Fog City Guide

Yesterday I took the opportunity to go listen to a talk about our market. Ms. Appelton-Young had some very interesting comments that I believe are worth sharing.

Talking about how the market got to the dire situation it’s in now; she said in reference to the zero down loans, “The banks were buying properties without the buyers having any stake in the home”. Think about that the next time you hear about homeowners needing to be stabilized. I think those buyers are really just tenants in bank owned properties and it’s the banks that need to be stabilized after buying so much real estate.

She also talked about the long held concept in real estate that downward pressure on pricing is typically slow. This is called the “sticky price” phenomenon. It speaks to the actuality that if there is downward pressure on values homeowners are reluctant to sell. If they have a choice they hold on and stay till prices stabilize. So in thinking why this downturn is different she realized that many of these sellers or defaulters had no equity in the property and with nothing to lose they chose to walk away. In this slide there were more folks that had no equity, because of the 100% loans and the other low-down, teaser rate product. Her conclusion in this thought process was that “you are not a homeowner when you have no equity”.

When she took out her crystal ball and made predictions for the state she feels that the low to mid price market will see sales grow and price rise because the sub-prime borrower’s loans have reset and the banks are disposing of them now. The mid to high end will see declines in the coming period because this credit crisis has gone global.

San Francisco’s market has held up well throughout 2008 and last month I reported an increase in median and sales volume. The remaining problem is the access to money. The spread between the 10 year T-bill and mortgage backed securities is a high, 3%, when it typically runs about 1.6%. Jumbo loans, which just about every buyer in SF needs, are therefore very expensive.

President Obama has released his latest housing plan and the conforming rate is back up to $729,500. Which if you have if you have 20 percent for your down payment ($182,375) you can buy a $911,000 home as long as your payment is only 35% of your monthly income, about, $12,500.