Jason Henry for The Wall Street JournalGagan and Jasmin Arneja in their 1,800-square-foot home, which attracted 22 bids and sold for $1.5 million, 40% over asking price. 

San Francisco

A bidding war broke out in November when a small house in San Francisco’s tightly packed Noe Valley came on the market.

Twenty-two people, including employees of Facebook, Zynga, Google and Pixar, battled for the home. The winning offer was $1.5 million—40% higher than the asking price. The house had a great view, but it was only 1,800 square feet and came with an old kitchen which, like most of the interior, was covered in 1970s plywood paneling. Seen from the curb, there’s hardly any house at all—just a one-car garage and gate leading to small front courtyard.

The inconspicuousness was part of the attraction, said Jasmin Arneja, 42, who bought the two-bedroom house with her husband Gagan, 40, a software engineer at a networking start-up. “It’s the antithesis to these outrageous bizarre Gordon Gekko-esque houses. It just incorporates so much of our values,” said Ms. Arneja, who runs a philanthropic advisory firm.

Housing prices in the San Francisco Bay area are once again soaring, thanks to an infusion of cash from the rising shares of Apple and Google and the initial public offerings by Zynga, LinkedIn, Yelp and soon Facebook, expected to be the largest in Internet history. But while a previous generation of dot-com executives opted for mansions in wealthy San Francisco neighborhoods like Pacific Heights and tony Silicon Valley suburbs like Atherton, this generation is gravitating to modest homes and condos in grittier parts of the city.

Ground zero of the current tech-fueled real-estate boom is the Mission, formerly a majority Hispanic neighborhood on the southern edge of San Francisco that’s close to the main arteries that link San Francisco to Silicon Valley. Median home prices in the Mission grew 44% in December compared with a year earlier. Adjacent Noe Valley had a rise of 31% over that same period, according to the San Francisco Association of Realtors. The average number of days homes sat on the market in both neighborhoods has almost halved over the past year.

That’s in sharp contrast to what’s happening nationally, where the housing market continues to flounder, with the Case-Shiller 20-City index down for the fourth straight month in a row. It’s even an aberration from the San Francisco area (including Oakland), which saw a 5.4% drop in home prices in December from a year earlier.

Newly minted tech millionaires in San Francisco are shunning mansions in wealthy neighborhoods and leafy suburbs in favor of modest homes and condos in grittier parts of the city. Geoffrey Fowler has details on Lunch Break. Photo: Jason Henry for WSJ

Real-estate agents say it’s a cultural shift. The new generation of Internet executives—younger than the last generation of dot-commers—eschews the trappings and responsibilities of expensive properties. They want to bicycle, walk or take public transportation. They like living near food trucks and dive bars.

“You can spend a lot of money on a great restaurant here or just $5 on a burrito,” said Christian Niles, 31, who bought a two-bedroom apartment for $585,000 in the Mission with his wife in August because he saw real estate as a good place to store the cash he’d made from selling his app called TrackerBot to Pivotal Labs last summer. He plans to never own a car.

StumbleUpon CEO Garrett Camp bought a 2,900-square-foot loft penthouse with four bathrooms and a patio for $3 million this past summer in the South of Market area. Twitter co-founder Evan Williams bought a $2.4 million house in Noe Valley in 2009.

The hottest properties are near corporate shuttle bus stops—where employees for companies like Google, Facebook, Genentech, LinkedIn and Apple line up daily for the ride to Silicon Valley. Real-estate agent Amanda Jones calls it the “Shuttle Effect” and said proximity can command as much as a 20% premium. Some real-estate agents said they’re dying for a map of where the buses pick up. “When a listing gets deluged with people—that tells me it’s close to a stop,” said Ms. Jones.

Some companies share a few of the same stops, occasionally leading to employees getting on the wrong bus. Discussions can get animated about adding or moving a stop, said Jessica Herrera, Facebook’s transportation coordinator who controls the stop locations for Facebook’s eight shuttle busses, including a new glass-topped double-decker the company rented to make space for the growing crowds. “Everybody wants a stop that’s next to their house that comes every five minutes,” she said, adding that discussions have remained civil.

Stephanie Pocino, 28, makes the 45-minute trip to Facebook every day from her rented apartment building in the Mission. She has no garbage disposal and no dishwasher, but the Victorian building has lots of charm and bay windows. She carries a wireless Internet card, which she uses to answer emails and work on presentations while on the commute, and her laundry, which she gets done free at the company’s headquarters.

Soaring rental prices—up more than 10% in the Mission and Noe Valley in the past six months alone—are also making buying more competitive, said Vanguard Properties broker Craig Waddle. He’s seen bidding competitions for rentals and rental offers coming in higher than the asking prices. At an open house for a one-bedroom offered for $1,400 a month, 40 people were filling out applications on the spot. One person walked up to the owner, offered $1,700 and got the place.

“It’s been kind of shocking,” said Raj Gajwani, 36, who has been looking for a house in Noe Valley for around $1.5 million for the past few months. A founder of two online companies, he and his wife are expecting twins and want a house close to a shuttle-bus stop for his wife’s commute but with “culture, interesting people and activities.” They also want something they will be able to sell for more money in five years, when they might have to move to the suburbs for better schools.

Mike Shaw, a real-estate agent who has worked for 15 years in the San Francisco market, said buyers often want something already renovated or vintage because they don’t have the time or the interest to hire designers and architects. “That person in jeans and a sweatshirt could be low on the totem pole or a multibillionaire. They haven’t realized the value of good design either in architecture or fashion,” said Suzanne Tucker, a San Francisco designer who has remodeled many of the most lavish homes in the Bay Area.

Buyers argue they have a different sensibility. Ms. Arneja, who snagged the sought-after house in Noe Valley, said she was drawn to the interior, which is covered almost entirely by dark redwood and brick, lending it a feel that lands somewhere between a den and a tree house. “This is clearly a ’70s house,” said Ms. Arneja. “I would like to think of it as a shining example of good architecture during a bad period of design.”

Pop-up restaurants with long lines, coffee shops that brew one cup at a time and shops selling curiosities like local honey have followed the influx of cash. Apple employee Amandeep Jawa, who takes the company bus to work, covered the driveway of his Victorian with a “parklet,” a public space registered with the city featuring seating and greenery. His crowning achievement: a topiary triceratops, dubbed Trixie, made of succulent plants.

But the gentrification is far from complete. A surge in violence between feuding gangs called the Norteños and Sureños claimed two lives in less than 24 hours in the Mission in August, and there was a shooting in front of a coffee shop. Noe Valley saw a rash of sexual assaults; residents there have also reported attempted carjackings and armed robberies.

“The key word is coexistence,” said David Campos, a member of the city’s Board of Supervisors representing the Mission and Bernal Heights.

Blogs popular with tech workers keep track of the violence, and one UC Berkeley student produced a map called “Gangs and Cupcakes,” which overlaid Norteño and Sureño territory with the Mission’s most popular cupcake cafes. In recent years, somebody spray-painted “cafe gentrification” on the sidewalk in front of popular coffee shops.

The high prices and the changes in the neighborhood are only going to intensify, predicted Lawrence Coburn, 42, who first moved to the Mission in 1999 to found a start-up and has lived in an 1,100-foot rental loft there since 2003. “A lot of my friends are trying to hustle to buy a place before all the Facebook people get liquid,” he said.

Investor Michael Barton, 48, recently decided to buy because he wanted to lock in his investment before Facebook’s IPO money hits town. The area around his 950-square-foot, two-story loft is “kind of funky, and gritty and dodgy,” said Mr. Barton. But an industrial building next door has been taken over by Internet start-ups. “You can tell there is an upsurge going on here,” he said.

Link: Original Article

BY INMAN NEWS, THURSDAY, MARCH 8, 2012.

Inman News®

House and penny image via Shutterstock.

The National Association of Realtors’ (NAR) Housing Affordability Index reached a record high this January, at 206.1. January 2012 is the first month since the index’s inception in 1970 that the index has hit or passed 200, the group announced this week.

The index, calculated monthly by NAR, is built from the relationship among three data points: median home price, median family income, and average mortgage interest rate. The higher the index score, the greater the affordability.

The index aims to measure the affordability of a median-priced, existing single-family home by a median-income-earning family. An index of 100 represents a family’s ability to exactly afford such a home, with a 20 percent down payment and mortgage payments at 25 percent of the family’s gross income.

Late 2011 saw a steady monthly rise in the index from June’s 172.4, the 2011 low, to 197.9 in December 2011. The index has risen from 169.4 in 2009 to 174 in 2010, and to 184.5 in 2011.

Link to Original Article

Capital Economics expects the housing crisis to end this year, according to a report released Tuesday. One of the reasons: loosening credit.

The analytics firm notes the average credit score required to attain a mortgage loan is 700. While this is higher than scores required prior to the crisis, it is constant with requirements one year ago.

Additionally, a Fed Senior Loan Officer Survey found credit requirements in the fourth quarter were consistent with the past three quarters.

Link to Original Article: http://www.linkedin.com/news?actionBar=&articleID=5567733516482908167&ids=d3cVcPgUdP8NejgPdjoUe3sRdiMMdP4PdzoQcPcVcz0UcPkUdPkRb3sOej8NcPAPczoNe3gPe3sTdjkIdPkSe3sUdz4UdzwOdz0QdPsRdiMTdz4Uc3AOe3gScjkPcPsTdzkR&aag=true&freq=weekly&trk=eml-tod2-b-pub-0&ut=2rxUxGf1e8ll81

These hybrid adjustable-rate mortgages, or ARMs, originated in the jumbo-loan marketplace at the end of the 1980s. But they fell out of favor — along with the riskier ARMs with ultralow teaser rates and interest-only components — after the subprime mortgage crisis.

“There were certain types of ARMs that didn’t work out that well,” said Keith T. Gumbinger, a vice president of HSH Associates, a financial publisher in Pompton Plains, N.J., “but hybrids predated those products by at least a decade or more. If you’re buying a home, and you’re good about saving money for the future, there are ways to take these hybrid products and save some cash or pay down the loans.”

Some adjustable-rate mortgages have an interest rate that changes every year, but a hybrid — also known as a delayed first-adjustment ARM — has a fixed interest rate for a period of time. In fact, most loan officers refer to a hybrid by the period during which the rate is fixed. A 5/1 loan, for example, has a fixed rate for five years, then adjusts annually for the remainder of the term; a 7/1 adjusts after seven years.

ARMs make up only a small segment of the overall mortgage market these days, financing just over 10 percent of home purchases, but market share is expected to increase to 14 percent this year, according to an annual survey released last month by Freddie Mac, a government buyer of home loans. The 5/1 hybrid was the most popular adjustable-rate loan product in the market, the survey found, followed by the 3/1 and 7/1. (The least popular: a 3/3 ARM, which adjusts once every three years.)

A common reason for choosing a hybrid ARM is projected length of homeownership: it’s a nice option for buyers who don’t expect to stay in their home for longer than, say, three to five years, perhaps because they anticipate transferring to a new city or starting a family.

And, “you might be an empty nester, a retiree,” said Lou-Ann Smith, a loan officer at Hamilton Home Loans in Ridgefield, Conn., “or somebody who knows they’re getting a big inheritance and won’t have a mortgage.”

Rates on hybrid ARMs are also attractive. As of Thursday, for example, the average rate on a 5/1 loan was 2.81 percent in the Northeast, compared with 3.88 percent for a 30-year fixed-rate loan, according to Freddie Mac.

The interest rate is often tied to rates on Treasuries or to an index, like the London Interbank Offered Rate, or Libor.

“We continuously have interest in hybrid ARMs, especially in the jumbo marketplace, where there’s a huge rate differential,” said Melissa Cohn, the president of the ManhattanMortgage Company. The rate on a 5/1 ARM could be as low as 2.5 percent, according to Ms. Cohn, while a 30-year fixed-rate loan costs 3.75 percent. So if you took out a $300,000 loan, you could save almost $4,000 a year with the hybrid ARM, she said.

She noted that the difference was even larger with nonconforming jumbo loans.

“Those are real numbers that make it worth the risk,” Ms. Cohn said. “We’re in an unusual financial period where interest rates are very low, and the indices by which the rates are set are also very low.”

A word of caution to borrowers, however: With rates starting at rock-bottom levels, there’s generally only one direction for them to go. And even though there are caps on the rate change amount, the jump could be as much as six percentage points.

Link to Original Article: http://www.nytimes.com/2012/02/19/realestate/mortgages-a-fixed-rate-alternative.html?_r=1

By BETSY VERECKEY