Posts Tagged ‘economy’

Gold Rush Real Estate: Then & Now

Portsmouth Square, 1851

Portsmouth Square, 1851

 

When writer Bayard Taylor arrived in San Francisco by ship in the summer of 1849 and began chronicling the Gold Rush economy in his dispatches for the New-York Daily Tribune, he feared nobody would believe him. The imbalance of supply and demand for basic essentials — food, tools, clothing, equipment — was riding high, driving prices to astronomical levels–

 

“There were reports of canteens charging a dollar for a slice of bread or two if it was buttered, the equivalent of $56. A dozen eggs might cost you $90 at today’s prices; a pick axe would be the equivalent of $1,500; a pound of coffee $1,200 and a pair of boots as much as $3,000…”Smithsonian

 

In today’s economy — booming not with gold but with technology — even San Francisco locals are in disbelief to learn the premiums being paid for another commodity in short supply: real estate. In sharp contrast with current times, mid-19th century SF was a largely rural setting with abundant raw land awaiting the development of businesses, homes and infrastructure. Now, there’s practically nowhere to build up — and when it comes to homes prices here in one of America’s richest cities, the sky is the limit.

Just for fun, let’s take a look at some Gold Rush era properties that have hit the market in recent years and their inflation adjusted prices. They’ll have you wishing you could travel back in time!

 

1032 Broadway Street, Nob Hill

Year Built: 1853

2015 List Price: $12,000,000

Inflation Adjusted 1853 Price: $434,813.47

1032 broadway

 

 

1948 Sutter Street, Lower Pacific Heights

Year Built: 1858

2006 Sales Price: $2,405,000

Inflation Adjusted 1858 Price: $115,151.52

1948 sutter

 

 

816 Grove Street, Alamo Square

Year Built: 1850

2004 Sales Price: $1,650,000

Inflation Adjusted 1850 Price: $75,370.45

816 grove

 

 

10 Napier Lane, Telegraph Hill

Year Built: 1855

2012 Sales Price: $810,000

Inflation Adjusted 1855 Price: $32,849.01

10 napier

 

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Meredith Martin is a Broker Associate at Paragon Real Estate Group and can be reached at Meredith@OpeningDoors.me

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Triple-Digit Temps, Six-Figure Overbids

 

It’s heating up — and I’m not just talking about the triple-digit temperatures around the Bay Area!

More than 145 properties have come on the market in San Francisco in the past seven days, signaling what promises to be a heated post-Labor Day selling season for local real estate. September is historically the biggest month for new listings, and while some things change — year-over-year lower inventory, fewer average days on market, higher median prices, etc. — this looks to be one trend that’s remaining constant.

 

Already this month, nearly a dozen homes have traded for 30% or more over list price; Even with the forthcoming wave of new inventory, sellers who price and market right have a good shot at realizing six-figure overbids. This article from the Wall Street Journal outlines some ways both home sellers and buyers can succeed at bidding wars, surely implemented with success by the sellers of some of San Francisco’s Top 20 Overbids.

Those competing for these properties are primarily high-paid tech professionals (the number of employed San Francisco residents is at a record high) and overseas buyers looking for investment properties. Just recently, San Francisco was named as one of the top cities for Chinese investors. Meanwhile, economic volatility abroad is underscoring the safety and profitability of real estate as an investment, and San Francisco real estate in particular has a proven track record of resilience. With that said…

Two looming events may impact local market performance in the next few weeks: interest rate hikes mandated by the Federal Reserve, and new disclosure rules effective October 3rd that will (at least temporarily) lengthen the escrow process. How will these play out? We’ll have to wait and see.

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Meredith Martin is a Broker Associate at Paragon Real Estate Group and can be reached at Meredith@OpeningDoors.me

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Stock Market Volatility & San Francisco Real Estate

With all the current drama in world stock markets, it’s not unreasonable that a person will want to step back and see what happens – and trying to convince someone otherwise is a losing proposition. Based on current economic activity and conditions in the U.S., there is very little chance of a U.S. stock market crash occurring in the near future (though the scale of an “adjustment”, if such happens, is unknown) and it’s quite possible the current dramatic volatility may soon become a distant and irrelevant memory, as other short-term economic events often have.  And besides U.S. economic conditions, there are the existing boom economic conditions in the Bay Area, which means our housing market may react differently. In any case, concerned home buyers and sellers should wait and see how things shake out. It may well be one of those blips that mean little and impacts the San Francisco market very little. Generally speaking, over the past 30 years, it has taken a literal stock market crash to severely impact our market values.

Of course, nobody has a crystal ball to know what the stock market will do. Also, where we are vis a vis what will eventually turn out to be the top of the market in our current cycle is totally unknown.  

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 dot-com 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 San Francisco 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.

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.

image001

 

Meredith Martin is a Broker Associate at Paragon Real Estate Group and can be reached at Meredith@OpeningDoors.me

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Million Dollar Affordable Housing. Only in San Francisco.

 

No San Francisco neighborhood has so squarely positioned itself at the epicenter of opposition to rising housing costs than the Mission District. Of course, housing un-affordability is but one of many rapid changes in the neighborhood, and seeking legislative action is but one response (sidebar: remember when protestors were blocking tech shuttles?) — and median home prices have soared 76% citywide since 2011! For now, let’s take a focused look at some of the real estate sales dynamics in the Mission.

August 2007, at the peak pre-recession height of local real estate, a TIC at 901 Guerrero Street (below) sold for $955,000. The 3-bed and 1.5-bath Edwardian was purchased for 12.5% more that its list price and in 26 days on the market.

 

326274

 

Earlier this year, in February 2015, I represented the buyer of 901 Guerrero Street sold for $1,650,000. This time, the property returned favorable to the market with a fresh coat of paint, a successful condo-conversion on the record, and convenient proximity to “every tech bus.” The winning bid (of course there were competing offers!) after only eight days on the market came in at 18% over asking. The San Francisco Chronicle even wrote about it.

 

429044

 

Given that 901 Guerrero did have a significant value-adding improvement between 2007 and 2015, consider still that its 2015 price is nearly 75% higher than at the previous peak. It’s not uncommon for properties to be improved from one sale to the next, and it makes sense that those properties will sell for higher prices, all else equal. Couple that with record-low inventory and cash investors, and now not even techies (let alone teachers) can compete as homebuyers. Since 901 Guerrero Street sold, I’ve seen comparable properties in the neighborhood sell for even higher. What’s a city like San Francisco with its economy supercharged by the high-tech boom to do?

There appears to be a “try everything” approach in the works for the Mission.

First, a ballot initiative calling for an 18-month moratorium on new market-rate residential developments in the Mission has been approved for the November 2015 ballot. If passed, the effect of the moratorium on neighborhood home prices can be debated. Because the overwhelming majority of housing in the Mission is market-rate which is favored by homebuyers, constraining supply could drive prices of existing homes higher. Alternately, negative attitudes toward an influx of affordable housing could lead residents to leave for other neighborhoods and influence homebuyers to buy elsewhere, ultimately hurting market-rate resale values.

Second, the city is feeling pressure to build more affordable housing units right now. Such developments, like 490 South Van Ness at 16th Street, are permanently reserved for low-income, median-income and moderate-income residents. Below Market Rate housing is purchased for a fraction of market value– not a single unit has sold in the Mission since March 2014 (and a 2-bedroom BMR condo in the Inner Mission is listed right now for just under $450,000). Plus, projects like these can take a year or more to construct once ground is broken, meanwhile the price of affordable housing continues to rise with $15 minimum wage.

Lastly, flood the market with new housing units of all kinds to help meet demand and stabilize prices as quickly as possible. There are 26 residential developments planned for the Mission and a few have begun construction (see the entire pipeline of residential projects in San Francisco here). Still, the pace of new units coming to the market pales in comparison to the city’s growth of employed residents (yes, people can afford to relocate to San Francisco even with housing costs as they are). Some sites available in the Mission could be bought by the city for affordable housing, and the proposed moratorium would give it enough time to organize and fund the investment.

 

A 2015 Yale School of Management survey of recent home buyers found that a quarter of San Francisco respondents has the extravagant expectation for annual home price increases of 10% or more annually for the next 10 years. Although more likely be closer to 5%, it could happen. In 20+ years working locally in real estate, I’ve learned to never underestimate the voracity of the San Francisco market. I’m of the opinion San Francisco median price trends are headed the direction of Tokyo, Sydney and London toward $3,000 per square foot. Before we get there, though, we may find ourselves asking sooner rather than later: When does an affordable housing unit cost a million dollars?

 

Meredith Martin is a Broker Associate at Paragon Real Estate Group and can be reached at Meredith@OpeningDoors.me

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