Will the Real Estate market continue Softening in the next 24 months in San Francisco?

Asked by Sam Zaydel, San Francisco, CA Thu Nov 22, 2007

I am considering moving back to San Fran from Denver, and am trying to figure out when I should start looking. Of course, it looks like the market has been fickle lately, but is San Francisco poised for more softening and price reductions, or not? Are sellers begging to remodel more to improve value of their properties and offset the softening market?

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per, , San Francisco, CA
Tue Apr 29, 2008
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
1 vote
SFisHome.com, , San Francisco, CA
Mon Apr 14, 2008
In reply to "curious" - your scenario of prices being flat from '91 to '98 so a "buyer lost 30% in real terms" vs. buying CD's at 5%.... I see that logic all the time on anti-buying sites. But take another look. Let's say you bought at the very beginng on the flat period... 1991... a 2Bed 2Bath condo in Pac Heights for $250,000... you hang on until 2007... and it's worth at least $880,000 or 350% higher. The 5% CD over the same time period is up 229%. But you didn't just lose $300,000 in "real terms" with your CD.... it's worse:

You would have had to put $250,000 in cash into a CD.... whereas you only needed $50,000 (20%) down on the $250k Condo. So the cash on cash return is 1762% or an $830,000 gain. If you only had $50,000 in 1991 you made a whopping $20,000 when you sold in 1998 and you would have made a total of $60,000 if you held on until 2007. So you can make $60,000 on a CD where you also pay Cap gains when you sell, and have ZERO write offs, or you can make $830,000 and only owe Cap gains on $330,000 if you're married and you get to write off your interest and property taxes all those years.

The above scenario is the bad timing one.... you bought in '91. What if you bought in '98 when the market started going up? Your $50,000 CD earned $22k through 2007 and your $250k condo, purchased with $50,000 is still worth $880k. An $830,000 gain vs. a $22,000 gain. That's why people say you can get rich in real estate, but no one ever got rich in CD's.

We agents get thrown under the bus for having a "vested interest" when we talk about the market. How about a new paradign in how you look at us.... we BELIEVE in real estate.

Should someone moving to SF buy now? If they think they'll be moving again in another couple of years, than they may not want to take the risk. But if they can hang on for the long term, it can be an incredible investment. In fact, 2008 may be looked back upon as one of the best years to buy real estate throughout the country. And if it goes down more in 2009.... well, by 2020 you're still going to look like a real estate genius just like the person who bought in 1991 even though they "suffered" in their home for 7 years of no growth.
Web Reference:  http://www.SFisHome.com
1 vote
Curious, Home Buyer, Santa Rosa, CA
Sun Apr 6, 2008
The Northern parts of the city are still hot but I belive that SF will soften too. Barclay's is getting hit left and right, look at their stock price. The Google hiring binge is done and all those geniuses that work there but do not add to revenues or reduce costs will soon be looking for new jobs in a not as friendly market. Add to that the inevitable Yahoo layoffs that will come whether or not Microsoft buys them. SF will come down, it just may take a bit longer for the slow down to hit SF. During the last down turn 91-98, a buyer did not break even from 91 until 98 and given the fact that you could make 5% in a CD then, a buyer actually lost over 30% in real terms. Also, the only sales during that time period on Oak and Fell were foreclosures. San Francisco can come down too. Most of the people who tell you it can't have a vested interest in it staying high. Don't belive the HYPE!!!
1 vote
Martin Lavin, , San Francisco, CA
Tue Dec 18, 2007
The more things change the more they............

As a realtor I concurr (mostly) with the views of my collegues. Waiting for a bargain in San Francisco is like trying to catch a falling knife.
While the sky is falling elsewhere it isn't happening here.

Martin Lavin Realtor Coldwell Banker
Web Reference:  http://www.Real-sf.com
1 vote
Scott Pierce, , San Francisco, CA
Tue Dec 11, 2007
Sam, the November sales report for single family homes was just published by the San Francisco Association of Realtors. I have formatted the info and posted it at http://stats.sfcondomap.com

You can also see other reports for condos, 2-4 unit buildings, etc.

The answer to your question all depends on the district. Districts 1 and 6 are up significantly. Districts 3, 4 and 10 are down while the rest are holding their own. You can see what neighborhoods are in each of the districts in the report.

Let me know if you have any further questions.
Web Reference:  http://stats.sfcondomap.com
1 vote
Rob Regan, , San Francisco, CA
Fri Nov 23, 2007
It depends where in the city you are looking. Many upscale neighborhoods are very strong, often getting mutliple bids, and selling over asking. For example, most of the northern neighborhoods (eg Russian Hill, Pac Heights, Cow Hollow) are still quite hot and are likely to see continued strength. Less desireable sections of the city are suffering with prices down, and still little movement of inventory. So "when" to buy depends on where in the city you are looking, and what type of property. If you're looking in the most desirable neighborhoods, I see prices moving up steadily, so there really isn't an ideal time. Most Buyers look when they can find the most inventory (spring, and then again in early fall). If you're open to less desirable areas, anytime is good. There is a lot of invetory, and Buyers are in control. As for remodeling to combat softening, smart Sellers do what ever it takes to make their homes as desirable as possible, but that's been the case in SF for a while, so I don't think the pace of remodeling has picked up, I think it's been strong for a while. Buyers are being pickier right now and remodeled and staged homes are selling the fastest.
Web Reference:  http://robregan.blogspot.com
1 vote
Paul Hazlett, , Middleburg Heights, OH
Thu Nov 22, 2007
Well, Sam, I know nothing about that area. But from what I see the extremely high prices must come down. Many years ago one of my former co-workers moved to that area. The only house he could afford was 50 miles from his work site. He was so strapped for money he had to ride a motorbike to work
1 vote
DK, Home Buyer, San Francisco, CA
Sun Apr 6, 2008
I live in SF and have been in the market for 6 months now, and let me tell you, it is changing. I would take the real estate agents' views with a grain of salt - I have yet to find one that will acknowledge things are slowing down. Every agent says things are "hot," but in my experience, the agents are very backward looking. I see properties staying on the market longer and many are seeing prices come down, even in northern neighborhoods. However, it is very difficult to predict the market for 24 months, and I suspect the SF market will be firmer within 12 months. It really depends upon the financing market, which is very difficult right now and likely the reason for the softening in even the best parts of SF.
0 votes
James Ash, Both Buyer And Seller, 94107
Tue Dec 11, 2007
how much can you afford sam? check out these three blogs to get a feel for what's happening around here. http://www.thefrontsteps.com , sf.curbed.com and lastly, http://www.socketsite.com

the first two are mostly owners or buyers and realtors, the last one tends to get a lot of bitter renters so keep that in mind.

good luck!
0 votes
Melanie Nard…, , San Francisco, CA
Tue Dec 11, 2007
I certainly agree with Rob's opinion of our market, properties that are turnkey and appropriately priced move well. I've always had a softness for getting a good deal around the holidays, and taking advantage of the "seasonality" of our business, but there are some indicators that seasonality is not as pronounced as it used to be. I'd give myself a week or two to understand the market and identify the property you want, and then up to month to close and be able to move in -- a six week window from the beginning of your search to move-in is perfectly reasonable. Business Week sites San Francisco has weathering this national downturn with single digit appreciation -- Google the "Superstar City theory" behind this prediction. Outer Richmond currently has inventory, so a good selection for buyers.
0 votes
James Ash, Both Buyer And Seller, 94107
Thu Nov 22, 2007
hi sam. depends what you can afford and want. the turn key single family homes in nicer neighborhood are still going way over asking and getting minimum 10 bids. there just aren't enough of those. the biggest correction i've seen seems to be the 2 bedroom condo market. 5-10% depending upon location and the unit. the downside of not buying if you come back soon, rents have gone through the roof ever since the credit crunch disqualified so many buyers.
0 votes
Brett Dunne -…, Agent, Upland, CA
Thu Nov 22, 2007

Hang in there and keep checking back to see answers that post. I know of several GREAT Realtors that post on this site that work the Bay Area.

God Bless,
0 votes
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