I’m currently working with a couple of clients looking for homes in the Potrero Hill District.  Here, we’re talking specifically about subdistrict 9.E under San Francisco’s MLS (Multiple Listing Service).

It’s an area that roughly sits between I-280 and I-101, with Cesar Chavez at its the south end and the tangle of 101/Design District/Division at its north end.  With major arteries at all ends as well as proximity to Caltrain, it’s a favorite for people who need good commute access.  It’s also got some of the best weather in San Francisco.  The crest of Potrero Hill sits at intersection of Carolina and 22nd Street.  Homes on the  “north slope” — ie.  north of 22nd Street — boast spectacular views of downtown SF and the Bay and therefore fetch a premium.   Potrero Hill has a small but upscalish shopping/cafe strip located on 18th between Connecticut and Texas.  The recently opened Whole Foods at Rhode Island and 17th hasn’t hurt either.  Architecture is a mix of broad two-story Victorians and newer modern structures designed to take advantage of the weather and the views, especially on the north slope.

Apparently the denizens of Potrero Hill like their neighborhood because there are very few sales.  In fact, based on my review of sales of single family homes back to 2003, there’s an average of just 4 sales per month.  Sometimes there are none at all.  With so few sales each month, I’ve used averages to look at values rather than medians.  Prices seem to have remained incredibly stable over a long period of time.  This chart shows price on a per square foot basis (click to enlarge).

Potrero Hill SFD sales

Potrero has the reputation of being a relatively affordable area, and perhaps it is if you’re talking about Noe Valley or Pacific Heights.  In June 2010, the average home sales price for the city as a whole (based on 217 sales) was $1,107,000 — about $100,000 over the average for Potrero.   However, the average price per square foot for the city as a whole came in at $523 — substantially below that for Potrero.  With so few monthly sales available in Potrero, I’d be cautious about drawing any conclusions from one month.  As the chart trend line shows, Potrero’s price average price per square foot looks remarkably stable at around $560 currently.  That seems consistent with the idea that Potrero Hill is one of San Francisco’s better, if not poshest, neighborhoods.

Delinquency Rates

Foreclosure rates

Loans at or near negative equity

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Since for most of us our homes represent our biggest asset, that’s pretty good news when you consider how bleak things looked back in March of 2009.  Just think of how you were feeling about your 401(k)s.

But before you break out the champagne, consider that national home prices have now “recovered” to levels last seen in Autumn 2003.  That’s over six years of appreciation wiped out.

The San Francisco Metropolitan Statistical Area (that’s 5 of the 9 Bay Area Counties, folks) is up 15.2% from its trough value. Case-Shiller does not break out San Francisco proper from the much larger MSA.  However, I calculate that median prices in January were up just 10% from the lows reached in March 2009.  (I use 3 month moving averages, which approximates the seasonal adjustments the CS Index uses.)  To see how SF did through 2009, check out my blog and charts here.

Author: Jack French -- Used under Creative Commons Permission 2.0

Back in May 2009, I showed that Noe Valley was not immune from the slump in prices affecting the rest of the city, despite suggestions to the contrary from real estate agents, mavens and media.

Have things gotten any better?  Well, no.  And maybe.

Here’s a chart showing percentage change in single family home prices for the last 14 months, relative to their all-time highs  (click to enlarge).  (All figures are 3 month moving averages.)

After reaching an all time high in March 2008, prices plummeted.  Just a year later, in the midst of fears of a global Depression, home prices were down 30%.  Did things get better?  No, they got substantially worse.  Despite an impressive  city-wide recovery in 2009, with prices going from 30% down to around 18% down for single family homes at  year’s end (see more detail here) , Noe Valley home prices continued to retreat.  In October and November 2009, prices were down 35%.  At year’s end, they’d barely clawed back two percentage points. Not surprisingly, days on market (DOM) remained stubbornly high for all of 2009.

Still, with cherry blossoms busting loose all over Noe Valley’s quiet streets, there certainly seems to be a change in the air.  There are many more listings coming onto the market and there’s even the occasional feeding frenzy over a clean, well-priced home.  These go in a matter of days, not weeks. Maybe that upturn in prices for January and February suggests a continued warming trend.

In the next few posts, I’ll look at Noe Valley in more detail, including how condos have fared.

Condo/TICs hit their all-time highs about a year later than homes did — in July 2008.  But they’ve fallen from their highs almost exactly as much as homes have.  Condos/TICs were down 17%, just one percent better than single family homes.

For those who prefer their data on a per square foot basis, the picture is pretty much the same.  The all-time high was $711 — reached in November 2008 and the price per square foot stood at $592 at year’s end, also a drop of 17%.

While condos/TICs ended the year at the same point, the pattern has not been the same. Condos/TICs have been stuck near the bottom of their 2009 range after bouncing up in the first quarter. Homes, on the other hand, appear to have bounced up and stayed up.

What’s in store for 2010 remains anybody’s guess, but on the streets it certainly feels like spring is in the air.  There are more listings coming onto the market and more people looking at them.  Will that translate into sales and higher prices?  That’ll depend on macro-economic trends I’ve discussed elsewhere, but one thing’s pretty clear:  interest rates are heading higher, as evidenced by the Fed’s recent increase in the discount rate. If the economy continues to strengthen, that trend will continue.  And, for many people, that will result in less buying power and reduced affordability.

It’s hard to remember just how close to the brink of catastrophe we seemed to be just a year ago.  Major financial institutions – failed.  Credit – impossible to get. Sales—anemic.

With the benefit of hindsight, not to mention survival, some are now criticizing Paulsen, Bernanke, et al., for their haste in rescuing the financial system, but I, for one, will reserve my scorn for the appalling judgment of the likes of Morgan and Goldman and their obscene bonuses.

How did the San Francisco market do?  Here’s where we are for single-family homes (click to enlarge).

We ended the year still down 18% from our all-time high of June of 2007.  That puts us at around the price levels of the spring of 2005.  Not great, but during those scary first months of the year when there was no bottom in sight, we were down to price levels not seen since early 2004.

It’s also interesting to see how Days on Market (DOM) inversely correlates with price, at least over longer periods.  In addition to the very regular seasonal dips in price every December/January, it’s easy to see that as DOM lengthens over time, prices decline.  While DOM remained less than 40 days, prices stayed high.  The correlation isn’t perfect – and certainly not on month-to-month time-scales — but it looks pretty good to me.

So for the “half-empty” crowd, the bottom line is that we’re still down 18% from our all-time highs.   The story looks much more positive, however, if you look at 2009 in isolation.

Now a 23% gain for the year ought to be making people feel pretty good.  Note that median prices have been in the $700,000 to $800,000 bandwidth for the last three quarters.  The dip in the waning months of the year can be attributed to seasonal factors.

I can already hear the nay-sayers arguing that looking at year end numbers is arbitrary  or, worse, distorts the picture.  (These are the same people who don’t believe in celebrating their birthdays!).

I’m certainly not arguing that happy times are here again.  But , if nothing else, that 23% increase confirms just what a wild ride the last two years have been.

As for 2010, I confess I’m beginning to feel a bit more optimistic than I was a few months ago.  Manufacturing seems to be continuing to expand.  There are some signs of job growth.  Still, Europe is now looking shaky and, closer to home, one should never discount the ability of our politicians to screw up the recovery.

All things considered, though, I’ll take my glass half-full please.

Catching up on the endless paper-work the other night, I came across that rare thing:  a property that sells twice in a relatively short time with no major renovations performed in the interim.

This “sales matching” technique is what the folks at Case-Shiller use to create their Indexes of property values across the country.  Part of the reason they can is that their indexes are generated for large Metropolitan Statistical Areas with lots of house sales.  And even so, they use a lot of fancy foot-work to “match up” properties.

So now comes 714 Duncan Street, a beautiful 2,000 sf view home on a steep hill with fantastic city views.  Listed at a disarming $1,195,000, it sold for $1,415,000 in January 2008.  That was pretty much the top of the market for Noe Valley.  (You can see the chart here.)

Fast-forward 18 months.  The same house sells for $1,095,000 in June 2009.   That’s a drop of  22.6%.  My analysis of all Noe Valley sales for the same period shows a drop of just under 25% for the same period.

There’s something of a “duh, so what” to this story.   But I’ve seen enough nay-sayers  (on other blogs, of course!) who argue that tracking statistical medians are meaningless that I thought it was worth posting this as a powerful—and sobering —  case to the contrary.

The View From Space

The View from Space – 2010

Ken Rosen is a smart guy.  He’s the co-chair of the Fisher Center of Real Estate and Urban Economics at the Haas School of Business at UC Berkeley and the investment adviser of choice to some of the biggest players in real estate, from banks to insurance companies to REITS. Ken might not be able to appraise your house, but he could tell you how each sector of the real estate economy has fared anywhere in the country, and probably in many parts of the world.

Once or twice a year I spend the day in a windowless hotel conference room listening to Ken and some of the biggest heads in the real estate biz expounding on the state of real estate. These guys (and they are mostly guys) look at real estate through the lens of global macro-economics and finances.  Want to know where interest rates are going?  They study yield curves on T-Bills and monetary policy in the capitals of Europe.  This is “the view from space.”

I reported on Ken’s predictions from November of 2008 here. (Remember, we were already in deep doo-doo, though things got worse through the first quarter of 2009.)  Before moving into his predictions for 2010 and beyond, I thought it would be useful to see how well he did on on his forecasts for 2009:

The Ken Rosen Scorecard for 2009

• Chance of a deep recession: 70%. Bingo.
• S&P 500 at year-end under a deep recession: 850. Actual:  1115.   Woops (but who said the market was rational?)
• The dollar: “Will continue to do well.” Nope, it lost ground.

Not a great batting average you say?  Truth is, I’m cherry-picking here.  Overall, Rosen’s message in November 08 was that things were improving, but that there would be volatiility and a long, slow recovery in housing.  Notwithstanding our brush with death in March  — Rosen put the chance of a deep recession at 5% — his prediction on that aspect of the market seems to be holding up well.  As for the dollar, given the gaping chasm that faced the global markets in the early months of 2009 – led by crashing and burning US financial institutions – the dollar’s decline shouldn’t be a surprise.

And as for the stock market and its amazing recovery, given what still seems to be looming on the horizon, I just can’t figure that one out at all.

Rosen’s Predictions for 2010

In terms of the shape of the recovery, Rosen estimates the chances of a “broken W”  — read fragile recovery – at 65%.  This is where I’m putting my money folks.

He estimates the chances of a more robust recovery at 25%, and that of a long , Japanese-style recession at 10%.

Expect a slow, fragile recovery, a bottoming out of the housing market, and rising long-term rates.

Estimates for the Stock Market, Year End 2010

S&P  1150; Dow 11,000

Advice for the Home-Buyer:

If there’s any good news here, it’s that Rosen thinks that the sector will come back fastest is single family housing.

Here’s the takeaway quote:

“Take advantage of the windfall tax credit and low interest rates if you’ve got a good job”

Rosen thinks that prices have bottomed (I’m not so sure).  But it does appear that

REO’s (properties taken back by the banks) have declined as a percentage of all sales, and that should help to stabilize prices.

From a socio-economic perspective, housing affordability has increased significantly due to low interest rates and price declines, and that can only be viewed as good if you believe that widespread home-ownership is a public “good.” (I do.)

What could go wrong?

In a moment of brilliant serendipity, Rosen’s co-chair at the Fisher School, Bob Edelstein — no small brain himself –  happened to sit next to me at lunch.  In the next 30 minutes we covered everything from wine to Waziristan.  His outlook was not as sanguine as Rosen’s.  We didn’t get into details, but my impression was that Edelstein was more concerned than Rosen about a jobless recovery coupled with higher interest rates driven by enormous deficits.

Once again, the magic eight ball says:  “Ask again later.”

Ask again later

A front page article in the Business Section of last Wednesday’s New York Times, grimly entitled “An Upturn in Housing May be Reversing,” pulls together recent and contradictory data from various sources, including Case-Shiller, Moody’s, and The National Association of Realtors.  The conclusions are sobering.

There is a growing consensus that the positive national sales data that we’ve seen over the last few months is faltering.  Much of the recent activity, for example, was stimulated by the anticipated expiration of the “First Time Home-buyer Tax Credit,” originally set to expire in November, and now extended through April of next year.  Essentially, this means we’ve “borrowed” from future sales.

Also, despite some positive economic news and decent sales volumes, there’s been little improvement in sales prices because inventory levels – read “foreclosed properties” – remain so high.   Mary Maitland, VP of the S & P Index that publishes the Case-Shiller Index foresees a “W” pattern for the housing market, with prices this winter testing the lows we saw earlier in the spring.  Am I allowed to say “I told you so?”

The NY Times article has a cool interactive chart for specific MSA areas including “San Francisco” — remember this covers 5 of the 9 Bay Area Counties.

The National Association of Realtors (NAR) reported yesterday that existing home sales in October rose to their highest level in more than two years.  Nationally, sales were up 10.1% over September and up 23.5% year over year.

Most of the increase in sales, however, was not in the western region, where sales were  only up 1.6% from the previous month.  (Oh, the devil is always in the details.)  And more “good news”:  The western region median price of $220,200 — clearly this is not San Francisco — was down 14.7% year over year.

Not surprisingly, the article stresses the positive.  Inventories are shrinking, especially at the lower price levels where foreclosures and REOs are slowly being digested by the system.  Prices have fallen by the smallest amount in over a year (don’t you love that!).

You can argue that any press release by NAR is going to be self-serving, but its Chief Economist, Lawrence Yun, doesn’t mince words when he says that a lot of the sales surge was fueled  by the anticipated expiration of the First Time Homebuyer Tax Credit.  The $8,000 tax credit was originally scheduled to expire in November, but has now been extended  through April 30, 2010. Yun goes on to caution that “with such a sale spike, a measurable decline should be anticipated in December and early next year before another surge in spring and early summer.”

We can only hope that he’s right about that surge….