Tuesday, October 11, 2011

Real Estate: a Local Market

Since most of us have become numb to the high volatility that has situated itself in most markets these days, I want to spend time studying the data that is most pertinent to the readers of this blog: San Francisco Real Estate. The following points stem from the S&P/Case-Shiller Indices:

  • The 20-City Composite Index measured from the June/July 2006 peaks through July 2011, showed a peak-to-trough decline of -33%.
  • San Francisco specific experienced a peak-to-trough decline of -46% - much of which can be attributed to the lower price ranges (lower for the City) and in the less affluent neighborhoods (i.e. Bayview / Hunters Point).
  • San Francisco’s recovery from recent lows is up nearly 15% vs. the 20-City Composite Index of only 4%.
  • San Francisco is #1 on the 20-City Composite Index for recovery from recent lows, followed by Washington DC at 13%.

The takeaway: real estate is a local market and it is too difficult to draw conclusions on a national level.  Real estate is fragmented, which means that real-estate specialists have to properly evaluate the local economy. Here are my opinions as to why I have strategically positioned myself in San Francisco: SF is a world-class City, with limited land to further develop and build, a climate that’s arguably ‘perfect’ and with an economy driven by innovation and progressive minds, as Silicon Valley is steps away. Such dynamics present a real estate market where demand has shown resiliency and supply is limited – a formula that most businesses salivate over.

This evidence, albeit a matter of perspective, is valid and is why real estate in San Francisco is not commensurate to the macro variables we continually hear about via the media and other outlets. What I will be paying attention to are the underlying qualities continuing to be present in San Francisco. This is how I will determine how the demand-side of the equation will change… and where prices have to reflect that change.

In sum: I maintain an optimistic outlook on the SF marketplace. Stay tuned for a more in-depth look at how various sub-districts within San Francisco have fared since the market’s peak…

Saturday, October 1, 2011

Implications buried within Housing News

Much to think about these days, especially towards the housing market…

Lots of implications within the pages of the daily news: government intervention has turned the housing market into a serious political affair. The best way I can summarize “Operation Twist” is by saying:

1.      The Federal Reserve has become more fiscal than monetary in purpose, promoting economic growth and employment more than fighting inflation and maintaining price stability, and

2.      Net selling of short term rates, and buying more long-term rates, is an effort to flatten the yield curve (though I fear an inverted YC – which is a bad thing).

The goal is to improve long-term financing of major assets (like homes) and simultaneously shift the liability obligations of the government on future generations. This is unsettling, and I fear that some degree of manipulation is in place. Well, obviously there is meddling going on…politicians and Wall Street, the like, have been meddling for a long-time now! Why else do people vote for pro-intervention policies – we tend to believe that people know what they are doing...

Furthermore, the new limits of government risk-backing have now been capped at $625,500 for a residence (with exceptions in NYC, LA, and Washington). I tend to ask the question: which underwriting agency will be pooling the mortgages of homes that are over this target price? That is a real implication. I am also thinking about the implications on supply-demand dynamics…

No solutions coming from me on these problems. I would only suggest, as I already have, that you align yourself with professionals whom you can trust to offer you fair and objective opinions.