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This Is How Totally Over-the-Top Crazy San Francisco’s Housing Boom Really Is
Wolf Richter www.wolfstreet.com www.amazon.com/author/wolfrichter
In San Francisco, a boom is always associated with its essential counterpart, the bust. They’re as typical to the city as sun and fog. And currently, the city is in one heck of a housing boom, but the national indices don’t quite do justice to how over-the-top mind-blowing crazy the situation has gotten.
For example, the S&P/Case-Shiller Home price index covers not just the city or county of San Francisco (identical) but includes four other Bay Area counties: Alameda, Contra Costa, Marin, and San Mateo. There are more counties in the Bay Area, but they’re not included in the index. Two of the cities in these counties – Richmond and Oakland – have made the lists of the nation’s most dangerous cities, justified or not, and home prices in these cities and other cities too are much, much lower.
So in terms of home prices, the five-county Case-Shiller index for “San Francisco,” though showing a significant gain, waters down the craziness happening before our very eyes in the real San Francisco.
For the most current granular neighborhood-by-neighborhood data for San Francisco itself, we go to Paragon Real Estate Group’s May 2015 report, and what we find are vertigo-inducing price increases that have now beautifully spiked.
During the prior nationwide housing bubble that blew up with such fanfare, helped take down the world financial system, and caused central banks and governments to instigate the largest bail-out schemes the world has ever seen – from banks to entire countries – well, during that bubble, while it was still going on, homes in San Francisco reached what afterward were called totally crazy valuations, with the median price topping out in November 2007 at a completely mind-boggling $895,000.
People were shaking their heads at the time. But after the boom came the inevitable bust. By January 2012, the median home price had plunged 31% to $615,000.
By then, the tsunami of money that the Fed had unleashed was already washing over San Francisco from multiple directions: a stock-market and startup boom that the city is so dependent on, a tourist boom from around the world, waves of foreign buyers too, and a veritable flood of nearly free funding. Everything came perfectly together. Over the course of three years and four months, the median home price about doubled to $1,225,000.
January is typically the low point in the seasonal fluctuations of the median price. Paragon notes that sales prices in one month reflect deals negotiated in the prior month or two. So from January to April last year, home prices surged 15%. The four-month surge in 2013 hit 20%. But look at that gorgeous 32% spike so far this year! That’s what a real boom looks like:
The median home price is now 37% above the prior-bubble completely mind-boggling median price that afterwards everyone admitted had been based on totally crazy valuations.
This has a real impact on rents, with average asking rent in the first quarter hitting $3,458 a month, or $41,500 per year.
On a neighborhood-by-neighborhood basis, the differences in median home prices are enormous. Below are two charts from Paragon. The first chart shows median prices of houses; the second chart shows median prices of condos and co-ops. In some neighborhoods, houses dominate. In others, condos and co-ops dominate. So not all neighborhoods made it into both charts.
In the chart below, the median house prices range from $610,000 in Bayview, one of the more troubled neighborhoods, to nearly $6 million in Pacific Heights. It is in this exclusive, gorgeous, and groomed neighborhood, endowed with breathtaking views of the Bay, where you find the humble abode of the champion of the poor, former Speaker of the House Nancy Pelosi.
The chart below shows median prices of condos and co-ops. Prices too vary from one end to the other, but not by as much as prices in the prior chart:
The extraordinary moolah that developers make at these prices has kicked off a construction boom – to be followed, as always, by the inevitable bust.
“The new-home development situation in San Francisco is fascinating – and a fierce political issue,” Paragon explains. Probably one of the biggest understatements of the year. And this is what the construction boom-and-bust cycle looks like through 2014:
This year promises to be even more ebullient. Cranes are sprouting in some neighborhoods like mushrooms. Lots that have been vacant for years or decades suddenly see construction work. This place is hopping. According to Paragon’s Housing Construction report: “99% of all new construction being built for sale consists of new and usually high-end condos.”
New home development often goes through gigantic boom and bust cycles. What complicates the issue for SF developers is that from start to finish, from creating plans for city review to completing construction, the process can easily take 4 to 6 years. Right now, both residential and commercial developers are making enormous bets on a long, sustained, up cycle in the SF economy and real estate market.
They’re certainly not betting on the next bust.
Most of it is happening in the eastern quarter of the city (Paragon map) near the Market Street corridor, the Van Ness Street corridor just north of Market, and in the large area southeast of Market where sleek condo towers are replacing former commercial and industrial sites. Zoning in these areas “allows for large – sometimes very large – projects,” Paragon points out. Which you can’t do easily or at all in other areas of San Francisco. And people are already complaining that it doesn’t even look like San Francisco anymore.
So in this environment, how many years does it take to save up for a down payment in San Francisco and other US cities if you earn the local median income? Are you sitting down? Read… How Soaring Housing Costs Impoverish a Whole Generation and Maul the Real Economy
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Strangest thing is that despite astronomical cost
increases San Francisco has turned
into a total hellhole....
It used to be a fun, laid back, wonderful place to live,
that is, into the 80's.....
Traffic is now worse than impossible, far worse than
NYC because public transportation is non-functional,
non-existent and worse..
City planning is abysmal, and city planners
work as though they are planning a small
backwater cow town.
City administration malfunctions like a capricious
dictatorship, and everyone from landlords to
meter maids,has their hands stuck
deep into your pocket, , scouring out
your last penny....
Even just going into San Francisco, at al times
you have the justified feeling of being under attack....
Looks like 2008 all over again. Time for another crash.
There's a simple explanation for the rocketing SF RE market.
Some time soon Califirnica will be an Island and SF is perfectly situated to have a circumference of beach front, 360 degrees of it for all buildings that remain standing after the quake.
San Jose will have it's own spanking new beachfront as well. The PAcific right at your front door, how great is that you landlocked lubbers? Hang in there.
There, that's solved.
I remember the days when Jerry Brown had a full mop and was doinkin' Linda Ronstadt...
So is the real problem lack of water, or full-time/life-time legislatorship...?
San Francisco is Doomed, prescient warning from the 1970s.
https://www.youtube.com/watch?v=aLhOrOIO770
Over the Top was a good movie.
Want to really see the bubble, run that chart back to 1980. Not even have the average human lifetime.
Humanity really is devolving.
Must be all that compertition for vanishihng resources. They aren't making houses any more. Oh.... wait....
This isn't just san francisco. I closely follow the market in Chicago. We bought a place two years ago for 95k and today the identical model above us sold for 160k. Apartments we were looking at 2, 2 1/2 years ago that had dropped to 100, are now on the market for above their price when they were new 8 years ago at 280k. Across the board you see prices around chicago have shot up in the past 24-30 months. Often more than doubled. Of course asking price isn't the selling price, but properties are selling. All that hot money. And the only thing that will stop it is interest rates going up.
Does this mean we can play "crack house or mansion" in SF now?
There's gold in them thar condos - the "new" gold rush.....
buy, Buy, BUY, BUY!, BUY!, BYE!, Bye?, Sell! Sell! Sell!
Yes! If you don't make as much as $79/hour, you can't afford the "city's median rent of $3,949 according to a December study from real estate analysts at zillow. With wages rising in nearby cities, fewer find it worthwhile to cmmute into San Francisco for a low-paying job." esppecially if it costs nearly $10 to commute into SF.
http://www.sfchronicle.com/business/article/Harder-for-retailers-to-hire...
I moved out of SF in Jan because my landlady wanted to double the rent of the room in her house I was renting.
Living in SF if you make less than $79/hour or even less than $50/hour is hell, because rents have been so jacked up everywhere.
A lot of folks have been kicked out of their apartments and/or rooms in a house/apartment and have been forced to move out of SF because affordable housing in SF isn't available at all.
Funny you should mention $79 per hour. I make that online! I've been following a few links placed by some kind ZH community members and sure have been cleaning up.
I plan to buy a place next to Pelosi sometime later this year.
I make more than $79 per hour. I do BJs on Haight Asbury in the street (mostly alleyways).
I can blow off 3 guys per hour, that will yield me minimum $100.
That sucks.
... any of theses places come with water or is that xtra?
$800K shacks in the South Bay, soon to be $1M. Incomes still around 90 - 150K on avg. Not uncommon for 20+ offers (sometimes 40+), many all-cash. It's a loony world out here.
My buddy's parents bought their Cupertino house as middle class people in the 80s for $150K or something like that. Now it's $1.5M or likely much more.
Dirty Chinese money in play in Cupertino.
It's nuts! Have an uncle in Santa Barbara, who's wife bought her house about that same period for around that figure. Nice ranch style, not huge but with a killer view of the hills out of the back yard.....it really is like a painting from God when the sun hits it just right
Ahyhoo, he told me that after they did some updates here about three years ago he could easily fetch 800k. She was grandfathered into some RE tax thing from years ago so they are not killed on some aspects but it's just crazy what RE goes for. I honestly don't know how the common man out there can make ends meet? Places like Cuper, Goleta.......just nuts. Too bad they have that damn oil slick to deal with now.
I honestly don't know how the common man out there can make ends meet...
You touched on it in your illustration. I remember years ago reading somewhere about the fact that the vast amount of wealth transfers, 80-90% occur through family channels, i.e. parents to kids and / or through marriage. That leaves only 10-20% of wealth which actually gets transferred by way of personal "earnings". Same as it's always been.
The US has been that "special" place because historically, we celebrate the rags to riches, up from the bootstraps, Horatio Alger meme and have so successfully marketed that hope to the rest of the world that they teem our shores with SF being one of the west coasts’ prime beneficiaries.
Jmo.
Two of the cities in these counties – Richmond and Oakland – have made the lists of the nation’s most dangerous cities, justified or not, and home prices in these cities and other cities too are much, much lower.
You mean much lower like this:
$639,000 for a 2br, 1100 sqft condo http://www.estately.com/listings/info/428-alice-st--36
A particularly useful/valuable interactive website
to check out for crime statistics in a particullar area
or address is CRIMEMAPPING.COM
http://www.crimemapping.com/?gclid=COD92YDr0MUCFRABaQod0poA3A
you can select an area or an address, a radius around
the address, and specify the dates to review crime statistics.
The only hope for those who are buying now is that the inevitable bust is accompanied by hyper inflation and that the nationwide bust isn't precipitated by a devastating California earthquake.
Whay about the water ?
Who gives a rip about SODOM on the bay?
You havent made money in real estate if you only own one house (gotta live somewhere)
You havent made money on your second "investment" (i now use investment and gamble as synnonyms) property until you stand up from the Casino table.
100's of 1000's in home equity?....and its gone..
How do I short San Fransisco MBS?
Do I have to talk with Goldman or Paulson?
Not kidding...
Yahoo!™
Makes you wonder if dumbfuck tech investors realize where all of that supposed capex spending is going.
boom/bust cycle...social media valuations are billions based on concept and a few engineers. It will end just like the dot com bust.
How do you say homo in Chinese?
tong xing lian, or same sex love
more on point, doing my best MDB: what this article misses is the SF home prices relfect the extremely strong local economy. SF is the hub of the tech sector, with powerhouse companies like google, apple, and facebook, which collectively have been the engine of the overwhelmingly strong economy in the us. of course housing prices have gone up, the economy is sustainably booming as stock prices have gone up and through the trickle down wealth effect SF has become the land of plenty.
Oh yes, Facebook is bringing so much intrinsic wealth to America - yes indeed !
"The economy is sustainably booming as stock prices have gone up and through the trickle down wealth effect SF has become the land of plenty." --Bro of the Sorr...
Oh dear Satan in heaven please tell me you're being sarcastic.
you didnt catch my "doing my best MDB" (milliondollarbonus)?
I caught it. Greenie from me; you have the style down pat. Sort of "low voltage dweeb speak that lulls you to sleep until you think a bit, and go WAIT, WHAT?!?". Sarc tags not needed for quality stuff like that...
Try to find parking in a Bay Area Home Depot. Try to navigate through the hordes in the store. At least lumber prices are dropping, thank you the rest of the country for that.
Why the hell anyone would shop at a Home Depot is beyond me.
Why shop at Home Depot??
Because they are a monopopy that has driven all
smaller independent business out of business,
leaving you virtually no other choice....
McDonalds, Walmart, Starbucks, Home Depot...
the downfall of America !!
I remember the days before any of these existed.
Because in a lot of places, if you need something simple, say a hex lag bolt, the other option is Lowes.
They carry a great line of cologne for men .....
What if hypernflation was caused by excess money but required the velocity of money to kick it off. What if US dollars, some day came home looking for something to buy. What if China owned a couple trillion or so of said dollars and were beginning to panic and find people willing to take these dollars. What if we are Weimar in 1921 and just getting started.
By definition: hyperinflation is the loss of confidence in a currency.
Hyperinflation will kick currency velocity into overdrive -- not the other way around.
.
The Tahoe market and the rest of Nor Cal is NOT exploding anything like SF. Brace for impact! BTW, Hetch hetchy better fill up soon or SF is PHUCKED.
http://wn.ktvu.com/story/29049451/hetch-hetchy
Hetch Hetchy is simply returning to the alpine meadow that is has been for thousands of years. Maybe a few dump trucks full of Scrubbing Bubbles will eliminate the bathtub ring, and create jawbz.
Hetch Hetchy is simply returning to the alpine meadow...
I still chuckle when I remember the barrel the Reagan administration had the opposition in SF over whenever they started screaming about environmental issues. All James Watt had to say was he was looking at the plans to remove the dam at Hetch Hetchy and the noise would stop cold.
NIMBY indeed.
Just wait until they ban cash and rates are pushed negative. It will make the past bubbles look like a joke.
Great work, as usual from Wolf..
I would love to see a price chart re. housing prices of the City of London, Inc. , Manhattan, greater Miami, and San Francisco over-layed with the DAX, NIKKEI, SnP and then a wage growth metric.
If you like your housing prices, you can keep your housing prices...