To answer your question why SF will likely weather the real estate storm: folks are highly educated, they have high paying jobs, SF is a unique culture not found anywhere else in the world, and the people who live in SF love it and don't want to live anywhere else. All that translates into folks that want to and can afford to stay.

Now about the misunderstanding with the Case-Shiller index and San Francisco. The index reports on the entire Bay Area. This includes places like Oakland, Fremont, Bentica, Walnut Creek, Vallejo and of course San Francisco.

These places have been hard hit by real estate slump. If you want to know about the general area, then it is a good index, however, comparing San Francisco with these places would be like comparing Manhattan to NJ. Really. Not only in proximity but also for the folks that live there. They are apples and oranges.

So, if you want to know about SF real estate, you're better off looking at a site that compares the performance of neighborhoods, year over year. Good luck!

Here's a site for condos: http://www.sfcondosales.com/condocount

Tue May 13 2008, 09:09

You quote from the Chron goes back to exactly what I posted in my initial response to your question, so we are in agreement. Median stats have value as median stats and can show historical trends. Case Schiller has value in tracking single family homes that have sold at least twice since Case & Schiller came up with the formula and started gather ing data. But again its data reflects a large area and not San Francisco itself which was your question and which I answered with careful thought.
That piece of paper in you wallet has value because we all agree it has value. It is losing value as we speak. I just wish I'd kept some of those 1972 dollars that everyone compares value/price to. Heck, even the 1968 dollar was a good dollar. Used to get three gallons of gas with that and a steak knife set if I filled the tank. So thanks "old man" and we will talk in a couple of years. But don't worry I can buy the coffee with some of the hundreds of thousands of dollars I've gained in leveraged equity.

Wed Apr 30 2008, 14:08

The Chronicle is garbage but they might have a point: "Many real estate experts consider the S&P/Case-Shiller indexes and others like them more accurate gauges of real estate trends than the median price approach used by other groups. Because they track the value only of homes that have traded hands at least twice, the indexes chart the actual increase or decrease in specific homes. Median surveys compare prices for homes sold in one month to an entirely different set sold in the next, meaning they can be artificially distorted when a higher proportion of homes sell in the lower- or higher-priced tier in a given period."

And let me follow suit and correct you, young man: I think you are referring to a one-dollar bill and not a piece of paper. Dollar bills are valuable because they are accepted as payment. But real estate is not a currency. The car I bought dropped in value as soon as I left the car shop but the price I paid stayed the same.

I'm a very successful investor and here are some advice:
1) Never chase bottoms or tops - go for the meat of the run
-- I sold the asset I bought in '95 in '99 (not the SF market) with a 300% return (FANTASTIC!)
2) Take profits and wait for next opportunity to reinvest
3) Never listen to the so called professionals (brokers, analysts et cetera - info to biased... ;)

Time will tell but I'm on the sidelines, waiting to get in when I either see a market capitulation (increased volume and much lower prices selling on ask) or that there is a confirmed bottom. As I've said, I'm not afraid of paying more, I just don't want to buy on the way down... Until then I'm making a great risk free return while everyone that bought over the past 24 months are either under water or in foreclosure with a very high burn-rate.

Let's revisit this discussion in 12-24 months and see if S&P/Case-Schiller is either up, flat or down... Since I don't have a mortgage I can afford to treat to a coffee. lol

Wed Apr 30 2008, 11:17

Per,
Read the Chronicle today!
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/04/29/…
Paragraph 4 "San Francisco, for instance, eked out a median price increase in March . . .
To quote your original question and the one I answered “Is there anything that will prevent SF real estate prices from keep crashing? SF down another 5% in February '08 according to the S&P/Case-Schiller index. The prices have gone down about 20% since they topped out in May '06."
My response showed the correct interpretation of the data. My motivation in responding to your question was to make the point that San Francisco real estate is not crashing and I am correct.
To quote you in a subsequent post "Prices “always” reverse to the mean and so will real estate. Sellers in San Francisco are still holding onto the idea that their home is “worth” as much as a year ago or at least what they bought it for. "
What is the mean that prices, I think you meant "revert to" not "reverse to", will always go to? Is it the average of a plot of land in Antioch and Pac Heights?
Also value and price are intrinsically related. The piece of paper in your wallet has a perceived value of 100 cents. The car you drive was chosen because of a perceived value that translated into the price you pay for it.
In the last housing downturn when you bought San Francisco as a whole saw a 3% drop in real estate median price from start to finish. The property you bought then is now worth three times what you paid for it. There are buyers out there that perceive the value and will pay the price.
Last point. At the end of the Chronicle article Case Shiller places the value of the San Francisco metropolitan area real estate at 175% of its value in 2000. Hopefully you didn't sell the house you bought in '94 in 2000 thinking that the value/price was as high as it was going to go.

Wed Apr 30 2008, 10:13

The S&P/Case-Schiller has nothing to do with the San Francisco real estate prices? You are seriously arguing in a public forum that one of the most established economists and great business cycle analysts is wrong? Good for you!

I love the fact that you keep telling me that I'm not capable of digesting and analyzing data or interpret economic patterns. Maybe I should listen to NARs Lawrence Yun? He's probably the most honest and unbiased guy on the planet since Nixon. lol

The real problem for you might be decreasing commissions but the real problems for real people are the unethical and fraudulent activities in the real estate and mortgage industry that got us here. This reprising process will take time, it's a natural part of a business cycle. Especially a cycle that has been artificially supported by loose lending standards, historically low interest rates and heavy marketing to own at any cost.

Prices *always* reverse to the mean and so will real estate. Sellers in San Francisco are still holding onto the idea that their home is *worth* as much as a year ago or at least what they bought it for. They confuse price and value. And if we are looking at historic patterns: the last real estate crisis lasted for almost 5 years (1989-94). I know since I bought in March 1995 after a few months of stabilization and paid 10% above the lowest price and was therefore never under water.

This is a great discussion! :)

Wed Apr 30 2008, 07:57

Per,
You are not analyzing market data you are consuming market analysis done by others and I don't write promotional blurbs. Your question when I answered it was "chicken little" screaming “the prices are falling the prices are falling”. I missed the part about the "general market metrics" in the original post.
I did the research to find out what the Case Schiller criteria is so that I could interpret the data meaning for my market and my clients. In SF Case Schiller has no bearing on our market except to confuse consumers of their analysis.
No one has the ability to say when a market will turn and there are no metrics for it. Every system designed tracks history. Every analysis is done on data from the past. The economists make predictions based on past data and then see if they were right.
You or anyone of us can set up a benchmark to decide where we have a comfort level with a market and if you think 3 months of Case Schiller being up in the Bay Area is for you, then that's your risk tolerance level. The real problem now is that lenders have swung their risk tolerance level to an unsustainable level.
But again your original question was about SF prices and Case Schiller has nothing to do with SF prices!

Tue Apr 29 2008, 18:14

Per,
I don't think there is anything such as "smart money". I know many who considered themselves "smart money" who lent to builders at 65% loan to value and are now reeling at the losses they are suffering. Much "private money" lenders, historically guys who are considered very "smart money" are feeling the same pain. Calling ANY market is oft times folley. I'm now trying to figure Warren Buffett's latest move to Wrigleys? I guess one chews through any market. But he predicted a recession of longer lenght and deeper than most.

Tue Apr 29 2008, 13:18

Thanks for your answers.

I live in Pac Heights and we have several foreclosures on my street and several of the multi-million mansions up for sale. That is telling me that the stupid money is getting screwed and the smart money is getting out. It's never wrong to take a profit and there are always several opportunities to get back in the market.

I agree that we are seeing relative strength in San Francisco due to the unique micro markets. But I'm not sure if the relative strength is going to turn into strength or weakness, that all depends on the general market conditions. I'm not short-term *bargain hunting* so I don't mind if I miss the bottom and have to pay *more*. Staying on the sideline at this time is perfect: no risk, growing savings and lots of choice.

Few people succeed in buying low and selling high since hardly anyone can predict tops or bottoms. The key is to get the meat of the run, i.e. enter the market when there are clear indications that the market has bottomed and exit when it's getting to frothy and real estate becomes first page news.

A re-pricing process takes time - both on the way up and the way down - and in my mind I think we'll have more downside before we can see the light in the tunnel. Once the S&P/Case-Schiller has shown 3 consecutive months of positive growth I'd consider buying again. That could be in 3 months or 3 years - lots of time to find a great place to live in without overpaying or gamble.

Tue Apr 29 2008, 11:39

Per, I think I understand the origin of your comments, as there was an article in the Chronicle today outlining the general results of the S&P index. There were also comments by a few readers which I took the time to read and understand. I get the idea that very good advice being given by realtors here in SF is discounted because there is a trend by some very opinionistic individuals that what has to be said and reported locally is in ill repute. I disagree, and I think you should understand that here in SF there are some micro-markets that perform very differently than the region at large.

In the southeastern quadrant of San Francisco, you can see some declining home values that might mirror some of what you have read in the press at large. In the outer Sunset and outer Richmond, some pockets and some blocks are experiencing this effect as well. But for the most part, the Sunset and Richmond are holding values because there are other blocks and pockets of homes that really shine in value.

I have the personal opinion that what we are seeing is a correction in the local market. Those who could barely afford the subprime loans, or those that could barely afford to move forward after purchasing their homes (not being able to improve, not being able to fix the fixer, etc) here in SF are those that are seeing they are in trouble. Not everyone is in this predicament. The correction we are seeing is that of those who made subprime loans, paying only on interest for short terms, not being able to increase their equity in the homes they bought, and now seeing the payment terms of those homes rise significantly. It is a minority of homes and situations like this that we find in SF propery.

Outside SF, in the surrounding areas like outer Contra Costa county, newly developed areas of Alameda and Santa Clara county, where a lot of developments were sold based on subprime mortgaging supporting (then) inflated home prices, YES, you will see declining values en masse. And that's what we have.

Tue Apr 29 2008, 10:52

Per, I'd look at all "indexes" with a jaundice eye. I'd reccomend looking at the OFHEO site. This is based on "actual appraisal" data and might give a balance to Case-Schiller. This is the Office of Federal Housing Enterprise Oversight. You can google it. The consumer always makes the mistake of buying into the sweeping statements, indexes, national and state numbers when every real estate pro worth their salt knows we have micro-neigborhood indexes!!

Tue Apr 29 2008, 10:29

Hi there Per. Your question is a fair one. But as you know nobody can really tell you accurately. Nobody has a crystal ball. You can ask 10 different Economic experts and get various answers. Anybody who tells you otherwise is either a physic. Supply and demand has a lot to do with it but a very important questions to ask yourself is
How will you know when the prices stabilize, Maybe when prices start to go back up again and by that time if you were considerig buying a property it would be too late to get the really best deals out there.
It is all based on Market value and market metrics will not give you a clear enough picture.
The past sales history, active properties, how the area is progressing, Schools, parks , etc. There are many ingredients that effect this.

Real estate is Cyclical, ups and downs, the basic rule of economics apply, buy low and sell high.
Hope this honest answer helps
Kind Regards
Michael Barron
Realtor
First Team Real Estate

Tue Apr 29 2008, 09:28

Jed is correct. You have to really "peel back" the numbers when you evaluate the prices in San Francisco. The numbers is the Case-Shiller index are most certainly looking at the "San Francisco Bay Area", not San Francisco proper. The "Bay Area" includes areas like Antioch that have been hit quite hard by the mortgage meltdown and over-development. In contrast, when you isolate SF, our single family home median price has actually climbed from $862,500 to $900,000 for the period of Jan 1st thru Apr 28th (2007 vs 2008), an increase of 4%. If we remove District 10 from the mix (the area in SF that has been hit the hardest by short sales and foreclosures), we get a median price increase of 10% for the same period. Not too shabby by any standard! Unfortunately these numbers don't sell papers. We are VERY fortunate to live in a world class City that's surrounded on three sides by water. People come from all over the world to live here, and that's one of the things that prevents SF prices from crashing. I hope that helps ease your mind a bit.

Tue Apr 29 2008, 09:19

Thanks for telling me that I'm not capable of analyzing market data. My question still stands unanswered but I'm glad your promotional blurb got published.

Are there any serious professionals in this forum that can give an honest answer? I'm interested in understanding if there are any market signs (and what those are) pointing to a possible bottoming process? What general market metrics / indicators should I look at to determine if the prospects are shifting from negative to positive?

Tue Apr 29 2008, 09:02

Per,
You have to understand the formula used in any data. Case Schiller uses the greater bay area and calls it San Francisco. It looks at sale information on previously sold single family homes. Tracking the difference between the price in the past with the price today on each individual property and then averages the difference.
What will prevent San Francisco real estate from dropping is the classic law of supply and demand. If Case Shiller looked at San Francisco single family homes they would not be able to report wildly huge numbers that.
I just ran a comparison for March 2007 and March 2008 for single family homes sold in SF. In 2007 205 homes sold with the average price $1,239,278. In 2008 151 homes sold with the average price $1,202,134. The average price is down 3%.
Now let me point out that even within that stat is a story. Average can be swayed by individual sales. Was there a 25 million property reported on month that affects the average. Median is also moved by the same factors.
My point is that when you or any person just looking wants to know what is going on talk to the professionals. The focus of our time is spent on understanding what is going on in the market and being able to decipher the numbers so that you can make decisions based on knowledge.

Tue Apr 29 2008, 08:20