San Francisco Home Prices Fell for the First Time in Four Years in March | Hacker News Reader

San Francisco Home Prices Fell for the First Time in Four Years in March

redfin.com

164 pointsAnkaios229 comments

Weirdly, I own a house and think I'd be better off if prices fell-- fell a lot. I bought a few years ago and would be happy if prices uniformly dropped to those levels.

Why? I want a 50% bigger/nicer house in the same area. But bigger/nicer houses have increased in price proportionally to mine. So the gap in absolute dollars between what I have and what I want has expanded quite a bit. My income has increased, but not really enough to cover the gap.

Strong increasing prices really only help homeowners to the effect that they're eventually willing to downsize or move to a lower-cost area.

If prices rise strongly and proportionately I suspect it just causes stagnation. I can't really upgrade without a windfall, thus my house stays off the market. So other folks can't upgrade to my house.

It's even worse than that. If your house has appreciated more than $250k (or $500k if you're married) then you have to pay capital gains tax on the rest. And this is a fixed amount regardless of how long you've owned your home, so the longer you stay, and the more your house appreciates, the greater the penalty when you ultimately sell.

I believe there's a two year minimum to get that capital gains exception, so you'd have to flip every two years.

"Penalty", yeah because people have put in sooo much hard work to make their house values go up. (Sure, some people will spend money on renovations, and there could be tax credits for that. But I don't think that sitting on an asset and letting it appreciate should be a free lunch.)

"Penalty" because someone who sells their house and buys a new one every time it appreciates $250k pays zero tax whereas someone who buys and holds pays significant tax despite having the same net gain over the same time period.

There's a two year minimum that you must hold the home to qualify for the exclusion. So it's not "every time" it appreciates, but it is "once every two years".

https://www.irs.gov/publications/p523/ar02.html#en_US_2015_p...

Seems simple to apply the tax rate pro-rata rather than on a cliff. Then the rule works more fairly and gaming is somewhat limited. Government seems to love rule cliffs for some reason.

Artifact of a pre-digital tax/legal system?

Sure, but that's just another manifestation of the same problem: someone who sells after 23 months and 29 days pays tax. Someone who sells three days later doesn't.

If someone actually tried to execute that sell and buy strategy the large transaction costs would eat up any possible tax savings.

Could one make the case that the liquidity this adds to the housing market justifies the tax savings?

OK, fair point. I think you're right, it should be all or nothing.

I am not a tax expert but I have heard that as long you put the appreciation money back into a house purchase, you can keep all the appreciation upto 500K tax free.

Yup, if married and you've been there a couple of years. $250k if single.

Still, almost anyone who bought a house a few years ago in the area is sitting on at least $500k in gains. So even if taxes on the remainder are arguably fair from a revenue perspective, they are another constraint on housing market liquidity.

There's two scenarios in which one can avoid or delay taxation when his home has appreciated:

1) $250k deduction if single ($500k deduction if married) during the year in which the capital gains has occurred.

2) Convert the property to a business and use a 1031 Like Kind Exchange in which 100% of the profits can be rolled into a new property and deferred until that property is liquidated or the gains are realized.

For 1), you must have owned the home for 2+ year to qualify. If you're moving under 2 years for a "qualified reason" (death, birth of multiples, 50+ miles closer to work) you can take a pro-rated deduction.

For 2), you cannot do a like-kind exchange for residential property that you live in as your primary home.

Yes, thanks for the clarifying points.

For (2), if you convert the residential property into a business by renting it out, at what point can you do a 1031?

The more expensive a property is, the less its price falls in bad times. Rich people are rarely forced to sell. It's a different market basically disconnected from the rest. I don't know what kind of house you want, but there's a nonlinearity there that might be important.

Levered people, whether rich or poor, are the ones who are forced to sell. There are always some over levered folks from both ends of the economic spectrum.

As long as you can make your monthly payments, you'll never be forced to sell.

That is not what I have seen in the bay area over the last few decades. The high end fluctuates quite a bit but the low end is steady and remains high. Much more competition for starter homes than higher end homes around here...

And to make explicit an obvious fact, because of Prop 13, revaluations on homes are only made when it's resold. A person whose family has owned a house for decades has very little incentive to ever move on.

Do you have some data to back this up?

Not to mention: Property taxes are "forever", even with Prop 13. In Santa Clara County, in the Bay Area, taxes are about 1%. So if your purchase price is $1,000,000, your taxes are about $10,000 per year, half payable in December and half in April.

They can go up a miniscule amount, 2%. So not exactly forever, but relatively close

Reaffirming once again that if "nobody can afford to buy them" the actual prices start coming down. A more interesting thing for me however was that owner occupied (which is to say the person buying the house lives there) has not been growing[1]. Instead third parties are buying the houses as investments and renting them. That is a really risky strategy in a place like SF with rent controls as the floor can fall out of the market, and you're unable to raise rents to cover your balloon payment (or other over leveraged strategy) and that squeezes the investor to default.

[1] https://www.homeunion.com/blog/investment-home-prices-rising...

Remember that rent control only applies to buildings built before 1978, so it's not _all_ rent controlled.

And rent control doesn't apply to single family homes.

That said, if the market falls it is easy to end up with a mortgage that costs more than rent, a fact that I am unfortunately familiar with.

The cutoff is actually June 13, 1979, not 1978.

source: https://www.sftu.org/rentcontrol/

It's scary to think that in 20-30 years nearly the entire available housing stock will not be covered by rent control. My landlord wanted to raise my rent 40% in one year here in Oakland until I pointed out the laws. Eventually the entire middle class will just be landless peasants again, allowed to live wherever the rich say that they can.

At some point in your scenario proposition 13 would be tossed out and property taxes would be hiked up which would decrease property values. The process to amend California's state constitution is relatively accessible and particularly susceptible to waves of populist sentiment. If you're a homeowner with a vested interest in the status quo (very low property taxes) you also have a vested interest in keeping the home ownership and owner occupied rates relatively high (whether you know it or not) in order to maintain that political support.

Oh, come on. "Landless peasants".

The middle class will not be able to afford to live in the most expensive housing markets in the country. But that's the way it's always been.

It's only scary if you believe rent control is a net benefit.

No, facing a 40% increase in your rent without an attendant increase in your wages or salary is scary no matter what the macro situation is. Anybody working on or thinking about housing policy needs to keep this in mind -- no matter how right your policy prescriptions may be, you need to keep in mind that they may do massive harm to individuals in the short term. And the failure to even try to ameliorate those harms is one of the reasons why things like getting rid of rent control are politically impossible.

Advocates for the reverse ought to bear in mind that however noble the goal of avoiding harm to individuals in the short term may be, the harm done to individuals in the long term is even more massive, and then much harder to fix.

Two case in point examples: Prop 13, and rent control.

These are not, as popularly concieved, great ways to protect the poor and disadvantaged. They are simply examples of very short term thinking becoming public policy, which has the unintended and paradoxical effect of harming the poor and disadvantaged much more in the long run.

Right, and I agree with you, but the fact that it would be better not to have them in the long run doesn't do anything about the short term harm of thousands of people losing their homes all at once. "It will be better for everyone in the aggregate, eventually" doesn't do anything for someone who just became homeless.

What I'm saying is, if you want this policy, start thinking of ways you could change it while accounting for the harm that changing it would do.

Sometimes the only way to fix systemic issues is via strategic planning.

A significant number are bought as investments, but NOT rented out, making the housing situation worse.

Investors from more volatile economies (China) really see a few % up or down as incredibly stable compared to their native currency fluctuations.

Currency fluctuations are peanuts. The real risk in emerging markets is losing everything due to a massive economic downturn, political instability, or corruption.

A huge chunk (but not a majority) of urban real estate in my city is also unoccupied most of the time, but I wonder how many are parking cash and how many are just summer vacation homes.

Even if houses are flat its still better to put your cash into one than the bank...

Contrary to popular belief, real estate is literally never a good investment. At best, prices go up faster than property tax and you profit modestly from the misfortune of others for a couple of years before the bubble bursts. At worst, your investment is rapidly eaten away by depreciation and maintenance costs.

It's true houses aren't a very good investment over the long haul, but for most buyers with the leverage involved you can end up with quite a windfall if you get lucky.

bank - liquid asset

house - illiquid, with maintenance, property tax, and insurance costs

True, with the other difference being that you can live in a house, but you can't live in securities or the bank vault. A house has actual utility (well, the first one), hence all the tax benefits (in theory).

What I think is kind of ridiculous are all the benefits for second homes and beyond. IMO, if you're wealthy enough to afford a second home, you don't need any more government subsidies; all the benefits should go to people who don't yet have a place to live that they own. I can definitely see how this would be a very unpopular opinion among those with lots of potential money to lose if they could not keep the lower classes of people renting the property which they bought a lifetime++ deed to at a one-time cost.

Spoken like someone who's never owned a house.

It's always hard to believe the numbers, but I trust Redfin since I used them to purchase my home. I think the problem is comparing what's turn key and not. For example they say:

> Portland, OR had the nation’s highest price growth, rising 16.1% since last year to $325,000...

The problem is you're fighting 100's of people for that one house in Portland that is livable at $325,000. Most houses that cheap need a ton of work.

SF on the other hand is just seeing their ceiling come into play. Only so many people can justify raising a family and purchasing a home in The Bay. Why not change jobs to Seattle or Portland and make around the same money, but spend half on a house? I think that's what we're seeing.

An observation I've also had is that not many people factor in time, maintenance and repair costs when considering Portland homes. I've looked at $350k houses here that are complete junk without another $50-200k in (I'm not just talking kitchen remodels, just as often I see serious roof and water damage problems), and therefore really are priced at $450-600k. Real estate brokers have been.. less than stellar about disclosing some of these issues to buyers. One place I looked at was listed at $375k, went for over $450k and had in the house, no shit, uninsulated knob-and-tube wiring going into a fusebox model from the 60s that was recalled 25 years ago for electrical issues. Better to get your Will settled before moving in there.

When you factor in these hidden costs, things start to look very overpriced around here. I expect that in the next five years there will be a lot of disgruntled owners putting these houses back up at purchase price (or maybe even less) after they get sick of dealing with the problems and start to realize the price tag to fix them.

In the interim, the bad news is that Portland is basically out of housing stock at this point too. Expect more rentals and condos in the future.

It's literally crazy. We bought our house last May and have seen a 45% increase in value (according to online estimators which are usually off by a bit). So far we've lucked out. Our house was built in 1920 and had major work done in 1950, 2005, and again in 2009. Over the past 9 months the only major issue we've had is updating our furnace and heating from oil to natural gas (which ends up saving us money in the long run). I do wonder about many of these flipped houses though. Just one street over I've seen 3 1920's houses flipped in a few weeks and sold for crazy high amounts. These flips have to be mostly cosmetic. They make the interiors look amazing, but the house itself is still shot.

Counterpoint: Conditions were just like this in DC 7 years ago, and tons of people bought these dilapidated 350k row houses, put 150k into fixing them, then sold them a few years later for 750k+ because demand in the city kept growing.

It's not a strategy I'd bet on myself, but it has worked in many cities in the (recent) past.

What is wrong with knob and tube wiring? Fuseboxes suck, but knob and tube isn't too bad. You are basically guaranteed to never have an electrical fire.

"SF on the other hand is just seeing their ceiling come into play. Only so many people can justify raising a family and purchasing a home in The Bay. Why not change jobs to Seattle or Portland and make around the same money, but spend half on a house? I think that's what we're seeing."

It's more than just tech workers. SF real estate prices have been influenced significantly by foreign speculation (especially from China). As the Chinese market slows down, so too does speculative offshore real estate investment. And these were buyers with virtually unlimited purses, ready to drop all-cash well north of asking prices.

(Full disclosure: I own a modest condo in SF, and when Chinese speculation was at its frothiest, I would get hand-delivered letters from real estate agents on more or less a quarterly basis. They would state that XYZ buyer in China is willing to purchase my property, sight unseen, and they would ask me to get in touch if interested.)

Why isn't this drying up in Canada then?

I know basically nothing about the Canadian market, or the various factors (regulatory, tax-related, currency-driven, or otherwise) that might make it more or less attractive to foreign investment than the market in SF. I also know very little about which types of foreign buyers consider Canadian real estate attractive.

Since I'm admittedly pretty ignorant of that market, I honestly can't say.

The best I can tell you is that, while foreign demand in the aggregate might be global, there are many local factors that determine whether a particular market is or is not the recipient of significant investment at any given time. We can't assume a global/universal phenomenon applies itself evenly across all localities. Indeed, many of these locales might be substitutes for one another at different points in time and under various macroeconomic circumstances.

My hypothesis is that the China/hk dollar peg is to blame.

Edit: to clarify, the Chinese yuan and hkd are pegged to the USD. The recent strength of the USD has caused problems for China ...some people thing the peg will fail. If you are one of these people and you have lots of cash in China, you want to move the money out of the country and into a different asset class. The recent weakness of the Canadian dollar has made parking money in Canada very reasonable via buying of property. As a poor Canadian who owns no property, I'm pretty much outpriced of the real estate market in the city where I was raised .. with the exception of a condo ...those are being unconstru ted at an unbelievable pace. People I meet seem to own 2-3 condos a piece. Everyone thinks they'll just rent them out. I think we are almost guaranteed to have a condo collapse in the near future.

> People I meet seem to own 2-3 condos a piece. Everyone thinks they'll just rent them out. I think we are almost guaranteed to have a condo collapse in the near future.

If you're not hung up on owning, this is a great spot to be in. I can already rent a luxury condo here in Toronto for less than (mortgage interest + property tax + maintenance) would cost me if I had purchased it. Rich landlords are effectively subsidizing our rents (which are very, very cheap compared to SF or NYC).

My worry is that a day will come when rents start to increase. My great fear is that this will happen precisely when interest rates are high. What will we renters do then? We will truly have no choice then. The housing market in the UK is going through something like this now.

They're not going to raise interest rates in the teeth of a housing crash. You're going through exactly what I went through where I live, and I was able to pick up a house for half what it would have cost if I bought when I moved here.

The previous owner bought at the peak and still owed double what I paid. Don't be that guy.

Interest rates in the UK are 0.5% and have been for 7 years now. These low interest rates, while necessary for the real economy with inflation near zero, support extremely high house prices. Mortgage interest payments substitute for rent so low rates imply high prices.

As a renter without much in the way of assets a high inflation high interest rate regime is really beneficial. Higher rates would mean lower prices (thus lower required deposits) and high inflation would mean quickly building equity.

It's easier to become a naturalized Canadian for Chinese nationals, isn't it? Maybe the Chinese buying homes in the Canadian market are actually planning to move there and raise kids (as opposed to pure speculation in the US market).

Interesting thought - this NYT article suggests that many wealthy Chinese children are moving to and living in Vancouver.

http://www.nytimes.com/2016/04/13/world/americas/canada-vanc...

The University of BC has an alternate name: University of Beautiful Cars.

http://universityofbeautifulcars.tumblr.com

You probably don't need me to tell you who owns them...

University of Toronto Mississauga is the same, with respect to overly nice student vehicles.

Some of the difference in nominal price appreciation is currency driven -- the US dollar has been strong and the loonie has been (relatively) weak.

Loonie has gone up over 10% in the last couple months, Vancouver has continued to go crazier.

Because you can buy citizenship here (Canada).

Isn't Vancouver and Toronto also easing towards correction?

http://www.bloomberg.com/news/articles/2016-04-15/canadian-m...

Yup. And, as vc dollars start drying up and companies get pressure to become profitable again, employers will figure out where to go: out of San Francisco.

So, my impression is that the companies that pay enough that you can actually afford to think about buying in SF are the large and profitable companies... from what I've seen, vc-dependent startups pay dramatically less.

Of course, most of those profitable company jobs are in the south bay, not in SF proper, but hell, if I could buy one of those mini-condos in sf for a quarter mill, I'd jump on it.

I'm trying to say that I'm not sure that the vc-dependent will have as much effect on the market overall as you say, unless the slowdown progresses to the point where it starts pulling down the big guys.

(which isn't impossible. someone put forth the theory that a lot of the highest-margin advertising dollars come from said vc-dependent firms, and if those went away, everyone would pay a lot less for advertising, which would dramatically effect the big, profitable employers around here. I would rate that theory as plausible, but not certain.)

They form the same labor market though. Fewer startups puts less pressure on the price for hiring engineers.

You don't have to many any assumptions about advertising dollars (the vast majority of which come from outside SV) to see how a startup slowdown will also have an impact on all engineering salaries.

> They form the same labor market though. Fewer startups puts less pressure on the price for hiring engineers.

Yeah. I guess two questions.

1. how much of the market for Engineers is vc-dependent startups? My impression is that they have an outsized PR footprint for the number of jobs there.

2. If I'm right that they get paid less, (which is my experience and belief, but I have no hard data to back up my assertion) are the engineers working at startups mostly just entry-level folks? (this is kind of my impression, or at least they seem to be way less experienced than folks you see at established companies, though again, I don't have hard data.)

I mean, inarguably, it will have some effect, but how much depends a lot on those two factors.

> 1. how much of the market for Engineers is vc-dependent startups?

Based on my inbox, half the hiring is from startups.

> are the engineers working at startups mostly just entry-level folks?

No. Startup compensation is certainly less cash, but it's also more variable. At better startups, you'll find plenty of senior engineers including ex-BigCo people.

Also keep in mind that for top engineers there's also the competitive option of founding a startup. If funding cools down substantially, then that prospect becomes much less attractive and companies have to worry less about retaining talent.

>Also keep in mind that for top engineers there's also the competitive option of founding a startup. If funding cools down substantially, then that prospect becomes much less attractive and companies have to worry less about retaining talent.

In my experience, If you are not an 'executive track' type; I mean, if you don't have both the contacts and the business skills, you are generally going to make a lot more money as an Engineer at a big company. I mean, like most technical people, I used to think I was a lot smarter than my boss. I mean, I maybe still think that, depending on what you mean by 'smart' - but I tried, and I can tell you that business is a complex thing that requires a completely different skillset, and after trying it? smart or not, it's something I'm terrible at, or at least if you compare the "what a big company would pay for the labor in" even to my raw revenue, I apparently destroy a lot of value.

And yes, yes, you partner with a business person! But... you know how there are 10x programmers? the difference in productivity of business people is way, way bigger than 10x. And just like hiring Engineers, it takes one to know one... I'd argue that it's even harder to hire a businessperson profitably, because negotiation and perception management are core skills for the businessperson.

I never said it was necessarily wise to start a startup. Having worked on my fair share, I quite agree that it's very difficult and you need very strong business skills.

However, people (including very good engineers) are not rational and in boom times are attracted to the idea of founding a startup even if it's economically undesirable.

A bit off topic, but how was your experience with Redfin? I'm thinking of using them.

I'm not the previous author, but I bought my home (in SF) with Redfin about 2.5 years ago, and our experience was very good. It felt to us like all the good parts of having a real estate agent and none of the bad parts.

We wanted to just browse a webpage for homes ourselves, though (and then have someone help us evaluate and make an offer on them). If you want someone to go out and find houses and offer them to you, it's not the service for you.

I bought with Redfin and my agent was fantastic. She worked much harder to close deals than did the full-commission agents working the sales (we made offers on two properties before closing on the third.)

However Redfin is not for you if you want an agent driving you around, suggesting "maybe you should look at this house," giving you inside tips like "oh, my friend at another brokerage has a great house that will be listed tomorrow," etc. Redfin is good if you don't mind driving the shopping process and you just want someone to close out the deal.

I can say that I saw a lot of really crappy agents selling houses. Most agents I saw absolutely do not deserve whatever commission they get. I do not think Redfin is as good as the best traditional agent. However I do think an average Redfin agent is probably much better than an average traditional agent.

I used them and it was excellent - exactly what I'd want as a tech-comfortable person. It's not the best for people who want a person to meet with in person or talk to frequently on the phone. Also note that Real Estate agents on the other end of the transition can be a bit annoyed by you using RedFin.

What is it? Some kind of real estate brokerage service? It's not merely a research site like zillow or trulia?

EDIT: ok, it looks like it's a real estate agency that's salaried instead of commission -- err, scratch that, they take a less-than-industry average commission. Sounds a little disruptive.

Redfin as a company takes a lower commission -- more precisely, they refund about a third of their commission to you. Agents themselves are paid a bonus based solely on client satisfaction surveys. At least that's how they said it worked when I used them in 2013.

Yes please buy your house from Redfin so they can IPO and I can sell my worthless options.

Besides working there, I also bought my house from Redfin. They tend to do less handholding because each Redfin agent handles more clients at a time than a traditional agent. However, if you are a first time buyer then they will provide more attention. But if you use the Internet for searches then you probably don't need and might even be annoyed by traditional agents.

Took a quick look and their price estimations are dubious at best. In the complex I live in, comparing 2 condos of exact layout and sq footage, same view, sold 4 weeks apart, one on the 2nd floor the other on the 4th: the 2nd floor unit's price 'grew' $20k while the 4th floor unit 'grew' $500. Great job on 2 orders of magnitude error.

The price estimation is not their primary purpose (unlike Zillow, who use their "Zestimate" as a main selling point).

As a buyer I would assume it's pretty similar to other agents. The only big difference is that they contribute some stipend to your closing costs. So it's a bit cheaper for both parties (as they take a smaller commission as well) to go with Redfin.

Minor clarification: when we bought through Redfin in 2010, the rebate came as a check a week or two after closing, not a contribution to closing costs. Adding a transaction to the already complex closing process would not have been worth the benefit of getting the money a bit sooner.

I don't know anything about this company. I have an idea what market they are trying to crack. I can't believe it's taken this long.

I've always felt paying a Realtor 3% on the biggest item most of us will buy in our lives is crazy. I just don't know what they do for that commission. I don't know what makes one successful--just because he/she sold more than the others? Pay them more because they know how to network?

I missed getting my RE Brokers license a few years ago. I procrastinated. The Realestate lobby got to Jerry Brown, and got their bill though. A rediculious bill that just made it more difficult to get a license, essentially cutting down on supply. Enough said. To get a licence. It's about eight courses, and couple of years of doubious experience, and a simple test.

Now what does a good Realtor do earn that huge financial jackpot when they sell/buy you a house? I haven't a clue. Maybe a good omissions/errors insurance policy? I don't have a clue.

I've been told to pay full commission, and you will see what they bring. Then again, this sounds like something the King of Realestate came up with?

So, to all you young, hungry developers. I really believe the Realestate Agent is long past it's due date. I would love to see a safe way to exclude them, and their commissions form the home/commercial buying experience. A fool proof way?

I will now look into Redfin. If it's half what I believe it to be; there's much room for competition?

Good agents can be worth it.

Redfin provides a refund of a portion of their commission as a seller's agent. I considered them when selling a house. However, after having meetings with an agent of theirs and another independent agent that charged the normal 3% seller's fee, I decided to go with the independent.

The Redfin agent had suggested a price of $649k, while the independent suggested $745k. The house wound up selling just under ask of $738k. The Redfin agent did very little work to understand the value of the property and what it could be sold for, and only used an automated tool, while the independent agent did more work to select better comparable properties. And the more expensive broker wound up paying for some items such as light landscaping and staging, so the price difference was less than the percentage differential.

Obviously in this case the discounts Redfin provided did not nearly make up for the difference in selling price. A good broker can get a price that is vastly larger than the difference in their price.

However, Redfin would probably be great for selling properties that are part of subdivisions, or in a condo building, where the automated tool would work very well and not as much "human intelligence" is required to get the job done.

A good real estate agent you can trust is worth the 3%. They can foresee potential roadblocks, help you navigate the somewhat complicated process and really find you your dream home. The real trick is finding one of those agents.

I used to work in the RE business and there are good agents that earn that value and there are bad agents that don't.

You are paying for market expertise, negotiating experience and arms length distance.

On a slightly different note, this podcast and the book "The Middleman Economy" go into detail about why middle men (like real estate agents) are useful: http://www.econtalk.org/archives/2016/03/marina_krakovsk.htm...

Edit: typos

you pay them a commission because real estate deals can get ugly, fast, especially in competitive markets like in the coastal US.

a good agent has seen it all before, knows what to do when the seller or buyer starts making threats or is trying to angle the deal somehow. he knows what lawyers to call, what finance people to call, and yes, networks and has relationships with agents to get you properties that haven't hit the market yet.

out of my peer group who has ever bought property, i'd say a good third of them had some kind of issue during the deal that required an expert to mitigate.

of course a shitty real estate agent isn't worth their pay - but that goes for any job. but otherwise, it's the same old shit -- things are going great, what am i paying you for? things are going shitty, what am i paying you for?

I have a great real estate agent. He knew the math equations that HUD used to price their homes at auction, and what percentage of that price they'd take. Our first house (bought in 2008), he suggested that if we waited to make a bid on a house until a certain day, the price would drop, and they'd take 80% of the asking price. He was correct and we made a lot of money by selling when the market came back.

On the next house, he looked at the roof and knew that the house probably had a recalled shingle on it, and we couldn't even get insurance on the house with that shingle. The homeowner was stuck between replacing the shingles or taking a chance that the next buyer would have less attentive real estate/home inspectors.

Twice I have greatly benefited financially by his expertise. I'm not paying him a lot for his services necessarily (although he's great at it), I'm paying him for his expertise.

Some people really want to talk back and forth with a human and have an ear that will listen to their questions. Instead of shopping for their own house, researching areas, etc. So it's convenience cost for the hand-holding.

There is always going to be high demand for houses that are close to the large job centers. How strong that demand is will be partly influenced by the economy.

The housing boom we saw in the mid 2000s was a bit of a fluke due to asset inflation that arose from the Feds ZIRP. One could argue that the current asset appreciation we are seeing from 2011 to present is another unintended consequence of the ZIRP.

I'd take it a step further and argue that asset appreciation was an intended outcome of ZIRP.

Think about it, if peoples houses and 401Ks went belly up, there would be chaos and major fallout.

Relevant to SF housing and Portland:

http://www.oregonlive.com/front-porch/index.ssf/2016/04/yes_... - an interview with SFYimby.

The article seems to imply some meltdown in housing is around the corner, but it seems more like the housing market is just leveling off as a result of market forces. You can only drive home prices so high before there aren't enough people who can afford them anymore. Hopefully that means that rent prices will also level off in the area in the near future.

From the article:

>> "...historically low inventory"

>> "...many sellers are sitting this year out."

>> "...The median sale price ... fell by 1.8 percent..."

The article's authors are confused. Their explanation for falling prices consists entirely of "Supply is down."

That's exactly the opposite of how supply, demand, and prices are related. If they wanted to claim that low prices are scaring sellers out of the market, since those sellers are hoping for a future rebound in prices, I might believe it. But the article claims the causality is going the other way.

In Cambridge, a faction of candidates for city council promises that they will make housing affordable by opposing the construction of new housing.

Apparently you can just tell people that supply and demand work the opposite way in the housing market, and people will believe you.

The reasoning might be that if a place gets luxury apartments, rich people will flood the area. Then the crime rate per capita goes down. The criminal population becomes diluted. It starts a snowball effect where crappy apartments in the area looks more and more attractive to the upper middle class as more upper middle class outbid previous poorer renters for the old housing.

I know that's the argument, but it doesn't make much sense to me. It's comparing to a fictitious alternative where rich people don't move in. Why wouldn't they? It's already a desirable place to live, so rich people desire it too, and by definition they can afford to act on that desire.

It is not hard for a rich person to outbid a poorer renter. I mean, this doesn't require a complicated explanation. Whether or not there's new housing, rich people can already outbid current renters because they have more money.

And when this happens without new housing, not only does a rich person move in, someone else moves out. By trying to prevent gentrification from indirectly causing displacement, you just cause the displacement right away.

This still sounds like supply and demand doing what one would expect, not doing the opposite.

This is a phenomenon that's not unique to Cambridge. In many places around the country NIBY forces convinced people that if they don't build new housing neighborhoods will stay (or become affordable) because there won't be new people moving in. At least that's the logic.

This kind of line of reasoning is happening in East New York (far east neighborhood in BK). The local population / community board / local city council people were protesting re-zoning currently mostly industrial stretch of land. But it looks like the rezoning got pushed through.

If it didn't happen folks who no longer had money for the spaces they wanted in eastern Bedstuy & Bushwich already have started pushing more eastward into East New York / Cypress hill area. This can be evidences by the increase in housing prices in those area in the last few years and number of new smaller buildings and gut renos happening.

I too found many of the facts stated difficult to relate. Every listing results in a bidding war-> prices are finally coming down?

> That's exactly the opposite of how supply, demand, and prices are related.

Just add in a dash of human behavioral economics.

There's a pretty strong narrative that the process of buying in the Bay Area is intense and demoralizing. There's only one winner in each of these bidding wars and many losers. At some point the losers may get fed up and stop looking. They'll also tell their friends and family how awful it was to look for a place.

Note, this is all speculation on my part. I am nowhere near an Economist just someone living in this depressing home/rental market.

With very illiquid assets, like San Francisco real estate, it's often not so much how high or low prices are but whether the market even exists.

Indeed, but supply & demand says that less inventory in an otherwise normally-operating market should see prices increase. Yet, price-to-list is < 100%.

It's hard to know what that means. Are sellers pricing the low-inventory situation into their list price and then only getting a fraction of that markup? Does the inventory suck, meaning lenders won't even finance it, thus reducing the price? Are all-cash offers at the $1mm+ price point so tempting that sellers are giving up 8%? Are buyers just giving up?

Well, the housing market behaves in extremely irrational ways because the decisions have so much impact on people's lives. It doesn't behave like the market for tomatoes or aluminum.

That's not exactly true. A lot of REIs are built on complex structures. The SF estate market might be fueling other investments. Once one starts to collapse it can have a domino effect. Basically if investors were expecting 10% annual return and you tell them this year might be 1-2% they'll take that money and move it elsewhere. Now you have to raise money or sell.

When I used to live in downtown Miami there were high rises going up everywhere with prices starting at 500k-1mm. These same places would later be short sales for 150-250k after the GFC. There was a glut of luxury apartments and few buyers.

I wanted to buy one of these condos but couldn't find a bank that would give me a loan. They're were petrified at what was happening there

REI means Real Estate Index? Or do you mean REIT (RE Investment Trust)?

I think Real Estate Investment.

> When I used to live in downtown Miami there were high rises going up everywhere with prices starting at 500k-1mm. These same places would later be short sales for 150-250k after the GFC.

This sentence doesn't make any sense to me. The definition of a short is to sell something you dont' own with the explicit intention of buying it back later at a lower price.

How can you sell a condo you don't own? and then why plan on buying the condo back at a later date?

You're thinking of the practice of shorting stocks, which is different than a short sale. From Wikipedia:

A short sale is a sale of real estate in which the net proceeds from selling the property will fall short of the debts secured by liens against the property. In this case, if all lien holders agree to accept less than the amount owed on the debt, a sale of the property can be accomplished.

Well how about that. I learned something today!

I appreciate you taking the time to write this out!

In real estate a short sale is when the bank allows the borrower to sell the property for less than what they owe on it.

I buy a condo for $500k, sell it for $250k in a short sale but I need the agreement of the lienholder in order for this to happen.

https://en.wikipedia.org/wiki/Short_sale_(real_estate)

<< Basically if investors were expecting 10% annual return and you tell them this year might be 1-2% they'll take that money and move it elsewhere. Now you have to raise money or sell. >>

How can they take that money and move it somewhere? Most such investment contracts don't allow it. Am I missing something?

Some REITs are publicly traded. Investors can simply sell their shares and buy into something else.

They stop adding more money in. Less future investment?

And Miami is hot again from foreign (Russian and South American) buyers. Blocks of housing in Edgewater are razed to put up huge luxury condos.

My wife (Brazilian) and I joke that we won't have to take the kids all the way to Brazil. We just need to go to Miami.

Given the way the economy has crashed, this won't go on for long.

Which economy has crashed?

Probably Brazil's. It's a shitstorm at the moment. I think the smart, rich brazilians moved their money overseas, Miami for example.

In years past, there was a surge in the market due to the IPOs of companies like Twitter and Facebook. This could indeed just be a return to the mean.

A bit of an anecdote because the article mentions my town specifically - Tacoma:

We put our house on the market Friday, April 8th, a bit below the "redfin estimate" - I saw it had gone live by 11am and we already had an interested party set up a viewing by 12pm. We showed the house 11 times by Monday morning and had 5 offers, some 12k above asking price. We accepted an offer by Tuesday (April 12). My head is still spinning from how fast this was and how many calls we were getting for appointments for viewing. This in a central Tacoma location, not exactly prime location (like the Proctor District or Stadium). We only had 3 other homes as comps in the area (1 mile radius).

Port Orchard / Gig Harbor area is very low on inventory too, which is where we are moving (Port Orchard, we looked in GH though).

This plays out daily in hot real estate markets. I've been casually observing the Boston/Cambridge market and I have to scratch my head when I see properties on the market for only a few days and agents demanding offers by 2 days after the open house. Typically, I see listed on Thursday, OH Sat/Sun, offers due Tuesday evening.

If I were a seller I'd think that we priced the property too low, then again I can imagine sellers just want it over and done with and who cares when it's the difference of locking in 100% appreciation or 108% appreciation.

As mountineer22 points out, this is a strategy to concentrate serious offers and play them against one another. The lower you set the price, the more initial interest you get, the greater chance two or more potential buyers get excited. With competitive bids, you can find the true 'market' price pretty quickly.

In a hot market this apparently works well.

Anecdotally, when my wife and I were looking for our eventual home in Cambridge a few years ago, we went to more than a couple of "open houses" which were pro forma: Despite being listed on Wednesday, by Saturday the sellers already had an offer they were prepared to accept without even waiting for competitive bids!

Yup, a family member sold their condo in southie in 2014 and got an offer they accepted on the condition they cancel the open house...

This absolutely stinks of seller's agents shirking their fiduciary duty so they can move more properties faster and claim access to an "exclusive" club when they take buyer clients.

Yeah, I'm pretty sure we could have waited it out and gotten other, higher offers. We actually chose to pick one that had a longer closing period (the house we wanted is occupied with people that want their kids to finish the school year), and with a dog and a toddler, the constant viewings were pretty inconvenient, enough so I'm happy at a lower price just to get it over with.

I have observed the strategy of the listing agent slightly under-pricing the home to cause a bidding war among willing buyers.

Kind of the same for us, in a first ring suburb of Minneapolis. Tried selling it two years back, had it on the market 5 months, not a single offer despite dropping the price $20k from our initial asking price. This year, put it on the market on a Thursday in middle of March, had an offer within 36 hours for our asking price, above what we ended up pricing it at before. It's pretty much like that all over the city.

Another Tacoman on HN? People in Tacoma know about this website?

Joking aside, you're in the Central District. Sales are hot north of I-5/SR-16 because a lot of the infrastructure up there is being rebuilt. South End is still a high poverty area with not a lot going on. In fact, the only major grocery store south of 56th anymore is the Fred Meyer on 72nd and Pacific Ave (not the best place to visit at night).

As someone who grew up here, Tacoma still has a long way to go.

Well, to be fair, H-Mart is a pretty enjoyable shopping experience, IMO, though I guess most would say it's not a "major" brand it does have 43 locations in the US. I agree though that South/East Tacoma is pretty bad in general.

The entire Puget Sound is absolutely nuts right now - Friends put an offer on a 2BR1BA listed at 470, they were willing to escalate to 540, the house, now pending, went for 675 with three offers going above 600 and had a total of 20 written offers on it.

Yeah, much of the area is benefiting because of the growth in Seattle, Ferry Port towns specifically benefit, Port Orchard, Bremerton, Bainbridge, and Kingston all seem to be doing rather well in growth. I know on Port Orchard's Facebook there's a lot of concern and anger about the "big city folk" coming over and ruining their small town feel. I hate to be contributing to that, but it's where my wife's new job is and I can telework a few days a week so the extended drive doesn't bother me.

Out of curiosity, do you know how many of your offers were from foreign nationals? I've seen some articles talking about how overseas investors are driving up property prices and was wondering if it was true in your case.

Been to Miami lately? Take a drive around Edgewater. Foreign money is not a myth.

The biggest problem is operational for these huge towers. The occupancy rates are all over the place with wild fluctuations. It makes things like staffing and water pressure difficult to manage.

A different market, but I think the Chinese Money thing is a bit overblown.

The San Francisco and San Jose metro areas ranked ninth and sixth from the bottom, with all-cash deals representing only 28 and 24 percent of purchases, respectively. All-cash sales in San Francisco peaked at 36 percent in the first quarter of 2010, Zillow said.

http://www.sfchronicle.com/business/networth/article/All-cas...

My father sold his west Texas home in cash to Chinese nationals. West Texas. And the process took 24 hours.

I doubt it's overblown.

Could have fooled me. I get 3-4 letters a month from realtors wanting to buy my condo for a Chinese investor.

I think the person you are responding to was referencing my city/town as "not the market" more than anything, though I could be wrong. Seattle has many stories of cash markets from foreign investment too, but not many venture as far south of Seattle as Tacoma. That might be changing, but my house isn't in a desirable neighborhood either.

Out of curiosity did you list it with Redfin? I've always been interested to hear how that experience compares with a traditional agent.

I did. I went that route mostly due to the free consultation button. The agent assigned to us was fairly good, but was probably overwhelmed with multiple houses for sale, and communication was somewhat lacking. I went with a different realtor, one I knew personally, for buying; I should have gone with him for both sides, he's very good, friendly, and calls multiple times a day when needed. Our house wasn't expensive enough for the area for redfin to be involved, which is why we got a partner agent.

Overall, I like Redfin for looking at potential houses, but it needs something more, IMO. Like offers and other details on their website (account dashboard right now just links to your listing, nothing else). Maybe even an electronic signature feature for offers, etc.

I had a similar experience with Redfin. I wanted to use a particular agent my friends had used and recommended but because my home was not expensive enough/in a hot enough neighborhood, I got pawned off to a partner agent. I can understand their reasons for doing this but it really doesn't make you feel like a valued customer.

Maybe it's just redfin not having this in their own data, but I'd really like to see these graphs from 1998 and up. Only going back to 2012 isn't very useful in my opinion.

Trulia has some of the more basic data going back to 2000 http://www.trulia.com/real_estate/San_Francisco-California/m...

Wow. Number of home sales for 3 and 4 bedrooms currently at it's lowest level since 2000. I guess that's expected. Really validates my decision to move out of the bay area to raise my 3 kids.

Zillow has a huge amount of data they publish at the Zip, City, County, State levels: http://www.zillow.com/research/data/

Meanwhile in Canada: http://www.cbc.ca/news/business/crea-house-prices-march-1.35...

Pretty incredible bubble price increases, given the growth rate of the Canadian economy. How can that end any other way but in a massive crash?

"The average price of a Canadian home hit $508,567 in March, a jump of 15.7 per cent compared to the same month a year earlier."

"IMF downgrades forecast for Canada's economy in 2016 and 2017"

"Canada's GDP will expand by 1.5 per cent this year and by 1.9 per cent next year. That's better than the 1.2 per cent performance clocked in 2015, but a pullback from what the IMF was expecting in January, which was 1.7 this year and 2.1 per cent next year. The unemployment rate is expected to rise to 7.3 per cent by the end of this year before ticking up to 7.4 per cent next year, the IMF now says."

http://www.cbc.ca/news/business/imf-canada-forecast-1.353186...

Most markets in Canada are in slow decline, which reflects reality. Then you have the two special markets of Vancouver, which needs no introduction, and Toronto, which fits somewhere between Vancouver and reality.

It would be interesting to examine the fundamentals of each separately.

> Pretty incredible bubble price increases, given the growth rate of the Canadian economy. How can that end any other way but in a massive crash?

I don't know sometimes. People have been saying that it's going to crash for the past 7-8 years but the prices just keep going up and up. Right now a lot of people are trying to snap up property before the prices reach impossible heights.

Human psychology is great, isn't it? "X is a worse deal than before---I must buy it now."

I think that SV has probably been in recession for the last few quarters judging from some friends I have who have been interviewing. Everyone is interviewing like crazy but few are hiring.

I've noticed a (perceived) spike in the number of foreclosures in SF on Zillow as well over the last 6 months.

I'd say in the last 6 months, for sale signs have gone up all over my neighborhood in SF. There are at least 3 on my block alone. Despite this, there is a 3 bedroom apartment two doors down from me that is asking for $10,000 a month rent, $30,000 due at lease signing.

Ha ha. You think SV is in recession because few friends of you are interviewing. SV has ~3% unemployment rate, continuing increase in house prices, billions of dollars in VC funding, ever expanding job market etc. I just sold my home last month in a span of one weekend. I had 400 people show up for the open house and received 15 bids. The highest one was 50K over asking, with 50% down.

"Plummet 22%" comes off as extremely alarmist.

Median sales price dropped 1.8%. The number of sales dropped 22%.

It's a signal, but of what? That's uncertain.

It's worth noting how tiny these numbers really are in a month like March. I just checked Zillow and 105 houses were sold in SF in the last 30 days.

People holding out on a better deal next year.

Talking to a notary based in SF this week, she saw an increasing # of Bay Area clients buying a home in Portland or Seattle and moving.

My brother in Portland has been complaining about the area receiving all these ex-San Fransisco residents and how they've been driving up prices.

Is this just a reversion to the mean following a one-time jump due to IPOs from, e.g., Facebook and Twitter?

I guess what I'm asking is, did SF housing prices merely fall back to where they were in 2013? Or all the way back to where they were in, say, 2009?

Not even close. More like they dropped to a few months ago. 1.8% seems like a rounding error. Probably the middle to high end is seeing most of the drop. In the 2-5 million range, houses have been staying on the market longer. Houses around where I live are still selling for $100,000 + over what I paid in 2013...

As a Brooklyn resident (who rents), I hope this trend picks up steam and continues. Maybe I could be a homeowner some day after all!

As a foreigner, I don't understand this attitude. Why would you want all your wealth to be invested in a single leveraged asset that's also depreciating, requires your constant attention and ties you to a single locale?

1. People don't understand the time value of money, or how the alternative to owning a house is owning stocks / bonds.

2. Buying a house is a form of forced savings. This can be useful because people are irrational, per Kahneman's Thinking, Fast and Slow.

3. Cultural brainwashing (I think this is the biggest factor).

Favored tax treatment of housing

I often read counterarguments to buying that apply to our younger years, but rarely see them declared as such. Should a 40, 45 year old still be renting?

Even without all of the financial aspects everyone else has mentioned, if you own the home you can do whatever (well, with approval from the local homeowner committee if applicable). Don't like a wall separating the kitchen and living room? Tear it down. Want to rip up your yard and install new grass and a garden? Go ahead.

My current landlord allows pretty much no modifications to anything, just recently cut down the only 2 (40+ year old) trees around the house (for insurance purposes apparently), and won't allow anything to be planted in the yard except for flowers in a garden. I want an actual vegetable garden, and I would've never cut down those two trees. All of this is on top of the financial aspects of actually owning the house and paying rent to contribute to an asset (which at least in my area is about 40% cheaper, sans maintenance and taxes) and when it's paid off, I don't have any more rent...

You always have rent, by some name or another. Homeowners pay property taxes and homeowners insurance. Homeowners with an extant loan pay interest.

A number of reasons:

1) You don't pay rent. Once you own the place free and clear, it's yours and you always have a home.

2) While the house depreciates, property may may still appreciate, especially if you live in a nice area, and even more so if you own the land beneath you.

3) There are tax benefits to owning your own house.

4) When you start out, it's usually not that much wealth, since you're taking a loan on it, though it is highly leveraged. As you pay more of it down, if you're smart, you'll have diversified your assets, so it's not all in one spot.

> 1) You don't pay rent. Once you own the place free and clear, it's yours and you always have a home.

Assuming you can keep up with property taxes! :P Though I understand they can vary a lot from place to place.

Well, you'll be paying property taxes whether you own or rent. It's just not as visible if you rent.

Pick a place that has low property taxes and has legal limits on yearly increases. Like CA or NYC on 1 to 3 family homes.

You pay rent to the government, around here about 1.25% of the purchase price / year.

That's not rent. That's a tax, which is what you agree to in exchange for living in one of the most advanced societies on earth.

There's something to be said about the lawlessness and utter lack of meddling by governments in some of the not so advanced societies on earth. I occasionally try to explain the notion of property tax to my relatives back in my home country and they just never get it. They always interpret it as "paying rent on land you already own" and I don't fault them as that's how I look at it too shrugs

This isn't the proper forum to discuss the morality of taxation. I have been in those forums. I don't want HN to become like them.

Of course it's a tax. I think the commenter was just pointing out that you do still pay a recurring fee for property even when you own it.

It's theft. People don't explicitly agree to it. It's forced on you. And most taxes don't go towards the advancement of society. Advancement comes from the people and businesses.

This applies to most every law. You never agreed to 99.99% of the laws you're required to follow everyday.

No one follows you around to ensure you follow them.

Rest assured most people dont follow the laws they do know 100% of the time and better yet... No one knows 100% of the laws they are required to follow.

Real Estate is an awesome investment, but when done correctly. The irrationalness of buying a house gets in the way at times.

To address some of your concerns:

- Time: It only depreciates if you buy at the top of the cycle and sell before it recovers it's value - assuming you're able to stay in a house long enough for the cycle to recover. Many people can't wait for cycles - when it's time to move, it's time to move. Don't buy if you're unsure about the future of your market. Definitely don't buy if you believe your market will _never_ go down. That's called irrational exuberance and the '07-08 crash was aided by that psychological non-sense.

- Money: Let's say you put 200k down into a house in SF and take out a 800k loan, so you pay 1M total for the house. If the market drops 10% over the next year, you've lost 100k in your downpayment. That sucks. Now let's say you waited 2 year from now when the market has cooled off, and you purchase the same home for 850k. You put your 200k down again, but this time, the home increases in value 10% over the next 2 years. Sounds like a better deal, right? Value is correlated to many things, but timing is one that cannot be ignored.

- All my money is locked into my house!!!!!: No, it really isn't. I don't understand why many people think this. It's called a HELOC, or Home Equity Line of Credit. You can get one for around 4% annual interest right now. You can take ~80% of your current principal in the house, and pull it out as needed through your HELOC. This is very common and a great way to use principal money as needed. So taking the same example as above, if you have ~250k in principal in your house after 1-2 years, you can use roughly 200k of that money (assuming you pay back your HELOC of course). Now if you're thinking...wait...that means I'd have 2 loans...we'll of course. But when you rent, you get to use 0% of that money for anything.

Housing, for most of us, is a long term investment - unless you just have millions lying under your mattress. Looking at things from a 1-3 year perspective is why so many people rent. Again, for some people that's their only option, but if you are fortunate to be able to plan for the 5-10-15 years down the road, you can really make housing work in your favor.

Just don't buy this year. Let things cool down :)

> Value is correlated to many things, but timing is one that cannot be ignored.

The real estate market as a general rule moves slower then the stock market (when it does crash in a day or a week). Timing the stock market is hard, much more doable with the real estate market.

Example Houston, clearly the area is losing oil and gas jobs which make a decent chunk of their economy and also drive commerce downstream locally (car sales, entertainment, etc...) but the house prices currently do not reflect that reality in Houston.

In addition to what reverend_gonzo said, there is the simple fact that rents (mostly) go up and mortgage payments don't.

I've always thought this calculator was an insightful way to play out various home buying scenarios since you can adjust pretty much anything, including the tax benefits and the market return of an equivalent investment. http://www.nytimes.com/interactive/2014/upshot/buy-rent-calc...

Interest rates aren't guaranteed to stay low. Here are the historic rates: http://b-i.forbesimg.com/phildemuth/files/2013/07/image001.p...

Though if you have a long-term fixed-rate mortgage, you are probably OK.

True, I was assuming fixed rate.

Yes, like subprime mortgage rates didn't go up ...

They were variable rate loans or had balloon payments... If you get a fixed rate loan the amount you pay per month on your mortgage will not go up.

Most of the value is in the land. And historically the prices have gone up over the long term, so your leveraged investment allows you to get more returns.

Also, unlike stocks, if housing falls, at least you get utility from it-- you live in it.

Finally, there are many neighborhoods in the US where the rental options are pretty limited. You need to buy to live a lot of places.

Because it means you don't have to pay rent after you retire.

But you're not paying rent because you have hundreds of thousands of dollars locked up in tye house?

The real question is, how much money would you have made if all that equity was in the stock market? Sometimes that can be more than what rent would be.

And sometimes the stock market crashes and takes everything with it.

See: every ten years.

At least with a house, even if the value goes down, you still have a home.

True, but what is more risky? Having most of your money in a single, non-liquid asset with a very local market or having most of your money in a diversified, liquid asset?

I'm not saying owning a home is a bad idea, just having 80%+ of your money in it.

Owning $300k of stocks is better than owning a single $300k property for the reason you give. The question becomes a lot fuzzier when you overlay your own need for housing on top of it.

What I mean is, if I had $300k cash in the bank and I was renting an apartment I enjoyed, I'd be smarter to invest the $300k in a diversified portfolio than spend all of it on a single rental house and playing landlord.

Equally if I had $300k cash and nowhere to live, I might very well be better off buying a house than renting a home and buying the portfolio. A vast amount depends on individual circumstances and stage of life.

I don't disagree. I'm certainly not anti-owning a home, but it's much more risky than people think it is. This is despite all the people who witnessed the 2008 crash.

I see people stretch themselves with a mortgage, dumping every dollar they have in order to make up the down payment. A single-asset investment philosophy. Why do they do it? The only answer I can imagine is that risk of their home going down in value is low. I disagree the risk is that low.

Diversification can include real estate.

Besides, it's the leverage. You can buy $625,500 of house with 2.5% down + a monthly payment with a ~4% vig. Nowhere else can you get that kind of money at that kind of rate with ~$16k down.

Then if you're smart you invest other money other places to diversify. You can live in house, unlike Vanguard funds. But you should have both.

Where can you buy with 2.5% down? Those days are long gone. Skin in the game and all that.

Not 2.5%, but close, FHA still allows 3.5% down.. but then you're talking MIP and such

Yep, I was talking about FHA but misremembered the %. Still crazy low. MI sucks but hey, 3.5%.

You are correct, but with leverage comes risk.

Here is my nightmare scenario: I live in the Bay area and if I wanted to buy a single-family house, I'd be looking at $900K at a minimum (if you avoid the really run-down/dangerous areas of the city).

Let's say I have the down payment of 20%. That's $180K. I buy the house and I can swing the $6000 per month in PMI, utilities, maintenance, etc.

Then the market takes a dip of 20%. If you own a $200K home, the hit would be $40K. That would suck, but with a good paying job, you could handle it.

In SF, a 20% drop (still within the realm of possibility) means you just lost $200K (if you include the other costs of closing on the home). $200K would be 5+ years of savings down the tubes.

You did _not_ lose anything! That's a paper loss! Are you a speculator expecting to sell the house in 2-4 years? If you went to all of that effort to buy a _family_ home, presumably you are planning on staying there for a while (possibly long enough for the price to recover).

On the other hand, I agree that now you're underwater and if you're forced to sell you'd be in trouble. But if there was a risk you'd have to sell the house so soon, why would you buy it in the first place?

PMI is mortgage insurance, which you do not have to pay with 20% down. You may have meant PITI (principle, interest, taxes & insurance) which for that example situation would be about $4500/mo.

Even so, assuming your mortgage is fixed rate, your payments don't change regardless of the value of your home. Whether it's worth $1 today or $10MM today, it only matters what you paid. Like the other commenter said, it's a paper loss.

You say "stock market crashes", I say "dividend yields go way up!". The losses are usually paper losses (hello tax-loss harvesting!), which don't bother long-term investors (whether they are home owners or stock investors). (I don't think you can tax-loss harvest a home though...)

Only after you own enough homes to create a publicly traded REIT :)

Everything? When was the last time the stock market went to zero?

Every market crash in the US has been follow by a even bigger boom.

... If you can still swing the mortgage

There are untold retired people who have been forced to move due to rising property taxes. Many of the benefits of owning evaporate when you take into account everything.

Evaporate? No. Those retired people would still be paying property taxes -- you think landlords just eat that cost? Rent includes taxes, maintenance, etc, it's just spread out through the year.

CA prop 13 fear monger much?

Because in America, the balance of rights is heavily tilted in favor of landlords, and if you're a renter, you are constantly in danger of losing your home with little to no legal or social consequences for your landlord.

SF had another real estate bubble during the dotcom boom, and as far as I know, the bust was regional in scope.

Developers are finally building in SF..

http://www.bizjournals.com/sanfrancisco/blog/real-estate/201... http://www.socketsite.com/archives/2016/04/san-franciscos-hu...

This is very good news, my prediction is that this wave of supply is going to reduce the prices for a while. There is actually still a lot of space in SOMA/Mission Bay/Central Waterfront to build. New construction is all going to be condos rather than single family homes, people who want to live in single family homes and drive to Costco on the weekends (nothing wrong with that) will continue to move to Seattle or Portland.

Money is flocking to SF from all over the world through VC companies and mutual funds, still. It used to be VCs with previous exits who already live in the region but in the last 2 years a lot of dumb money coming in. At some point in the next 5 years Uber, Airbnb, Pinterest, Lyft, Dropbox, Slack, Palantir and Stripe are going to have exits, even if 3 out of 8 lives up to their potentials these exits are going to create a lot of potential home buyers. Facebook, Google, Apple and Netflix (yes, netflix) are going to continue growing their empires. If SF's city officials can pull it off, with the increased investments in public transportation eventually San Francisco is going to become a global A+ city. (https://en.wikipedia.org/wiki/Global_city)

Only a 'black swan' event can stop SF's medium term growth. We already had a 'black swan' event in tech in the recent history, burst of 2000, everyone is expecting a similar story here. It's the nature of 'black swan' events that if people are already expecting things to fall apart, the magnitude is much less. (https://en.wikipedia.org/wiki/Black_swan_theory)

> If SF's city officials can pull it off, with the increased investments in public transportation eventually San Francisco is going to become a global A+ city.

This is the most hilarious comment I've read on HN in a long time.

They must not know SF's history...

There's huge swaths of single family homes in SF; just not in the areas of soul-less high rise hotel/condos that young tech people seem to prefer.

You do realize there's a Costco in Soma right? It's swamped with people. I go, and I live in Russian Hill.

I agree with the rest of your statement, but they're only building in a very small part of SF and catering to a narrow demographic. Soma 1br condo prices can implode, but RH and Pacific Heights 2-3BR places will only go up.

Don't buy the nicest place in a bad neighborhood. Buy the most modest place in a nice neighborhood. Let everyone else bring up your home's worth.

Yep I agree about RH and Pacific Heights. I don't think its a small part of SF, that's the thing.. Central Waterfront and Mission Bay has so much potential.

http://www.pier70sf.com http://missionrock.org http://www.bizjournals.com/sanfrancisco/blog/real-estate/201...

Central SOMA up north and hunters point in the south, eastern neighborhoods will add 50k+ residents to SF in the next 10 years

http://208.121.200.84/ftp/files/Citywide/Central_Corridor/Ce...

There's another nuance to black swan events, though. I don't recall whether this was from BS or Antifragile, but the maximum expected magnitude of an event such as a bubble pop would generally be considered to be the previous max. If the next event were 1.5x-10x larger, it would still be a black swan and could overwhelm the reasonable preparations that were made in anticipation of a repeat.

> This is very good news, my prediction is that this wave of supply is going to reduce the prices for a while.

My prediction is that it may flatten prices (or slow the increase), but the buildout in supply will not reduce prices... because as far as I can tell, housing costs don't fall with supply increases, only from demand drops.

(Anyone know if there's a prediction market for this?)

FED raising interest rates is going to drastically lower inflation adjusted housing prices. This can be a good thing for people that owe a lot of money at a fixed rate or new buyers, but variable rate mortgages will crush some people.

Huge towers going up all over downtown Redwood City, too.

East Bay - My neighbors on either side sold their homes recently (last week). The house on the right sold for 75K above asking price. The one one the left sold for 90K above asking price (around 20 offers for each house). Listing price for both houses were already high.

That really just means that both houses had too low of a listing price.

I wouldn't hold your breath just yet. In the peninsula prices are up $100k in my neighborhood. Interest rates are still low so it will take some time.

Sales plummet 22% in SF, yet there's a bidding war on every property? This implies that demand still outpaces supply so I don't see how you could predict a crash, yet. In reality, prices only dropped 1.8% y/y. And that was for March, which is traditionally a low-inventory month. I personally think the correction is still a year out.

From the article you can see its a local equalization in process

While San Francisco had the highest median sale price in the nation at $1,042,500, that number actually fell 1.8% year over year, and declined by 0.7% month over month, an unusual change from February to March. * In neighboring San Jose, prices rose 3% to $860,000 and Oakland rose 5.4% to $590,000

More like: distribution of sales prices fell. I don't think many individual homes sold for less.

An Uber, Dropbox or AirBnB IPO would quickly make prices go up again.
However, these companies don't seem to be preparing for an IPO anytime soon.

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