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Zillow’s “Zestimates” Probably Aren’t The Best Way To Figure Out How Much Your House Is Worth

May 30, 2017 By rothrealestate

Friday, May 26, 2017
by Kate Cox
consumerist.com

IMAGE COURTESY OF ZEORB

If you’ve been in the market for real estate lately — or even just idly browsing your old neighborhood from curiosity — you’ve almost certainly seen the “Zestimate” splashed across a property’s Zillow listing. But now, multiple lawsuits are claiming those numbers are so far from realistic that they’re actually harmful, and Zillow itself is launching a contest, hoping to crowdsource a better Zestimate.

The estimates are based on a proprietary formula, Zillow says — publicly available data goes in, magic number comes out. And what happens in between has some homeowners and developers completely confused.

Now, Zillow is under fire for the results that formula gives them. It began with a lawsuit filed by an Illinois real-estate lawyer in early May.

Her suit says that although Zillow cautions users not to take the “Zestimate” as an appraisal, it nonetheless has the same effect: It’s a number “promoted as a tool for potential buyers to use in assessing [the] market value of a given property.” That, the suit claims, meets the Illinois state definition of “appraisal.”

The Zestimate given for her house undervalued it badly, she claims, making it much harder for her to sell. The most recent Zestimate for her property values it at $64,000 less than she paid for it in 2009, despite other similar homes in the neighborhood selling for significantly more.

The difference between Zillow’s estimate and the seller’s actual sale price can, indeed, be pretty wide. For example, on this randomly-picked house outside of Washington, D.C., the gap is nearly $600,000.

A few weeks later, the lawyer dropped her claim but filed a second suit — this time, on behalf of several Chicago-area builders. This one seeks class action status that could “consist of millions of homeowners,” and seeks an injunction preventing Zillow from publishing Zestimates for the time being.

Zillow itself concedes its automated math isn’t perfect. Zestimates are within 5% of the actual sale price about 54% of the time, within 10% of the sale price about 76% of the time, and within 20% about 90% of the time, Zillow told the Washington Post.

But even 5% is still a large amount of money when you’re talking about hundreds of thousands of dollars. And that’s just for the most accurate range. By Zillow’s own figures, 1-in-10 Zestimates are off by more than 20%. That’s like valuing a $200,000 house at less than $160,000 or more than $240,000 — an enormous difference, for buyers and sellers.

The accuracy of estimates also varies hugely by region. MarketWatch reports that the numbers are within 6% of the actual sale price barely 44% of the time. In Washington, the Seattle Times ran the math and figured out that Zillow’s median error rate, applied to Seattle’s median home price, will be off by about $40,000 in either direction.

“We believe the claims in this case are without merit. We always say that the Zestimate is a starting point to determine a home’s value, and isn’t an official appraisal. It’s a computer-automated estimate of your home’s value,” Zillow’s spokesperson said in a statement about the lawsuits.

While Zillow defends the Zestimate, it has nonetheless launched a competition encouraging data scientists to come improve its algorithm.

The Zillow Prize competition takes place in two rounds. From this week until Jan. 2018, teams can enter the public qualifying round by developing a model “to improve the Zestimate residual error.”

The teams with the prototypes that most narrow the gap then advance to the second round, which runs from Feb. 2018 until Jan. 2019. Those 100 teams have to build an actual algorithm to do what the Zestimate does. The winner from that round gets $1 million for their trouble.

“We still spend enormous resources on improving the Zestimate, and are proud that with advancements in machine learning and cloud computing, we’ve brought the error rate down to 5 percent nationwide,” Stan Humphries, Zillow’s chief analytics officer (and Zestimate inventor) said in a statement.

“While that error rate is incredibly low, we know the next round of innovation will come from imaginative solutions involving everything from deep learning to hyperlocal data sets — the type of work perfect for crowdsourcing within a competitive environment.”

And although the timing may seem a little convenient in proximity with the lawsuits, Zillow says it’s not. Humphries tells the Chicago Tribune that the company has been planning the contest for a year and it’s unrelated to the recent lawsuits.

Filed Under: Buyers, Investors, Sellers

Home prices are soaring — here are the 20 places where owners are reaping the biggest profits in 2017

May 2, 2017 By rothrealestate

Saturday, April 29, 2017
Constance Brinkley-Badgett
businessinsider.com

If you’re looking to buy or sell a home this year, you probably know the housing market is booming in virtually every corner of the country.

ventura california


California dreaming (Pictured: Ventura, California). Shutterstock/Steve Heap

In fact, homeowners who sold in the first quarter of the year realized an average price gain of $44,000 since purchasing their home, a new ATTOM Data Solutions report shows. That equals an average 24% return on purchase price across the country — the highest average price gain for home sellers in nearly 10 years.

“The first quarter of 2017 was the most profitable time to be a home seller in nearly a decade, and yet homeowners are continuing to stay put in their homes longer before selling,” said Daren Blomquist, senior vice president with ATTOM Data Solutions.

The report showed homeowners are staying in their homes just shy of eight years on average. “This counter-intuitive combination is in part the result of the low inventory of move-up homes available for current homeowners, while also perpetuating the scarcity of starter homes available for first-time homebuyers,” Blomquist added.

Of course, there are still some laggards. Baton Rouge, Louisiana, for example, saw average home prices decline by $15,000 from their previous purchase price. The same is true for Huntsville, Alabama, where average home prices declined by $8,100.

Of the 20 metro areas with the highest percent return on the previous purchase price, 10 were located in California and three were in Colorado. Competition among homebuyers, especially in these areas, is fierce, so it’s particularly important to have your finances locked and loaded before you start your search.

Regardless of where you’re looking, getting pre-approved for a mortgage is key. You’ll also want to be sure your credit is in good shape so you’ll get the best mortgage terms available. You can check your credit scores for free on Credit.com.

These are the top 20 metro areas where home sellers are making the most money when selling their homes.

 

19. TIE: Port St. Lucie, Florida

19. TIE: Port St. Lucie, Florida

Flickr / Matthew Ingram

Average return on investment: 39%

Average price gain: $53,000

19. TIE: Austin-Round Rock, Texas

19. TIE: Austin-Round Rock, Texas

Shutterstock

Average return on investment: 39%

Average price gain: $81,795

16. TIE: San Diego-Carlsbad, California

16. TIE: San Diego-Carlsbad, California

Shutterstock/Sebastien Burel

Average return on investment: 41%

Average price gain: $144,000

16. TIE: Riverside-San Bernardino-Ontario, California

16. TIE: Riverside-San Bernardino-Ontario, California

Shutterstock/Jon Bilous

Average return on investment: 41%

Average price gain: $90,000

16. TIE: Boston-Cambridge-Newton, Massachusetts-New Hampshire

16. TIE: Boston-Cambridge-Newton, Massachusetts-New Hampshire

Courtesy of TripAdvisor

Average return on investment: 41%

Average price gain: $111,100

13. TIE: Oxnard-Thousand Oaks-Ventura, California

13. TIE: Oxnard-Thousand Oaks-Ventura, California

Shutterstock/Steve Heap

Average return on investment: 43%

Average price gain: $160,000

13. TIE: Sacramento-Roseville-Arden-Arcade, California

13. TIE: Sacramento-Roseville-Arden-Arcade, California

Shutterstock/Toribio93

Average return on investment: 43%

Average price gain: $99,000

13. TIE: Fort Collins, Colorado

13. TIE: Fort Collins, Colorado

3.0/Wikimedia Commons

Average return on investment: 43%

Average price gain: $97,500

12. Greeley, Colorado

12. Greeley, Colorado

Wikimedia Commons

Average return on investment: 44%

Average price gain: $85,050

10. TIE: Urban Honolulu, Hawaii

10. TIE: Urban Honolulu, Hawaii

Flickr / Edmund Garman

Average return on investment: 46%

Average price gain: $161,110

10. TIE: Salem, Oregon

10. TIE: Salem, Oregon

Shutterstock/Victoria Ditkovsky

Average return on investment: 46%

Average price gain: $70,800

9. Vallejo-Fairfield, California

9. Vallejo-Fairfield, California

City of Vallejo – Local Government/Facebook

Average return on investment: 47%

Average price gain: $115,000

7. TIE: Denver-Aurora-Lakewood, Colorado

7. TIE: Denver-Aurora-Lakewood, Colorado

f11photo/Shutterstock

Average return on investment: 50%

Average price gain: $110,000

7. TIE: Los Angeles-Long Beach-Anaheim, California

7. TIE: Los Angeles-Long Beach-Anaheim, California

Shutterstock/Jon Bilous

Average return on investment: 50%

Average price gain: $187,000

5. TIE: Stockton-Lodi, California

5. TIE: Stockton-Lodi, California

Wikimedia Commons

Average return on investment: 51%

Average price gain: $101,000

5. TIE: Modesto, California

5. TIE: Modesto, California

flickr/tomhilton

Average return on investment: 51%

Average price gain: $87,500

4. Portland-Vancouver-Hillsboro, Oregon-Washington

4. Portland-Vancouver-Hillsboro, Oregon-Washington

Josemaria Toscano/Shutterstock

Average return on investment: 52%

Average price gain: $110,799

3. Seattle-Tacoma-Bellevue, Washington

3. Seattle-Tacoma-Bellevue, Washington

Roman Khomlyak/Shutterstock

Average return on investment: 56%

Average price gain: $139,325

2. San Francisco-Oakland-Hayward, California

2. San Francisco-Oakland-Hayward, California

Flickr / Davide Damico

Average return on investment: 65%

Average price gain: $276,750

1. San Jose-Sunnyvale-Santa Clara, California

1. San Jose-Sunnyvale-Santa Clara, California

mTaira/Shutterstock

Average return on investment: 71%

Average price gain: $356,000

Filed Under: Buyers, Investors, San Francisco, Sellers

Bay Area population growth slows, some counties losing people

March 28, 2017 By rothrealestate

Wednesday March 22, 2017
by Kurtis Alexander
sfgate.com

Lolly Mitchell of Redwood City sits for a portrait in her living room nearly empty of furniture on Wednesday, March 22, 2017 in Redwood City, Calif. Mitchell is in the midst of moving to a new home in Southern California. Photo: Lea Suzuki, The Chronicle

Photo: Lea Suzuki, The Chronicle
Lolly Mitchell of Redwood City sits for a portrait in her living room nearly empty of furniture on Wednesday, March 22, 2017 in Redwood City, Calif. Mitchell is in the midst of moving to a new home in … more

 


The Bay Area may be losing a bit of its luster.

After years of being overrun by new residents drawn by a red-hot economy, the number of people moving out has begun to catch up with the number moving in, new census data show.

In fact, in some parts of the Bay Area — including Santa Clara, San Mateo and Marin counties — already more people are leaving than arriving, according to the estimates released Thursday, which cover the period from July 1, 2015, to June 30, 2016. The same would be true in San Francisco if it weren’t for the high number moving in from abroad.

Such a trend has not been seen since last decade’s recession.

“Job growth has slowed, and that leads to a lessening in demand to live in the Bay Area,” said Hans Johnson, a senior fellow at the Public Policy Institute of California who had not seen the new census figures. “But it’s not like we’re having outright job losses or increasing unemployment. That’s not happening.”

The region’s economy, by all measures, is still robust. What’s happening, say Johnson and other demography experts, is that the extraordinary upswing that led California out of hard times last decade, with the tech sector propelling the boom, has become slightly less alluring. At the same time, housing prices have continued to grow, compounding the crunch.

“The key here is being able to afford to live in the Bay Area,” said Johnson. “Jobs and housing are really the primary criteria driving people’s decisions. It’s kind of a balancing act between the two. If jobs predominate, people are moving in. If housing predominates, you have less people moving in.”

For Redwood City resident Lolly Mitchell, 29, the scales have tipped on the side of cost.

The hardware engineer, whose husband is also in the tech industry, has been saving to buy a home but finally decided that Bay Area prices are just too much. The couple recently closed escrow on a house in Los Angeles.

“I moved up here because there was more work for my husband,” said Mitchell, who came from Southern California. “We’ve been working hard to be financially secure here. But we don’t want to live paycheck to paycheck. We just don’t want to be at risk for the amount of money we’d have to pay” for a new home.

The median home price in the Bay Area was $784,500 last month, according to the California Association of Realtors. In San Francisco, it was $1.28 million. Homes in San Mateo, Santa Clara and Marin counties also averaged more than $1 million.

While prices have not been growing as fast as they were a few years ago, when double-digit appreciation was not uncommon, and the number of sales has begun to drop, real estate values are still ticking upward, the association’s data show.

“When you don’t have enough supply and you continue to have demand, you put pressure on home prices,” said Oscar Wei, senior economist at the association. “And when home prices are at a high level, people will move to more affordable counties in the Bay Area or even farther out.”

The new census data show that eight of the region’s nine counties, with the exception being Solano County, experienced their lowest levels of net migration — the number of people moving in minus the number moving out — last year in at least four years. Some haven’t seen numbers as low since the recession, when jobs in the Bay Area, like elsewhere, were harder to come by.

When considering only people coming and going from elsewhere in the U.S., most Bay Area counties, including San Francisco, saw greater outflows than inflows. But sometimes influxes of foreigners offset losses in the domestic population.

The number of births also tempered migration losses. Marin was the only county to actually lose population.

Overall, the Bay Area’s population grew 0.7 percent to 7.68 million in the time period, the data show. Santa Clara County had the most residents, with 1.92 million people, followed by Alameda County, with 1.65 million. San Francisco counted 870,887 people. Solano and Contra Costa counties, where real estate prices tend to be lower, saw the most growth, 1.4 percent and 1.1 percent, respectively.

The new census figures do not include demographics, such as race or income, of the people moving to and from the Bay Area. Nor do they track where people are coming from or going to.

Demographers looking at real estate records and tax returns have found that the exodus often begins in California, with people moving within the state from more to less expensive regions. The nearby states of Oregon, Washington, Nevada and Arizona have also been popular, as has Texas.

A LinkedIn report this month cited Portland, Ore., as the top destination for its Bay Area users leaving the state.

Todd David, executive director of the San Francisco Housing Action Coalition, which advocates for making the region more affordable, said it’s not just poor people who are finding it expensive to live here.

“The population that we’re starting to lose in San Francisco is the middle-income,” he said. “These are the people getting squeezed.”

While the likes of Google and Apple continue to create jobs — both plan to open new, sprawling campuses locally — many companies are not keeping up. And few offer salaries commensurate with Bay Area costs.

State data show that January’s job growth hovered just above 2 percent for most of the Bay Area. That’s down from closer to 4 percent a year ago and nearly 5 percent two years ago.

“Even though jobs are being added, the growth has slowed,” said Janice Shriver, a labor market consultant for the California Employment Development Department. “The area reached full employment, so it’s hard to maintain that massive job growth we had after the recession.”

Filed Under: Investors, San Francisco

Why do some hate the nickname ‘Frisco’?

March 8, 2017 By rothrealestate

Saturday March 4, 2017
by Vinnee Tong, KQED
sfgate.com

FILE-- Visitors along the California Coastal Trail above the Golden Gate Bridge in San Francisco, California, on Friday Dec. 30, 2016. Photo: Michael Macor, The Chronicle
Photo: Michael Macor, The Chronicle

 

FRISCO.

Just try dropping that word into conversation these days and see what kind of response you get. Chances are good the nickname will be met with a healthy dose of side-eye, a grimace or even a slap on the wrist.

Frisco is the nickname we love to hate.

Bay Curious listener Rena Yang, a native of Oaktown (people seem fine with this one), asked us why she can’t say “Frisco” without someone’s head exploding nearby.

Growing up, Rena relied on her friends to learn the local lingo, since her family spoke Chinese at home. One of the slang words her friends taught her was Frisco. She used it for years, until one day she slipped it in while talking to a co-worker.

“She stops me or she kind of looks at me, and says, ‘Wait, I thought people don’t like that name.’ And I said, ‘Really? I don’t think so,’ ” Rena recalls.

Suddenly, even though she’s a Bay Area native, she felt like an outsider. Ever since she’s wondered: Why all the hate?

If you ask around, people say it’s because it’s disrespectful, truncated, ugly-sounding or icky. Basically, they don’t think the name does the city justice. But we had to find out where these arguments originally came from.

A Mysterious Birth

Let’s start with some history. (Read a great timeline from Mother Jones here.)

Author Charles Fracchia, the founder of the San Francisco Museum and Historical Society, tells me nobody knows exactly where the word originated, but he thinks Frisco got its start in the late 1800s — potentially from some drunkard making a contraction out of San Francisco.

He thinks one of the first written uses was maybe on some sheet music, like this example from 1897. Other people say it may have come earlier, perhaps during the Gold Rush.

Frisco’s use was probably in its heyday when the ports were strong here, around the time of World War II in the 1940s.

“It was kind of a working man’s period of time,” Fracchia says. “The port was thriving, you had lots of small manufactories here. Frisco is kind of a working man’s word.”

A Trashy Name for Classy City?

The other thing to know: Not long after people started using it, other people started hating it. They said only out-of-towners used it. Tourists, basically.

San Francisco’s self-proclaimed emperor — the Brit Joshua Norton — supposedly banned the use of Frisco in 1872 and said whoever used it would have to pay a $25 fine. But that has not been verified.

One person we do know hated the word: Herb Caen, the revered columnist for the San Francisco Chronicle. When he wrote about the city, people listened.

“Herb Caen made San Francisco into almost a village,” Fracchia says. “By the fact that his columns were very popular. There was kind of a lingua franca about them.”

Caen came along after the city had grown from a dinky West Coast outpost into a Gold Rush boomtown with saloons and debauchery, and later into a city that looked more like the East Coast and European cities it wanted to imitate.

Caen wanted San Francisco to be more classy, more chic.

His book, “Don’t Call It Frisco,” came out in 1953.

The opening paragraph:

“Don’t call it Frisco — it’s San Francisco, because it was named after St. Francis of Assisi. And because “Frisco” is a nickname that reminds the city uncomfortably of the early, brawling, boisterous days of the Barbary Coast and the cribs and sailors who were shanghaied. And because Frisco shows disrespect for a city that is now big and proper and respectable. And because only tourists call it Frisco anyway, and you don’t want to be taken for a tourist, do you?”

Fracchia says Caen’s book ruined the nickname for a lot of people. People wanted to seem proper, and cultured, so they listened to Caen and shunned it.

“That’s when I think it became controversial or contentious,” Fracchia says.

Frisco is Loved, Too

Now, many people associate the word with an earlier generation. And rightly so.

Take Joey Wilson, co-owner of a tattoo shop in the Mission called … yep, Frisco Tattoo.

“My parents always called it that,” Wilson says. “They were blue-collar workers. It was just something that was instilled in me as a kid.”

Wilson remembers Frisco as a part of his childhood.

“When I was a little kid, I think I was 12 or 13, there was a bike shop called Frisco Choppers,” Wilson says. “I’d race down there on the bus, down Valencia Street, just to buy a T-shirt that said Frisco in big, bold letters because that was the coolest.”

Today he’s in the Hells Angels — the Frisco chapter.

His wife, Lilah Wilson, says they have lots of friends who love Frisco as much as they do.

“A lot of our friends are kind of small-business owners in the city here actually, and really are owners of the name Frisco,” she says. “We had Frisco Boxing, we have 415 Clothing, we had Frisco Choppers years back. Just kind of the root and background of that name and took it far, with T-shirts and tattoos and blew up that name.”

And now Joey Wilson wants to know why Caen’s opinion should matter more than his. After all, Caen was born in Sacramento.

“So that’s the question — why does it upset you to call it Frisco?” he says. “Give us a reason. And who are you to tell us what we can and can’t do? I’m from here. I’m born and raised here, so I think I got rights to call it whatever I want.”

Working on this story one day, I grabbed a Lyft and got to talking with the driver, a guy named Lorenzo Beasley.

“I grew up on the bottom of the city, a small neighborhood called Visitacion Valley,” Beasley says. “I think more of the urban community, like blacks or Hispanics in the city, those people always grew up using that word.”

Beasley says you hear it in Hunters Point, Lakeview, the Fillmore, Potrero Hill and especially the Mission.

I asked him who doesn’t like Frisco.

“It’s like a higher class of people, I guess,” Beasley says. “People who stay in Nob Hill and stuff. They look at it like slang, so they’re not really with it. It’s definitely a bit of snob thing involved.”

For Beasley, whether you use Frisco says what neighborhood you’re from.

Stanford linguist Teresa Pratt echoes that. She says that when you’re talking about language and word choice, like nicknames, you’re virtually always talking about money and power.

“Institutions or people who have power have an interest in maintaining that the way they speak is the right way to speak,” Pratt says. “Because it helps them. Because it’s coupled with this ideology that’s really widespread, that there’s a right way to speak, that there’s a way to speak that gets you ahead.”

Pratt says word choice is like a signal.

“Language as cultural capital, right?” she says. “It’s something like knowing exactly where to put your forks at the end of a meal.”

Nicknames are even more like that. Knowing which one to use and which one not to use tells people where you belong. Which brings us back to Rena, our question-asker, who suddenly felt out of place because she was called out for using Frisco.

“For someone to correct you on that, it’s kind of like, ‘Ugh, did I have it wrong this whole time?’ ” she says.

Well, we have some good news for Rena. The famous Herb Caen eventually flip-flopped on Frisco a couple of times in the 1990s. It turns out we’ve built our anti-Frisco bias on some shaky ground.

And, there are a some admirable bootstrap efforts to bring it back.

SFGate predicted awhile ago that the young and hip would revive it. Joe Eskenazi wrote for SF Weekly that it’s mostly old white people who don’t like it. And Buzzfeed launched a “Call It Frisco” campaign last year.

Join the movement?

Filed Under: Advice & Resources, San Francisco

Here's a Better Way to Calculate the True Rent vs. Buy Costs

March 3, 2017 By rothrealestate

March 2, 2017
Jonathan Smoke
realtor.com

house-rent-v-buy-math

In my last commentary, I wrote about the misleading math behind the rent vs. buy calculation. My main point was that focusing on the direct, total monthly costs of renting vs. buying misses the important fact that a significant portion of every mortgage payment goes toward the principal balance, building equity for the homeowner.

That principal payment is really a forced savings program which grows over time. And that’s a key reason why homeowners on average have much more accumulated wealth than renters.

The article struck a nerve, and a boatload of internet chatter. I’ve even received some criticism that my math was itself misleading because I didn’t include property taxes, insurance, and costs for maintenance and repair, thus making homeownership look less expensive than it really is.

Related Articles

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  • The Misleading Math Behind the Rent vs. Buy Calculation

So, by popular demand, I’m back to take a deeper dive into the math to illustrate—clearly and simply—how owning a home produces wealth over time.

For those who want to dive into even more detail, the rent vs. buy calculator on realtor.com® factors in all the direct and indirect costs of buying versus renting over a 30-year span.

The calculator assumes that any money saved monthly from renting is invested. And just like academic research has shown, the total-cost view shows that buying costs less than renting in the long term, in most cases.

As I did before, I am keeping this illustration as simple (yet accurate!) as I can by focusing on a fictitious buyer who fits the national median. I did have to make a few key assumptions for the calculation, and here they are:

  1. Property taxes and insurance costs are factored into the monthly payment of buying, using averages for the country. I also factored in expected upkeep based on a widely assumed benchmark for home maintenance and repair costs over time.
  2. I am assuming that inflation is 2% per year and determines the future home value and rent. It should be noted that home appreciation over time typically outpaces inflation by about 1%. However, rather than projecting bullish gains, I am sticking to a home-value increase in line with inflation to keep this focused on the wealth-building aspects of the mortgage as opposed to how the home asset itself appreciates like an investment.
  3. To compare the ledger of the renter against that of the owner, I’m using the average rent from the Department of Housing and Urban Development’s 2016 fair market rent data as the baseline.
  4. The difference between the monthly costs of buying and renting creates the savings pool available to the renter.

This more complete view does alter a few simplistic points I made in the first piece, when I said that you needed to find a place to rent for no more than the $976 mortgage payment in order to beat the value of owning. You might think that’s deceptive when you take into account the added monthly costs of property taxes, homeowners insurance, and maintenance.

With those additional costs on the owning side, a renter could spend up to $1,538 a month on housing to match an owner’s spend. But while that sounds like a huge difference, our illustration proves that owning still wins over time. (See a chart with the numbers below.)

The home buyer in our illustration will have built up a bit more than $3,400 in equity in year one. In this extended example, the renter at the average national rent will pull ahead of the buyer in year one by saving $3,870—a sweet $470 more than the owner. Remember that the illustration assumes the renter dutifully saves every penny compared with what he or she would have spent buying instead.

As you probably know by now, in most places in the country, initial monthly costs favor renting over buying. It’s not a surprise to see the renter theoretically being able to pull ahead in Year 1 as a result.

But it doesn’t take long for the owner to pull ahead in accumulated savings, because the monthly mortgage payment is fixed and a growing portion of each payment is building up more equity.

In Year 2, the renter would save $3,714, just barely beating the owner’s $3,559 in equity.

By Year 3? The tide shifts to favor the owner, thanks to the growing principal payment and the compounding impacts of higher inflation adding to the monthly rent. In this year, the owner saves $3,710 in added equity while the renter saves $3,554.

Since rent started so much lower and we’re keeping inflation assumptions low at 2%, it takes 22 years before the monthly out-of-pocket costs of renting exceed the monthly costs for our owner. But every year past Year 2 still results in the owner saving more simply by virtue of the principal portion of the payment getting larger.  And by Year 22, when renting actually costs more on a monthly basis, the principal payment amounts to $8,199.

With the renter not building equity and paying more in monthly costs from Year 22 on, the owner moves ahead rapidly in accumulated savings. Worse still for the renter, inflated rents are pushing what used to be a net savings, compared with the fixed mortgage payment, into the red.

In Year 31, the financial difference between the two households in our illustration is stark. The renter is then spending $2,202 in rent. The owner, mortgage-free, is paying only property takes, insurance, and upkeep for about $1,020 per month. The owner also has a home that is worth around $450,000 in inflation-adjusted dollars.

The 30-year mortgage works wonders in locking down today’s costs while also forcing the accumulation of savings over time through the principal payments. If your time horizon is less than a few years, renting comes out ahead. Buy beyond a few years, homeownership typically wins out. This is why owning a home, all things considered, is a path toward building wealth.

Filed Under: Advice & Resources, Buyers

San Francisco now accepting bids to redesign “unwelcoming” Civic Center

January 30, 2017 By rothrealestate

January 23, 2017
by Adam Brinklow
sf.curbed.com

Mayor’s administration tired of plaza’s current look, suggests “thoughtful design” replace it

 

civic_centerCourtesy City of San Francisco

On Saturday, Civic Center Plaza hosted 70,000-100,000 people in one of the largest public demonstrations in city history. But other days it’s host to many of the city’s homeless residents, as well as some intentionally unappealing design.

While the historic park fronts the city’s most beautiful Beaux-Arts architecture, it’s long been hard to enjoy the views. The San Francisco Examiner points out that modifications by past mayors to discourage loitering didn’t accomplish much except make the park even less user-friendly for everyone else.

SanFranMan59

Mayor Ed Lee and city planners evidently agree, referring to the plaza’s current look as “stripped” and “unwelcoming” in a redesign proposal dubbed the Civic Center Public Space Design.

This $600,000 plan invites designers to submit bids to civilize the Civic Center. The Planning Department met with candidates on Friday, and formal proposals are due by February 10.

Obviously, there’s no way of knowing yet precisely what the new look for the old landmark will be. The city gives some general guidelines, including words like “inspiring,” “holistic,” “sustainable,” and “inclusive.”

Previous reform efforts have often focused on trying to drive the homeless away from the area. While it’s likely that many at City Hall would still like to see this happen, the text of the new plan specifically points out that “low-income and homeless residents […] rely on the Civic Center as open space.”

The designated redesign zone stretches all the way from UN Plaza down Fulton Street and into Civic Center Plaza, running right up to the steps of City Hall.

The present look of the plaza, with its columns of marching sycamore trees, has been in place since 1961, and in truth the space still conforms fairly well to the 1912 design.

The retro look is not for lack of other ambitions, as many previous redesign efforts have fallen by the wayside over the last 55 years.

  • SF Plans Civic Center Transformation [Examiner]
  • Civic Center Public Space Design [City of SF]
  • City Hall Turns Pink [Curbed SF]

 

 

Filed Under: Advice & Resources, San Francisco

Exercise Meets Sightseeing in San Francisco

January 30, 2017 By rothrealestate

January 23, 2017
Rachel Ward
wheretraveler.com

For many, the start of a new year is an ideal time to focus on staying active and spending more time outside. In San Francisco you can easily accomplish those goals while getting in all the requisite sightseeing at the same time. This city is blessed with mild weather for outdoor pursuits year-round and is surrounded by an inspiring natural landscape. Here’s your guide to guide to combining the city’s best sights with fresh air and exercise.

Lyon Street Steps(©Jayms Ramirez)

Attraction: Lyon Street Steps

Activity: Stairclimbing

San Francisco is a city defined by its steep hills and spectacular vistas. Sharp inclines in many parts of the city required the construction of staircases instead of streets. Many of the climbs lead to dramatic views of the urban landscape, like this palatial staircase connecting the Cow Hollow and Pacific Heights neighborhoods. The 288 steps, are steep but broad, with lush landscaping. At the peak, you’ll be rewarded with a sweeping vantage point of the city and the bay. Stick around awhile to snap photos of the surrounding mansions, Presidio forest and the Palace of Fine Arts. Lyon and Green sts.

Kayaking on the bay(Courtesy City Kayak)

Attraction: The Bay

Activity: Kayaking

If you want to get out on the water, several local outfitters, including City Kayak, cater to both beginner and advanced paddlers and lead tours from downtown San Francisco. You’ll see spectacular views of the city skyline, and you’re likely to encounter some wildlife as well—harbor seals, pelicans, bat rays, porpoise, herons and egrets are all a possibility. On a windless day, you can paddle under the Golden Gate Bridge. Another option is to paddle from South Beach into the famous McCovey Cove behind AT&T Park (where you might catch a fly ball during games).

Lands End Trail(©Mason Cummings)

Attraction: Lands End Trail

Activity: Hiking

You don’t have to leave the city limits to get in a heart-pumping, nature-filled hike. As its name implies, Lands End Trail is located in the outer reaches of the city on the Pacific Coast, and it feels somewhat like the edge of the earth. The well maintained 3.5-mile out-and-back trail is packed with photo-worthy vistas. Jagged cliffs covered in windswept cypresses dramatically meet blue sea, with the Golden Gate Bridge and grand Marin Headlands in the distance. If you have energy to spare when you reach the end of the trail, continue on to admire the mansions in the Sea Cliff neighborhood and take a detour to Baker Beach, a mile-long stretch of sand tucked below rugged hills with a famous panoramic view of the Golden Gate Bridge. Back at the starting point, make the descent to explore the Sutro Baths ruins. Before or after your hike, be sure to make time to visit the beautiful Lands End Lookout Visitor Center, which outlines the nature and history of the area and has a nice gift shop and cafe.

Crissy Field(Courtesy SF Parks and Recreation)

Attraction: Crissy Field

Activity: Walking

Crissy Field, a restored tidal marsh that was a U.S. Army airfield in a former life, makes another beautiful walk, jog or bike ride. Take in views of the Golden Gate Bridge in one direction and the city in the other as you follow the wide, 3.5-mile (stroller and wheelchair friendly) waterfront path. You’re likely to spot birds (more than 135 species have been seen) as well as kite surfers attracted by the ideal breezes. The shoreline is also home to sandy beaches, picnic tables, cafes, bookstores and an environmental education center.

Running in the Presidio(Courtesy Presidio Trust)

Attraction: The Presidio

Activity: Hiking

The Presidio is a former military base located on the northern end of San Francisco that’s covered in pine, eucalyptus and cypress trees. Its 1,500 acres are now a national park that draws visitors from all over the world. The best way to explore the park is via more than 25 miles of trails and scenic viewpoints. Take the California Coastal Trail or Bay Area Ridge trail to the Golden Gate overlook or set off on a hike that passes artist Andy Goldworthy’s four nature installations. Just under a mile, the Batteries to Bluffs Trail is another spectacular walk that winds along the Pacific Coast and follows a flight of stairs down to a sheltered beach.

Yoga in Golden Gate Park(Courtesy Purusha Yoga)

Attraction: Golden Gate Park

Activity: Dancing, Skating and Yoga

Bigger than New York’s Central Park, the urban oasis known as Golden Gate Park contains countless attractions, including the de Young Museum, California Academy of Sciences, Japanese Tea Garden, Botanical Gardens, Stow Lake, Conservatory of Flowers, Garden of Shakespeare’s Flowers, two historic windmills, a bison paddock, and a rose garden. It’s also the city’s recreational headquarters. Between the museums and landmarks, take some time to join a free yoga or swing dance class or group skating session (rentals available) or play a game of golf or tennis.

Golden Gate Bridge(Courtesy Presidio Trust)

Attraction: Golden Gate Bridge

Activity: Biking

There are plenty of scenic routes on the 65 (and counting) miles of bike lanes around the city, but perhaps the finest trip for visitors is the ride from the northern waterfront to the picturesque seaside town of Sausalito. It takes cyclists along the bay’s edge, starting on Embarcadero and climbing up Fort Mason (the arresting views of the bay and Golden Gate Bridge alleviate the steep but brief ascent) before a flat, pleasant ride parallel to Marina Green. Another incline up past historic Fort Point leads to the Golden Gate Bridge, which bikers cross to their final destination. After the seven-mile jaunt, most riders break for lunch, brews or ice cream and opt to take the ferry back. You have plenty of options for borrowing a pair of wheels if you haven’t brought your own. Blazing Saddles is one of several popular rental outfits.

Filed Under: Advice & Resources, San Francisco

Here's why mortgage rates will stay low

January 30, 2017 By rothrealestate

January 22, 2017
Alex Starace, Redfin
businessinsider.com

Mortgage rates were down this week, averaging 4.09 percent for a 30-year, fixed-rate loan, down from 4.12 percent last week. Last year at this time, the rate was 3.81 percent, according to Freddie Mac .

Screen Shot 2017 01 20 at 12.30.43 PM

Redfin

What’s going on? Immediately after Donald Trump’s unexpected victory in the presidential election, mortgage rates jumped, with the 30-year fixed climbing as high as 4.32 percent in late December, after being as low as 3.47 in late October.

The rate jumped based on a combination of solid economic growth indicators and optimistic Wall Street sentiment regarding the Trump administration’s pledges to further stoke economic growth and cut taxes.

Regardless of the positive sentiment from investors, some observers worried mortgage rates would continue to rise, overly burdening homebuyers. In fact, that hasn’t been the case.

Since the turn of the year, mortgage rates have dipped. Redfin forecasts rates won’t average above 4.3% for 2017, in large part because the government is a major investor in the mortgage space.

So Mortgage Rates Will Be Steady?

“The Federal government is a trillion dollar investor in mortgage securities,” said Redfin chief economist Nela Richardson. “This is a very intentional policy, with the Fed’s purchase of mortgage securities playing a large role in keeping mortgage rates low since the start of quantitative easing during the recession. Prior to the crash, Fannie Mae and Freddie Mac played this role. As long as there is a government agency scooping up these securities, rates for new buyers will be low compared to what they were 20 years ago.”

That said, it is possible rates will float upwards again, but if they do, it’ll likely be based on good economic conditions.

“Rising rates are associated with an improving economy, more jobs, greater growth and higher wages. That should take the sting off a small uptick,” said Redfin chief economist Nela Richardson.

Historical Perspective Is In Order

Even if rates creep up over the coming year, they’ll still be at bargain-basement levels. In other words, buyers in the 1980s and 1990s would kill for the current rates.

Screen Shot 2017 01 20 at 12.31.36 PM

Redfin

Breaking out the differences in dollars by decade is instructive.

Currently, the mortgage rate is 4.09 percent, and the most recent median home price is $267,600. That means that the mortgage payment for a typical homebuyer (assuming 20 percent down, 1.25% in property taxes and $70/month in homeowner’s insurance) currently sits at $1,354 per month.

Twenty years ago this week, the mortgage rate was 7.87 percent, and so the same-priced home, with the same parameters, would have cost $1,872 per month.

Thirty years ago, the rate was a whopping 9.21 percent, and so the same-priced home, with the same parameters, would have cost $2,075 per month.

So, it’s all a matter of perspective.

Filed Under: Advice & Resources, Buyers

Sale fails are up all over the country, San Francisco included

January 21, 2017 By rothrealestate

Monday, January 16, 2017
Anna Marie Erwert
blog.sfgate.com

c5

On Jan 11, a new Trulia study examined the shadowy aspect of real estate sometimes called a “sale-fail,” when for-sale homes that fail to sell initially are placed placed back on the market later. Trulia’s main focus: those listings that return again to market after being listed as “pending” or “active contingent.” The study pulls national data from the 100 largest metro areas and shows this trend up everywhere, even right here at home.

Why sales fail

Generally, sales fail for these common reasons

  • Buyer fails to obtain financing after entering contract
  • Something comes up in the home inspection  that causes buyer or seller to balk over who will pay for/how serious the a repair the issue in question (in SF, that could be foundation problems, roof leaks, termite infestations, or any number of issues)
  • Sellers decides they can line up a better offer and tank the deal
  • Bank appraisal comes in significantly below asking price; and either seller not willing to lower price or buyer not able to cover the gap out-of-pocket
  • Seller simply decides not to sell, or buyer simply decides not to buy

Interesting national results

According to Trulia’s study, data show that deals to sell homes in the US are falling through at a faster rate than they were a year ago. Most at risk of all: agreements for starter homes. “The ‘sale fail’ phenomenon applies most commonly to starter homebuyers nationally, at a rate of 7.1percent of all listings in Q4 2016, up from 2.4 percent in Q4 2014,” says Trulia.

When asked what might be causing this particular trend, Felipe Chacón, Housing Data Analyst at Trulia, told On the Block that “fail rates have been increasing nationally, as first time home buyers are increasingly getting back into the market and inventories continue to be squeezed.”

Tight inventories create a more pressured buying atmosphere that can lead to missteps on either the seller or buyers’ part during the process. Additionally, first time home buyers face an added level of lending scrutiny and come to the table with smaller down payments and less equity.

Interesting local results

Specifically, in the San Francisco metro area, Trulia found that

  • San Francisco has experienced an unusually high jump in sale fails, jumping from 3.8 percent of all listings to 5.0 percent within the past year.
  • On a quarterly basis, the San Francisco market “a failed sale” rate in 5.3 percent of all unique listings in the most recent quarter of 2016.

The gallery above shows three local homes as examples of initial sale fails that came back on market to finally sell or are still now active (one, in fact, failed to sell three separate times over the course of three months).  That such a phenomenon exists, and that it’s actually increasing in frequency, might surprise some readers who know SF’s real estate reputation.

Filed Under: Buyers, Sellers

S.F. Tenant Forced Out by 315 Percent Rent Hike Wins $400,000 Settlement

January 21, 2017 By rothrealestate

Tuesday, January 17, 2017
Dan Brekke
ww2.kqed.org

bocanastreet-768x514

It was a spark for instant outrage in the midst of a San Francisco rental market gone mad: A woman renting an apartment in Bernal Heights announced on Facebook one weekend in March 2015 that her landlord was increasing her rent from $2,145 to $8,900 a month. And her security deposit was going up, too — from $1,500 to $12,500.

The tenant, Deborah Follingstad, was forced to move from her home of 11 years on Bocana Street, and her erstwhile landlord, Nadia Lama, moved in. But that wasn’t the end of it.

Follingstad sued Lama, who had acquired the property through the distribution of a family estate.

In the August 2015 lawsuit, Follingstad and her lawyer, Joe Tobener, accused Lama of trying to get around a city ordinance that requires payments for tenants displaced in an “owner-move-in” eviction.

That litigation proceeded without gaining much attention — until now.

Tobener announced Tuesday that, with a jury trial scheduled to begin next week, Lama had settled for the staggering-sounding sum of $400,000.

Tobener said the high settlement amount reflected both what he called Lama’s “egregious” behavior in raising the rent and the risk Lama ran in allowing the case to go to trial, where a jury could award triple damages for his client’s emotional distress claims.

“It’s the highest constructive-eviction-by-rent-increase case we’ve ever had,” Tobener said, adding that such cases typically settle for amounts “in the high five figures.”

Tobener said that under the city’s owner-move-in ordinance, Lama would have been required to pay Follingstad $9,522 for forcing her to move.

Lama sought to move in to the property early in 2015 after removing an illegal in-law unit that had been built at the Bocana Street property in the early 1990s. That would have had the effect of making the dwelling a single-family home and thus exempt by state law from local rent control statutes.

“Their defense was, hey, they took the lower rental unit off the market, they took out the kitchen, and therefore it became a single-family home, so they were allowed to increase the rent to whatever they wanted,” Tobener said. “Our argument was, ‘Look, you can increase the rent to market rate, but you can’t raise it way above market rate to force someone out to get around the owner-move-in eviction protections.’ ”

Tobener said evidence made it clear Lama wanted Follingstad out simply so she could move in.

“The intent was there, the bad motivation was there, and a jury would have heard that if Nadia Lama had done this right, she could have done an owner-move-in eviction for $9,500. Instead, she took the unscrupulous path and caused the tenant a lot of stress.”

For Follingstad, an acupuncturist, the outcome is bittersweet. She said Tuesday she was “shocked and super-pleased” with the settlement. But she added that events since she was forced to leave the Bocana Street in early May 2015 property have been difficult.

She spent more than a year couch-surfing and house-sitting inside and outside the city before she found a new apartment in San Francisco.

She said the housing challenge pales in comparison to her main preoccupation for most of the last year: breast cancer, which was diagnosed last May, a year after she left Bernal Heights.

“It was a really hard year on top of another really bad year,” she said.

Follingstad, who has specialized in treating cancer patients in her practice, says she feels there is a connection between her illness and the stress of losing her home.

“Every cancer patient in the world would line up around the block to find out what it was that actually gave him cancer,” Follingstad said. “But I can pretty much say that the stress and the depression and all of the anxiety that I went through upon that whole fiasco contributed to my cancer, if not caused it.”

Follingstad said she completed chemotherapy in the fall and radiation treatment last month and that the settlement will provide her funds to pay medical bills.

Attempts to reach Lama on Tuesday were unsuccessful.

Her lawyer, Paul Sheng, said in an email that Follingstad’s “allegations/theories about what defendant was trying to do were denied by defendant and were never proven.”

He said the settlement was reached during negotiations with a private mediator.

“Both sides to the dispute reached a mutual and voluntary agreement to resolve the case in order to avoid the cost and uncertainty of further litigation,” Sheng said. “The parties’ agreement specifically provides that they are settling disputed claims, with no admission or acknowledgement of any liability or wrongdoing by any party.”

Filed Under: Advice & Resources, Investors

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