Bad News Always Sells Better Than Good News-- The Truth About the San Francisco Foreclosure Market

Bad news always sells better than good news. And The San Francisco Chronicle's Chicken-Little-Sky-is-Falling article about foreclosures two weeks ago made for good copy. The online version at SFGate.com is even better as it is enriched with the usual cascade of reader comments from those who want the world economy and property owners in particular to "get what they deserve."

The reporter's main (and mostly misleading) point is that foreclosure sales are surging in even the better neighborhoods. Here's a sample quote:

"Still, more people are falling behind on their mortgage payments. Some 1,885 San Francisco households received notices of default, the first step in the foreclosure process, in 2010, DataQuick said. That was down from 2009's record number, but still more than double the historic average."

How exactly does a reduction from 2009 = "more people falling behind"? It's also important to remember that a notice of default does not necessarily imply a forthcoming foreclosure. It means someone was late paying their mortgage.

Another article quote:

"In San Francisco, the 709 foreclosures represented just 0.052 percent of all households, DataQuick said, while in Contra Costa the foreclosure rate was 2.3 percent. In the nine-county Bay Area, 1.78 percent of all households went through bank repossession in 2010."

Here's a salient point of the whole article: the SF foreclosure rate is 70% below the 9-county Bay Area rate. And if you broke off the more expensive northern part of the city, it would probably be 88-90 % below the Bay Area rate.

The article makes a lot of comparisons of 2010 with 2007, but the wrenching market change in the fall of 08 isn't news. What's more interesting is that 2010 unit sales were above those of 2009, and median prices have now been stable for 7 quarters (21 months). San Francisco real estate market activity since September 2010 has been quite strong, and market activity since the beginning of 2011has been stellar. It appears that national economic conditions are improving.

Here are some statistics from MLS pulled two days after the article appeared:

Out of 465 Active house listings, only 40 are REOs, of which 24 (60%) are our entry level housing market out in our southern district (Bayview to Oceanside). Only 2 are in tonier district 5 (Noe/ Castro/ Haight), and there are zero in District 7 (Pacific Heights/ Marina). Those waiting for an upcoming deluge of bank-owned houses in the better neighborhoods of the city (and a downward spiral of prices) are probably waiting in vain.

The number of REO sold houses in 2010 in SF was 291 (out of 2309 sales) down from 309 sales in 2009. Of the 291 REO house sales in 2010, 216 (74%) were in districts 3 & 10. In district 7, there were 3 REO houses sold in 2010, less than 1 per quarter.

Out of 721 Active condo/TIC listings, only 41 (5.7%) are REOs, of which 15 are in the overbuilt SOMA/ South Beach neighborhoods. 6 are in district 5, and 1 is in district 7.

The number of REO condos sold in 2010 did go up with 38 more sales year-to-year-- but 26 of those sales were split among two large developments-- Oceanview Terrace and The Beacon. Percentage-wise, the increase is to 7.7% from 5.6%. Still a relatively small percentage of total sales. And our more expensive northern neighborhoods remained static: of the 239 condos and TICs sold district 7 in 2010, only 10 (4%) were REO sales.

REO sales have had and will continue to have an effect on the SF home market-- but none of these stats from MLS suggest that foreclosure sales in the better neighborhoods of San Francisco in 2011 will have a significant downward effect on current values.