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Bad News For America's Biggest Housing Bubble: San Francisco Home Prices Suffer


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2015 Mar 31, 11:12am   29,333 views  58 comments

by mell   ➕follow (9)   💰tip   ignore  

http://www.zerohedge.com/news/2015-03-31/bad-news-americas-biggest-housing-bubble-san-francisco-home-prices-suffer-biggest-dr

Frequent readers are aware that the one US housing market which we follow the closest because it is perhaps the best proxy for global liquidity but even more importantly, Chinese excess liquidity (and capital outflows) is that of San Francisco - a mecca for not only the beneficiaries of the second tech bubble, but the favorite spot to park cash for thousands of uber-rich Asian and, until recently, Russian oligarchs.

This is what we said last June when describing what was then the start of the inflection in San Fran housing:

When it comes to critical housing markets in the US, none is more important than San Francisco.

Courtesy of its location, not only does it reflect the general Fed-driven liquidity bubble which is the tide rising all housing boats across the US, but due to its proximity to both Silicon Valley and China, it also benefits from two other liquidity bubbles: that of tech, and of course, the Chinese $25 trillion financial debt monster, where since the local housing bubble has burst, local oligarchs have no choice but to dump their cash abroad.

It is no surprise that during ever single previous bubble peak, San Francisco home prices managed to post a 20% annual increase, starting with the dot com bubble in the year 2000, the first (not to be confused with the current) housing bubble peaking around 2005, and then the European sovereign debt bubble.
Then things normalized for a bit, as the rate of both annual and sequential decline slowed down.

Until today, because in today's Case-Shiller update for the month of January housing prices across the US, it was none other than San Francisco which posted the largest sequential drop in home prices.

As the chart above shows, it was not only the annual growth rate of only 7.9%, matching the lowest since the European debt bubble burst in 2010, but also the sequential rate of price drops, at -0.9% - the biggest monthly drop in three years, or since January 2012 - that will once again be a subject for concern of housing watchers. Because should the price decline resume its acceleration without any emerging tailwinds to prop up the local housing market, then there will surely be some severe fallout such as this peak housing bubble example, in which as Curbed reported last week, a run down shack which listed for $799,000 sold for 50% more, or $1.2 million a few weeks later!
In late February, a very run-down four-bedroom house along the Outer Sunset's Great Highway listed for $799,000. The listing warned that the property was "in a deteriorative state" and that it was "not for the novice" to fix up. The property looked to be almost ripped apart, with carpeting torn off the stairs, drawers and appliances pulled out of the kitchen, and a boarded-over hole in one door. None of that mattered to the buyers, who saw potential in the ocean views and paid $1.21 million in all cash. The final price came in at $411,000 over asking.

When the home last sold back in 2008, it was well kept and very livable. Listing photos showed a stained glass front door, a vintage but tidy kitchen, and a neatly kept backyard. It sold for $935,000 back then. The state of disrepair that the property fell into during the ensuing years is sad, and it's hard to see how it deteriorated so quickly without some very destructive use.

#housing

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41   indigenous   2015 Apr 1, 6:08pm  

What is that graph based on?

42   Strategist   2015 Apr 1, 6:12pm  

indigenous says

What is that graph based on?

Incomes, interest rates, and home prices. Medians

43   indigenous   2015 Apr 1, 6:16pm  

Strategist says

Incomes, interest rates, and home prices. Medians

Doesn't seem to show much change in the income line of the graph?

44   Strategist   2015 Apr 1, 6:21pm  

indigenous says

Doesn't seem to show much change in the income line of the graph?

Not sure what you mean. Use the second graph. It's just a formula plotted over time.

Strategist says

http://research.stlouisfed.org/fred2/graph/?id=COMPHAI,FIXHAI,

45   Strategist   2015 Apr 1, 6:25pm  

Call it Crazy says

Can you tell us where these houses might be? Certainly isn't CA..

*

It's based on the whole country. The median prices are around $200K.
California, NY, Hawaii will be nowhere close.

46   Strategist   2015 Apr 1, 6:45pm  

The point is homes not being affordable is a myth. The number one factor affecting home affordability are the interest rates, which have been on a long term down trend since 1982.
The Orange County affordability was below 10 prior to the crash, and now it is at 21.
Mark my words......Home prices and home sales are about to jump. Inventory in key areas are too low, and loans are getting easier to get.
I stand by my past expectations of OC median rising to $800K by the end of 2017. Even home builder stocks prices will explode.

47   indigenous   2015 Apr 1, 6:46pm  

Strategist says

Not sure what you mean. Use the second graph. It's just a formula plotted over time.

In 2008 to 2013 ? it does not show any decline. While houses prices increased, there was record unemployment.

48   Strategist   2015 Apr 1, 6:48pm  

Call it Crazy says

Strategist says

California, NY, Hawaii will be nowhere close.

Neither is NJ...

Yes. Boston, Washington DC too.

49   indigenous   2015 Apr 1, 6:52pm  

Strategist says

The Orange County affordability was below 10 prior to the crash, and now it is at 21.

Mark my words......Home prices and home sales are about to jump. Inventory in key areas are too low, and loans are getting easier to get.

I stand by my past expectations of OC median rising to $800K by the end of 2017. Even home builder stocks prices will explode.

You will regret that statement.

Have you read anything Logan has said? The house are not affordable because of price not because of interest rates. He indicates how the 1st time buyers have disappeared from RE, because of the price. Of course he is from a place that may not apply to you...

Or is this another april fools joke?

50   Strategist   2015 Apr 1, 6:53pm  

indigenous says

Strategist says

Not sure what you mean. Use the second graph. It's just a formula plotted over time.

In 2008 to 2013 ? it does not show any decline. While houses prices increased, there was record unemployment.

From 2008 housing prices collapsed, and did not really start recovering until 2012.
Interest rates also declined during this period, further making homes more affordable.
Higher unemployment would have a negative impact on this graph, but would be more than offset by falling home prices and interest rates.

51   indigenous   2015 Apr 1, 6:59pm  

Strategist says

Higher unemployment would have a negative impact on this graph, but would be more than offset by falling home prices and interest rates.

Demand for houses is created by jobs, that graph is non sequitur.

52   Strategist   2015 Apr 1, 7:07pm  

indigenous says

Strategist says

The Orange County affordability was below 10 prior to the crash, and now it is at 21.


Mark my words......Home prices and home sales are about to jump. Inventory in key areas are too low, and loans are getting easier to get.


I stand by my past expectations of OC median rising to $800K by the end of 2017. Even home builder stocks prices will explode.

You will regret that statement.

Have you read anything Logan has said? The house are not affordable because of price not because of interest rates. He indicates how the 1st time buyers have disappeared from RE, because of the price. Of course he is from a place that may not apply to you...

Or is this another april fools joke?

He he he.
If I'm right, I will send everyone a "Yard house" gift certificate for a drink. I will be able to afford it then. :)

indigenous says

Have you read anything Logan has said? The house are not affordable because of price not because of interest rates. He indicates how the 1st time buyers have disappeared from RE, because of the price. Of course he is from a place that may not apply to you...

Logan is a nice guy. Always cool, calm and collective, but he can still be wrong. People buy based on monthly payments, not price. The first time buyers particularly compare their payments to rent. The first time buyers just don't get loans easily. Why would my daughter, a first time buyer not get a loan with an 800 FICO, good job and income, and 20% down. It's disgraceful. I used my assets to get her a loan for a $450K condo.
I cannot stress enough - it's not the affordability, it's the availability of loans. They are finally starting to loosen up. Thank God.

53   Strategist   2015 Apr 1, 7:13pm  

indigenous says

Strategist says

Higher unemployment would have a negative impact on this graph, but would be more than offset by falling home prices and interest rates.

Demand for houses is created by jobs, that graph is non sequitur.

Employment is a big factor that drives demand for homes. More people buy homes when they have jobs and feel secure at their jobs. Unemployment was a lot higher in Spring 2012 when the housing market took off.
You need to remember there are dozens of variables, major and minor that drive the demand for housing. If you latch on to just one or two, you will end up being on the wrong side all too often.

54   indigenous   2015 Apr 1, 7:13pm  

Strategist says

nice guy. Always cool, calm and collective,

That is the only kind they allow into Irvine.

Strategist says

it's not the affordability, it's the availability of loans.

That is not what Logan says, i.e. they don't qualify because the cost is more than they qualify for. The loans have been available for a while.

55   Strategist   2015 Apr 1, 7:17pm  

Call it Crazy says

Strategist says

Homes are VERY VERY affordable right now.

Very?

What's the chance the graph makes a turn back down like it did last year this time?

*

he he he. Short time frame. It's called "lying with statistics"
It's been very affordable since 2009. :)

56   Strategist   2015 Apr 1, 7:20pm  

Call it Crazy says

Strategist says

Why would my daughter, a first time buyer not get a loan with an 800 FICO, good job and income, and 20% down. It's disgraceful. I used my assets to get her a loan for a $450K condo.

Maybe because she needs at least a $100K job to afford the payments on $450K?

No. It was technicalities. They can't use bonus income to qualify for a loan unless it's been there for atleast 2 years. She has been working for 18 months after she graduated.
She will qualify in 6 months.

57   Strategist   2015 Apr 1, 7:25pm  

indigenous says

Strategist says

it's not the affordability, it's the availability of loans.

That is not what Logan says, i.e. they don't qualify because the cost is more than they qualify for. The loans have been available for a while.

I could not understand why he said that.

http://krcc.org/post/despite-recovery-many-find-home-loans-still-hard-get

It's been seven years since the housing crash. The housing market and the economy are both recovering. But housing advocates say you still have to have a near perfect credit score to get a loan from a major bank.

At first look, it seems like the trouble in the housing market has quieted down. There are fewer foreclosures. Home prices have stabilized and risen. But, as any parent with young kids will tell you, when things get too quiet that can be a bad sign.

Mike Calhoun, the president of the Center for Responsible Lending, says that's basically what's going on here.

"This has been a quiet disaster," he says. "Average families are unable to get home loans. That includes everyone from new households. It includes people who lost their job through the recession and [are] trying to get back into homeownership now that they're back on their feet and should qualify for mortgages."

And Calhoun says there are a lot of people like that who can't qualify for home loans because of overly tight lending standards.

58   indigenous   2015 Apr 1, 8:55pm  

Also he said that the fact that the price of the houses have gone up so much is why they are not qualifying.

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