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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

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

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

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

Sam - I've been looking at buying real estate in San Francisco myself but decided to stay on the sidelines to get some clarity. Personally I think we might see a bottom in the next 12-24 months but it's foolish to try to catch a "falling knife". SF real estate is down 20% since May '06 according to the S&P/Case-Schiller index and there are no signs that the decline will reverse anytime soon.

A lot of real estate brokers on this site are arguing that real estate is always a good "investment". I think millions of people that lost their homes would disagree. The brokers fail to add their commissions, closing costs, maintenance, HOA, insurance, taxes and cost of interest in their P&L calculations. Plus the extra risk added by using leveraged debt. They also fail to add that just holding onto a property that is in the red (over 5-10 years?) when you have to move is very costly and added high risk.

Real estate should not be a gamble so therefor I've come up with the following: more then 20% down and less then 40% of the net yearly cash-flow in payments (i.e. if you or your wife lose your jobs you should still be able to keep the house). The interest deduction on the taxes only matters if you have an income, if you loose that your cost increases with 50% overnight. In addition to this, you should have a buffer of 25-50% of down payment for unexpected expenses.

I know that this is a very conservative approach but I prefer that than the recklessness that the real estate and mortgage industry have shown over the past decade. The last real estate broker I spoke to told me to max out my mortgage and get the biggest house I could find. That was in end of '05. I told her to go and... lol - Tue Apr 29 2008, 08:30