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Will Stock Market Panic Humble San Francisco Real Estate

The stock market has gone crazy in the last couple of days, but does it have any significance to the San Francisco real estate market? I’d like to share with you this interesting analysis from our marketing analyst. He doesn’t profess to be a Nobel Laureate in Economics, so take this analysis for what it’s worth – one point of view based on one assessment of the data (that he crunches all day every day).

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Housing prices typically don’t react at all to short term ups and downs in the stock market, though depending on how dramatic they are, they can temporarily slow activity as buyers wait to see if something really serious, with long-term ramifications, is developing. It is generally the more affluent who step back and wait, since 1) they have much more wealth in financial investments (stocks), and 2) they’re much more tuned into financial market movements. Housing prices are not a liquid bid-ask market – we sell small numbers of relatively unique homes in San Francisco, not millions of uniform shares of stock – and sellers always react more slowly to economic downturns since they don’t want to reduce prices if they don’t have to, and no one can make them sell. Also, of course, there’s a built-in delay in sales between offer negotiations and closed transactions, so it takes a while for price movements to clarify.

Generally, all market segments react to big, sustained, macro-economic events as can be seen in the 3 S&P Case-Shiller charts below for the low, mid an high-priced tiers of the Bay Area home markets. However, it is interesting that when the dotcom bubble burst, only the mid and high price tiers’ home prices were affected (and then, briefly), and the high-priced tier was impacted more than the mid-tier. The buyers in the high tier were much more affected in their wealth by the crash in the Nasdaq, especially in the Bay Area, and the most affluent buyers drew back the most as they waited to assess the shake out.

For what it’s worth, in the last cycle, our more expensive SF neighborhoods were the last to peak in value in early 2008, and the first to recover in late 2011/early 2012. San Francisco was generally much less impacted by the bubble’s crash than the rest of the Bay Area, state and the country, though some neighborhoods were more affected than others. Generally speaking, San Francisco’s housing market has since appreciated well beyond its previous peak values.

In the last bubble and recession, lower priced homes surged much higher and crashed much more dramatically than higher priced ones, but that was not because of the stock market, but because of the subprime loan situation which led to massive foreclosures in the lower end (with buyers who couldn’t afford the home they were buying in the first place). Subprime lending played a very small part in higher priced home purchases (which dominate in San Francisco), whose buyers also tended to be more financially savvy (and weren’t targeted by predatory loan brokers and generally didn’t buy homes they couldn’t afford).

I’ll start out with our updated chart on the S&P 500 so one can compare the stock market to the various Case-Shiller Index Bay Area home price tiers. Again, different price tiers had bubbles and crashes of different magnitude due to the subprime financing (and refinancing) fiasco. And please note that while the latest stock market decline is indicated, other short-term fluctuations will not show up in year to year figures.

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It’s interesting to note that all 3 Bay Area housing price tiers, according to Case-Shiller, are now showing a uniform 117% appreciation rate since year 2000.

This chart below tracks the appreciation that has occurred in the high-price-tier market – which most of San Francisco’s housing is in – since the recover began in 2012.

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There you go. A little bit of insight to get you through the next dinner table discussion.

1471 McAllister

Millennials – Listen Up – Go To College – Buy A House

A College Degree is Key for Millennial Homeownership in the San Francisco Bay Area, say my friends at Trulia. They just shared this with me (after a few edits to my liking), so I’m sharing it with you.

To go to college, or not? This is one question many millennials ask themselves. For households between 25 – 30 years of age who want to live in California’s major metros the answer is GO! A recent Trulia study found, it takes almost 20 years for degreed millennials to save the 20% down payment in San Jose, Los Angeles, Orange County and San Diego. For millennials without a degree, they need to save for decades. In San Jose, the amount of time is 45 years.

The landscape in San Francisco is daunting even with a degree. It takes a whopping 29.5 years with a degree and without it is 50+ years.

downpayment

Where Saving For a 20% Down Payment Takes Decades

With College Degree Without a College Degree
# U.S. Metro Years Needed to Save for Down Payment Required Down Payment at time of purchase U.S. Metro Years Needed to Save for Down Payment Required Down Payment at time of purchase
1 San Francisco, CA 29.4 $560,590 San Francisco, CA Not Possible N/A
2 Los Angeles, CA 18.8 $196,616 San Jose, CA 45.4 $665,508
3 Orange County, CA 18.5 $235,959 Los Angeles, CA 39.9 $353,270
4 San Diego, CA 17.7 $192,081 Orange County, CA 32.3 $347,842
5 San Jose, CA 17.7 $289,072 San Diego, CA 29.0 $262,589
6 Honolulu, HI 16.0 $165,588 Oakland, CA 27.3 $267,605
7 Oakland, CA 15.6 $193,453 Ventura County, CA 22.9 $230,929
8 Ventura County, CA 15.5 $189,325 New York, NY 20.2 $149,905
9 Denver, CO 14.3 $125,314 Fairfield County, CT 20.1 $185,494
10 Cape CoralFort Myers, FL 13.3 $74,130 Honolulu, HI 18.0 $173,574

In the study of 250 major metropolitan areas California swept the top 5 spots for number of years to save for a 20% down payment (Honolulu, HI was 6th, Oakland was 7th & Ventura County was 8th).

San Francisco tops the list, requiring 29.4 years with a college degree and 50+ years without it. Los Angeles comes in second, requiring 18.8 years with a college degree and 39.9 years without. San Jose and San Diego are not far behind, requiring 17.7 years with a college degree, but it takes much longer without a college degree for San Jose (45.4 years) than San Diego (29 years). The numbers for Orange County is 18.5 years with a college degree and 32.3 without.
Source: http://www.trulia.com/trends/2015/07/millennial-down-payment

What are Bay Area millennials to do? Consider a 10% down payment. Saving for the down payment can be done in less than half the time. How is this possible? Because price appreciation outpaces income growth for this group. Millennials without a college degree in San Francisco will actually be able to save a 10% down payment in 28.5 years, compared to not being able to save for a 20% down payment ever. San Francisco millennials with college degrees are able to attain a 10% down payment in 13.7 years, compared to 29.4 years for a 20% down payment.

In other Bay Area metros, the time to save for a down payment is significantly less as well. The time plummets from 45.4 years to just 15.4 years for San Jose millennials without a degree and with a degree it drops from 17.7 to 9.3 years. In Oakland, millennials without a degree the time needed to save goes from 27.3 to 11.3 years and with a degree it drops from 15.6 to 8.8 years.

In summary, a degree will get Bay Area millennials into a home by their forties if they opt for a 20% down payment. By choosing a 10% down payment both the degreed and non-degreed can enjoy the benefits of homeownership considerably sooner.

When you are ready to buy, browse Trulia all you want for the perfect home, but hire a professional, like me, to help you win.

Should You Rent Or Buy | San Francisco

The debate will go on and on forever, should you rent or buy. Thankfully, some really, really smart people at the New York Times have updated their amazingly interactive Rent versus Buy calculator to help you with your decision, or confuse you just a little bit more.
rentorbuy

Following on the heels of our Mid Year Market Report we posted yesterday, I thought it time again to share this, especially since you now have some pretty telling appreciation percentages to plug into the calculator.

As for my two cents…Having lived in San Francisco for almost two decades now, and not bought at the very first chance I had, and having experienced multiple booms and busts in our market, I can still tell you San Francisco is a place to buy. Ideally, buy and hold.

I know most of you are thinking, “Well sure, you sell real estate, so of course you’re going to tell me to buy”, but that’s not true. As many of my clients will attest, I am probably the least pushy agent in the entire state of California, but I make deals happen for those that are ready. What is true, are the many multiples of stories I personally have, and those of my clients that when averaged out amount to an overwhelming majority of “wins” for those that bought as soon as they could, versus those that waited or dragged their feet, or decided not to buy at all.

Sure, some bought at the last peak and were forced to sell during the bust, but those are the rare “had to sell” clients that were transferred because of jobs or other life events that forced them to leave the city at a specific time. Even those clients that had to sell had the luxury of enjoying their own home while they lived in it, and that isn’t something to overlook. The luxury of remodeling a kitchen or bathrooms. The luxury of adding a story, or room. The luxury of redoing floors, knocking down walls, changing cabinets, lighting, paint without asking permission from your landlord.

Other clients that might have otherwise been forced to sell were able to hold on and rent their property out during the bust, because rents are so high. They held on until the next boom, and then sold. Some even cashing out and buying their next home outside of San Francisco all cash with plenty of money left over in the bank.

The long and short of it is this, if you can buy, buy. If you can’t yet, save up until you can, and then look at the bigger (longer term) picture, and make your decision accordingly. If you plan on calling San Francisco your home for many years to come (why wouldn’t you), it is the wise thing to do.

On the other end of the spectrum, if you’ve been wondering when a good time to sell might be, the answer is now. Our market is hotter than it’s ever been, and at some point it will dip. It will come back, but it will dip. Sell now while there is zero inventory, get out on top, let a desperate buyer have your home here, and go buy an island somewhere tropical. Or buy acres and acres of land in Idaho with a creek running through it loaded with fish. Just make sure I get a key to wherever it is you go.

Enjoy your weekend!

As always, The Goods have been updated today with all the best Overbids, Underbids, New Listings, and Recent Sales in San Francisco, so check it out. Get on sfnewsletter.com to have it delivered to you (somewhat) regularly via email.

Contact me if you or anyone you know is looking to buy or sell Bay Area real estate, and get outside and enjoy!

Aloha…

Get The Goods, San Francisco Real Estate Porn [sfnewsletter.com]
San Francisco Top Overbids [Alexander Clark]
Fellow Agents…Real Estate Porn for your Peeps [The Goods SF]

Buy Now or Suffer 8,000 Consequences?

Today I got this email from a friendly neighborhood Realtor:

Hello everyone,

I wanted to send out a friendly reminder about the deadline to take advantage of the first time home buyer tax credit.  The tax credit expires on Novemeber 30th, 2009.  However, assuming a 45 day escrow period from the time you buy to the time you close and get the keys, you would need to find a house, negotiate a purchase price, and have mutual acceptance by October 15th to take advantage. There are some income restrictions, it must be for your primary residence, and you must not have owned a home in the last 3 years.  If you or anyone you know would like more information about the tax credit, please email me and I will follow up.

Arg! Less than a month to find a house and close escrow?

On the other hand, I heard a rumor that this tax credit may be extended. Hard to imagine we have the money to do so in this country, but still, that’s the gossip from my broker. Nick Timiraos of the WSJ blog writes:

Not only are some legislators (and real-estate industry lobbyists) already pushing hard for an extension of the tax credit, which will expire Nov. 30, but they’re also arguing that it should be increased, to $15,000, and expanded to all buyers, and not just those who are first-timers. The current $8,000 tax credit emerged in the stimulus legislation that Congress passed in February, replacing an existing $7,500 credit that had to be repaid over 15 years.

The questions are not just whether the country has this money available, but whether other issues, such as health care, will push the homebuyer’s plight to the back burner.

In the meantime, we first-time buyers have about a week to buy our homes, people. No pressure.

Generous Uncle Sam, Via Coldwell Banker

“Unexpected Jump In Home Sales in February”

Unexpected Jump in Home Sales in February:

-Sales of existing homes rose from January to February in an unexpected lift for the slumping housing market as buyers took advantage of deep discounts on foreclosures.

The National Association of Realtors said Monday that sales of existing homes increased 5.1 percent to an annual rate of 4.72 million last month, from 4.49 million units in January. It was the largest sales jump since July 2003.

-That was great news for buyers, who are paying the most attractive prices in years. Plus, interest rates have sunk to historic lows.

You’ll have to click through to the article to read the fine print. ;-) Regardless, it’s good to see a positive spin in the national media instead of the oh so beaten dead horse that is the negative.

Daily Depression: “Bank Stocks Sink On Renewed Worries”

From the San Francisco Business Times:

Investors’ growing nervousness about the depths of the banking crisis hit shares of major banks that were seen as weathering the financial storm better than most.

San Francisco-based Wells Fargo (NYSE:WFC) saw its shares hit a new 52-week low, closing at $13.69, down $2.07 or 13 percent.

U.S. Bank (NYSE:USB), with a large Bay Area branch network, also hit a new 52-week low, closing at $10.73, down $1.67 or 13.5 percent.

J.P. Morgan Chase (NYSE:JPM) closed at $21.65, down $3.04 or 12 percent.

Bank of America (NYSE:BAC) closed at $4.90, down $0.67 or 12 percent.

Citigroup (NYSE:C) closed at $3.06, down $0.43 or 12 percent.

The declines reflect growing concern on Wall Street that the economic downturn may worsen even further than previously expected. The nation’s financial system could be swamped by cascading bad debts from credit cards and auto loans to commmercial real estate mortgages as the recession deepens and unemployment rises.

Adding to the day’s worries was General Motors (NYSE: GM) and Chrysler going back with hat in hand to Washington, D.C., seeking billions more from the government. Also not helping matters was the worst showing for the Japanese economy in 35 years in the fourth quarter and concern that the U.S. federal stimulus package might not be enough to spur growth here at home.

Word from Moody’s Investors Service (NYSE: MCO) that some Central and Eastern European countries “have now entered a deep and long economic downturn” sparked concerns about the outlook for European banks with heavy exposure to countries such as Poland, Hungary and the Czech Republic.

At least the sun is supposed to come out tomorrow…

Bank stock sink on renewed worries -SF Business Times

Can California Keep Her Bling?

 

I used to look at houses in Portland, OR like this 2/2 SFH in one of the most gorgeous neighborhoods, Sellwood, listed at $440K.

And then I would look for somthing similar in SF. And then I would need a very large martini. We all know, even after the martini, that a comparable home is SF (in a comparable lovely neighborhood) would go for twice or three times that price.

Experts in the field offer myriad explanations: SF has limited homes, limited land, high demand, good jobs, California property is worth more… etc., etc.

I am curious though how many of those factors still exist, or can continue to exist as the economic climate changes.

The Chron estimates that Bay Area homes lost $202 billion in value in 2008. Agreed, the Bay Area includes areas much harder hit by the slump than SF, but SF is not impervious to these problems. Maybe they aren’t horrible yet, but conditions aren’t as crazy-good as they used to be (right? We can agree on that at least?); could they get worse?

It seems that California itself is losing value. The S & P has already lowered her credit rating , tying her with Louisiana,  and may lower this rating again if the budget crisis can’t be solved– a phenomenon we have no real optimism to witness, unless we relish our tax refunds being issued as IOUs as part of the solution. From the LA Times:

“Should the state not enact timely midyear budget gap closing measures by February 2009, or should the state’s cash position weaken significantly compared with recently revised state cash flow projections,” the rating firm warns, the ratings on California’s long-term debt could be lowered, S&P said.

That could drive more investors away from California bonds, forcing the state to pay higher interest rates to borrow. Municipal bond yields in California and elsewhere have been surging in recent weeks as state budget troubles have deepened.

As for the prospect of borrowing to plug budget gaps, S&P warned that without “meaningful budget adjustments on the revenue or expenditure side,” California may face “constrained investor appetite” for its short-term notes.

In the meantime, Prop 13, once meant to protect the housing consumer, is now a very big part of the problem.

So my question is, can Californians expect to see deals like those in Portland, OR anytime in the near future in San Francisco? (And I pick Portland for its many similarities, physically and politically, to SF.) Ironically, though this would be a nightmare to some people, it would be a dream come true to the vast majority of renters who are currently priced out.  And if this untapped pool of buyers could actually buy, well…  we’d see that scary-good rush to buy again, like before the dot.com and current economy bust when people offered children and unneeded organs along with 50% over asking— but with distinctly post-bust differences.

U.S. Pending Home Sales Up 6.3%

Some good news in an otherwise gloomy picture:

The number of new sales contracts on existing homes jumped a seasonally adjusted 6.3% in December as buyers took advantage of lower mortgage rates and falling prices, a real estate trade group said Tuesday.The pending home sales index rose 6.3% in December and is now up 2.1% compared with a year earlier, the National Association of Realtors said. The increase points to a healthy gain in existing-home sales in January and February. The index is based on signed sales contracts, which usually occur a month or two before the sale is closed, when sales are reported in the NAR’s existing-home sales report.

U.S. Pending Home Sales Up 6.3%: Realtors Say [MarketWatch]

Obama Says: Go Buy A House (In So Many Words)

We’re going to take the liberty of pulling a few quotes from this recent New York Times article about President-elect Obama’s call to action and urge our fellow San Franciscans to go out and buy a house.

-‘I don’t believe it’s too late to change course, but it will be if we don’t take dramatic action as soon as possible,’ Mr. Obama plans to say, according to advance excerpts of the text released by his office. ‘If nothing is done, this recession could linger for years. The unemployment rate could reach double digits.’

-Mr. Obama’s message is stark, warning not just of short-term pain from a recession that is already the longest in a quarter-century, but also of deep and systemic longer-term costs that could threaten American economic leadership if too little is done.

‘We could lose a generation of potential and promise, as more young Americans are forced to forgo dreams of college or the chance to train for the jobs of the future,’ Mr. Obama plans to say. ‘And our nation could lose the competitive edge that has served as a foundation for our strength and standing in the world.’

‘In short, a bad situation could become dramatically worse.’

-‘For every day we wait or point fingers or drag our feet, more Americans will lose their jobs,’ Mr. Obama plans to warn in his speech. ‘More families will lose their savings. More dreams will be deferred and denied.’

…and as one of our frequent commenters will surely say, “More 40 year old renters will become 41 year old renters, and rents keep going up!”

Take a stand. Buy a house!

[Editor’s Note: There is sarcasm in our post. We understand it may not be a good time for you to buy, but it is a good time to be a buyer (assuming financial stability in your household).]

Predictions for ’09 Reveal There Are No Experts

zoltar-1
So, one hell of an ugly year is coming to a close. As usual, this event cues panels of “leaders” in various fields to opine about the coming 365 days. What will become of Tom and Katie? Will Cher remove another rib? Will the Celtics top the NBA again?

These days the doings of celebrities and (forgive me, Celtics) national sports are no longer as relevant as the economy, however. Luckily America has myriad experts on this last issue, and we need only to look at current conditions, both in California and the country as a whole, to judge these specialists’ true qualifications– or rather, lack thereof.

No one should be surprised then that as newspapers and blogs roll out the obligatory predictions  for ’09 articles, no consensus can be found. For instance, USA Today (that rag!) predicts a ray of sunshine:

“It may come as a surprise, given all the bad news of late, but the U.S. economy is expected to emerge from the recession sometime around mid-2009.” We’ll have some bad times, yes. “However, once the massive amount of fiscal stimulus currently being crafted by lawmakers and aggressive action by the Federal Reserve kicks in, the economy is expected to improve, according to several economists and business owners.”

Meanwhile, John Cassidy of Conde Nast’s “Portfolio” writes “Most economists predict a recovery late next year. Don’t bet on it.”  He’s not the only one who predicts bad times ahead for housing, jobs, retail, and even the entire world economy. Every media outlet– from the San Francisco Chronicle to the BBC online to the cheapest weekly you find on the street corner– has predictions; some are rosier and some are darker. In short, no one knows.

Still, an interesting point that Cassidy makes deserves attention. He writes:

Among noneconomists, there is much more concern about what lies ahead. In October, a CNN poll found that 59 percent of Americans believe another 1930s-style depression is very or somewhat likely. Dismissing feel-good suggestions that the turmoil on Wall Street won’t have much impact on the rest of the economy, 55 percent of the respondents said the financial crisis would affect them personally within the next year. A separate poll for Condé Nast Portfolio shows that people working in the finance business are even gloomier: 77 percent of them say their industry is in a state of crisis, and 50 percent say the economy is the worst it has been in their careers.

So who are we to believe: the experts who failed to predict the current crisis or the great American public?

Indeed, what do you predict, public? Time to go on record now. Clearly, we need some actual experts.

Zoltar photo via TheGreenHead (also a source of 2009 predictions!)