good deal (for right now) for a house this size. I personally do not think this is the bottom, though. Prices have *just* started to drop in D5, and I think there is more dropping to go.

  19. Sophie,
    a real return reduces the nominal return by inflation, not the S&P index.
    so the house would have fallen by 10% in real terms.
    and, as i have pointed out before, it’s true no sf house has fallen by 60%- but many people’s investments in houses in sf has fallen by 60% – and sometimes by 100% – any foreclosure (and we do have them in sf) represents a fall in investment of…100%.
    i think around 1 in 7 or so sales in sf right now is a a foreclosure. so 1 in 7 sales right now represent circumstances where the individuals investment in the house has fellen by 100%.

  20. San Francisco is just on the tail end of what everyone else has been through and is going through. To say that SF is at the bottom is laughable.

    Anyone who makes on offer on a property at this point should be offering at least 10 percent or MORE below asking price and that’s IF they even want to consider making an offer.

    SF has a ways to go… BUYERS should wait….

    [Editor's Note: Exactly what we suggested...make an offer below asking if that's what you think is right. $4m-3.125=~22% below asking. $800k-$700k=12.5%. Don't wait for prices to fall, make them fall and get in while rates are low.]

  21. no real estate bottom, because the loan environment is a tricky thing. But possibly an economic bottom, which would be fabulous for everyone. If this is the overall economic bottom, expect an uptick apparent to us all by Q1 of next year.

  22. Right, offers that are 22% under asking are getting snapped up like candy from a baby right here in San Francisco… That may be what the Editor wants you to think but it just isn’t the case. And with the major market indices rebounding more than 15% in the past few weeks, trillions of dollars have been returned to the portoflios and retirement funds of most (who didn’t cut and run).
    No one knows exactly where the bottom is until well after the fact but one thing is for sure; if we keep seeing the markets improve and if the economic indicators and new turn positive, as they were this week, it will only be a matter of time before we see a major recovery. Not exactly what you want if you are still stuck on the sidelines while opportuity passes you by…

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