We’ve been in a recovery for a while. That’s not really news to anybody. But I’d like to offer an interesting look at what’s happened the last two times before our current recovery, in order to give some perspective to our current situation.
This chart shows the change in median prices in the last recovery, starting in 1996. The blue line is San Francisco’s single-family home median price and the red line is the San Francisco condo median. As you’ll see, prices climbed about 100 percent in the following five years. This is well before the subprime and lending-standards bubble started to inflate.
This is the Case-Shiller chart for the five-county San Francisco metro area for the house value recovery following the recession in the late 1970s and early 1980s. We have to use Case-Shiller, not normally the best indicator for our market, because San Francisco-only MLS data only goes back to 1993. Case-Shiller numbers don’t relate to a specific price, but to a percentage of the value in year 2000. With that in mind, the number 39 denotes a value 39 percent of the value (100 percent) in 2000. The main point in the chart is the appreciation: Like the 1996-2000 recovery, values jumped about 100 percent in five years.
And here is the complete simplified overview of changes in value during the last 30 years. In the past few recoveries, it has taken less than two years of recovery before the previous market peak (prior to the “bubble” popping) is surpassed. Again, we don’t yet know how similar our recovery will be to previous recoveries – especially for other market areas hammered much harder than us by foreclosures – but a fundamental dynamic exists: During the long years of the recession, demand is severely repressed and when that demand finally bounces back, the surge is dramatic. Among other factors, remember that even during depressed housing markets, general inflation continues: even if that is only 2-3 percent annually, that’s 10-15 percent of inflation building up over the five-year period.
Right now we’re about a year into our current recovery. While the content of that recovery largely remains to be seen, we can certainly learn from these charts and what happened in the past.
Dreaming of San Francisco? Cece Blase offers local advice to San Francisco buyers, sellers and owners-- and feeds the dreams of those who wish they could live in Tony Bennett's 'City by the Bay.' Call 415-577-0809 or email cblase@paragon-re.com. www.ceceblase.com
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