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.

731 Douglass

Meanwhile 110 Hoffman, offered at just $2,000 less than Douglass, had a little less space and a vertical, less user-friendly lay-out.  But, location it had in spades, on one of Noe’s best and quietest streets.  Plus it had a spacious back yard with a lovely mature tree.

110 Hoffman

My good friend and blogging critic, Mike Dashe  — the American part of the Franco-American wine-making duo who own Dashe Cellars — recently took me to task for not doing what any good story-teller does: tell ‘em how it ends.  So here’s the final chapter folks.

731 Douglass came in first, selling for a respectable $1.85 million, or 85% of the listing price after just 48 days.  Good show!  Though it’s worth noting that this was a cool $100,000 LESS than it sold for back in March 2005, when it was on the market for just 18 days.  (There’s more proof of the correlation between price and DOM — days on market — see my previous post.)

110 Hoffman had a more torturous ride to the finish-line.  Originally listed at $2.395 million, it suffered two price drops and was ultimately withdrawn from the market 102 days later when it failed to sell at $2.148. Fast-forward five months to July and it’s back on the market at $1.995.  And, after falling in and out of contract, and back in –  it sells for….

$1,995,000.  Full list price and all within 10 days if the MLS Database can be believed.

That’s a cool $100k more than 731 Douglass.

What went on here?  I honestly don’t think this was a case of location trumping space.  Instead, it’s about timing.  731 Douglass went on the market in January and sold in March.  Prices generally fall somewhat during winter months.  But much more importantly, does anyone remember how the financial world was coming to an end right at that time? The stock market was dropping like a stone and no one knew where it would end.  (In fact, the S&P 500 hit bottom on March 9.)

I remember when I had the misfortune of putting the first property I ever owned on the market not long after 9/11/01.  I’m convinced that it sold for around $300k less than it would have at any other time.

Seen in this light, it sure seems like the owners (and the agent) of 110 Hoffman made the right decision to bide their time.  A few months later, the sun breaks out literally and metaphorically and things are moving again. Here’s a case where the tortoise beat the hare.

And speaking of odd-looking creatures, let’s get back to Dashe Cellars and their beautiful wines (you gotta try their single vineyard Zins.)  Mike, would you care to explain what’s with the monkey and the, ahem, “whale?”

I looked at percentage change from all time highs for condos and single family homes (sfd’s) since January 2003 and here are the results for the city as a whole.

Until June 2008, condo and home prices were in lock-step in terms of price appreciation and decline.   Thereafter, homes fell first and further. (Do I hear a lithp?) In March 2009, the delta between condos and home prices was a whopping 13%.  Since then, however, home prices have recovered smartly:  as of June, homes are about 4.5% further off their all-time highs than condos.

What does this all mean?  First of all, I wouldn’t take too much consolation just yet in the upward spike in both condo and home prices since the beginning of the year.  If you take a look at the chart, this happens every Jan/Feb when people start buying out of the winter doldrums.  I wouldn’t predict a bottom until we see what happens this winter.

Secondly, given the woeful condition of the economy and the credit markets, together with the fact that San Francisco is not a badly overbuilt housing market, it sort of makes sense that condos are holding their value relatively well as people are finding themselves priced out of more expensive single family homes.

Still, the current delta of only $100,000 between median condo and median home prices seems rather small.  If people are just begging to know what the historical average is, let me know and I’ll find out.

In essence, DOM tracks the average number of days that properties have been on the market from the time they became active on the MLS (Multiple Listing Service used by realtors) to the time they actually sell.

Great minds must think alike because it turns out that my friends over at Inside SF Real Estate have been exploring the same thing.  Head over to their recent post for a look at DOM trends over 14 years.  What they haven’t done, however, is track DOM against median prices.  Ha!  I have, and here are the results for the last three years tracked by month (my numbers are pulled directly from the MLS database  — click to make the chart larger).

Now that’s what I call correlation! Note that the right-hand Y axis tracks DOM inversely, with longer periods at the bottom and shorter periods at the top.  So, this chart is basically showing that during periods, even relatively short periods, when the average DOM falls, prices rise, and when properties stay “on the market” for longer, prices fall.  This is just what you’d expect.

Why?  My guess is that DOM captures many of the factors in play in the real estate market at any given time.  For example, if credit is tight and appraisals are rigorous, you’d expect that transactions would take longer to get approved.  Likewise, if lots of people are bidding on the same house, you’d expect that the winning bidder would promise a quick “no contingency” close and that there would be no haggling on the sale price.  When the market slows, you’d expect more cautious buyers, more haggling on price, longer closing periods — all reflected ultimately in the DOM.

As my friends over at InsideSFRealestate pointed out in their post on DOM, realtors can play games with DOM.  For example, if a property doesn’t sell, they’ll take it off the market, and then put it back on as a “new listing” at a lower price and voila, the DOM resets to zero.  Still, that would just tend to increase the “down” side of the line — the correlation would still hold.

The only other point I’d add is to note the seasonal trend in the chart.  It seems that every December/January, DOM increases and prices dip.  Perhaps that’s the best time to buy.