I am going to take a moment at the beginning of this missive to say a BIG THANK YOU to each and every one of you. I had a fantastic year in 2012 and it is almost entirely due to you.
To be specific, I had my best year ever since starting in real estate (among many good ones). I closed 19 transactions, 15 of which were either CLIK readers or referred by CLIK readers. That is amazing and when I say I can’t do it without you this is what I mean. These transactions ranged from bargains like a little condo $348k in lower Pac Heights, and a 3 unit property in the Sunset for $848k to luxury single family homes like 372 Douglass. In 2013, with your very important help, I ranked in the top 3% of SF Realtors by number of transactions and top 8% by dollar volume. I am honored by your trust and I hope you will help me do it again in 2013 and beyond.
And, as a bonus, because you and your referrals are of such consistently high caliber, I enjoy my work more every year. Again, thank you!!!
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The Epicenter of the High-Tech-Buyer
Market Surge in San Francisco
A statistical market overview by the Paragon Real Estate Group for Noe Valley, Eureka Valley & the Castro, Cole Valley, Mission Dolores, Haight Ashbury, Ashbury Heights, Clarendon Heights, Parnassus Heights, Corona Heights, Glen Park, Twin Peaks & the Duboce Triangle (more…) read more →
Inventory is as tight as it has ever been in “recorded” history. (That is, San Francisco MLS history, which is about 20 years.) We have buyers chomping at the bit with low great new jobs and relocation packages for the first time in years and not enough homes available to satisfy them. Contributing factors are that urban living hasn’t been this in style since the 1920s and interest rates are even lower than last time I wrote to you. Open houses are busy and well-priced homes are selling quickly in all market segments. Sales absorption is outpacing oncoming listings even in this early spring season. I am hearing this from colleagues in Wine Country as well as Sacramento. I don’t know what it means for the future, but I do think that 2012 may be the year that turns things around in the real estate markets less affected by distressed sales. Whatever happens, it seems like it’s going to be an exciting year full of multiple offer situations and where decisive and timely action will carry the day for buyers as well as sellers. And of course I have charts to back this up – to see them click here. read more →
Eric Nelson of Silicon Valley Funding writes:
In 2008, as a response to the collapse of the mortgage market, federal regulators created a new category of mortgage, the high-balance conforming loan. Since that time, loans have been available up to $729,750 in high-cost areas at rates lower than those for full “Jumbo” mortgages.
Conforming loans are those that have a loan balance under $417,000 which can be re-sold by an originating lender on the Fannie Mae and Freddie Mac federally sponsored mortgage markets. This allows the lender to re-lend the same funds over and over again and is important to the liquidity of the lending market. The high balance conforming limits applies to mortgages between $417,001 and $729,750. This program was created to support the economy by assisting high-balance borrowers during the financial crisis and was temporary.
Starting October 1, 2011, the high balance conforming loan limit will drop to $625,500. This in turn means that interest rates on these loan amounts between $625,500 and $729,750 will be HIGHER starting October 1, since they will no longer be backed by the government. After October 1, any mortgage over $625,500 will officially be a “Jumbo.”
Interest rates this week are among the lowest we’ve seen in 2011 and it is not expected that the federal government will extend the high balance conforming loans up to the $729,750 level again in the near future. Fixed rate loans have seen the largest drop and are currently the lowest interest rates we have had in the past 40 years.
If you are planning a purchase or refinance and you will need a loan amount between $625,500 and $729,750 you should get the process started immediately.
“The goal of owning a home seems to be getting beyond the reach of more and more Americans. The typical new house today costs about $28,000.”
Business Week 1969
“Housing experts predict price rises in the future won’t be that great…”
National Business Review of 1977
“The median price of a home today is approaching $50,000.”
Money Magazine 1985
“The golden age of risk free run-ups in home prices is gone”.
San Francisco Examiner 1996
“A home is where the bad investment is.”
San Francisco Examiner 1996
Some of this seems just good for a laugh, but I think that the overall message is that in whatever time you live, housing seems like it can never get more expensive than it is right at that moment. It always seems like an uphill battle. I think these quotes point out it’s important to keep things in perspective: that while things go up and they come down, the overarching picture is a hopeful one. Whatever doom and gloom you read about, the proof is right there in the unrealized predictions of the past.
As I quote the media to discredit it with one hand, I’d like to point out this very interesting article from the Wall Street Journal with the other:
Why It’s Time To Buy: The Clouds Haven’t Quite Parted, But the Long-Term Case for Home Ownership Is Looking Stronger
Some thoughts on why the SF Market may be finally turning upward:
- Strong demand/ low supply: It appears that the decline in values has bottomed out: median prices and average dollars per square foot are beginning to climb (though it’s too soon to know if it’s the start of a longer term trend)
- Interest rates continue to be incredibly low.
- Rents in San Francisco have been rising for the past year. When rents rise, the financials of home-buying improve.
- High-paying high-technology employment is soaring in the Bay Area and many of those people want to live in the city, whether their company is in SF or outside of SF. And then there is the beginning of the surge in new high-tech IPO-enriched employees.
- SF has always had a low foreclosure rate and distressed-home percentage when compared to the rest of the Bay Area, state and country, and now that market appears to be declining in the city. (Again, it’s too soon to be absolutely sure that the decline in distressed home listings and sales in the city is the beginning of a longer term trend.)
- New-development home inventory – mostly condos, since the city has very limited space for new home construction — has been steadily declining and probably won’t significantly increase anytime soon because of the multi-year time-cycle for large development projects in SF. This will further constrain supply in the face of buyer demand.
- General improvement in consumer confidence and optimism regarding the direction of the economy.
- The recent run up in the stock market has improved the financial condition of the affluent more than that of the general population. Because of our prices, our buyers are almost always at the upper end of affluence.
Despite mostly negative reports from other parts of the country, the San Francisco home market has performed relatively well since the autumn market began after Labor Day. Indeed, the number of listings accepting offers in November was well above last year’s and the median home price is at its highest since the April tax-credit crush. Typically the market slows down dramatically from mid-November to mid-January, but so far it is slowing far less than usual.
Generally speaking, 30-40% of San Francisco new home listings accept offers within 30 days of going on market (i.e. quickly). They are perceived as good values, often attract multiple offers, and the sales prices for such homes are still, on average, slightly above the list price. (Houses perform better than condos, and condos perform better than TICs and multi-unit buildings.) Another 20% of new listings sell after 1 or more price reductions: on average, they’re on the market for over 100 days before offer acceptance, and sell at a sales price to original list price percentage that is 10-14% lower than that of homes selling quickly. And then 30-40% of listings expire without selling, typically due to being perceived as overpriced. The San Francisco home market is active, but buyers aren’t buying everything (as it seemed they did in the bubble years) – they’re buying only those properties they consider fair or, better yet, compelling values.
Statistics are generalities, often subject to surprising fluctuations due to a variety of reasons. Median prices may be affected by other factors than changes in value. Averages may be distorted by a small number of sales substantially higher or lower than the norm, especially where the sample size is small. New-development condo sales not reported to MLS are not included in this analysis. All information contained herein is derived from sources deemed reliable, but may contain errors and omissions, and is not warranted.
Homes Accepting Offers
The number of SF homes – houses, condos, TICs & 2-4 unit buildings – accepting offers is remaining generally stable. Though the market typically starts to slow markedly in November, this has not occurred this year, and the number of listings accepting offers in November was only slightly reduced from October, and was 17% above November of 2009, and 90% above November 2008 (the market crash era).
2010 Home Sales at Median Price by Neighborhood
Buyer demand has been strong since the autumn sales season began in mid-September. Overall median home prices continue to remain stable – as they have for the past 12–16 months – jogging up and down within a narrow band of value. Inventory is about 12% higher than 1 year ago, but Months’ Supply of Inventory remains at about 4 months of inventory, which is considered a relatively balanced situation between buyer’s and seller’s markets. However, for every 10 listings that have sold in the past 4 months, another 8 have expired without selling: buyers are choosing those properties they consider fairly priced (which typically sell quite quickly) and ignoring the rest. Average Days on Market for those houses, condos and TICs which did sell was 54 days in October, which is the lowest figure in over 2 years.
Below are specific San Francisco home sales which closed at or near the median prices for houses and condos sold in the neighborhood specified – however, they are not necessarily representative of typical values.
Pacific Heights, $3,500,000, 4BR, 4.5 BA Victorian on California Street, 4509 sqft, panoramic views, decks, 6 fireplaces, 2 car parking, $776/sqft
Sea Cliff, $3,000,000, 1951 4BR, 3.5BA on El Camino del Mar; 3491 sqft; water, Golden Gate and Mt Tam views; Zen garden, 8000 sqft lot, 2 car parking, $859/sqft
Clarendon Heights, $2,800,000, modern 3-level 6BR, 5.5BA on Villa, 4580 sqft, panoramic views, all new systems, 4 car parking, $617/sqft
Russian Hill, $2,250,000, 1906 3BR, 2.5BA on Hyde, 2090 sqft, deck, garden, library, 2 car parking, $1077/sqft
Telegraph Hill, $2,000,000, 1912 3BR, 2.5BA Edwardian on Vallejo cul de sac; spectacular views of bay, bridge and downtown; roof deck, separate apartment, leased parking
Marina, $1,875,000, 1930 3BR, 2.5BA on Cervantes, 2180 sqft, seismic upgrades, bonus office, 2 pkg, $860/sqft
St Francis Wood, $1,825,000, 1956 4BR, 3.5BA on San Pablo, 3740 sqft, ocean views, bank-owned sale, 2 pkg, $488/sqft
Lake Street, $1,759,000 (median is $1.85m), 1913 3BR, 2.75BA, North of Lake Craftsman on 18th, 3465 sqft, family room, needs restoration work, 1 pkg, $508/sqft
Eureka Valley, $1,475,000, 1905 4BR, 2.5BA Victorian on Noe, 2389 sqft, family room, sunroom, 1 pkg, $617/sqft
Cole Valley, $1,450,000, 1907 3BR, 3BA on Cole, 2040 sqft, new systems and foundation, garden, deck, 2 pkg, $711/sqft
Forest Hill, $1,400,000, 1926 3BR, 3BA detached Spanish-Med on Magellan, bonus family room, deck, yard, 1 pkg
Lower Pacific Heights, $1,232,000, 1883 4BR, 2BA Victorian on Pine, needs complete renovation, 1760 sqft, 2 pkg, $700/sqft
North of Panhandle (NOPA), $1,230,000, 1910 2BR, 1.5BA Craftsman Edwardian on Hayes, 1950 sqft, seismic upgrades, decks, 2 pkg, $631/sqft (more…)
Due to the significant differences between the market for homes over 1.5 Million and homes under that price point I though that comparing it with the statistics in my Lowest Sales Volume in 15 Years? Not so fast . . . article, would be useful.
Below is a chart that shows closed sales. The highest number of closed home sales for 2010 so far was in March. This is unusual, but will make sense as we analyze other sales data, below.
Closed Home Sales Over 1.5 MM in SF over the past 25 Months:
Unlike the market for all home sales in San Francisco, for which ratifications peaked early in April in 2010, the luxury home market peaked at a more traditional time, in May. The chart below shows the luxury home market that was perhaps affected INVERSELY by the government tax credits – it’s possible attention was focused on properties for which the tax credits were available. We also see that ratifications in June and July remained relatively strong.
Accepted Offers on SF Homes over $1.5MM over the past 25 Months:
Our final measure is the months supply of inventory which is generally used to show whether it is a buyers’ market or a sellers’ market. The market earlier in the year was a definite buyers’ market, but with the glut of ratifications in February that ate up the sitting inventory from Fall 2009, the late spring and summer market turned an advantage towards sellers. Looking at luxury home sales over the past six months, the main factor seems to be pricing. There were 196 homes sold in San Francisco over $1.5MM in the last six months and 144 homes either expired or were withdrawn. Of those that sold, 80 sold over their original asking price at an average of 105.33% in an average of 24.35 days on the market. The remaining 116 sold homes were reduced on average about 10% before receiving an offer and sold for 92.04% of their original asking price after an average of 78 days on the market.
As always in San Francisco, pricing is king and these numbers prove again s to go you that just because a seller “wants” or “needs” a price, buyers won’t move until they are perceived as a value – and then they rush to outbid each other.
The large number of listings withdrawn or expired without selling combined with low short and REO sales volume tells us that a large percentage of sellers over $1.5MM are attempting to delay until the market brings them the price they want. After 2 years of waiting, I wonder if luxury sellers will finally be ready to sell at the prices the market will bear … It will be interesting to see what the fall brings.
Months Supply of Inventory: SF Homes over $1.5MM over the past 25 Months:
There have been hundreds of the-sky-is-falling articles everywhere, in every major newspaper, about how sales drastically slumped in July when compared with May, or when compared to July of last year, both nationally and in the bay area. Today it was on the front page of the New York Times and it has been a frequent topic in the SF Chronicle …
But with statistics, context is everything, and these articles show a fundamental lack of understanding of current context and are misleading regarding what’s going on in San Francisco (which is, after all, the best place on earth).
The first chart below is of the last 2 years’ home sales in SF. July 2010 is indeed well below May 2010, as well as well below July 09 and July 08. However, this is almost completely a function of the fact that deals that would have naturally and typically accepted offers (ratified) in May 2010 were rushed into April so as to meet the Federal Tax Credit deadline. Because of that crush of April ratifications, closed sales in May and June soared way over the sales rate of past years, AND May ratifications this year were much lower than normal. Typically May is one of the highest ratification months of the year; low May ratifications translated to lower July closings. Typically, July is one of the highest closed sales months because of the high May ratifications. With the unusual events this year, the numbers were thrown off – which created the dramatic percentage declines everyone is chattering on about.
Remember: closed sales are 30 – 60 days behind the market (the time of offers being accepted). To get a sense of current market activity, one looks at ratifications, as in the second chart below.
In the third chart below, the Months’ Supply of Inventory for SF houses and condos is shown over the past 2 years. MSI, at a moderately low 3.8 months of inventory, hasn’t budged in three months – again one can see the effect of the April tax credit rush on the chart — and it is almost exactly the same as in July 08 and July 09. (The lower the MSI, the hotter the market.)
Closed Home Sales in SF over the past 25 Months:
Below, we see the huge surge of ratifications in April which (stealing normal early May ratifications) led to the large decline in May. Thus May’s number of accepted offers is below past years. But June 2010 ratifications are above last year’s. And July’s ratifications are above July 2009 and July 2008. That is not an indication of a collapsing market. Yes, the market surged in April due to the expiring tax credit, but except for the initial effect on May ratifications (and the resulting effect on July closings), the expiring tax credit hasn’t affected June and July ratifications at all.
Accepted Offers on SF Homes over the past 25 Months:
Since the SF home market started recovering in spring 2009 from the “crash” of autumn 2008, Months’ Supply of Inventory has been very stable, delineating a relatively stable market, running typically between 3 to 4 months of inventory. This is generally considered a moderately low MSI, signifying a relatively strong and consistent buyer demand. Again, it is unchanged for three months, and almost identical to the MSI recorded one year ago and two years ago.
Months’ Supply of Inventory: San Francisco Houses & Condos
None of this is to say that the market might not change tomorrow. It is to say that the most recent statistics don’t currently indicate any dramatic change in market conditions in San Francisco.
Despite the constant news of dramatic changes in the real estate market – Values soar! Values crashing! Market up or down ___% from last month! Double dip recession! – the home market in San Francisco has exhibited a remarkable stability over the past year. As shown in the charts below, median prices for both houses and condos are virtually unchanged from one year ago; buyer demand remains steady; months’ supply of inventory remains steady; foreclosure sales are stable; low interest rates continue. Statistics jump around within a relatively narrow percentage band: there has certainly been no definitive trend up or down. It is neither a crazy buyers’ market nor a crazy sellers’ market: it’s a relatively healthy, balanced market, where the basic rules of real estate generally apply: well-priced, well-prepared, well-marketed homes typically sell quickly and homes without those characteristics don’t.