San Francisco Realty Realities Bite or Nourish, Depending on Which Side You’re On

I am fortunate to live in Noe Valley, San Francisco, California, USA, North America, Earth.

I am doubly fortunate to have bought a house in En-Vee Ess-Eff See-Eh in 1996 (though admittedly the downside of this time scaling is that it puts me well into the second half — final third, even — of my allotment of likely time for joyfully residing aloft life’s mortal plane . . .).

When we bought our humble abode in 1996, houses in Noe Valley went for somewhere in the neighborhood of $275 per square foot, so an average-sized house in Noe of about 1,600 square feet went for roughly $450k — a shocking number at the time and, in all-seeing hindsight, a shocking number now, but for exactly the opposite reason.

For that reason I did not believe it when an acquaintance recently told me that, Noe is selling for $1,000 a square foot.

Maybe for the square feet inside of a brand new, super schmancy place, I thought to myself, But surely not these idiosyncratic square feet inside my hundred-plus year old Edwardian that has yet to be MacMansioned and re-kitchened and re-foundationed and California-Closeted and steel-moment-framed, right?

But yesterday I learned in a fairly definitive, quite objective way that the ~$1k/ft metric does indeed apply to my house. Oh muhgosh. All the sweating and toiling and saving and honing of financial decisions hasn’t amounted to diddley when compared to the wealth-creation this unassuming little house hath begat.

*  *  *

San Francisco is on a building tear — a building bender, a building binge, a building craze. And, happily, that crazy building bender binge is mostly about human beings and families and such; by one count, we have 48,000 units in the residential unit pipeline, which, if all completed, will increase our housing stock by more than 12.5% over the existing stock of roughly 373,000 units.

And that means that most of those cranes we see all over the place are building living space rather than working space, as urban-infill and highrise condo-living firmly take root in the deep muck of the little city by the big bay, and as every single triangular lot on Market Street, every single gas station and parking lot everywhere, and every dilapidated building is now up for grabs, soon to be a mixed-use use of ten condos over retail and not very many parking spaces but excellent bike storage or, not-without-a-fight, something like a 55-story building blocking rich folks’s views or something like a wall of condos along the waterfront, to accompany the dreaded nearby anti-pedestrian pedestal that is Maritime Plaza and its surrounding vehemently anti-human environs.

Perhaps when all of it comes on line we’ll have a glut and prices will come down, but for the time being? Not so much. And just wait until the Twitter IPO plunks down another $1.5 billion of cash (and multiple tens of billions of market cap) right smack dab in the middle of where all the cranes perch, along the part of Market Street known as Mid-Market, where the gas stations and under-used triangular lots are going the way of the dodo bird.

*  *  *

Here in Noe, prices by my estimation are about 30% higher than they were at the top of the bubble in 2006 — so sayeth this lovely old Edwardian in which I type, supplemented by data I’ve been gathering pretty much ever since my wife and I swallowed our fears and signed on the escrow dotted lines some 17-plus years ago.

Since then the value of this old house has gone up just shy of three-and-a-half-fold.

Does that sound like a lot? Quick, ask yourself this: how fast would the value of the house have to have grown each year to have gone up 3.5 times in 17 years?

If you said at least 10%, you’d be quite a bit high (think on it: by The Rule of 72, a 10% compound annual growth rate would lead to a doubling every 7.2 years, and a four-fold increase every 14.4 years, while the value of our house has gone up less than four-old and taken a longer period of time to not go up that much . . . ). Indeed, my trusty CAGR calculator says the house value only (only?) needed to have grown at 8.15% for each of those 17 in-a-row years to have pulled off a three-and-a-half bagger.

Here is what that the simple math of that growth rate looks like for a $100 house:

Year 1 100.00
Year 2 108.15
Year 3 116.96
Year 4 126.50
Year 5 136.81
Year 6 147.96
Year 7 160.01
Year 8 173.06
Year 9 187.16
Year 10 202.41
Year 11 218.91
Year 12 236.75
Year 13 256.05
Year 14 276.91
Year 15 299.48
Year 16 323.89
Year 17 350.29

Not satisfied that an 8.15% compound annual growth rate could have gotten you a 3.5-fold increase over ten years on a house in Noe? Here is that same table, this time showing the numbs for a run-of-the mill Noe house that cost $450k in 1996:


Year 1    450,000
Year 2    486,675
Year 3    526,339
Year 4    569,236
Year 5    615,628
Year 6     665,802
Year 7    720,065
Year 8    778,750
Year 9    842,218
Year 10    910,859
Year 11    985,094
Year 12 1,065,379
Year 13 1,152,208
Year 14 1,246,113
Year 15 1,347,671
Year 16 1,457,506
Year 17 1,576,293


The real kicker here is that it took a mere $45k of invested cash (i.e., 10% down) to generate that million-plus-dollar wealth creation. To turn $45k into a million bucks over 17 years does, indeed, take one heck of a big CAGR — about 20%. Doing that via a 90%-leveraged house is doable (or, at least, it was doable . . . ), but doing it with financial investments such as stocks and bonds available to Normal Folks? Not so much.

So for many a 50-something year old baby boomer, buying a house was the best multi-bag gainer, ever — past, present and quite possibly future — producing a million dollars of somewhat spontaneously-generated wealth. T’is a life-changer of a number, that one.

*  *  *

One of the most popular pieces in here is about the Luck of the Draw, talking about how hockey players tend to be born in the early part of the calendar year, and about how us baby boomers tend to have gotten a very good ride on the real estate escalator while our kids and their kids very well might not, all simply due to the happenstance of something totally out of all of our control, which is when we are born.

So, yes, I admit it. I am a lousy hockey player (because I was not born in the early part of the calendar year) and I am also a lucky baby-boomering home-owner (because I came into my econonic-own at a time when San Francisco’s realty reality served-up buying-a-house numbers that were nicely in scale and doable for people like me).

Were I to have had the same life but twenty years later in time, and had I been born in January, I might have been a real Bobby Hull/Bobby Orr (I age myself here . . . ) hockey-playing kind of guy, but if, say, an injury had cut my career short, and if I had found myself in 2013 living in SF, hockey-hobbled but able to lead the same life I have in fact led these past several decades, then I would not also be a home-owner because, to pick just two numeric scalars, someone like me buying that middle of the road Noe house nowadays will pay $18k per year in property taxes and at least $6k a month on a 30-year mortgage (thank gosh for low interest rates . . . because at more historically common towards-the-low-end mortgage rates of, say, 6%, the monthly mortgage payment would be more like $8k ). And, oh yea, my millennial self would also have to come up with a six-figure down payment. I hope hockey-playing millennial me had a good business manager and that I was able to delay gratification!

*  *  *

Returning to my current reality, including the realty reality of which I spoke above, all I can say is:


Sometimes it’s good to be old . . . ish.

P.S. to financial wonks: yes, I wish I had started those tables up above with Year 0. Now that they are complete, though, WordPress tables are way too much a PITB for me to go back and fix this think-o. So to be precise, change all the “17” references up above (as in “17 years”) to “16” . . .



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