Three straight days of sensational journalism from Kelly Zito
She's at it again. Doom and gloom EVERYWHERE! Today's article focuses on the latest numbers from Dataquick, a real estate research firm. From today's Chron, "The Bay Area real estate market ended 2005 on a wobbly note, with the number of sales in December tumbling by the biggest margin in four years and home prices falling below November peaks."
Then she goes on to pick out everything negative she can find, and once again buries the reality of the market deep in the article.
Problem is, there's a nice big graphic with the article that shows a similar trend EVERY SINGLE YEAR in the fall. This is not the end of the world as we know it, this is normal. Hear that, Kelly? This is NORMAL!
Yes, the numbers have changed a bit here and a bit there, but prices are STILL RISING. For everyone's sake, it's a good thing that we have a little bit more inventory. That's the healthiest thing that could happen in San Francisco. But it doesn't mean 'bubble', and it doesn't even mean 'cooling'.
Now let's look at the POSITIVE items that she failed to highlight:
"This week, mortgage giant Freddie Mac reported the 30-year fixed rate dipped to 6.1 percent -- the sixth consecutive decline." Yes, that's right. Declining mortgage rates.
And the only person on the street in San Francisco that she interviewed had this to say, "Last week, Cheryl Lazar listed a three-bedroom condo in San Francisco's Cole Valley for $835,000. As of Thursday, she had shown the property to more than a dozen buyers and had two offers in hand for "significantly" above the asking price.:
Hmmm... End of the world? I don't think so...
posted by Matt Lanning @ 2:17 PM
31 comments
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31 Comments:
Hmmm... End of the world? I don't think so...
I'll wager you $50 that NoCal real estate prices will be lower in 5 years than they are today. While we're waiting for you to decide, look at these graphs and tell me what you think:
http://www.housingbubblebust.com/OFHEO/BubbleGraphs.html
http://www.housingbubblebust.com/FirstBust.html
I'm sure you would have bet me the same $50 back in '99, '00, '01, '02, '03, and '04. Here we are again with those who don't own a house hoping for an opportunity. It's nothing more than wishful thinking.
What you linked to is all national information. I'm here to talk about a microcosm that is San Francisco. We are tens of thousands of housing units short of demand.
As always, it's about supply and demand.
And San Francisco's market is not something that can be predicted by looking at what's happening in Detroit.
So send all the 'bubble' propaganda you wish, but none of it will ever be directly applicable to SF.
"but it's different here" [laughing]
As always, it's about supply and demand.
Matt, the population of San Francisco is declining. Down almost 5% since 2001:
http://www.housingbubblebust.com/DQNews/DQ-SanFrancisco.html
The job market in the Bay Area never recovered from the tech bust. Hundreds of thousands of high-paying tech jobs evaporated and have never returned. So there are fewer people and far fewer jobs, while at the same time housing prices have skyrocketed. Do you really think this is about supply and demand?
It's always about supply and demand. If there's no demand, then there's no reason for prices to increase. Since the year started, properties are selling quickly again, just as they do every January.
I don't look at silly national sites from wannabe opportunists for my information. I look at hard numbers on the street every week, and what I'm seeing is that there are still a lot more would-be buyers than there are available properties.
And that is the root definition of supply and demand.
I really don't care what happened post-dot-com. It obviously didn't do anything to slow the housing market. I also don't care how many people have left town. I still see plenty of demand and not enough supply.
Period.
I really don't care what happened post-dot-com. It obviously didn't do anything to slow the housing market. I also don't care how many people have left town. I still see plenty of demand and not enough supply.
Period.
You really don't need to put the word period followed by a period since you used a period after supply (the seldom used triple period)
What you don't get is this housing market does not live in a vacuum. It is a by product of a credit bubble (loose lending standards, questionable MBS products, incorrect use of derivatives) This is what is driving your housing market--not to mention equity extraction and its role in consumer spending.
See, supply is the Credit, and when that dries up so will the demand.
You are righr on one thing, housing markets are local, but credit markets most assuredly are not
"I'm sure you would have bet me the same $50 back in '99, '00, '01, '02, '03, and '04. Here we are again with those who don't own a house hoping for an opportunity. It's nothing more than wishful thinking."
Well not everyone who believes/knows this is a major housing bubble has not owned a home, I actually owned 3 and sold all of them in 2005, the last one closed in September 2005. The SMART money has already left the market and I've parked my money in safe investments. Now I'm renting a home from an investor who only gets 60% of his actual monthly cost in rent and also have watched 6 homes go up for sale since Nov. on my block and they still sit for sale :)
I'm wondering if you've noticed an increasing disjoint between demand and qualified demand? Until very recently qualifing consisted of fogging a mirror but I see lending standards tightening. On the street do you see an increase in deals that fall through?
So, people who are unloading their property (such as yourself) are artificially stacking the market with excess inventory. Once the 'speculators' get out of the market, things will obviously level out again. This is not a huge phenomenon, as many learned from the folks who did this in 2000 and are still renting, hoping for another opportunity.
In the chart look at December for the prior years, it's up in most years. Now look at 2005, December is lower than November.
Optimism is a gift, unless you're using it to invest.
The best part of this is that my opinion carries no more 'reality' than anyone else's... Difference is that I put my $$ where my mouth is. I own property. I buy property. And I trust this market. So my optimism is backed with action, just as one of our anonymous posters is backing his pessimism with action (selling all of his properties).
We'll all look back on this in a few months (or more) and see it for what it was. In the meantime, I'm just saying that what I'm seeing does not lead me to believe that there's anything to worry about in this market (unless you just sold all of your properties and you're waiting for a 'crash').
I was wondering how the MLS distinguished between artificial listings and regular listings. Supply is what it is and the numbers have been growing everywhere to healthier (IMO) levels but what makes you think they'll stop there?
I was also wondering if you had a number for "this is not a huge phenomenon" regarding the amount of speculation in SF.
There's no question that the bubble has been caused by supply and demand. The tulip craze was a result of supply and demand!! The rising prices for tulip bulbs caused people to start speculating which added to demand which in turn raised prices which created even more demand.
It's my contention that there's been a lot of false demand caused by record low interest rates and rediculously low lending standards. This has caused a lot of speculation to occur.
With speculation, I'm not just talking about flippers. Someone making $100,000 buying a $1 mil house with an option ARM is speculating. People who take out HELOCs for SUVs, remodelings, vacations, and plasma TVs are speculating that their home won't go down in price.
A bubble is when the price of an asset has become out of whack with the fundamentals.
For stocks, the underlying fundamentals that support the valuation of a stock are its current and expected future earnings.
In 2000, dot com companies would have thier stock be worth $250 and make $1/profit per share if any at all. Who would pay $250/share to get $1 in return unless they thought they could unload it to someone willing to pay $300/share?
With houses there is a PE ratio as well. This is Rent/price. If buy a house as an investment property, you should be able to have positive cashflow by renting it. If it's negative, then the price is too high.
In a sane market, you should expect to be able to put 20% down on a house and receive a 5-10% return on that investment by virtue of the positive cashflow. Someone buying a house in SF and renting it out today will bleed out thousands in negative cashflow every month.
matt,
I love reading positive comments about SF housing too! Although I firmly believe that SF housing will drop like a rock, based on looking around at how much people SEEM to be overleveraged around me... I also like hearing a counter-point evaluation of the market as well. You are correct when you say that nobody knows the future. At this time there are some good aspects of the SF market (prices still seem to be rising), but there is also skyrocketing inventory (indicating buyers are getting wary). I would expect this to see-saw for a while, especially when a sellers converts to buyers market.
Good luck with your investments.
FWIW: I'm a homeowner in InnerSunset. I see LIST prices dropping here, and houses are sitting an awful long time. Let's hope for the best! I remember the big drop after 1989, and don't want to repeat that again! (although i think we will)
Well, I put my money where my mouth is too. I owned a home between 2000 and Sept 2005. I got out with the other smart money. We basically got to the breaking point late last year.
And now I'm shorting the Dow Jones Home Builders' Index, bought energy stocks, bought precious metals, and betting against USD.
In a few years, we'll see who wins this game.
Matt,
I have to say I'm with you on this one. I used to live in the Bay on the Peninsula and I left for a few reasons, but affordability was one.
As long the economy continues its turnaround in the Bay, housing prices will remain high and stay well-above the national median.
What the housing doom and gloomers don't understand is that in the Bay, there is A LOT of land, but due to politics and zoning being what they are, that land will never be developed. Especially with insurance issues, this has led to development of new housing units far below job growth.
This had led to aforementioned shortage.
In response to Robert Coté's question, I got some feedback from my favorite mortgage broker, Monica DiPerna from Guarantee Mortgage:
"I am still seeing clients that are able to easily qualify. I have read that lenders have become more strict with their underwriting and loan guidelines. However, my clients are able to qualify with either full doc or no doc loans. The lenders are still offering loans that will allow people to get into homes with zero down up to $1,500,000 on full doc and zero down up to $1,000,000 on stated income loans. That is pretty aggressive but they seem to be confident that values will remain otherwise I can't imagine lenders offering these products. Lenders offer products based on much economic research..."
Matt:
I own two properties in San Diego and will inheirt another. I will inherit another residential house in Marin and and *another* in the city of San Francisco.
I will be out a hell of a lot of if prices drop. Unfortunately, due to tax reasons I'll also be out a hell of a lot if I sell.
I'd still bet you quite a bit that prices will drop in 5 years. I wouldn't have made the same bet in 99, 00, or early 01. 02/03 is when I started to notice a problem.
I've watched the market for over a decade down here in San Diego. It's all over but the fat lady singing. But hey... that's my opinion... and we'll only know for sure in 2008.
What I do know is that when I purchased my first property in 1994 it cost the same to own as to rent. It now costs three times as much to own. That doesn't seem smart, sustainable, or even rational.
The great thing about selling my 3 properties in 2005 was the purchase time of the properties, 1 in 94 another in 00 and the last in 01. Also on the investment properties i only considered positive cash flow and that i had on day one of the purchase,,, this is what i don't inderstand when invester/speculater's purchase in this market :).. Like I said the "investor" I’m renting from in the negative of 1200.00 per month and he purchased in April 05..
Matt,
Please stop the exuberant, irrational cheerleading and go back to the future.
Read this article closely - I think a very similar article could be written by 2010 or 2011 (a case can be made that a slowing national housing market will hurt the US economy in the coming years, stirring a recession into the mix a la the '91 recession).
This was written April 9, 1995:
"Real Estate Rebound
After a long, painful slide, housing prices around the Bay Area -- especially in certain zip codes -- are finally heading back up"
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/1995/04/09/SC67582.DTL&hw=real+estate&sn=006&sc=459
Or:
http://tinyurl.com/7ggdn
Well, I'm glad everyone is taking to time to read my blog, but remember, this is nothing more than my opinion vs. big media. I don't need to sell papers, and I really don't even NEED to sell houses. I do it because I love my job and because I believe in finding ways to make people homeowners. I don't believe in speculation. Speculators usually get slapped down by bad decisions, but homeowners (who usually live in their homes for at least 2-3 years) don't tend to suffer from small market changes or sensational media reports.
I will never agree that housing and the stock market have much in common. You can't live in a stock or mutual fund, and people's decisions are not always based on hard numbers or facts. They are based on emotion, wanting to live in a certain town, neighborhood, or style of home.
You certainly didn't buy Google stock because you liked the way the logo looked, did you?
And as to the article about the shift in the market from 1995, there were many more economic factors in play back then (like the EARTHQUAKE, for example), which scared lots of folks out of town. FAR more people than our reader from Texas can claim in his 5% article.
If anyone really wants to get out of this housing market, call me and I'll be happy to sell your house. If you're looking to buy or looking for some real-world, local knowledge about the market, I'd say things are going to be stable for quite some time.
There are always deals to be found in this town, no matter how hectic the market. In my last 20 transactions with buyers, only two of them paid over the asking price. And that was back in the summer/fall when everyone was making bad decisions on multiple offer purchases.
If there is a lot of inventory, there will still be houses that sell with multiple offers, and depending on how they are priced, many will sell over the asking price.
My bottom line: there's really nothing to worry about. You can always find data to back up your argument (as I always do). If you wanna leave, then leave. If you wanna rent, then rent. If you want to buy a house in San Francisco, then you shouldn't be swayed by opinion (mine or anyone else's).
Get your financing in order, get out and learn the market, then find something that fits your budget.
By making an educated purchase, you'll do just fine in any market.
Would that be the same "big media" that's been cheerleading the housing boom for the past five years and the same "big media" that gets a substantial chunk of its diminishing advertising revenues from real estate advertising?
wow.....matt lanning has been in the SF real estate market for 7 years and he says everything is just fine and there is no threat of a housing downturn. whew, what a relief!! i feel all warm and fuzzy right now.
ok, now i'm serious. it is delusional to simply explain the high cost of real estate in SF as the direct and ONLY result of supply and demand. there is more to economics than just what you read in the first 10 pages of a college textbook. what is primarily fueling the high cost of real estate EVERYWHERE is speculation. people are speculating (actually convinced) that real estate will always make you money. you can own A home and live in it but still be guilty of speculation. the problem lies in what evidence or facts one uses to justify their speculation (e.g. supply/demand; everyone wants to live here; real estate only goes up...yada yada.) real estate will come down - it is inevitable. but when and by how much? well that is speculation also....
Considering that many of the comments on this post are coming from people outside of San Francisco, and I'm one of only a couple of people who has the balls to put my name on my posts, your personal attacks are pointless. Regardless of how long I've been working in San Francisco, your 'housing will eventually go down' argument holds no weight in this debate.
Proper purchase decisions will yield good returns in any market, in any city, at any time. If you're educated about a specific market (which nobody who is posting today has shown themselves to be), there's little to worry about (other than a major earthquake or other natural disaster).
Your broad-stroke comments are based around irrelevant factors (IMHO), and until you are sitting in an open house talking to the hoards of people that come in every weekend (including right now, in January 2006) you will not really grasp what is driving this market.
Oh, wait. I forgot about the EARTHQUAKE.
Do you really believe that explains San Francisco's housing market decline from 1990 to 1995?
It would be worth noting that "proper purchase decisions" delayed for a number of years had something to do with it as well.
BTW - I do live in SF and I believe in the inevitability of market cycles.
For the record, we are just past the peak of this one.
Matt,
I don't really need to go to open houses right now.
In fact, I'm not planning on going to open houses until 2008, when by then perhaps some sanity will be seen in SF's housing market.
What I do see is the same house for sale for the 3rd time in 18 months on the corner. What I do see are places sitting for months and "For Sale" signs proliferating as if daisies on a hillside like I haven't seen in decade. What I do see are desperate realtor ads in my neighborhood rag - who fail to note price changes and volumes any longer.
What I do see are gestures trying to promote a sense of the market that no longer exists.
These all tell me that I don't need to go to any open houses any time soon.
So I won't.
I am leaving this area, primarily to the insane housing prices. I have seen many middle income people move out of state for the same reason. I am getting a 2700sqft house in ABQ that would be well north of $1M here. Pay difference isn't that much. A UHaul from SF to ABQ one way $3000. One way ABQ to SF $140. Check their website. I expect this area to come down by at least 50%. Also saw many people buying houses with suicide loans (someone making $13/hr getting a $850K loan). Check out Patrick's site.
Ciao
It's actually a bit more than just opinion vs. opinion. You can compare the cost of buying to that of renting a comparable place; in most areas the cost to rent will be somewhere around 1/2 that of buying. So you can live in an equivalent place, and stuff an amount equal to your rent into some dull investment vehicle.
Of course, if you do this you may miss out on price appreciation of the house. But with affordability indexes near single digits, there doesn't seem to be much possibility for upside. The bay area as a whole was at 12% in September, ie you needed to be in the top 12% to afford a median home. I assume it's worse in SF proper.
I must say, I'm impressed that I have managed to draw the attention of every single doomsday prophet in San Francisco! Something to be proud of, I suppose... :-)
Matt,
I notice you did not address the specific argument laid out in the comment regarding fundamentals.
Here are the facts I see -
It's way more expensive to own than rent, 2-3 times more expensive, in fact. My 1500 square foot Ashbury Heights apartment rents for 2500; it'd be at least a 900K property basd on comps from my neigborhood. These two prices are out of whack. Shouldn't the cost of renting and owning be comparable?
Affordability is at/near all-time lows.
Use of exotic loan products (ARMs, I/O, neg-am) is at/near all-time highs.
In the last few years, rents have declined while purchase prices have skyrocketed. To me, this indicates that the demand for housing overall is weak or stagnant, while the demand for purchasing housing has been artificially stimulated.
Call me a doomsday prophet, but I think things will stagnate at best, crash at worst.
I'd be interested to hear your counterpoints to the data I cited. Specific, data-based arguments would be appreciated. Thanks much.
-Paul
In comparison to what actually happened to Bay Area real estate since January 2006, the article seems really mild. Sensational journalism seems to be quite an exaggeration, in the article the person interviewed speculates that prices might drop 5%, or even a whooping 15% if interest rates go up 2% (which they didn't interest rates are the same in 2008).
In reality from January 2006 to August 2008 prices in the Bay Area have fallen an average of 29.5%. We will see how the 5% drop over 3 years compares to reality in January 2009.
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