First, a look back (in anger?) at the make-up of Noe Valley sales in 2009.

Note that there were more than twice as many condos sold as TICs, and more homes sold than condos and TICs put together. (What’s a TIC?  — Check out my series of posts on Tenancy-In-Common Interests, starting here.)

Also, that absurdly long DOM for TICs was distorted by 3 TICs at 201 Hoffman that took 410 days to sell.  Still, without those sales, DOM for TICs (tired of the acronyms yet?) was still 99 days.  And I’d be somewhat skeptical of the whopping difference in price between TICs and condos as well:  TICs sales often don’t have a price per square foot listed, so there are very few data points — and there are very few sales to begin with.

Here’s how condos and TICs have been doing as a combined group, versus their all-time highs.

That precipitous plunge (actually a huge increase since the scale is reversed) in DOM at the end of 2009 was also due to the lingering effects of 201 Hoffman.

For a shorter term view, prices through February 2010 are up 11% from January 2009 and are up a whopping 31% from the trough of June 2009.  Since I use trailing 3 month averages, I think this is a belated reflection of the deep credit freeze of Spring 2009 when we thought the world might come to an end.

And here’s how condos and TICs stacked up against homes.

For what it’s worth, it feels like spring has really sprung.  Nice-looking condos/tics are swarming with people and are moving fast — no kidding.  Whether it will last is anybody’s guess.

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.

That’s useful if you’re looking at an average-priced TIC and you’re curious about how much of a premium you’d have to pay for an average-priced condo.  But how about reducing that to a per square foot premium?

For those who just want the bottom line, here’s the answer, but it’s worth reading on for the caveats.

$37 a foot doesn’t sound like much of a condo premium to me, that’s for sure.  And as my astute readers will note, the drop in price on a per square foot (from around $225 per sf) is obviously much more than the drop in median sales prices shown in the previous chart.

What’s going on?  It’s really simple:  there’s a lot less information on sales price per square foot for TICs.

All my data comes from the MLS (Multiple Listing Service) that real estate brokers use to find and market properties.  When a sale’s completed, they are required to enter the sales price.  If there’s information on the square footage of the property — provided by the owner or more frequently from the property records — the database calculates a per square foot price.  Roughly 80% of condo sales have a recorded price per square foot in the MLS.  Only 45% of TIC sales have a recorded price per square foot. How bad is that? In September 09, there were just 27 TIC sales.  Only 9 of them had a recorded price per square foot.  For all of 2009 through September, there were 275 TIC sales.  Only 113 – 41% – show a per square foot price.

There are lots of people — mostly on other blogs   — who love to trash statistics and say they’re meaningless.  Medians don’t reflect home values, etc etc.  I disagree.  Provided you have enough data  and you understand what you’re measuring, statistics help make sense out of what is otherwise undifferentiated data.  But I am afraid that in the case of measuring the condo premium on a per square foot basis, we are in dangerous low on data.

One final reminder:  For this series of posts, my TIC data includes the handful of stock cooperative sales that occur in this market.

And thanks for sticking with me on this long series of posts….

Look at that!  Excluding those wonderfully regular dips every Xmas, condo sales are generally at around 200 units per month.  TICs rarely break 40.

Here’s how TIC and condo median prices stack up against each other on a monthly basis.

Dueling spaghetti you say?  That was my reaction, too.  The huge variability in prices from month to month on the TIC line is a direct result of the paucity of sales.  And this chart certainly doesn’t help get at the key question, which is this:

Given that TICs are riskier and less flexible than condos, what’s the premium that you pay for buying a condo vs.  a TIC?

In fact many TIC buyers do so with the hope of being able to realize this “premium” by converting their TICs into condos down the road.  Fat chance unless you’re buying a TIC in a two unit building which — for now at least — remain exempt from San Francisco’s byzantine annual lottery system.

Luckily, I have a bona fide statistician mathematical genius phd for a wife, and she always lends a hand on methodology when I need it.  She suggested that where one set of data (condos) is so much larger than another, using averages provides a more reliable “apples to apples” comparison than medians.   Also, with so few monthly TIC sales, I decided to look at annual rather than monthly trends.

Here’s attempt number two.

Much more useful!  (By the way, the fact that TICs were more expensive than condos in 2003 and 2004 can be explained by a few massively (in excess of $8 million) expensive TIC sales in those years.  This is a great example of how using medians or averages can really affect the results.)

So, can we drill down further and come up with a condo premium per square foot? Stay tuned….

A tic is an involuntary and habitual muscle spasm, frequently in the face.  If you live in San Francisco, a TIC is also what many people end up with when they buy a flat in one of San Francisco’s classic 2-4 unit buildings.  Like the medical condition, TICs are inconvenient at best and can be downright ugly at worst.

TIC stands for “Tenancy-In-Common,” a form of legal title by which multiple owners take title to a single property.  In San Francisco, this form of taking title has come to be used as an end-run around the City’s restrictions against converting multi-tenant buildings into condominiums.

When you buy a condominium, you’re basically buying your particular unit and that’s all. But when you buy a TIC interest, you’re buying an interest in the building as a whole, along with your other TIC owners.

Lawyering Has Its Limits

Why does it matter?  Because buying a roof over your head is expensive.  Most of us need to borrow money to do it.  And the major disadvantages of TICs over condominium ownership relate to financing issues.

• When you buy a condo, you get a loan on your unit and that’s all.  If you don’t pay your loan and the bank forecloses, they have the right to sell your condo to get repaid, but they don’t have the right to sell the building the condo is in.
• But when you buy a TIC, in the vast majority of cases you and your co-owners become co-signers on a loan for the entire building.  You qualify for the loan together and you are “on the hook” together for repaying it.  If one of the co-owners stops paying his share of the loan and the others don’t feel inclined to make up the difference, the bank has the right to sell the entire property at a foreclosure sale.  That itself would be enough to give many prospective buyers a twitch or two.
• There are a few banks that will finance separate TIC interests.  This pretty much puts the TIC on a par with a condo.  But interest rates are higher than on a regular condominium loan; and the building itself needs to “qualify” for the program.  Also, although these kinds of loans have been around for a while and seem to have survived the credit crunch, there’s no guarantee that they’ll continue to be around.
• Selling a TIC interest can also be more difficult than selling a condo. If the lender doesn’t permit the buyer to take the seller’s place as a co-signer on the loan, the owners may be forced to take out a new loan to accommodate the new buyer.  If the lending environment isn’t good, that can kill the sale.  Or the bank can use the sale to try to extract better terms for itself.

It’s true that clever lawyers – and I say that without any irony – have developed legal structures to mitigate these risks.  Andy Sirkin and Andrew Zacks are two prominent attorneys who specialize in this stuff.  (See their websites for excellent in-depth material on TICs.) But TICs remain inherently riskier and more complicated than condominiums, and no amount of legal engineering can fix that.

Tomorrow we look at the market data for TICS and condos.