Here goes my pet peeve again San Francisco Case Shiller Index

So I woke up this morning to NPR singing that the new S&P/Case-Shiller Index is out and San Francisco is down over thirteen percent?!!!  My heart skipped a beat for a second because I was half asleep and I had a mini panic attack thinking ‘When did San Francisco drop so much when I wasn’t looking?  That hasn’t been my experience in this market where did that number come from?’ 

Then I rubbed the sleep out of my eyes and woke up to remember (and this will always frustrate the life out of me),  it’s not San Francisco County they are speaking of, my favorite 7×7 square mile bit of California.  It is the dreaded/oft misstated San Francisco BAY AREA which includes Oakland, Fremont, Contra Costa, Marin, San Mateo and of course San Francisco.  All of which are different markets with very different average sales prices and very different price appreciations/depreciations.
Don’t get me wrong I’m all for keeping an eye on numerical trends – GENERALLY.   It’s just it makes my life difficult when I get clients that believe they are going to be able to write an offer 13% below asking on a single family home, that in fact is getting multiple offers.   Details media!  The devil is in the details.
So what is the true San Francisco proper (meaning SF county) S&P/Case Schiller index?  God I would love to know.  They do have that information – I did call a poor soul at Fiserv Inc, the parent company of the Case-Shiller Index, today out of pure curiosity, but it’s available on a subscription basis only for industrial clients – and for the $3500/mth subscription cost I figured I would let my curiosity die on this one….
What I did sniff out is the huge discrepancy in depreciation between the price tiers even within the SF Bay Area index.   For example the low Tier (under $545,294) went from 269.67 in Jan. 2007 to 192.12 in Jan 2008 – a 77.55 difference; whereas the high Tier (over $794,192) changed from 182.06 in Jan ’07 to 175.75 in Jan ’08 only a 6.31 difference.   And since those numbers are proprietary to the Case-Shiller index I thought I would pop in a little memo on how they calculate them from their press release. 

7 Responses to “Here goes my pet peeve again San Francisco Case Shiller Index”

  1. The more prices drop in the rest of the bay area, the fewer people will be willing to pay the increasingly exorbitant premium to love in the city. It is simple economics, and you are certainly doing a diservice to ypur clients if you are encouraging them to offer summer 2007 prices.

    The Engineer at March 26th, 2008 at 5:57 pm ( )
  2. Hi Engineer,

    Having real expectations as to pricing today, not last summer’s, is one of the key’s to a great agent and is the main point to my post.

    I will say in my experience simple economics do not have as much to do with pricing you suggest. If that were true than the pricing in San Francisco would never have had the run up it has and would already be down 13% for Single Family Homes in the city. It’s not.

    I don’t have the same data points that Case-Shiller uses, as I mentioned in my post, it’s proprietary. I can tell you that according to the California Association of Realtors, the median price of Single Family Homes in SF proper was up 1.8% in January ’08 over January ’07. Even that is a broad brush stroke as certain districts are WAY down, and others are up significantly more than that.

    But thanks for you post, truly all agents are not out to have their clients overpay – it’s solidly against our long term financial interests, even if you dont buy we’re in it because we love serving people.

    Meredith Martin at March 26th, 2008 at 7:01 pm ( )
  3. Median price has nothing to do with home appreciation it only reflects sales distribution by price above and below the median.
    Home price appreciation is in a downward trend anybody that understands simple math should be able to get that point.
    The larger issue facing Calif will be the JUMBO loan market and the availability of capital. Fannie and Freddie are having problems attracting investors into the mortgage pools and have needed Federal home banks (GSE) to fork over 100 billion to assist in financing mortgage backed securities. Today JUMBO loans are going for 7.23% which is higher then last week, again a negative sign for the mortgage market and a reflection of investor concern for their return of capital given all the discussion about various bail outs.

    Anonymous at March 26th, 2008 at 8:20 pm ( )
  4. Certainly real estate prices in the past few years got irrational.

    The point is that every potential buyer in SF has some dollar value at which they will decide to buy elsewhere.

    Say you had the decision to pay 1.5 million to live in a nice place in the City, or someone gives you a house for free in Burlingame. Almost everyone, even people who love SF, will take the free house.

    That obviously isn’t going to happen – but every percentage drop in home prices in the “outer bay area” does convince a few more people who want to live in SF that while they may have been willing to spend twice as much to live in SF, they aren’t willing to spend 3 or 4 times as much… which is what will be required for prices to stay up in SF even as they plunge everywhere else.

    The Engineer at March 26th, 2008 at 10:26 pm ( )
  5. Hey Engineer,

    I hear ya, I get your point, and I don’t 100% disagree. I just want to point out it’s free for many people to still live at home, and you still see young adults forking out the 5 x the cash to live where they want to.

    I have a recent client who’s cost of living was 4x less to live in San Jose, AND she worked in San Jose – but she still cashed out more than half of her net worth in stock to buy a $1.2 million condo in South Beach and deals with a 2 hour commute 3 days a week, so she can be near the night life and restaurants she wants to patron.

    Look it would be arrogant to state what happens in the rest of the Bay Area or US does not affect us at all, of course it does to a greater or lesser degree. It’s true it can be more tricky to get financing for jumbo loans although you can do infinitely better than 7.23%…

    In this case all I am saying is the 13% decline stated in the report, which is very well respected is misleading because it states San Francisco when in fact that is the smallest of all the counties they gathered data for in the report.

    Meredith Martin at March 26th, 2008 at 10:57 pm ( )
  6. Well I do probably mostly agree with you then…

    I doubt that the absolute nicest places in SF, where maybe 100k make their homes, will drop too terribly much, but I would be shocked if they don’t get down to 10% below their peak.

    I am just in a pretty similar situation, though not with SF, but rather, Palo Alto, as I am more a peninsula type of guy… My wife and I do very well and COULD most likely get a loan for a place near dt Palo even now… but it hasn’t budged while places near downtown Mountain View are suddenly sitting on the market for months for 850K, and near undergoing-redevelopment dt Sunnyvale for 700K. I don’t know how much longer we are willing to wait for the 2 M homes in Palo to drop to the mid 1’s… And when we buy elsewhere, that is guaranteed to be one less bidder for Palo Alto.

    The Engineer at March 27th, 2008 at 12:52 am ( )
  7. The prices never got irrational in SF. The buyers did. Now the sellers are irrational, because they didn’t take advantage of the buyer’s irrationality when they had the chance. It’s like standing on the street corner, pleading “come back – be irrational for 5 more minutes and I promise to take advantage of you!” That moment is gone, my friend. Take what’s offered, and move on, or you’re irrational.

    Anonymous at March 29th, 2008 at 2:49 pm ( )

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