Tuesday, December 30, 2008


There is a lot of talk going on at my place about the volatility in the real estate market, as we are finally seeing the effects of the recession in San Francisco. In my view, no one (real estate professionals included) knows what valuations should be right now. So I'm going to jump into the fray and offer my predictions about market trends:

- Prices on all residential properties will continue to drop through 2009 and possibly level off in late 09-early 10, when owners who must sell stop sitting it out and realtors need to make money again. These people will realize that "the bounce back" isn't going to happen anytime soon. They will come to their senses and price things to move.

- Even at reduced prices, appreciation will be negligible for the forseeable future and likely modest after that. Home buying will go back to being a long term proposition. Buyers will be lucky if their investment keeps pace with inflation over the course of the next 5-10 years.

- Liquidity (even with little or no appreciation) via resale within the next 3-5 years will also be questionable. Buyers need to be prepared to park any money they invest in a property for 5-10 years.

- Renting in the City will continue to be appealing. (Perhaps more appealing than buying.) If they have savings, many people will feel more comfortable sitting on the cash instead of investing in a property. People will want a substantial financial cushion on hand to soften the blow of a potential job loss.

- Rental prices will also see some downward pressure as people who cannot sell opt to rent. This includes larger scale developers. Several new mid- and high rise buildings in the City will become rentals instead of condos. Qualified renters will have lots of quality options. They will be able to solicit incentives and bargain for lower rents.

- Due to politics as usual, the City (primarily via the Supervisors' legislation) will continue to constrain home ownership opportunities and make being a landlord difficult, while at the same time maneuvering to suck every buck possible out of this block of taxpayers.

- Fewer people will buy TICs, due to the high mortgage rates for this type of property and falling prices on condos. If this trend is sustained, it might have some small effect on clearing up the condo lottery backlog.

- Prices on reasonably attractive 2 unit buildings in good locations will see less falling off than other types of properties, as savvy do-it-yourselfers, contractors and developers continue to seek ways to squeeze some money from this market. (2-unit buildings bypass the City lottery and can go straight to condo conversion.)

In short, the speculative buyers, the unqualified buyers, the people who think they might lose their jobs, or have mobile jobs, or want to someday get married and have kids who play in a backyard, the young and the restless, the uncertain and the daunted, will remain out of the San Francisco home ownership market. A continuing core of stable, high income earners who are committed to having a residence in San Francisco long term will slowly start buying again, very selectively. They will join the existing ownership class, which in my estimation falls primarily into these categories: 1) the non-working very wealthy 2) working homeowners who bought before 2000 3) those who flipped and traded and profited during the boom and didn't end up in over their heads and 4) those who inherited practically tax free property from their parents or grandparents.

Monday, December 29, 2008

Another Curious Missive From the City

Our building just received a letter from the San Francisco Department of Public Health Environmental Health Section Code Enforcement Program. It says that based on City Ordinance 159-08 DPH can charge rental buildings an annual Healthy Housing fee related to pest control, sanitation and health standards. If this $31.00 is not paid, DPH threatens to put a lien on our property for the amount owed plus penalties.

So now we need to go through the rigamarole of signing a declaration saying our building is an all owner occupied TIC and sending it back to the DPH.

Oh well, given the municipal budget crunch I guess you can't blame them for trying.

Condo Lottery 2009

TIC owners can purchase tickets for the condo lottery until 4:45 PM on Friday, January 23, 2009. There are no significant changes to the lottery procedure this year. The drawing will be held on Wednesday February 4, 2009, at 9AM in Room #400, City Hall, 1 Dr. Carlton B. Goodlett Place. If you are new to the process visit this Department of Public Works 2009 Condo Lottery Info site.

Once again our building is in Pool A, which is the somewhat more advantageous pool. We've got five tickets this year. Finger crossed. Wish us luck. We've owned this building since 2000 - it sure would be nice to condominiumize at this point.