Comparing the cost of buying a San Francisco 2-bedroom condo at the current average sales price (for the first 4 months of 2012) of $795,000 – adjusting for tax deductions and principal pay-down of the mortgage – with the cost of renting an SF 2-bedroom apartment at the current average asking rent of $3575/month (per Rentbits.com). Assumptions: 20% down-payment; 30-year fixed-rate loan at an APR of 4.25%; closing costs of $8838; property taxes at current rate; ongoing insurance and maintenance costs of $465/month; inflation rate of 2%; annual home appreciation rate of 5% (which we believe is conservative at the present); combined income tax rate of 25%. Perform other Rent vs. Buy analyses using your own financial circumstances and projections athttp://www.paragon-re.com/Calculators/RentvsBuy.aspx       This is based on your home's estimated equity minus a 5.00% sales commission paid to brokers or real estate agents when you sell your home. It also assumes your home will appreciate at 5.00% per year and you have an income tax rate of 25.00%. If you cannot remain in your home for at least 1.2 years you should consider continuing to rent. We calculated your breakeven point by examining how long it would take to create enough equity in your home to exceed the value of investing your cash on hand. We also accounted for differences in your monthly rent and house payments. If your rent payment is less than your net house payment, we add that monthly savings to your investment. If your house payment is less than your rent payment we subtract that amount from your investment. You may notice that on the schedule at the bottom of this report the investment value can be reported as negative. This happens if your house payment is significantly lower than your rent payment. It illustrates that if you continue to rent the extra cost of renting would, in effect, use up your cash on hand. Estimated Loan Information Your total monthly payment was estimated at $4,358.85. Your down payment was estimated at $161,162 and you had a home price of $795,000. This is for a 30 year mortgage at 4.250% in the amount of $633,838. Your total closing costs for this loan are estimated at $8,838.38. Your current monthly rent is $3,575. The expected inflation rate of 2.00% annually was used to estimate future rent and property taxes. The rate of return use for investments was 2.00% per year after taxes. Your $4,358.85 monthly payment consists of: Principal and interest $3,118.10 Monthly PMI $0.00 Taxes $775.12 Insurance $165.63 Association dues & maintenance $300.00   Closing costs estimate of $8,838.38 consists of: Amount of points paid $3,169.19 Loan origination fee $3,169 Other closing costs $2,500 To avoid PMI payments, a $159,000 down payment is required. This equals 20% of your home's purchase price. The total amount of cash required for a 20% down payment plus closing costs would be $167,838. Analysis of Future Payments Year HousePayment (PITI) PaymentAfter Tax Savings RentPayment Value ofInvestment HomeEquity 1 $4,358.85 $3,612.52 $3,575.00 $173,801 $169,860 2 $4,411.89 $3,665.70 $3,646.50 $177,455 $220,659 3 $4,467.40 $3,721.30 $3,719.43 $180,969 $273,924 4 $4,525.50 $3,779.42 $3,793.82 $184,354 $329,775 5 $4,586.32 $3,840.20 $3,869.69 $187,621 $388,337 6 $4,649.99 $3,903.75 $3,947.09 $190,783 $449,744 7 $4,716.64 $3,970.20 $4,026.03 $193,854 $514,132 8 $4,786.44 $4,039.69 $4,106.55 $196,851 $581,648 9 $4,859.51 $4,112.38 $4,188.68 $199,789 $652,444 10 $4,936.04 $4,188.40 $4,272.46 $202,690 $726,680 11 $5,016.18 $4,267.92 $4,357.91 $205,573 $804,524 12 $5,100.11 $4,351.10 $4,445.06 $208,462 $886,151 13 $5,188.02 $4,438.13 $4,533.96 $211,383 $971,745 14 $5,280.11 $4,529.18 $4,624.64 $214,363 $1,061,501 15 $5,376.56 $4,624.44 $4,717.14 $217,432 $1,155,622 16 $5,477.61 $4,724.12 $4,811.48 $220,622 $1,254,319 17 $5,583.47 $4,828.42 $4,907.71 $223,970 $1,357,816 18 $5,694.39 $4,937.58 $5,005.86 $227,514 $1,466,349 19 $5,810.60 $5,051.82 $5,105.98 $231,295 $1,580,161 20 $5,932.37 $5,171.38 $5,208.10 $235,358 $1,699,511 21 $6,059.97 $5,296.52 $5,312.26 $239,751 $1,824,669 22 $6,193.69 $5,427.52 $5,418.51 $244,526 $1,955,919 23 $6,333.83 $5,564.64 $5,526.88 $249,739 $2,093,558 24 $6,480.71 $5,708.18 $5,637.41 $255,450 $2,237,897 25 $6,634.64 $5,858.46 $5,750.16 $261,724 $2,389,265 26 $6,796.00 $6,015.79 $5,865.17 $268,630 $2,548,004 27 $6,965.12 $6,180.52 $5,982.47 $276,241 $2,714,475 28 $7,142.41 $6,353.00 $6,102.12 $284,638 $2,889,054 29 $7,328.27 $6,533.60 $6,224.16 $293,904 $3,072,139 30 $7,523.11 $6,722.73 $6,348.64 $304,131 $3,264,147   Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.   Perform other Rent vs. Buy analyses using your own financial circumstances and projections athttp://www.paragon-re.com/Calculators/RentvsBuy.aspx    Renting vs. Buying in San Francisco The purchase of a new home is typically one of the largest financial transactions and investments of one’s life. Whatever home you purchase should work for you now—fulfilling your basic housing requirements at an affordable cost. Historically, San Francisco real estate has been a good investment over the longer term. This is due to the advantages of leverage; the significant tax benefits of homeownership; economic, demographic and geographic conditions in the Bay Area; and long-term appreciation trends. Here are some questions to consider in the rent versus buy decision: How long do you plan to own the home you purchase? (Buying and selling in the short term always entails more risk.)  How does the cost of home ownership, with existing tax benefits, compare to renting?  Are financing interest rates advantageous for buyers? (A low fixed rate never increases—unlike rents—and can make an enormous difference in affordability.) Are economic conditions improving? Especially after a recession and downturn in home values, values typically begin to appreciate again. How does ownership compare in the calculation of building financial assets over time? (Typically, if one doesn’t “refinance out” increasing home equity, property ownership acts as a “forced” savings account to build household wealth as one pays down the principal balance on the loan and the value of the home appreciates.) How important is it to you to own the home you live in, with all that implies?   Any investment has both potential risks and rewards—which only you can weigh according to your own circumstances and your projection of future economic trends. Buyers should consult with a loan agent and accountant to determine the options, costs and tax deductions that may apply to them.   Definitions Price of home Purchase price of the home you wish to buy. Cash on hand Cash you have for the down payment and closing costs. Interest rate The current interest rate you expect to receive on your mortgage. Term in years The number of years over which you will repay this loan. Property tax rate Your property tax rate. 1% for a $100,000 home equals $1,000 per year in property taxes. Home insurance rate Your homeowner's insurance rate. 0.5% for a $100,000 home equals $500 per year for homeowner's insurance. Loan origination rate The percentage the lending institution charges for its origination fee. 1% for a $100,000 home equals $1,000. Points paid The total number of points paid to reduce the interest rate of your mortgage. Each point costs 1% of your mortgage balance. Other closing costs Estimate of all other closing costs for this loan. This should include filing fees, appraiser fees and any other miscellaneous fees paid. Association and maintenance fees Any association fees you are required to pay per month with the ownership of this home. Also include any other maintenance costs you expect to incur with the ownership of this home that you are not paying while you continue to rent. Total for down payment Total funds remaining for down payment. Mortgage amount Total amount of loan. Monthly rent payment Amount you currently pay for rent per month. After-tax investment return The rate of return, after taxes, you could receive if you invested your closing costs and down payment instead of purchasing a home. The actual rate of return is largely dependent on the type of investments you select. For example, from December 2000 to December 2010, the annual compounded rate of return for the S&P 500 was 0.899%, including reinvestment of dividends. From January 1970 to December 2010, the average annual compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 10.05% (source: www.standardandpoors.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). Savings accounts at a bank may pay as little as 1% or less but carry significantly lower risk of loss of principal balances. It is important to remember that these scenarios are hypothetical and that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that funds and/or investment companies may charge. Income tax rate Your current marginal income tax rate. Expected inflation rate What you expect for the average long-term inflation rate. A common measure of inflation in the U.S. is the Consumer Price Index (CPI). The CPI for 2010 was 2.4%, as reported by the Minneapolis Federal Reserve. From 1925 through 2010 the CPI has long-term average of 3.1% annually. Over the last 30 years highest CPI recorded was 13.5% in 1980. Inflation rate is used to adjust amounts subject to annual increases. These amounts include rent, insurance and tax payments. Home appreciates at Annual appreciation you expect in the home you are purchasing. Future sales commission The percent of your home's selling price you expect to pay to a broker or real estate agent when you sell your home. House payment Total of principal, interest, taxes and insurance (PITI) paid per month for your home. Insurance includes Principal Mortgage Insurance (PMI) and homeowner's insurance. Initial tax savings The value of the tax deduction you receive on your mortgage's interest and home's property taxes. For example, if you have $900 in interest and $100 property taxes per month, the value of the tax deduction would be $250 (at a tax rate of 25%). Initial principal payment Total of principal paid per month on your mortgage. Net house payment Your initial house payment minus the value of the tax deduction and principal payment. Net home price Net selling price of your home after subtracting any sales commissions. Monthly PI Monthly principal and interest payment. Monthly PMI Monthly cost of Private Mortgage Insurance (PMI). For loans secured with less than 20% down, PMI is estimated at 0.5% of your loan balance each year.

Here is a chart tracking the percentage of distressed home sales in San Francisco on a monthly basis. In April, this percentage declined to its lowest point (by a tad) in 2 years. As the economy recovers in the Bay Area and the market heats up (leading to price appreciation pressure), the number of distressed home listings has declined both numberically and as a percentage of the market. This decline improves market values in those neighborhoods where distressed home sales have predominated, and it also increases the overall San Francisco median home sales price.  

Here are 3 updated charts tracking the supply and demand dynamic in the San Francisco homes market through April 2012: Percentage of Listings Accepting Offers; Months Supply of Inventory; and Listings for Sale. All reflect a very strong buyer demand competing for a very limited supply of homes for sale.  

This AP article gives a look at what’s going on in the housing market from a different angle – lender mortgage applications -- than our usual market statistics: “Earnings reports from two major banks Friday painted a picture of a healing housing market, with more Americans taking out mortgages, paying them on time and taking advantage of low interest rates to refinance. At JPMorgan Chase, the biggest bank in the United States, income from new home loans set a record from January through March. The bank issued 6 percent more mortgages than a year ago and got 33 percent more applications. Wells Fargo, which issues the most home loans, booked the most mortgage fees since 2009. It issued 54 percent more mortgages than a year ago and took 84 percent more applications.”   The complete article is here: http://onlineathens.com/business/2012-04-14/reports-point-recovering-housing-market      

Especially in the more affluent neighborhoods of San Francisco, distress sales have never impacted the city market like they have other areas of the Bay Area, state and country, and now that our market seems to have started its turnaround, we expect that they will play an ever diminishing role. And indeed in the city we've seen fewer and fewer distress sales and distress listings in recent quarters. Here is the new March report from ForeclosureRadar.com regarding national and state trends:  "For the second month in a row we’ve seen a dramatic drop in the number of properties sold at foreclosure, or “trustee sale”, auctions. Foreclosure sales in California are down 16.7 percent from February to March 2012 and down 53.1 percent from March a year ago. A total of 86,487 sales were scheduled to occur in California, but of those 80.0 percent postponed, and 10.6 percent were cancelled, leaving just 8,392 that were actually sold. Third parties, typically investors, purchased a record 38.6% of the properties that did sell in California.Foreclosure starts rose in most states, with the largest increases occurring in Washington, California and Nevada. This, at least temporarily, reverses a downward trend, but even with the increase the volume of new foreclosures remains significantly down year-over-year in all the states we cover."   Here is the link to the complete report: http://www.foreclosureradar.com/foreclosure-report/foreclosure-report-march-2012    Here are a number of charts showing how the distress home market is playing out and trending in San Francisco:  

District 5 soared in value between 1996 and 2008 and was one of the last districts to peak in value before the financial markets meltdown in September 2008. Values then fell 15% to 20% very quickly and then stabilized in 2009 and 2010. With the surge in high-tech buyers in 2011, many of whom wish to be close to highways to the peninsula -- and love the lifestyle and ambiance of District 5 neighborhoods and its commercial districts -- activity in this district picked up dramatically.


Now in 2012, the competition between qualified, motivated buyers here has become ferocious: inventory is very low, certainly not enough to satisfy buyer demand, and many of the listings are selling very quickly in multiple-offer, competitive-bidding situations. This is exerting considerable upward pressure on prices.


[More]

More condos sell in the South of Market (SoMa)-South Beach-Yerba Buena-Mission Bay neighborhoods than anyplace else in the city. Of course, this is where by far the greatest number of new condos have been built since the 1990's. The market here has been heating up very rapidly, especially as the number of brand new condos on the market has been rapidly declining. This is also one of the areas where high-tech buyers are concentrating in the city. [More]

Several times in the past 25-odd years, the San Francisco real estate market has turned up or down quickly and dramatically: in the mid-eighties – up; early nineties – down; 1996 – up (and up and up, except for the dotcom hiccup); 2008 – way down; and now, we believe we are seeing another big, dramatic recovery in our homes market.

By virtually every statistical measure of supply and demand, the city’s market is experiencing major acceleration. Multiple-offer situations have hit levels not seen in years and this is putting strong upward pressure on values in many of San Francisco’s neighborhoods. The more affluent areas of the city – never much impacted by distress sales and now highly sought after by buyers – are leading the recovery. [More]

The January report of the Case-Shiller Index was just released on March 27th.

Note: The numbers on the 2 charts below are based upon the January 2000 value of homes being calculated at 100. Thus the number 144 signifies a value 44% above that of January 2000; the

number 184 signifies 84% above January 2000. However, a decline from 184 to 144 equals a 22% decline in value from one point to the other.

Before trying to apply Case-Shiller Index trends to specific cities, neighborhoods and homes -- which can be deeply misleading -- please read the explanation of how the Index works, which is below

the charts. [More]

In January, we suggested that the San Francisco real estate market turned a corner in 2011, and indeed that we might be at a point similar to 1996, when the market began to accelerate after the 4-5
years of down market in the early nineties. (See the Case-Shiller chart below.) Consumer confidence, buyer demand and general economic conditions in the city improved markedly last year, and we also experienced surging high-tech employment and wealth (which looks likely to continue), skyrocketing rents, climbing stock market values and the lowest interest rates in history.

Everything we’ve seen since 2012 began only reinforces January’s conclusion. The major statistical measures of supply and demand – which constitute the dynamics that ultimately result in changes in value – show a market dramatically accelerating. Besides the statistics, this is also what we’re viscerally experiencing on the street, in the day-to-day business of representing our clients buy and sell real estate. [More]