Home Values around the San Francisco Bay Area
A map of median house sales prices by city and town
for 3rd quarter 2013 sales reported to MLS.
In the map above, “k” signifies thousands of dollars and “m” millions of dollars. In one or two instances where the number of sales was insufficient for meaningful statistics, the median sales price is for the 2nd and 3rd quarters combined.
Maps that break down median sales prices and average dollar per square foot values for houses and condos in the different San Francisco neighborhoods can be found here:
Median Sales Price is that price at which half the sales occurred for more and half for less. The single median price for a town, city or neighborhood almost always disguises an enormous variety of sales prices in the underlying, individual home sales: For example, median house sales prices in the city of San Francisco range from under $500,000 to over $4,000,000 by neighborhood. Median sales prices may be and often are affected by other factors besides changes in value, such as seasonality; changes in financing conditions, buying patterns and available inventory; and significant changes in the distressed and luxury home segments. Short-term fluctuations are much less meaningful than long-term trends.
First and foremost, any home purchased needs to work as a home: it fulfills your housing needs at an affordable monthly cost – ideally, a cost, after tax deductions and principal pay-down, less than or similar to that of renting the property. However, though it cannot be compared on an apples-to-apples basis to investments such as stocks, bonds and CDs (that you don’t live in), it’s worth looking at the issue of home ownership as a financial investment as well.
If you increase your screen-view zoom to 125%, the charts will be easier to read.
An average SF Metro Area home purchased in 1988 appreciated by 244% as of July 2013, while the overall CPI inflation rate was 97%. If the home had been sold at the recent bottom of the market, the difference would have narrowed to 165% appreciation vs. 95% inflation. Purchase and sell timing always matters and if one has to sell at the bottom of the market, it affects the return on any investment. As the chart illustrates, home-price appreciation usually outpaces inflation by a significant margin over the longer term: this is a good thing for homeowners and doesn’t include other benefits such as living in the property and the capital gains exclusion on the sale of a principal residence.
This analysis applies well to homes purchased with all cash and no financing. Leverage alters the picture substantially.
This is why, using reasonable leverage, real estate is typically considered a good long-terminvestment – short-term can be much riskier – as well as an excellent hedge against inflation. Of course, if leverage is abused as it was in the years of subprime lending, underwriting standards decline, predatory lending and home-refinancing frenzy (i.e. “using one’s home as a piggy bank”), other risks arise.
In earlier times, when people didn’t move around as much, one bought one’s home, paid it off over the years and when retirement came, had a home owned free and clear – a huge financial asset to be used as appropriate.
We have generated two sample rent vs. buy scenarios for San Francisco here:
And you can perform your own rent vs. buy scenario calculations here, using your own financial circumstances, assumptions and projections: Rent vs. Buy Calculator
Important caveats: Trying to compare buying a home to other financial investments on an apples-to-apples basis is impossible, because there are so many other variables at play: the use and enjoyment of the home, how the cost of homeownership compares to renting, physical condition decline over time (without further investment), risks and returns on other types of investments, home tax deductions, the capital gains exclusion on profit from a principal residence sale ($250k for single owner/ $500k for couple), market timing and other factors. All the analyses above are simply sample scenarios, looking at homeownership from a number of angles using a variety of assumptions. It is unknown whether they will apply to future trends.
As said in the first line of this report, first and foremost, any home purchased needs to work as a home: it fulfills your housing needs at an affordable monthly cost. If that’s where you start, with a fixed rate loan, and you don’t refinance out growing home equity, and you don’t have to sell during a market downturn (which, admittedly, isn’t always possible to avoid), then you should come out all right and more often, very well.
Click the map below to explore neighborhood home values based on sales from May 2013 to September 2013.
The median sales price can be, and often is, affected by other factors besides changes in market values, such as short-term or seasonal changes in inventory or buying trends.
The average dollar per square foot is based upon the home’s interior living space which doesn’t include garages, unfinished attics and basements, rooms built without permit, lot size, or patios and decks – though all these can still add value.
For the 5-County San Francisco Metro Statistical Area, all price segments showed increases, though the lowest price tier jumped the most – 4% — reflecting the rapid decline in distressed property sales. Overall, for all price segments, the jump over June was about 2.3%, which translates into an increase from 12 months ago of approximately 25%. Compared to the 19 other major metro areas Case-Shiller tracks, that puts our recovery as the strongest in the nation behind that of Las Vegas (which was perhaps the city hit hardest by the distressed property crisis and is still far below previous peak values).
Hard to believe we’re nearing the end of the third quarter here in 2013, but we are. Here’s a look back at the previous six months of sales in District 7 which covers Cow Hollow, the Marina, Pacific Heights, and Presidio Heights.
The Bay Area’s various counties and market segments are not immune to unique housing bubbles and crashes. And while current recoveries are demonstrating similar trend lines, the scale of recovery and state of home values vary. Here’s a look at what’s contributing to these variations on an otherwise relatively common theme:
Bay Area Home Values since 2000 by Price Tier: Way Up, Way Down, Sharply Up Again
The Case-Shiller Index for the 5-county SF Metro Area* divides the market into three equal sets of unit sales by price-range tiers: low, middle and high.
The market bubble, crash, recover cycle is easy to identify across all three tiers, as is the subprime lending fiasco that supercharged the lowest price tier of Bay Area homes to mind-boggling 176% appreciation in less than 7 years. The foreclosure and distressed-property crisis then hit this segment the hardest, inflicting a crushing 62% drop in values. Neighborhoods, communities, and counties with mostly higher-priced homes were much less impacted by the subprime effect: they appreciated less in the bubble, depreciated less in the crash, began their recoveries earlier, and are now much closer to previous peak values, if not already beyond.
There are other economic and social factors at play in the individual markets, but overall the price-tier analysis is surprisingly relevant to what has happened across the board. Because subprime lending inflated such large bubbles in some counties, it could prove unrealistic to expect those low-price-tier homes to return to previous peak values any time soon – even with the dramatic recoveries currently underway.
*The Case-Shiller SF Metro Area does not include Napa and Sonoma, but their market trends generally played out in the same way. Also as pertaining to percentages of appreciation and depreciation: if a home has a 100% increase in values, then a 50% decrease, the value is back to where it began.
Median Home Sales Prices by County
Median prices often fluctuate for other reasons than changes in market values, such as variations in the distressed and luxury home segments, inventory available to purchase and available financing – which is why Case-Shiller Index trend lines do not correlate exactly with changes in median price.
County median sales prices are generalities that mask enormous disparities in the prices of underlying sales, but they do convey an idea of comparative home costs in different areas.
County Home Sales by Price Range
Comparing the San Francisco residential market with other Bay Area counties in regards to quantity of sales in defined price ranges, the San Francisco, San Mateo and Marin markets are similar in that their home prices trend to the higher end of the range. In fact, these counties contain some of the most expensive real estate markets in the country. Though all the counties shown have home sales across the spectrum of prices, including very high-end homes, Napa, Sonoma, Alameda and Contra Costa have the greater percentage of their sales in lower price segments.
Property types vary by county. San Francisco doesn’t have many ranch, mobile home, and houseboat sales for example, while other counties sell few if any tenancy-in-common units (TICs). San Francisco also represents a much larger condo market.
Unit Sales by County (90 days)
During the summer months this year, the Alameda and Contra Costa home markets dwarf the other counties in quantity of sales. San Mateo, San Francisco and Sonoma constitute the second tier, with Marin and Napa being distinctly smaller markets in unit sales.
Note: Case-Shiller Home Price Indices for “San Francisco” are for a 5-county area, of which the city’s housing market is a very small part. Since they are published 2 months after the month of the Index, are 3-month rolling averages, and the time between offer acceptance and closed sale typically runs 4-8 weeks, Case-Shiller is generally 3-6 months behind the market itself, i.e. when offers are being negotiated in the present. Case-Shiller publishes 4 main indices for SF Metro Area houses: an aggregate index for all price ranges, and then one index for each third of unit sales – low price, middle price and high price tiers.
The June 2013 aggregate C-S Index (all price ranges) for the SF Metro Area is up approximately 2.7% from May, up 32% – 34% from its low point, but still approximately 20% below its peak in 2006. Please note that for a drop of 50% to be recouped, the increase must be 100%.
When the market fell from its peak in 2006-early 2008 (different areas and different market segments peaked at different times), the scale of the decline varied widely, mostly by price point. With the recovery that began in 2012 and has accelerated in 2013, the magnitude of the price recovery, as compared to previous peak values, has also varied by price point and area.
The lowest price range (deeply affected by foreclosures and distressed sales) fell most dramatically – an approximate 60% decline from its peak. It is now recovering dramatically on a percentage basis – up 45% from its low point – but is still about 40% below its 2006 peak. It has much more loss to make up.
The upper price range (the top third of unit sales) in the 5-county metro area fell much less than the 2 lower price tiers (low and middle) during the bubble pop. On a percentage basis, it’s increase from its low point – about 27% — is not as great as for the lowest price tier, but is now getting close again to its previous peak value. In the city of San Francisco itself, many neighborhoods have now reached or surpassed previous peak values reached in 2007-2008.
This chart below illustrates the short-term monthly changes in the C-S high tier price index: the recovery in 2012 accelerating in 2013. May’s reading jumped 3.7% from April’s, and June’s was 2% above May’s, so the pace of acceleration seems to be slowing after a torrid spring.
And then looking just at the city of San Francisco itself, which has, generally speaking, among the highest home prices in the 5-county metro area: many of its neighborhoods are now well past previous peak values. Note that this chart has more recent price appreciation data than available in the Case-Shiller Indices, and that median sales prices and C-S Index numbers do not correlate exactly. This chart implies that a plateau in home values has been reached in San Francisco: this could either be an indication of a stabilizing market or simply a seasonal plateau that sometimes occurs during the summer months for a variety of reasons, including that the higher-end home market has a greater tendency to withdraw from the market during the holidays. We shall have to wait and see what occurs when the autumn selling season begins after Labor Day.
At the previous peak of the market, the combined house-condo median sales price in San Francisco was $832,000.