More on house prices versus condos

I was actually going to hold off on writing any more about this until next week, but since yesterday’s post about falling home prices in the East Bay has generated an insane number of comments, I’ll add a little more today.

So I was trying to do two things in yesterday’s post. One, demonstrate the logical flaw in an argument made elsewhere that a 12% drop in the median sales price of condos is evidence of overbuilding by comparing the drop in median home sales prices using the same metric. Two, highlight the relative affordability of Oakland in comparison to neighboring cities.

I didn’t think I was really saying anything controversial, but I got a ton of comments in response that appeared, at least to me, to be attempting to explain the discrepancy between the drop in condo prices and drop in single family home prices. The reasons people came up with (condos are often in better condition, condos are in nicer neighborhoods, etc.) seemed for the most part logical. But where I’m getting lost is that it sort of seems to me like people are then making a leap from the fact that they can see reasons for the relative price drops to assuming that means the data should be dismissed. But why? The market doesn’t exist in a vacuum. Obviously there are reasons for that different properties have different values. People will pay more to live in a nice neighborhood than a crappy one, people will pay more to live somewhere that’s in better condition, and so on. Just because there’s a rational explanation for something doesn’t mean it isn’t true. Quite the opposite, actually.

Anyway, I’m going to hold off on addressing some of the more specific issues of data collection or getting into neighborhood based data until next week, but for now, look at this as a fresh place to comment on the same subject, with the added benefit of a little bit more citywide data. The charts below illustrate median prices for condos and single family homes in Oakland over the last year. The first chart shows the overall market, then the following four are broken into quartiles (that is, the first chart shows the most expensive 25% of properties in each category, the second chart shows the next most expensive 25% of properties, and so on).

All Quartiles

1st Quartile

2nd Quartile

3rd Quartile

4th Quartile

Have fun!

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17 thoughts on “More on house prices versus condos

  1. Colin

    Okay. Fine. Let’s unpack this.

    When they say “median price”, do they mean the median list price, the median sale price, or the projected price? Those are hugely different numbers. Based on what little I know about Altos, they mean projected price, and to determine that they’re using modeling. Not a bad approach by definition – I’m not dismissing it out of hand – but that introduces a lot of potential for error.

    When I look at numbers here:
    Which are based on SOLD HOMES (measurable statistical data), I get a very different set of numbers.

    It’s misleading to compare a condo at Grand and Broadway to a house in West Oakland. If we compare apples to apples, neighborhood by neighborhood, the relative value losses (averaged over the period of Oct 06 to today) are fairly similar. When we focus on neighborhoods with some parity of condo sales vs home sales, then homes are generally doing better per square foot. When we compare price loss today versus Oct 06 as opposed to talking about the average rate of decline between Oct 06 and today, there is a markedly better ratio for houses than condos. You could argue that this is because condos went to market at inflated rates, but that’s a separate can of worms.

    If you believe that a condo is a no-brainer compared to a house, well, there are plenty on the market with which you can put that theory to the test. But the math just isn’t there.

  2. len raphael

    if condos performed even close to sfr’s in comparable areas (hard to equalize condition since so few new sfr her, and impossible to find sfr’s at the same price point in the same areas as sfr) isn’t that very different from prior bay area housing cycles when condos crashed first and farthest?

    maybe there is something to a change in housing preferences, or maybe young home buyers (doubt many empty nesters wanta live in oakland) just don’t have the time or desire to devote their weekends to working on the 80 year old oakland house that shoulda been torn down years ago or want to live in higher density situations.


  3. Steve Carney

    Arguing that the Oakland condo market is not as bad as it seems by pointing to the relative strength in condo prices relative to house prices is deceptive because condo selling prices are artificially high. Many developers of recent condo projects don’t want to sell condos at huge losses, so they either keep them on the market at prices above the market rate (the price at which supply meets demand) or lease them. This is not happening as much with homes because most homes have been owned for longer: it’s easier for a homeowner to sell at $300,000 after it peaked at $400,000 if he/she bought it for $150,000 some years back versus a developer selling brand new condo units practically at a loss.

    In addition, developers are being pressured by new condo owners to not drop asking prices to the market rate because comps would take a nosedive. None of this is just anecdotal; it’s been written about in the Business Times and the SF Chronicle.

    Here’s an analogy: remember when crop prices were propped up by the federal government in order to keep farmers in business? They would destroy crops to decrease the supply and increase the equilibrium price that consumers paid. Developers are essentially talking condos off of the market by asking more than they’re worth. If they were willing to sell based on what the market dictated (the “equilibrium” price/the highest price at which all or almost all empty units would be purchased), prices would fall dramatically. If my argument is correct, “for sale” condos stay on the market a lot longer than “for sale” homes in Oakland. I’d be curious to see if anyone could find such a statistic.

    Bottom line: the number of unsold condo units must be taken into account in addition to selling prices when assessing the strength of the condo market.

    This is not an attack on condos or Jerry Brown. Yes, there is a glut of condos right now. But hopefully, when the market recovers, the empty and leased units will begin to sell, population density and median family income will increase in downtown, and Jerry Brown and those who support his 10K plan will rejoice.

    All I’m saying is that you can’t make an argument that RIGHT NOW the condo market is strong relative to the home market based on the fact that condo prices have dropped slightly less than home prices.

  4. len raphael

    SC, valid points about more data needed esp. inventory and days to sell.

    Anecdotally again, wouldn’t there be tremendus pressure from lenders to mark the condos down to market to move them? especially if same developers face losing options on other parcels if they get some cash fairly soon?

  5. V Smoothe Post author

    Colin -

    I don’t think I really understand what you’re getting at here. Yes, the Altos data is derived from modeling in which sales price are a major, though not only, factor. The Redfin charts show actual prices, both list and sale. The page you link to in your comment is showing list prices, not sale prices, as you assert. But if you go into any one zip code, Redfin gives both list and sale prices. So let’s look at those.

    If I go and look at say, data for 94607 and look at the median sold prices on Redfin and the median prices on Altos for condos and single family homes, the data isn’t all that dissimilar. The trends are the same, and I don’t think I should have to explain to you why the weighted median offered by Altos provides a more accurate picture of the market than the unweighted data in Redfin’s chart – you said it pretty clearly yourself in the last thread.

    Redfin single family homes:

    Redfin condos:

    Altos 7 day median:

    Altos 90 day median:

    I mean, in the end, there’s a reason why people are willing to pay money for Altos’s data instead of just using the free charts based on MLS listings one can find on Redfin. It’s the industry standard because it offers a more honest depiction of the market.

    Then when you get into the neighborhood-specific data on Redfin, your data sets are so small as to be basically meaningless. I mean – you can’t understand what the market trends are by looking at 6 houses and 11 condos. I also think that price per square foot is a pretty poor metric for comparing condo sales versus single family homes, but I’ll save that for another time.

  6. V Smoothe Post author

    Steve –

    The price is the price – what people are willing to pay for something.

    I mean, I personally know several people who want to sell their single family homes in Oakland, but have decided to hold off on doing so until the market recovers. Are they artificially propping up the prices of single family homes by not selling theirs? No, that’s absurd. When someone choose not to sell something for what they can get for it, they aren’t influencing the market price – they’re reacting to it.

    Anyway, since you asked for it, here’s condos versus single family homes in Oakland and median days on market:

  7. Art

    V.—Agreed. I also know several Oakland families who are outgrowing their homes but are just sitting tight for now, and one condo conversion near us had phenomenally poor timing going on the market last summer and has decided to rent out most of their units. They’re reacting to the market by making the financial decisions that make the most sense for their own needs. But honestly, whatever the data set, I don’t think looking at the trends for 2007-2008 is going to reveal a whole lot—this is something to revisit in five years’ time when you can look at longitudinal data from, say, 2006 to 2010 and see how some of the same properties fare over time, or look at what happens to the market after the current wave of foreclosures clears out. (Does Altos allow you to cull out foreclosures, by the way? Comparing median prices for distress/REO sales to non-distress sales might also be interesting to see.)

    In the meantime, I’d much rather see people focus their energies on how to deal with the foreclosure crisis in some of Oakland’s hard-hit neighborhoods to ensure that the banks don’t allow REO properties to simply deteriorate and become more blight. How about some creative thinking on how Oakland might spend its share of the federal housing funding for cities when that money begins to flow? What’s the best bang for the buck to stabilize prices and neighborhoods, keep Oaklanders from losing their homes, and provide homes for those who’ve already lost theirs?

  8. V Smoothe Post author

    Art, I made a number of inquiries about two weeks ago of various parties at City Hall about our plans for the funds from the Housing Rescue Package, and from the responses I got, my feeling was pretty much that nobody has given it any thought at all, let alone made any serious plans for how to use it. I don’t know if things have changed since then.

    I go back and forth on this a lot, but at the moment, I think I’d like to see it used for rehabilitation of blighted properties and also to fund energy-efficiency improvements (weatherstripping and such) to homes in distressed areas. That would spread the benefits more broadly than buying up already foreclosed homes and improve property values in depressed neighborhoods. Plus, it’s make-work, so it would give the Council and Mayor an opportunity to brag about creating green jobs. Everybody wins.

  9. Rebecca Kaplan

    Yes, Oakland absolutely must make good use of the new coming funds, as we have a devastating foreclosure crisis. (And, given how many “adjustable rate” loans are going to re-set to higher rates in the coming year or two, if we fail to act, the situation could get much worse). Many people in Oakland were sold loans with a low introductory rate, which then adjusts dramatically upward.

    While we should not encourage people to be financially reckless, some people were lied to, and really thought they were getting a low fixed-rate loan, and are now facing increases they cannot afford. (For example, some people who did not speak English were given forms which showed the “intro rate” on a flyer in their own language, but the adjustment was explained only in English on a different form. In other cases, widows who had not previously handled the family finances were approached while in mourning and encouraged to refinance their homes to cover expenses, and given forms listing the intro rate in a huge font size, with the adjustment explained in small size text they could not read).

    The foreclosure crisis is also a public safety problem, as vacant properties become magnets for blight, and crime. In addition, we have a market wide “liquidity” problem, in which people who want to buy can’t buy, and people who want to sell, can’t sell, due to folks having a hard time getting loans.

    A few specific uses that would help (this should include the new Federal money, as well as other funds or programs we can work to access, and our efforts need to include advocacy to make sure available funds do come to Oakland).

    1) Downpayment assistance. Many people who got bad loans could get better loans, if they had downpayment assistance. Thus, rather than Oakland/Fed needing to put up the entire cost of the home, could put up 10 – 20 % for a downpayment program, to enable people to then be able to qualify for decent loans, to prevent foreclosure. This should be used both to help people buy up vacant properties, and to help people under threat of foreclosure (who are still living in their homes) be able to refinance. The downpayment assistance could be structured so it is repayed when somebody sells the home, and thus, the money would come back in the future to help fund further efforts.
    (Modeled somewhat after existing “first time homebuyer” downpayment assistance, but with some modifications, and no requirement that the person be a “first timer”).

    2) Re-hab. We have many beautiful old buildings that are in danger of literally falling apart as they sit vacant and uncared-for. Using funds to re-hab them will create jobs, protect Oakland’s historic assets, and provide more units of housing that can then be sold or rented out, expanding access to housing. In addition, due to the downturn in the economy, many contractors and related fields are having a tough time, and there are people available now for these jobs — so there is a good match between available labor and the needed work.

    3) And yes, as V. mentioned above, energy efficiency upgrades and rehabs (including, for example, insulation, better windows, etc). These will help pay off in the long run, as residents save money (and the planet) through reduced energy usage, and also help create more jobs in the short run, doing work that can not be sent overseas, and thus, help local workers and the local economy. In this program, I would also add that earthquake/safety retrofit should also qualify if possible, so people could also access these funds for those types of upgrades as well.

    4) Loan counseling. Help provide access to mortgage counseling for people facing potential foreclosure, so they can meet with someone who can help them work through their options, help negotiate with the bank if necessary, and otherwise provide advice and assistance in avoiding foreclosure. (There are existing programs which provide such service, they may need to be expanded due to growing need, and also, we can increase public outreach and information dissemination to help people access these programs). Also, encourage use of loan counseling in general, not just for those already facing foreclosure, to prevent the repeat of the kinds of problems listed above — where people signed loan documents they did not fully understand.

    I have not yet had a chance to read the Federal program details, (to get into specifics about what types of programs might or might not qualify, with more detail) but I know this is a top priority for our city, and, if elected, it will be one of the first things I will be working on.

  10. V Smoothe Post author

    The rules for the use of the grant money (as well as the allocations) will be announced in late September. Other cities (ones that have their act together) are busy lobbying HUD for rules that will allow them to use the money in specific ways. Actually, this is a pretty interesting topic. I’ll try to write a post about it next week.

  11. Max Allstadt

    I’m with Rebecca on number 2, although I have to say, as a contractor, all it really took for me to end up with more work than I could take was a little marketing and word of mouth.

    Still, incentives for converting buildings and fixing up worthy ones are nothing I’ll object to. I will say that the vast majority of contractors I encounter who do work in Oakland don’t live in Oakland. Two solutions:

    1. Incentives for hiring local semi-skilled labor. If we can’t make home improvement dollars go to Oakland contractors, we could at least get outside contractors to hire locally somehow.

    2. Live/Work. Yeah I’ve said it before. Make it easy for new contracting businesses to save on rent by living and working in the same place. One building the size of Pacific Pipe could house a powerful community of small builders. The more locally a builder works, the less they have to bill for commute time and gas. If closer contractors are more competitive, Oakland homeowners will hire them.

    V- As for your counters to Steve’s comments:
    Yeah, there’s no such thing as artificial. But there’s a huge difference between asking and selling price. I’m particularly interested in how many companies own large numbers of condos and are sticking to their selling prices. There’s no artificial. But there are individual actors in an economy, and larger corporate actors. Larger actors can be more stubborn because of a diversified portfolio that cushions them. When I wanted to buy a warehouse two years ago, I decided I needed earthquake insurance, which scuttled the deal. The seller said “I have eleven buildings, and none have earthquake coverage.” I said “If one of your eleven gets knocked down by a quake, you’re not too screwed. If I one of my one gets knocked down…”

    Also, that blue line on the left side of your chart rises rather sharply. What does it look like in the previous year?

    and there also a very interesting line at the beginning of your latest chart. That blue line that shoots up at the beginning, where was it before it shot up?

  12. V Smoothe Post author

    Here’s the condo median days on market going back to January 2007, I don’t have access to data any further back than that.

    Both lines on this chart are condos, but the blue line represents a seven-day median and the orange line represents a 90 day median, which offers a smoother curve.

  13. Colin

    I’m worried that I’m going to turn into one of those internet loudmouths who annoys reasonable people by posting too much, and I have to assume that if it’s possible, my point has been made. So I’ll post this to try to clarify, then go out and enjoy the fabulously hot day going on outside.

    Yes, the page I linked to shows list prices. As discussed in the previous thread, clicking through will get you to the more interesting data. If you thought I was suggesting that the data on that page wasn’t sales I’m sorry for the confusion, but in spite of all appearances to the contrary I can read.

    I don’t think the sample is too small, since the data in the 94607 (for example) includes 100 properties – 43 houses, 58 condos. There is a great argument for trying to mathematically extrapolate data based on that, but it would be silly to suggest that this doesn’t introduce potential for error. I would suggest that error is evident – or at the very least, that the data doesn’t present the whole picture.

    94607 is west Oakland, where the housing stock is in terrible shape and the condos are new, so the condos should be doing significantly better there. But comparing price today (versus median over the last 12 months), condos lost about 30% of their value and houses 50% based on sales not list price. Fair enough.

    When we look at an area where the houses are in reasonable shape compared to west Oakland, it’s a different picture:
    With 31 houses, 60 condos sold in the period measured, losses here are about $50/sqft versus $125/sqft, or 14% vs 38% houses to condos. That’s a more accurate estimate of real value from my perspective, if only because it’s not weighted for urban pioneers.

    I prefer sq footage as a measure because it’s the only real parity between condos and houses. Good arguments can be made against it, and ultimately it depends on what you’re trying to see in the data.

    My point isn’t that condos are bad or that everything’s fine, just that the comparison of houses sold versus condos sold presented initially isn’t apples-to-apples, and 12% loss versus 36% loss isn’t necessarily an accurate picture. Buying a house in a condo-rich area will yield a better result than either a condo or a house in west Oakland.

    Interesting discussion – I wish I had time to meet with y’all in person today and talk about all of this. Not that it’s the most pressing or even interesting issue in Oakland, but it’s clear that there are a lot of sharp people here – a very interesting community gathered around this site. Salut to all.

  14. Robert

    I agree with Max’s point 1, that there should be incentives to hire locally for any use of the loan bailout moneys. Although my reasons are, I think, different from Max, and more global. Oakland needs to provide incentives in some way to encourage businesses to hire locally, not just for this purpose, but for any work conducted in Oakalnd.

    Currently any business hires whoever they think is ‘best’ for a job, and let the employee figure out how to get to work. Which leads to all the environmental issues of folks driving 50 miles to the ‘best’ job, or the best job they could get. Think what an environmental model we would be if people working in Oakland actually lived in the city – at all levels. In addition to really accomplishing something towards being green, this is likely to provide a source of better, higher paying, jobs for the residents of Oakland. A win all around. And yes, I think that the incentive has to be on the employer, or you will actually just end up penalizing the employee for trying to work in the dity.

    Any comment on the rest of the comments on use of the bailout funds will likely lead to a very un-PC tirade about the use of tax monies.

  15. Max Allstadt

    I’m fine with it being more global. I’ll add that it should be cost neutral, and that it needs to be evaluated regularly.

    Here’s another thought: There’s an agency downtown called LaborReady that provides insured laborers for contractors. The agency charges 18 bucks an hour and gives the labor 9. Could there be a way for the city to run this company out of business with a public program that gets laborers with oakland residences the same insurance, but gives them a bigger cut of the hourly? Could a workforce oriented non-profit do the same?

  16. len raphael

    what are median days on market for 94609 and (if any condos) 94618 in north oakland? my impression is that 94618 45 days is median for sfr’s?

    all of these housing bailout programs seem to be minor amounts of money compared to the total of at risk of foreclosure housing. is there any reason to think that oakland’s share is going to enough to do more than weatherize a couple of thousand homes in east and west oakland? and ultimately, it would take way more than any congressional funding for oakland to prevent people from doing the smart thing and bailing from overpriced residences.