Domestic Economy

I am alive—because
I do not own a House
Entitled to myself—precise—
And fitting no one else

Emily Dickinson

In my fifty-person office, at least six people are looking to buy a home right now. That small sample says something about the San Francisco real estate market, where increasingly the froth looks less like champagne and more like late-stage rabies.

I’d spent two weeks trudging to Craigslist rental flats in the rain when I got to my friend Romanus’s birthday party. We were on our second pitcher of strawberry margaritas when his friend and realtor, Helga, arrived: a vision in lilac shantung, offering tulips.

“Ciao, darlings,” she said, and got to work on the blender to make another batch of drinks. Helga was Marilyn blonde, like her sports car, and though I could see she was good-hearted, I was still scared when when she turned the high-beams on me.

I told her I’d just moved here from Brooklyn. No, my company was putting me up for a month. No, I was planning to rent, at least until I knew the city a bit better.

Helga was having none of this. She was going to hook me up with a friend of hers, a great mortgage broker, to see what my choices were. Then she’d take me out, show me some neighborhoods, a few apartments in my range. Educate me. If I decided I wanted to rent, great—I’d be out twenty-five bucks for Sophia’s credit report, and I’d have some groundwork done for next time. What’s to lose?

It seemed settled. There was nothing for me to do but nod.

A few days later she sent me to Sophia, another abundant North Beach Italian in an overflowing office. I liked her. She lived in a world of phones and paper. I signed six or eight pages of disclosure agreements, and watched her cover loose sheets with figures.

“And here’s an 80-10-10, with a floating arm. We could get you this one real easy, with your scores. So, interest payment on the first loan, fixed rate, plus interest on the line of credit, floating, plus HOA, plus property tax of 1.25%…I’m looking on the ratios on your salary, and here’s what I think you could get..”

“What’s HOA?”

“Homeowner’s association. Condo dues. Covers water, insurance, maintenance.”

She gave me a motherly tutorial on credit ratings, closing costs, and the kinds of outgoings that ten-year-olds don’t think about when they wish they were grown up. Numbers bore me, but I like independence enough to pick this stuff up fast. And I liked being inducted by women. With women, business blurs into life, the way it used to before Adam Smith decided we should specialize. Look, here’s what we need to know in order to take care of ourselves, they seem to say. Just because it’s business doesn’t mean that we can’t talk about our sick parents, our kids, or our ramshackle love lives. On the contrary—why else would these scribbled figures be important, bella?

Sophia totted up my allowance. I felt like Dr. Evil, cackling over the million dollars he didn’t realize was meager in the market he’d woken up to. Maybe I could buy love for soggy San Francisco, in spite of its refusal to be Brooklyn.

Helga put me in her Jaguar and hauled me through her city. She shrieked at the stiffness her exuberance brought out in me.

“When are we going to the Mission proper?” she’d mimic. “Oh sweetie, you’re killing me. The Mission proper. Where’d you get that from?” At the open houses, I was glad that the badass broker was my badass broker.

“What are the comps?” she’d demand from the hapless selling realtor.

“Well, a unit on the fourth floor sold for $597 in September…”

“September was a whole different market. It has nothing to do with what’s going on right now. What are you guys really expecting?”

“Well, we’re seeing in general that, you know, the market has gone up maybe 20% since the fall. So we’re using that as a cautious guide, though of course you never know…”

“So how many disclosure packets do you have out right now?”

I’d watch them dance. It made me go dreamy in panic. In Helga’s car, I’d want to fall asleep to the sound of the windshield wipers, though her illegal parking always snapped me to attention.

“What’d you think? Be honest. You won’t hurt my feelings.”

I didn’t really know. I’d been distracted by the pink Kitchenaid mixer, or the black-and-white tiles, or the built-in bookshelf. Patiently, she tutored me on exactly what that apartment would sell for, and why. After a few attempts, I could guess along with her.

I appointed a San Francisco Advisory Board, six friends who knew the market. One was still shopping, and the others were newish homeowners. Their counsel wasn’t a surprise. Come on in, they said. The water’s lovely. Mind the sharks, some added. I wrote to the two landlords I’d liked best—women my own age—telling them I wasn’t ready to rent their apartments because I was looking at places to buy.

“Right on, Dervala!” answered Michelle by email. “I’m a huge advocate of owning a peice of the rock!”

“Totally,” said Catherine. She’d wondered why I was renting in the first place, with those credit scores I’d shown her. (Immigrants have to keep good credit.)

I began to nurse daydreams about life as a home-owner. San Francisco is an early-to-bed city, a better place to develop an interest in Williams-Sonoma and window treatments than New York. Not that I’d be able afford Williams-Sonoma with a mortgage this fat, but the catalogues would keep me company over beans and rice. I’d stroke the walls: mine, all mine.

Cait and I had once hoped we’d end up as spinsters in a book-lined cottage, where we’d entertain gentlemen callers, and it now seemed it might come true, at least for me. I got a verbal acceptance of my (conditional) bid on a Victorian condo I’d seen only in the dark. It faced north over one of the busiest traffic streets in San Francisco, and smelled of old man, but it was a bargain, just like those January shoes you don’t really like.

I asked my ex-husband to send some paperwork for my mortgage application. He forwarded two recent Economist leaders which claimed the smart money was on renting. This needled me. I told him I wanted a sense of home after all my vagabonding, and I’d been listening to this stuff about the property market for years. He wrote back. “Remember that Alan Greenspan was talking about irrational exuberance in 1996? Three years later we said to hell with it, put our savings in the market and started a dot com. Oops.”

Goddammit. Ten years before, when Jason still a cute young socialist, I’d started him on a steady diet of The Economist. Only when we’d strayed from its righteous path had we ever run into trouble. I gave in and read the articles he’d sent, which I’d been ignoring on the magazine rack at work. Of course they made elegant sense. I re-read them and though about turning 40 stuck in negative Victorian equity. Then I called Helga and babbled about a bubble.

“I think you’re feeling pressure.” she said, graciously. “I want you to be happy.” My friend Peter bolstered me with more real estate bubble-bursting from the New York Times and the Wall Street Journal.

Here’s what’s going on here right now: when I looked at Craigslist tonight, half the rental listings are for apartments I’d looked at five weeks ago. Perfectly nice places. I’m almost always the only prospective tenant at a showing. Landlords call me, offer discounts or a free month or two. Some seem unable to accept how soft the market is now that everyone is stretching to buy instead; that rents need to come down again; that the dot-com days aren’t coming back. They’re the ones who keep re-listing.

Five years ago, everyone tells me, thirty or fifty or seventy people showed up at each rental showing. They waved credit reports and college transcripts. They brought their checkbooks to sign away their signing bonus, if only the landlord would consent to accept ten months’ rent in advance, and maybe a little sweet something for the kids’ college fund.

And that’s still happening in the seller’s market. The unwritten rule here is that you should offer at least twenty per cent over the asking price to win the inevitable bidding war. When I’d fallen for a little condo in unsexy Bernal Heights, Helga told me I’d need to offer a 50% sweetner to get it. We sat in a cafe, late into the evening, filling out the paperwork for my first ever bid. Next morning I balked and dropped my offer to a 40% premium. I lost to a bidder who offered more and said he didn’t need a contractor’s inspection or a mortgage contingency. The natives act like this is normal.

I can rent something far better for less than half the cost of interest-only repayments. And if I bought a place, I couldn’t cover the mortgage by renting it out. Buyers dismiss this because they’re betting on capital gains. The demand that pushes prices up is fueled by people like me, who have been running alongside the train for years, and fear it’s steaming out of the station. The Irish market has been like this for years, but it’s ugly to watch it up close.

San Francisco buyers seem out of touch with how weak the rental market is (or they don’t care). They’re not hanging out on Craigslist, watching the same “Edwardian charm” pimped out week after week, sliding from $1600 to $1550, then $1500.

To judge by my postbag when I said I was moving, people truly love this city, and they continue to want to live here. The job market is healthy. There’s little room to build new housing. I don’t think there will be a catastrophic fall in house prices, though of course it’s possible. But the enormous year-on-year appreciation is going to stop, and very soon. Rates will creep up, and the foreclosures will start, and we’ll look at each other and realize that it’s not smart to throw Dr. Evil dollars at places we’d hate to get stuck in. At that point, I’d start to ask myself where else I could have put that down payment and those fat closing costs, or how I could have invested the extra money that would otherwise be paying off mortgage interest. The numbers only add up if you believe that the house price train will keep steaming ahead, or you want to stay put for longer than the average tenure. It’s seven years nationally; I’m sure it’s shorter in San Francisco.

That’s why I’m spending Saturday moving into a Bernal Heights rental: a sunny 2bd w/charm, eat-in kitch, shared gdn, hardwd flrs & vws. I’ll sleep easier without the traffic, and the HOA dues.

Further reading: Trading Places: Real Estate Instead of Dot-Coms.
“Real estate-crazed Americans have started behaving in ways that eerily recall the stock market obsession of the late 1990’s.” –New York Times

Survey Says It’s Cheaper To Rent–Much Cheaper –Curbed

200 v 2005: Totally Insane! –Curbed

16 thoughts on “Domestic Economy”

  1. Brilliant!!!! If you must invest in real estate look toward Buenos Aires or Croatia and others…they are at the opposite end of the turn of the worm.


  2. “Four years ago, everyone tells me, thirty or fifty or seventy people showed up at each rental showing”

    Well, Five and a bit. I was that soldier. It took me three months to find a place back in 1999 when I needed to get out in a month ( luckily my landlord – who was to move in – was somewhat obliging).

    Back then craigslist was shite – you had to have $49 per month property listing email service to have any chance, which had new stuff at 6 pm every day.

    At 6:01 you immediately called the realtor to find if the place was gone, and most times it was.

    Once I got there first, this time to a private line, and jumped in the car down 280 ( I was looking down the valley, cos I had given up on the City), met nice people I got on with, agreed a price, but then – as I was there! – someone came along and outbid me!!

    In another story in that threee month saga I drove with a friend of mine ( we looked together for seperate places) to the East Bay. This was for him. We weren’t first but the landlord, a gentlehearted Chinese man, said he wasn’t playing first come first served either, and nor was he going to raise the rent to crazy prices ( he shook his head sadly). He then asked for our story. We looked blank. Oh, he said, he was going to rent the place to the most worthy candidate. He then told us the unhappy stories he had heard that day: man kicked out of house, lady with sick child living on friends sofa, and worse. Yesterday’s stories were less fortunate again, he admitted, but didn’t burden us with them. He asked for our story.

    We mumbled something about having spent a very very long time looking for a house. He suggested that wasn’t sad enough.

    Eventually i got a contact through a friend at work for a very expensive place.

    As an aside, that was Summer 1999. Five months later i saw a rental available sign outside a group of apartments in the South Bay. I told people at work, and suggested the market was softening. Three months later the bottom fell outa nasdaq.

    Always trust the Economist. I am getting familial, and fraternal, pressure to buy In Ireland before it is too late, but I have being holding out too long, and as much as I hate renting, I think negative equity would be a greater pain in the long run.


  3. Y’all had it so much worse here than we did in New York at that time. I wonder how much the fall out from that boom still affects San Francisco, which seems far less ethnically integrated and–oddly–to have WAY fewer kids running around than NYC. (I except my very kid-friendly office.) Maybe all but the yuppies and the street people were priced out and stayed out.

    As for buying in Ireland: I get that pressure too, and have for years. And I do feel like a kid when I go home and see my friends living in large, apparently appreciating houses, when I still rent little flats. But screw it. The fundamentals make no sense there, and haven’t for a long time. It’s the ancestral belief in land pushing out any sensible portfolio diversification. Who wants to be the last girl to go broke for a mistake?


  4. The stories of San Francisco rentals sound like Dublin a couple of years ago. I remember during my struggles to find a room, asking “how many have viewed?” only to be told oh, twenty or thirty.

    As for buying, unless you’re there for the very long haul, buying when the rental market rates won’t cover the mortgage is never a good idea. (like the dublin market is now). It sounds like you made the right decision.


  5. You could have been describing today’s Kilkenny rental market. Much more remains unrented in Kilkenny than ever before and many more homes remain to be built. I’ve alwayus thought the Economist has an insight relevant to wherever you live–KK or SF.

    I think your new rental cuts you free to enjoy your adopted city. It sounds like you still feel NYC at your side. Part of the reason that I rented in California was that I knew I would never leverage property ownership for the kind of respect a “native” gets in California. Contrast that to New York City, where being foreign gives you status and respect.


  6. Thanks for providing the City with some much needed Buyer Frustration, and your comments on the market. It IS true there were 30+ people lining up when I first rented here 8 years ago.

    There is a relationship between rental availability and buyer’s purchasing ability in San Francisco – they are diametrically opposed.
    Cheers on discovering this so early.


  7. I find the fear of negative equity strange. As long as you can afford to continue to meet your mortgage payments, you can most probably ride a recession out. I feel for the people who jumped ship due to negative equity in London but it seems very shortsighted. Given that people will generally do whatever it takes to meet a mortgage payment – and that means YOU – a few years pain for a lot of gain seems reasonable.

    I reckon it’s a generational thing. I sometimes catch myself bemoaning my fate and then realise that when my parents were my age, they were in a much more precarious position with a mortgage, intermitent job loss and the costs of a growing family. The notion of sacrifice in the now seems to have become very unfashionable, but we’re only mortgaging our futures. I laugh in negative equity’s face to be honest.


  8. “when my parents were my age, they were in a much more precarious position with a mortgage, intermittent job loss and the costs of a growing family”

    Who is to say that intermittent job loss in not your future in the next 30 years? Or the next 40 years for some of the more adventurous youngsters out there who decided on a mortgage that long? Do you think the economic cycle has changed irrevocably. It has not, in fact – in that time – a recession is altogether certain.

    Actually your parents had it relatively good if they could get a mortgage in Ireland back then, which implies a middle class income. Their affordability for the first year may have been difficult with mortgage rates of 14% a year ( but no more difficult than now) , but those rates were high because inflation was high. The next year the real value of the mortgage was reduced by the inflation rate, and every subsequent year. Then later – due to some structural changes – their house price went through the roof in value. Those structural changes which will not be duplicated ( dual income earners, extremely high wage growth due to labour constrictions, and a massive lowering of the mortgage rate as we entered the Euro), and made them the winners in the generational lottery.

    That generation were the winners worldwide.

    All you have to hope for is rates of interest that can only go up from historical lows – historical lows by Bundesbank standards, too – and the problem is not just negative equity but the inability to pay back the monthly payments.

    A friend of mine who can just afford his house, asked his broker what the monthly payments would be if we have the same rates as, say, 1992. The broker typed it in, and got a rate of 5,650 euro a month. It probably wont go that high again, but who knows? The euro may well split up in 30 years. In any case the only way is up.


  9. Good for you, Dude. But here’s why you’re wrong.

    The price your house would sell for should be irrelevant to you, unless you want or need to sell. My parents, and most of their friends, were comfortable knowing that they’d probably stay in their place for 20 years or more. I don’t feel that way about a one-bed condo, which is all most first-time buyers can afford in San Francisco these days, and likely in Dublin too.

    Rule number one of investing: know your risk appetite and your time horizon. If you have borrowed more than you can now sell your bubble house for, you can’t go anywhere until you make up the difference. Not if you lose your green card application, or you now have three kids who can’t fit in the shoebox, or your FDI employer decides that the Irish workforce is too expensive and stroppy and she’s moving on. You’re stuck.

    It’s very real. It took one London friend of mine eleven years to dig out from the last bubble.

    Rule two: diversify. Your comment about sacrifice assumes there’s only one way to save. But that’s the point of my piece–right now, if you think you’ll stay for less than ten years, you can invest much more effectively by renting and putting the large balance into a portfolio that’s more likely to appreciate. That opportunity cost is a bigger deal to me than the threat of negative equity.

    Doing “whatever it takes” to make a mortgage makes no financial sense for a prospective first-time buyer, at least at the moment. Emotional baggage about homeownership aside, in San Francisco and Ireland it’s a terrible investment for those with a short time horizon.

    And the flipside is that Irish economy would look healthier and more mature if people put their extra cash into homegrown companies (or even international stocks and bonds) rather than yet more yellow houses. But no–even the people who worry about the Irish bubble just buy houses in London, Manhattan, or Spain.

    Also, I do think there’s a generational aspect kicking in in Ireland, though not the one you mean. San Francisco saw a giant crash in 2000; we saw one in New York after September 11th. The Irish boom generation hasn’t experienced that yet, and maybe that’s why negative equity doesn’t seem real yet.


  10. Bang on the money, Dervala.

    Things I’ve heard first hand in Ireland:

    – “Shur, when did you ever hear of a house in Ireland going down in value?”

    – “Shur, what are the banks going to do, take the house off you?” (with an incredulous tone)

    It’s the cult of property that throws off all logic. Maybe we’re afear’ed the English will try and take back the land . . .



  11. Six and a half years later, my uneasiness has been proven well-founded.

    And for the sake of friends, family, and strangers who are stuck in the mess that ensued, I heartily wish I’d been wrong.


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