Keep pumping the bull shit, and the public will likely keep buying it

…and the downward spiral will continue until everyone forgets about it.

We’re not denying the real estate market has/is experiencing a bit of a shake up, but all the “sky is falling” reporting is getting a bit tiring, and in no way an entirely accurate representation of the San Francisco real estate market. Don’t call this cheerleading, call it pointing out the bites that most people overlook.

On SFGate today, Carolyn Said had this lovely title to her article, “Mortgage crunch has even wealthy buyers scrambling for credit”, and the first paragraph read:

Mortgage woes have moved upstream, landing even in tony neighborhoods.

The credit crunch now is hitting home buyers from all walks of life, not just subprime borrowers with poor credit. That in turn could mean fewer buyers – and lower prices.

But you have to read way down in the article to get to something we feel is a significant point that is too often over-looked:

The big unknown is how long the credit crunch will last. Many experts said they think the tight market for jumbo loans to people with good credit is likely to last only a few weeks.

“The situation at the moment is pretty dire by many accounts, but history suggests this could easily be a short-term overreaction in the credit markets,” LePage [Andrew LePage, an analyst with research firm DataQuick Information Systems of La Jolla (San Diego County)] said. “A three-week phenomenon isn’t going to sink the market, however bad it is at the moment.

Again, we’re not saying there isn’t big change happening and many buyers, even in our “immune” market, aren’t feeling the pinch. What we’re saying is that it is not as bad as everyone makes it out to be.

Looking nationally we see more of the same reporting on with their article “Home Prices drop for fourth straight quarter”, of course pointing the finger at the nasty Realtor. Get into the middle of the article and you’ll see that there are indeed markets that are doing just fine, and we’d be willing to bet it wasn’t Realtors driving those prices up, and in many of those areas you’d have to assume there are many sub-prime borrowers.

Pockets of strength included Salt Lake City, where prices rose 21.9 percent, the most of any metro area, to $233,100. In the Pacific Northwest, Salem, Ore. prices rose 16.7 percent to $227,900, and Spokane, Wash. prices went up 10.4 percent to $197,700.

To add even more to what we’re saying, have a look at some rates quoted on and play around with the “Modify Local Search” area you see on the right of the screen. Doesn’t look too bad, does it? It’s worse than it was, but still not bad.  Just get your credit above 700!

The moral of this rant, is to let you know that indeed our market is feeling a bit of a pinch, but it’s not nearly as bad as they’re telling you.

“Home Prices drop for fourth straight quarter”…But the latest home prices from Realtors show losses seem to be easing. []

“Mortgage crunch has even wealthy buyers scrambling for credit” [sfgate]

Some rates quoted on []

21 thoughts on “Keep pumping the bull shit, and the public will likely keep buying it

  1. “What we’re saying is that it is not as bad as everyone makes it out to be.”

    I think what you mean to say is that you don’t think it is as bad is everyone makes it out to be but that it is too early to tell. Personally, I am holding onto my money and wouldn’t dare purchase anything now until this mess shakes itself out.

    You are certainly entitled to your opinion but I personally wouldn’t be thinking that the SF market is forever to be immune to the national and global consequences to years of irresponsible lending and real estate practices. The pricing in this market is entirely disconnected from the economic fundamentals.

  2. MD,

    You are correct. It is too early to tell. The point being that if you read all the articles that are coming out daily on every publication, they choose to focus on the negative in the headlines, but buried in the article is the truth that it really isn’t as bad as the headlines state.

    Also, we have too many tiny little pockets and homes that are impossible to gauge with national or even local reports. So I’m trying to let all the readers know that from the inside, there are signs of weakness, it has shifted, but it is not death like we’re forced to read.

    You are also correct stating the “pricing in this market is entirely disconnected from the economic fundamentals”. At some point it has to give. It has not yet, but is finally showing signs.

    And for the record the “immune” was in quotes. I don’t think we are immune, but definitely abnormal.

    Either way, I really appreciate you reading, and commenting and visiting us on theFrontSteps.


  3. Alex: Let me add to your rant. What is happening here that standards and terms that prevailed in the mortgage market over the last two-three years are being removed. Because of what’s happened in the bond markets (i.e. the panic), the loans with the riskiest terms, with stated incomes, or aggressive structures have been removed from the market. A lot of the pain that is being felt is that buyers who were going to take advantage of 0% down or 10% down or stated income or piggybacks or subprime can no longer do so. Buyers who planned to use those loans can no longer do so and so yes, to the extent that those buyers are out of the market, this will surely negatively hit the demand side of the equation in all markets.

    There is a quote in the article:

    “In this market, I cannot do a stated-income, cash-out refi with his credit score below 700,” Redmond said. “There are no doors open for him, until we get that credit score changed, which we hope to do within a week or 10 days.”

    Still, he and others said that well-heeled borrowers with 20 percent down payments can still find mortgages – it’s just that they’ll pay higher rates, 7.5 percent or more, for jumbo loans.”

    (End Quote)

    Let me just remind people that for most of the last 50 years, until about three years ago, one could not buy a property with less than 20% down. And that 7.5% was a pretty good interest rate for most of the last 30 years, the last three years being excluded, of course. It is the last three years of 4% to 5% interest rates and 0% down loans no doc loans that people now remember and forget the last 50 years of loan terms and the last 30 years of interest rates.

    And I don’t buy “the price is too high in San Francisco the only way to live here is to borrow 100% or do a stated income loan.” I bought my condo for $585K in 2000. I had to put 20% down and my interest rate was – guess what! – 7.5%, which I thought was pretty good. And that 20% hurt a lot! And $585K was a lot. One more thing: My condo sold previously for $380K in 1998, to the person I bought it from, and everyone thought he was crazy in 1998, not to say what people thought of me in 2000. And his interest rate was in the 8% range.

    As for prices not being driven by economic fundamentals, as the previous commentator wrote, I would say this: Prices in San Francisco, and in L.A., and in New York, and in other select places with a limited inventory in certain desirable areas, are indeed connected to economic reality. And very much so. Prices are certainly driven by loan availability/interest rate cost but in markets like the Bay area, particularly SF, lower Marin, and San Mateo, income growth, low unemployment, a strong economy, and a whole lot of money out there, and a limited supply in desirable locations, has a lot to do with prices. Does that mean that they won’t go down? Of course not, and they probably will. But the price appreciation in SF has gone on long before the last three years. The honest truth is that there are a lot of people with a lot of money here, good credit, and who really want to live here. And then there are people with an OK amount of money, good credit, and parents who have a lot of money who want to help them live here. That is what the market is here, particularly in all the hot areas in SF.

    And there is something to be said about those mortgages that went at those lax terms and those attractive rates: was it really a good idea? We’ve all read about the problems with 2006 vintage MBS tied to subprime and Alt-A loans. I would argue that allowing that spigot to go on posed more of a real, secular (not cyclical) threat to the real estate market than the current pull back in aggressive terms. In short, it was a repeat of the dot com mania, only this time in real estate. As are now seeing, prices will not go up forever and forever.

  4. I happen to believe that the disparity between jumbos and conforming loans will indeed be short-lived. But I also think lending standards will remain permanently tighter going forward. Tighter by how much, who knows? What I do believe is that, if you require a 20% downpayment, you are eliminating some percentage of buyers from the marketplace (those who were previously able to put down just 10% or even 0%). And in general, when you reduce the number of available buyers for an asset, there is downward pressure on that asset price.

    Maybe it won’t be that bad just because things have held up well thus far. But remember that many top executives of mortgage related companies were saying similar things in the spring (Countrywide) or buying their own companies’ shares (Indymac), only to turn around this summer and say that they are stunned at how quickly things have turned extremely sour. Sour enough to where some of these companies are unexpectedly on the verge of bankruptcy (Luminent in San Francisco). Thornburg Mortgage, which has high quality mortgage loans, has gone so far as to talk to the Fed and the White House about the problems they’re facing.

    I’m assuming these guys are reasonably knowledgeable about the mortgage and real estate markets to have gotten to where they are. If they can be caught completely off guard about how quickly things could unravel (to the point of a company suddenly going bankrupt when things looked just fine a few months ago), how can anyone be confident that this cannot happen in San Francisco, or any particular city for that matter? Not saying it’ll happen, but I just think it’s fair for people or the media to point out that it’s something to be concerned about.

    I guess the point is that the media is blowing it out of proportion. But I think it’s at least as newsworthy material as “will they throw stuff on the field when he hits 756” or the fact that “Famous dough-tosser Tony Gemignani is now considered the world’s best Neapolitan pizza maker” (currently the featured piece on, not the fact that the Dow went below 13,000 today – maybe the latter will come later).

  5. Since I’m an architect and not a realtor I wont comment on all the mortgage mumbo-jumbo word plays…

    Here’s my question: When did houses become such an investment commodity and buyers and sellers and real estate folks start their high pitched frenzy and frothing-at-the-mouth my god I’m gonna make some obscene profits on my little dumpy shack in noe valley or wherever and get huge number of overbids despite the fact that this little shack is a rathole with peek-a-boo-views and no parking, but I’m about to experience a sellers orgasm on this place that used to be called HOME?

    Pretty simple, huh? well….I’m just saying.

  6. Answer: when the Fed cut rates to historical lows in response to the bursting of the tech bubble, and kept them extremely low in response to 9/11 (God rest their souls).

    If there is a lot of profit to be made by selling something for more than one bought it, I’d expect it to happen again and again, whether it’s tulips, tech stocks houses, crude oil, or homerun ball #756.

  7. The point of the article is that people using jumbo’s are getting hosed, regardless of liquid assets or credit.

    A quick glance at statistics seems to indicate that these reports haven’t really affected attitudes in San Francisco too much yet. Since Thursday when the news started going really south, fast, we’ve seen a lot of offers being made. How many of these offers stick we cannot say. But since Thursday 63 properties have gone into Act. Cont. status on the MLS. That is very surprising. I expected far less activity.

    One thing I’ll say about the Chronicle article is that “wealthy” is a very relative term. To me “wealthy,” around here, is someone who can afford a property above $1.8M or so. Typically those folks are putting 20% down or more anyway. Are they really being affected right now? Well, the folks buying the property in Greenbrae were. But they were using a Jumbo.

    Then again, “rich” to most people in this country means someone who can afford a 600,000 purchase.

  8. Another answer is when about 10 different cable television shows started portraying how every know nothing shmoe can make a great deal of money by “flipping” real estate. Well guess what? They can’t. Every shmoe can ride an upward market tho!

    Anybody see that new one, “Flipping Out” on Bravo ? At least that guy’s a pro. But I wonder how he’s doing now that L.A. has plateaued at a very, very high level. Seems like he was making all his money on the buy side. Remember, TV is filmed six months prior to viewing. I wonder if dude is doing any business right about now. The cynic in me tends to think he’s not doing so great.

    One thing this lending shakeup is likely to accomplish is the elimination of seat of the pants speculators.

    Another note, lending needed a shakeup. Even in great markets I saw too many final docs come in at significantly higher rates than what Truth in Lending rates promised. That’s just not right.

  9. kenny, I keep hearing some radio ad for some guy who made all this money flipping houses, and now he wants to share his secrets with all of us. Why? Apparently, something like: because nobody should have to be poor. Ah, such benevolence!

    Call me cynical, but when a guy starts sharing his money making secrets in DVDs, books, or seminars, it’s usually because he knows he can no longer make money doing what he was doing, and the last chance to squeeze some extra money out of it is by charging everyone a fee for learning how he used to do it. (I wonder if this might even be the same guy you are talking about.)

  10. To Kenny & Duggo

    I agree with both of you guys. I never understood where the concept of buying a house as an asset firstly as opposed to a Home firstly. That is where people got ‘trapped’. So many people bought speculative property in say las vegas because they were riding the ‘momentum’ play and thought is was guaranteed. Sadly a lot of those people got burned because a lot did not understand what ‘margin’ is.

    Its like investing.

    ‘Flipping’ is a weird word. A lot of people used to say they were ‘house flippers’ when things were good and they could just buy a phase one and sell it 9 months later for 100k more. That is not ‘flipping’. To me ‘flipping’ are the people that buy a dump, fix it up and make loot. In san franciso somebody who is competent, skilled and has good desing can do it if they buy a distressed property and remodel it nicely a buy will come and chances are they will make some dough. this is true here because price spreads are so great. In a lot of places where flippers make a 20k profit on a 40k investment it is a lot riskier. I think however if you are good at what you do you can always make money, if you are smart. If you are not you pay. What ‘flip this house’ and you see the effects. And some shows have been filmed well over a year ago. The best are the people who are ‘holding out’ for the best offer for 10 months.

    The seminar thing cracks me up. I think they are enjoyable if you really have interest but they really pray to the other 99% who are suckers and think they can ‘get it rich’ by sitting on their ass. It is the total infomercial crowd. A lot of people do not realize that the ‘speakers’ are making their money of them, not what they are touting. What kind of stock broker would tell you his/her secrets when they could just use them themselves.

  11. My guy is quoting 6.5% for 30-yr fixed jumbos. He is having a field day and business could not be better bc other lenders are getting hurt and nobody wants to pay 7% or 7.5%.

    I love being the contrarian, and taking advantage of the panic.

    Alex, any updates on some of those listings i posted that were in contract?


    [Editor’s note: 1330 Chestnut; 2249 WA; 2745 Laguna; 2138 Beach…all “pending”

    2255 WA is available

    3042 Jackson is in contract (“active contingent”)

    2865 Jackson as you know sold for $1.7MM asking $1,599,000. Will post all on the front page when more to report.]

  12. I’ve been waiting for the DQ #’s to go negative for a while now. I wonder when that will be. I guess i’m in the ‘high end’ market, b/c things continue to be frenetic. I just don’t know… with my investments taking a beating this month, and SF prices staying at this record levels, i’m not feeling too hot right now and I don’t want to move out of the city.

    I wish i had Bank of Mom & Dad like jeccat or someone to just give me $100-200,000 for a 20% downpayment. That would be nice, would it? I just HATE all this competition by people in their 20’s where I just know they didn’t come up with their own downpayment, and they sit on their high horse and say they are owners and stuff. It’s utter crap. These are the same kids who drove Volkswagon Jettas and 4Runners in High School and College given their parents gave them the car. Total barf. But, I guess sometimes life isn’t fair.

  13. Boomtime – 6.5% on a 30-year fixed jumbo? No way. How many points and how much down? That sounds like bait and switch to me. Don’t get snookered!

    I’m sure everyone here would be very grateful if they could get ahold of the name and number of any lender offering so attractive a loan. I fear, however, that such a name won’t be forthcoming for some reason or another.

  14. SF Chronicle reports today: “Home prices rise in July even as sales fall to 12-year low”. Prices still going up! This should give a boost to the San Francisco is still booming camp.

  15. LC – I have a guy at 6.5-6.75% no points. Leave me your e-mail and I’ll shoot it over. Big bank.

    How did this one slip through? I never saw an update. Impressive!

    2865 Jackson as you know sold for $1.7MM asking $1,599,000

  16. Thanks Oliver for supporting my comments on house as “home” and not as “speculation”…

    San Francisco is still a GREAT city, but part of its’ quality and charm has been degraded by outrageous housing prices, caused by speculators and greedy people.

  17. Duggo, I’ve been here since ’95. Back then San Francisco was known as a great town with big apartments, relatively cheap rents, and pretty much no jobs. There was Levi’s and Gap and the Pacific Exchange, Wells and BofA. That was about it.

    Then the boom hit two years later. It became a place to be for all the young go-getters. (And a lot of very smart or lucky Bay Area natives too.) The cat got out of the bag. Holy cow, what an amazing place to live, AND there are jobs. House prices soared. Then tech crashed. But it remained an amazing place to live … the idle rich and the nouveau rich kept prices high. Flash forward to now. Tech is back, Web 2.0 actually makes money, and biotech is just about to happen finally.

    This “speculators” and “greedy people” hardline that you take is not the big picture. SF is a city full of little houses and a bunch of people with money want to live here. Blame it on your local City Councilman, if anything. It’s too tough to build worthwhile housing here. That’s the real problem. I know it’s tough to imagine, but why, for example, don’t we have tall apartment buildings alongside the G.G. park like New York does? We’re such a dense city. We need highrise housing. There’s no other way to go except up. But those sort of projects almost always gets crushed by someone on city council flounting the buzzword of “greedy developer.”

  18. In SF proper I do not think there is much ‘Speculation’ at all nor ‘Greedy people’. I honestly think that happens out in the burbs, new developments etc. The only people you can really call ‘Greedy’ in SF are the ones that can not sell their house forever, and that does not really happen all too often. Their are greedy bueyers, they are the ones who always ‘lowball’ but aftet 200 tries never get anything.

    SF is expensive for many reason.

    1) Supply is limited and growth is stifled, esp high rises

    2) Tons of people with tons of money, their own or mom’s and dads

    3) Tech is strong again (I work in tech and get tons of cold calls). However I have to say that web 2.0 is making some money, from the inside I see a ton of dumb ass ventures again.

    4) People just have money, I can say that ten times over

    I can not call anybody ‘greedy’ per say when they ask a huge amount for thier property IF somebody buys it. That is just pure open market and when you own something you always want the highest offer. If there is somebody out there who would pay me 200k more for my house let them have it man!

    SF has such strong ‘renters rights’ but yet stifles outward or upward growth its amazing. If they equalized the playing field (including more then 2% rent increase per year) things might have washed out way better after the tech crunch in 01. My old boss made like 150k and paid 200 bucks a month rent because he had ‘renters rights’ and changed tons for the rooms he rented out.

    Things like that do not help the overall shape of things.

    Even in the 10 years I have lived here this city has become way less ‘diverse’ then people thing used to think and much more rich white-bread. Its ok but the wealth gap is depressing.

  19. Real quick, here is a quick example of one property that may (or may not) be an indicator of high ticket properties in A-level S.F. areas holding strong, 2224 Clay.

    Wow. Marketed right in the thick of the doom and gloom, and this property gets into contract after one showing, Tuesday’s tour. Anybody see the place? Was it special enough to buck a trend? The pictures don’t seem to do it justice.

    [Editor’s note: Kenny, good find. You can see it on the front page, “Bucking a trend?]

  20. Kenny

    That goes to show that if you have mad money it does not really matter, you pay for what you want. If you have millions in the bank, chances are you have a decent job as well. The whole ‘money comes to money thing’.

    It is *amazing* how much marketing and staging can really maybe a difference here. Some people try to be cheap with the realtor and staging but do not realize and extra 25k in prep and staging can sometimes bring in 100k more in price.

    People are rich and marketing people can work miracles in this city. Nothing surprises me.

    Tomorrow they could make jumbo loans 20% and houses would still sell the rich. Amazing.

  21. Hmm, I reread those articles and I don’t see any issues. In fact, I like the structure where the larger trend is discussed, and then drill down to specific examples or counterexamples. Real estate is indeed local, but I find it informative to know how that fits into the bigger picture. The articles aren’t long. One would hope anyone serious about real estate isn’t too stupid or lazy to read an entire 8 paragraphs or whatever. Of course, there seem to be a number of people that didn’t read the terms of their toxic mortgage. But there you go, I just put in a counter-example, buried at the end of paragraph 1.

    Is Time Magazine suppose to write:

    “1234 Broadway in Pacific Heights received 5 offers, all over asking price. Despite the obvious up-trend, 3 national mortgage companies filed for bankruptcy protection. “

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